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MONTHLY REVIEW O f Credit and Business Conditions FEDERAL V olume 36 RESERVE BANK A U GU ST OF 1 9 S4 NEW YORK No. 8 M O N E Y M A R K E T IN J U L Y Member banks began the month of July with substantially more than 500 million dollars of free reserves, and over the month as a whole they received a large additional volume of reserves through a net reduction in Treasury deposits with the Reserve Banks and from the operation of the other market factors. In view of the reduction in reserve requirements scheduled for the end of July and early August, which will release substantial amounts of reserves in advance of actual needs, the Federal Reserve System absorbed a major part of the reserve gains accruing to member banks during the month by redeeming or selling 520 million dollars of its bill holdings. Nevertheless, average free reserves held by member banks in the four weeks ended July 28 were 76 million above the average amount held in the five statement weeks of June. These reserves, however, were not always evenly distributed, and at times Chicago and New York City banks experienced deficien cies in their reserves, which resulted in temporary firming of the rates for Federal funds. The Government securities market was quiet during most of July, reflecting not only the normal summer inactivity but also the tendency for investors to refrain from major port folio adjustments pending the official disclosure of the terms of the Treasury’s new cash offering and of the August and September refunding program. On July 16, the Treasury announced that it would offer for cash subscription on July 21 (the books to be open only one day) approximately 3.5 billion dollars of 1 per cent tax anticipation certificates. The certifi cates are to be dated August 2 and will mature on March 22, 1955. They will be receivable at par plus accrued interest to maturity in payment of income and profits taxes on March 15, 1955. Up to 75 per cent of the payments for the certificates may be made through credits to the Treasury’s Tax and Loan Accounts in the commercial banks. Subscriptions to the new issue totaled approximately 9-3 billion dollars; subscriptions for $50,000 or less were allotted in full, while those for larger amounts were allotted on a 40 per cent basis, with none receiving less than $50,000. The total amount of the certificates to be issued will be 3,734 million dollars. The Treasury also announced on the 16th that it will offer holders of the 7.5 billion dollars of 2 Ys per cent certificates of indebtedness maturing on August 15 and September 15a one-year certificate and either a long note or a short bond, the exact terms of the refunding to be announced toward the end of the month. On July 30, it announced that the refunding issues would be a lVs per cent certificate to be dated August 15 and a 6*4 year, 2V% per cent bond maturing November 15, I960. Treasury bills were in greater supply in the market during most of July and bill rates rose somewhat, especially toward the end of the month. A price rise that occurred in the inter mediate and long sectors of the list early in the month was partially wiped out after the preliminary announcement on the 16th of the Treasury’s refunding plans, but prices of issues callable after 1964 subsequently rose again, showing gains of Vi to IY4 points for the month as a whole. Issues maturing or first callable in the years 1958-61, the area in which the market expected that the refunding issue would most likely be placed, did not share in the rise and in some cases lost nearly half a point for the month as a whole. For the four weeks ended July 21 (the latest date available), the loans and investments of the weekly reporting member banks rose moderately. Most of the increase occurred in the week ended June 30 when the reduction in member bank re serve requirements became partially effective. In subsequent weeks the changes were smaller and partially offsetting. M ember Bank R eserve P ositions Member bank reserve gains were moderate on balance during July, but the flow of funds through the market was large and resulted in substantial day-to-day and week-to-week shifts in member bank reserve positions. Treasury operations dominated the market in the first two weeks of July, overshadowing even the holiday demands for currency which usually are the most important money factor at that time of year. At the end of June, the Treasury’s general account balance with the Federal Reserve Banks was 875 million dollars, a total substantially CONTENTS Money Market in July...................................................... .101 Recent Economic Progress in Greece ............................. .104 Treasury Financing in Fiscal 1954 .................... ............. .108 The Velocity of Demand Deposits in New York City.. . . 112 Selected Economic Indicators........................................... .114 Department Store Trade ....................................................115 102 MONTHLY REVIEW, AUGUST 1954 Table I Weekly Changes in Factors Tending to Increase or Decrease Member Bank Reserves, July 1954 (In millions of dollars; ( + ) denotes increase, (—) decrease in excess reserves) Statement weeks ended July 7 July 14 July 21 July 28 Four weeks ended July 28 Operating transactions Treasury operations*........................... Federal Reserve float........................... Currency in circulation........................ Gold and foreign a ccou nt.................... Other deposits, e t c ................................ + 578 4- 47 -2 5 0 - 25 2 -2 4 2 4- 69 4-173 -1 9 9 - 18 4- 23 - 29 4-127 4-144 - 15 -1 2 9 4- 78 4- 56 4- 76 + 344 - 42 + 12 8 - 24 + 56 -2 1 8 4-267 4- 65 + 46 2 -5 2 0 Factor T ota l........................................ 4-348 Direct Federal Reserve credit transactions Government securities Direct market purchases or sales.. Held under repurchase agreements. Loans, discounts, and advances......... -1 3 5 -1 8 8 -1 9 7 4- 47 - 1 4- 10 4-127 + 183 T otal........................................ 4- 47 -1 3 6 -1 7 8 - 70 -3 3 7 Total reserves........................................... Effect of change in required reserves^.. . . 4-395 4- 3 -3 5 4 4-110 4- 89 - 48 - 5 35 + 12 5 + 30 Excess reservesf ....................................... 4-398 -2 4 4 4- 41 - 40 + 155 Daily average level of member bank: Borrowings from Reserve B anks. . . . Excess reservesf.................................... 56 975 53 808 57 928 85 683 63 849 Note: Because of rounding, figures do not necessarily add to totals. Includes changes in Treasury t* These figures are estimated. currency and cash, above normal working levels. In order to allow this balance to drop to a more normal level, the Treasury limited its with drawals from its Tax and Loan Accounts for the week ended July 7. But final fiscal-year payments by the various Govern ment departments and agencies turned out to be considerably larger than anticipated, and the collection of these checks reduced the Treasury’s deposits during the week of the 7th by more than half a billion dollars. Thus the banks experi enced a substantial net gain of reserves for the week. In the following statement week, the Treasury rebuilt its general account balance and in the process withdrew 242 million dol lars (net) from the banking system, thus contributing to the firmer tone of the money market. In the final two weeks of July, Treasury receipts and expenditures were approximately in balance. For the four weeks as a whole, therefore, the Treasury put 344 million dollars into the market. The currency demands generated by the Fourth of July week end added to the usual end-of-the-month currency requirements would have put pressure on member bank reserve positions had it not been for the heavy Treasury dis bursements early in July. During the two statement weeks that spanned the month-end and holiday period, member banks withdrew almost 420 million dollars in cash from the Reserve Banks, 250 million of it in the week ended July 7. During the remainder of July, however, currency flowed back to the banking system and member banks were able to deposit sizable amounts with the Reserve Banks for credit to their reserve accounts. For the four weeks as a whole, the banking system gained 128 million of reserves through the net return flow of currency. Foreign account operations also had a marked effect on the money market on occasions during July, although, as Table I indicates, the net amount of funds absorbed by these accounts for the month as a whole was negligible. In the week ended July 14, foreign account holdings of Treasury bills were sub stantially reduced in order to meet a number of special bilateral debt settlements among members of the European Payments Union. Also, in the process of these settlements a substantial volume of funds was shifted back and forth between accounts with the commercial banks and with the Reserve Banks. After the settlements had been completed, the funds were largely returned to bank reserves, either through the purchase of new securities or in the form of deposit transfers. The impact of the bill reductions and deposit transfers and the subsequent security purchases was largely concentrated in New York. The net effect on bank reserve positions of changes in float and the remaining market factors was small. The 76 million dollar gain from "other” factors, shown in Table I for the week ended July 28, reflects for the most part the quarterly pay ment by the Reserve Banks to the Treasury of the tax on the amount of Federal Reserve notes not covered by gold certifi cates. (The money market does not gain directly from such a transaction; however, direct Treasury payments to the public were larger by the amount of this tax payment than the change in its deposits would indicate.) Required reserves showed almost no net change in the four weeks under review which followed the reductions in reserve requirements in the latter part of June and preceded the reductions of late July and early August. Federal Reserve discounts and advances rose moderately during the month (183 million dollars), reflecting in part the reaction from the abnormally low, "window-dressing” level of June 30 as well as the fact that some of the smaller country banks apparently find it more convenient to borrow from the Reserve Banks than to come to the money market, regardless of the availability of funds in the market. The largest amount of member bank borrowings outstanding at any one time dur ing July was 125 million dollars, but total Reserve Bank ad vances and discounts, including loans to others than member banks, rose to 220 million on July 28. The total amount of funds made available to the banking system through the operation of the regular market factors, changes in required reserves, and Federal Reserve discounts and advances was 675 million dollars, as indicated in Table I. But, as noted earlier, in the weeks of July 14, 21, and 28, the System Open Market Account sold or redeemed a total of 520 million dollars of Treasury bills. Thus, the net addition to member bank excess reserves for the period from June 30 through July 28 was only 155 million dollars. T reasury Financing and the M arket for G overnment Securities The Government securities market was generally quiet dur ing July, as often occurs during the vacation period. The sus tained high levels of member bank reserves and the continued decline in commercial loans at a time when a seasonal rise was expected were strengthening influences, but the occasional firmness of the central money markets and the discussion FEDERAL RESERVE BAN K OF NEW YO R K period pending final announcement of the Treasury’s financing plans tended to restrict activity and price improvement, par ticularly in the short and intermediate sectors. Yields on Treasury bills tended to rise somewhat over the month, reflecting reduced buying and a fairly sizable floating supply in the market. Prices of other short-term issues showed little net change during July, and the volume of trading in them was not large. Average issuing rates on Treasury bills rose from 0.646 per cent for the issue dated July 1 to 0.800 for the issue dated July 29. The principal participants in the bill market were, as usual, corporations and banks, but the System Open Market Account was a supplier of some impor tance. In the latter part of the month, the market’s expecta tion that corporations might offer a substantial volume of short-term Treasury obligations for sale to raise funds to pay for their subscriptions to the new tax anticipation certificates tended to restrict trading and to put pressure on Treasury bill rates. In addition, the demand which the market had antici pated through the investment of the proceeds of new security offerings in the corporate and municipal security markets failed to materialize in the volume expected, as some of these funds were put into time deposits in commercial banks, certain of which were offering to pay interest on such deposits at an annual rate of approximately 1 per cent, whereas bills at that time were yielding about % of 1 per cent. On the other hand, some buoyancy appeared in the market as the period drew to a close; the firmness probably reflected anticipation of the final increments in the reduction of member bank reserve requirements. The new offering of tax anticipation certificates was well received in the market. Both banks and corporations placed substantial subscriptions, the banks having ample room to subscribe within the specified limit of one half of their combined capital, surplus, and undivided profits. Trading in the new certificates on a ’when-issued'’ basis opened 103 at a % 2 premium that was maintained through the end of the month. Activity in the "rights” for the issues to be re funded in August was light throughout the month, and prices of the August and September certificates were marked down slightly to 10 0 x% 2 and 1001% 2> respectively. Prices of intermediate and long-term issues both rose fairly steadily through Friday, July 16, when the preliminary an nouncement of the refunding offer was made, the increases indicating an absence of selling more than substantial pur chase orders. But when trading opened on the following Monday, bonds were marked down sharply, partly as a reflec tion of market uncertainties over the significance of the an nouncement and partly as a result of some light bank selling. Prices were off as much as 1 % 2 for the day. Subsequently, however, prices at the longer end of the list began to rise again, and at the end of July issues not callable until 1964 or later were more than V2 a point or more above their June 30 quotations. The 3!4’s of 1978-83, the pacesetter, was up l lA points to a new high level of 1111%2- The 2V4’s of June and December 1959-62, on the other hand, were close to V2 a point below their June 30 levels, and the three bonds maturing or callable in 1961 and 1962 showed smaller changes for the month as a whole. Commercial banks were the principal participants in the intermediate sector of the market during July, purchasing a moderate amount of securities outright and others through swaps. Public and private pension funds pro vided the principal demand for the longer issues. Over the past twelve months, as the accompanying chart indicates, the price increase in all sectors of the Government securities market has been quite marked, although not without interruption. The longest outstanding issue of Treasury bonds, the 3}4’s of 1978-83, which were selling close to par at the end of July 1953 rose to more than an eleven-point premium during the past twelve months, and the yield at bid prices on this issue dropped from 3.25 per cent to 2.60 per cent. The 2Vz$ of December 1967-72, the so-called Victory issue, rose from a price of slightly over 93 to more than a half-point premium over par, the highest level since March 1951; the yield declined from 2.97 per cent to 2.46 per cent. The inter mediate maturities, represented in the chart by the 2^4’s of June 1959-62, have risen substantially; this issue gained ap proximately six points, and its yield declined from about 2.88 per cent to 1.99 per cent. Average bill rates, illustrative of the trend in short-term obligations, declined from more than 2 per cent in mid-1953 to about % of 1 per cent at the end of July 1954. M ember Bank Credit Total loans and investments of the weekly reporting member banks rose 409 million dollars during the four weeks ended July 21; although loans declined 209 million dollars, invest ments rose 618 million. Commercial, industrial, and agricul tural loans declined 338 million, following the sharp rise in the June tax payment period and wrere only partially offset, as Table II indicates, by moderate increases in each of the other 104 MONTHLY REVIEW, AUGUST 1954 major loan classifications except security loans. The decline in commercial loans reflected in part another small retirement ( 62 million on July 9) of the Commodity Credit Corporations certificates of interest. The remainder of these certificates, along with a number of direct bank loans, all mature on August 2. The rise in investments occurred principally in Treasury bills. In the comparable four-week period last year, weekly report ing member bank earning assets rose quite sharply (3,927 mil lion dollars), reflecting both substantial direct bank purchases of the 5.9 billion dollars of tax anticipation certificates sold by the Treasury on July 15 and an increase in security loans for purchasing or carrying these certificates. Furthermore, com mercial loans declined by only 126 million against 338 million this year, and portfolios of municipal obligations rose by 47 million, compared with a decline in 1954 of 21 million. This year, however, real estate loans have expanded somewhat more than they did in 1953—64 million against 18 million last year. In 1953, most of the decline in commercial loans represented a contraction in loans to food, liquor, and tobacco dealers, with only moderate, largely offsetting changes in loans to the other major industrial classifications. This year the decline in loans to food, liquor, and tobacco dealers during these four weeks was much more moderate, but there were in addition substan tial net repayments of credits extended to metal and metal products companies, public utilities, and to unclassified borrowers. (In m illions o f d olla rs) Statement weeks ended Item Change from Dec. 30, 1953 to Julv 21, 1954 June 30 July 7 July 14 Julv 21 Loans and investments: Loans:* Commercial, industrial, and agricultural loans.............. Security loans....................... Real estate loans.................. Loans to ban ks..................... All other loans (largely consum er)........................... - 12 +326 + 30 -3 0 6 -1 5 6 -1 2 5 + 3 +357 - 81 + 9 + 24 + 96 - 89 -2 2 1 + 7 -1 1 3 + - 1,822 ' 175 224 120 + 31 + 64 - - - 229 Total loans, net*.......... + 60 +144 + 34 -4 4 7 —2.153 +297 + 49 -1 0 1 - 49 + 4 - 30 +339 + 130 + + +346 - 26 -1 5 0 + 25 - 26 33 +469 + 13 + 1,218 + 744 Assets Investments: U.S. Government securities: Treasury bills.................... T o ta l............................... Other securities..................... 13 33 292 926 Total investments........ +320 -1 2 5 - 59 + 482 + 1.962 Total loans and investm ents.. . . +380 + — 25 + 35 - Loans, net, and “ other” securities + 34 + 169 + -4 3 4 - 1,409 19 1 191 Liabilities -7 9 7 - 8 +341 + 829 - 1,736 + 129 +892 - 33 —536 +193 -8 5 6 + 44 -3 5 7 + 1,584 261 +937 - 25 Demand deposits, adjusted----Time deposits except Governm ent............................... U. S. Government deposits........ Interbank demand deposits: + 252 + 33 - -3 7 0 + 1 — - 97 33 632 31 * Figures for various loan items are shown gross (i.e., before deduction of valuation reserves); they therefore may not add to the total, which is shown net. R E C E N T E C O N O M IC PROGRESS IN G REEC E Notable progress towrard improved economic balance has been made in Greece in the last three years. The domestic inflation that plagued the economy intermittently since the war has been brought under control, and the large balance-ofpayments deficits of the earlier postwar years have now been reduced to manageable proportions. These encouraging developments are essentially the result of a long effort of American-Greek cooperation. Postwar foreign economic aid, which has totaled 1.6 billion dollars to date, and four fifths of which has been provided by the United States, helped create the preconditions for the effective execution of energetic government policies, such as the re-establishment of budgetary balance during the last fiscal year and the successful devaluation of the drachma in April 1953. In addition, the advance toward balance-of-payments equilibrium was greatly aided by the gradual postwar recovery of Western European countries, which has brought about the reopening of Greece’s most important traditional export markets. The recent progress, once it has been consolidated, should help pave the way for an attack on the long-term problem of raising the country’s living standards and achieving satisfactory employment for its grow ing population. T he Background of Stabilization The task of postwar economic recovery was especially diffi cult for Greece. The country, poor even before World War II, Table II Weekly Changes in Principal Assets and Liabilities of the Weekly Reporting Member Banks underwent during the war years extensive damage and economic dislocations, including a hyperinflation, and its population suffered malnutrition and many other hardships. Moreover, liberation did not bring peace: the civil war, which did not end until 1949, left additional damage and dislocation in its wake, limited the area where reconstruction could be started, and absorbed resources originally intended for this purpose. The years 1944-49 were a period of grave political, economic, and social tension. Although considerable progress was made even during this period in re-establishing the transportation system and power supply on the basis of United States aid, industrial and agricultural output recovered only moderately prior to 1949. Despite the large supply of foodstuffs, other consumer goods, and raw materials furnished by the United States, per capita income and consumption in 1949 were still well below the level of the 1930 s. Against this background of serious and continued scarcities, efforts by trade unionists and other organized groups to regain prewar living levels generated virtually irresistible demands for increases in wages and other money incomes with resultant sustained inflationary pressures. Under these circumstances, neither direct controls^ on prices and wages nor attempts to curtail credit or absorb excess liquidity by means of gold sales were able to restore a measure of internal financial stability for more than relatively short periods. The economic structure was FEDERAL RESERVE BANK OF NEW YO RK still so weak that any serious intensification of internal pres sures, such as the threat of a general strike or the fear of renewed political unrest, or such external developments as a sudden spurt in world commodity prices, served to set off a new round of inflationary price and wage increases. Moreover, the budget during these years was heavily unbalanced because of the large military expenditures involved in the maintenance of an army of almost 250,000 men, the huge costs of support ing civil war refugees numbering as much as one tenth of the country’s total population, and the dislocation of the tax system. Progress was further retarded by the fact that private domestic savers, paralyzed by fears of renewed guerrilla action, foreign invasion, and continued inflation, placed the great bulk of their funds in stocks of merchandise, black-market foreign exchange, and gold. As a result, private productive investment had to be largely financed by means of bank credit or from counterpart funds arising from American aid. Just as internal stabilizing action could be only intermittently successful during these years, attempts to cope with the huge balance-of-payments deficit by means of successive devaluations of the currency proved of only temporary help. Their bene ficial effects in stimulating exports and restraining import de mands were largely offset within a short time by further inter nal inflation. Moreover, there were definite limits to the expansion of traditional Greek exports so long as such vital foreign markets as Germany had not recovered. In the two years following the end of the civil war in 1949, Greece was finally able first to match and then to exceed its pre-World War II output. By 1951 industrial production had increased 44 per cent over the 1949 level and by 25 per cent over 1939, while agricultural production had also made notable gains. The output increase was, to a large extent, the delayed result of the heavy importation of all types of industrial and agricultural equipment and raw materials, as well as foodstuffs, financed by United States economic aid. Since 1947, United States economic aid has in effect been equal to over one third of total Greek merchandise imports. As early as 1950 a measure of internal price stability and some improvement in the country’s external accounts had been achieved, but international price developments following the Korean outbreak led to renewed inflationary pressures that Greek M on ey S upply and B an k C redit to P riv a te S ector (In d e x e s ; D ecem b er 1 9 4 9 = 1 0 0 ) M oney supply End of month 1950— Decem ber........... 1951— Decem ber........... 1952— D ecem ber........... 1953— M arch................. D ecem ber........... 1954— M a rch ................. May....................... Note circu lation D em and d ep osits 102 118 133 130 188 169 176 134 184 191 189 278 303 n.a. Total 116 147 159 156 228 229 n.a. Bank credit to private sector B y com By central mercial bank banks 138 172 158 157 167 167 178 127 152 164 n.a. 196 n.a. n.a. Total 135 166 160 n.a. 176 n.a. n.a. n.a. N ot available. Source: Adapted from International M onetary Fund, International Financial Statistics, and Bank of Greece annual reports. 105 could not be fully contained. By the end of 1951, however, the post-Korea world price readjustment was leading to a significant improvement in Greece’s terms of trade, domestic output was running at a record level, and the social tensions of the postwar period had measurably abated. The stage was thus set for the launching of an internal stabilization program that held real promise of enduring success. T he P redevaluation Stabilization The successful execution of the stabilization program that got under way in late 1951 was aided by the fact that the Greek elections held in November 1952 resulted in the forma tion, for the first time since the war, of a government with strong parliamentary backing. The program consisted primarily of the following steps. First, the ordinary budget deficit, which in fiscal 1950-51 had still amounted to about 13 per cent of expenditures, was eliminated within eighteen months, mainly through a partial reorganiza tion of the tax system that led to an increase in tax receipts. Secondly, the use for government investment of counterpart funds arising from American aid was sharply curtailed, reduc ing public capital formation by some 35 per cent from 1950-51 to 1952-53, leading to a sizable increase in unused counterpart deposits with the Bank of Greece, and thereby providing a strong brake on further monetary expansion. Thirdly, existing commercial bank reserve requirements were more strictly en forced, credit ceilings were established for individual banks, and, most effective, substantial reductions were made in Bank of Greece credit used to finance private activities. The extent to which the stabilization program had begun to bear fruit by the time the drachma was devalued in early 1953 may be seen in the Greek monetary and economic indicators shown in the table and chart. The total money supply increased only 8 per cent in 1952, compared with 27 per cent in 1951 and 16 per cent in 1950, and was actually declining in the months preceding the devaluation. Total bank credit to the 106 M ONTHLY REVIEW, AUGUST 1954 private sector fell by 4 per cent in 1952, as against sharp rises in previous years. At the same time, wholesale prices and the cost of living, which had risen 17 and 10 per cent, respectively, in 1951 declined slightly in 1952 and remained stable during the first quarter of 1953. Finally, the quotation for the gold sovereign fell by about 20 per cent, despite the fact that the Bank of Greece ceased its selling operations in March 1952. Economic activity, however, declined somewhat during this predevaluation period. W ith the cuts in government invest ments and with the general lessening of inflationary demands, industrial output, previously geared to these demands, fell and unemployment rose—a manifestation of the not unusual conflict between the restoration of a reasonable monetary bal ance and economic expansion. The business recession, which was particularly marked during the second half of 1952 and the first quarter of 1953, was especially noticeable in the build ing, textile, and other consumer goods industries. Externally, the most tangible effect of the stabilization pro gram was the substantial decline in imports due to the lessen ing of inflationary pressures. The external payments position was eased also by the post-Korea decline in world commodity prices. These two factors are primarily responsible for the sharp reduction of the current-account deficit of the Greek balance of payments from 320 million dollars’ equivalent in the fiscal year ended June 1951 to 59 million in the year ended June 1953. Exchange receipts from exports of goods and services, how ever, failed to increase significantly during this period, pri marily because of the continuing overvaluation of the Greek drachma. Moreover, the failure of exports to expand con tributed to the internal business recession. It thus became clear that the achievement of fuller external equilibrium and the establishment of a firmer basis for renewed internal expan sion required an adjustment of the exchange rate. On April 9, 1953 the Greek Government accordingly devalued the drachma by 50 per cent, thus changing the official exchange rate from 0.0066 United States cents (15,000 drachmas to the dollar)1 to 0.0033 per drachma (30,000 drachmas to the dollar), and at the same time eliminated the complex multiple-exchangerate system previously in effect. Shortly afterward, moreover, quantitative restrictions on imports from all currency areas were virtually eliminated. Effects of the D evaluation The external effects of the devaluation were striking. During July-December 1953, Greece for the first time since the war achieved a current-account surplus, amounting to 13 million dollars. Partly because of a seasonal drop in exports and invisible earnings, a small deficit seems to have reappeared during the first half of 1954, but it is expected that the deficit, 1 The Greek Government as of May 1, 1954 cut the face value of bank notes, prices, wages, exchange rates, and all other monetary values to 1/1,000 of their previous value, without changing their relationships to each other. Until all "old” notes are withdrawn, however, all such monetary values are quoted both in term of the s "new” and “old” notes. In this article, all values are in term of the s "old” notes. if any, for the entire fiscal year ended last June will be only a fraction of the predevaluation one. Moreover, whereas in 1952 the reduction of the external deficit had been due chiefly to a fall in imports reflecting in part cuts in investment and the contraction of business activity, the recent improvement may be attributed principally to an increase in exports and invisible earnings. Exchange receipts from merchandise exports are estimated to have risen by at least a fifth from the year ended June 1953 to that ended June 1954, the currency readjustment making it possible to dispose not only of the record crops that became available for export in 1953, but also of previously accumulated stocks, notably tobacco. No less noteworthy was the rise of over a third in net earnings from tourism, shipping, emigrants’ remittances, and other invisibles. Imports have risen moderately, reflecting in part the virtual elimination of trade restrictions following the devaluation. The 1953 record harvest has permitted further cuts in cereal im ports, which were valued at 18.2 million dollars during that year, compared with 35.9 million in 1952 and 65.3 million in 1951. At the same time devaluation, by raising the drachma price of imports relative to that of domestic import-substitutes, led to a shift in demand from imports to domestically pro duced commodities. The improvement in the Greek balance of payments has involved all major currency areas. Particularly gratifying has been the reduction in the trade deficit with the dollar area. The Greek trade deficit with the United States and Canada fell to 30 million dollars during the year ended March 1954, from 56 million during the previous year and 88 million in 1951-52. Similarly, during the twelve months prior to March 31,1954, Greek operations with the European Payments Union (EPU) resulted in a deficit of only 26 million dollars, compared with deficits of 102 million in 1951-52 and 47 mil lion in 1952-53. Somewhat increased EPU monthly deficits, however, were incurred in the second quarter of 1954. The achievement of a current-account surplus during JulyDecember 1953 and the continuation of United States aid, though on a greatly reduced scale, enabled Greece to strengthen substantially its gold and foreign exchange position. By December 31, 1953, official gold, dollar, and sterling holdings amounted to 142.1 million dollars’ equivalent, as against 92.8 million a year previous; by March 31, 1954 the total had risen to 152.5 million. Beside contributing toward strengthening Greece’s external economic position, devaluation helped to stimulate economic activity. As already noted, it led to a shift in demand from imports to domestically produced commodities. At the same time, by stimulating exports and raising export prices in terms of the drachma, it increased to some extent the income of export producers and traders. These effects of the devalua tion in raising incomes and demand coincided with the subtantial rise in farmers’ incomes due to the exceptionally good 1953 harvest, which exceeded that of the previous year by FEDERAL RESERVE B AN K OF NEW YO R K more than a third. Industrial production responded vigorously to the rising demand and, by the first quarter of 1954, was running 36 per cent above a year before and some 65 per cent above prewar levels. While economic activity has thus picked up considerably, the relative internal balance that had been achieved at the time of the devaluation has on the whole been maintained. It is true that prices are now substantially higher than before April 1953—wholesale prices by some 30 per cent and retail prices by 25—but the rise reflects primarily the usual costraising effects of devaluation. Following a short period of increase, wholesale prices have been virtually stable for almost a year. The fact that the repercussions of the devaluation on domestic prices have not been so severe as might have been feared has been due in part to the continued decline in world commodity prices—although at a reduced rate—and even more to the improvement on the supply side, resulting from the record industrial and agricultural output and from the increase in imports that followed the virtual elimination of all import restrictions last year. To some extent, however, this has also reflected the fact that the government has continued to pursue cautious credit and fiscal policies. R ecent M onetary and Fiscal D evelopments The devaluation was followed by a substantial increase in the money supply, which rose 47 per cent from April 1953 through March 1954. The increase reflected mainly two factors: first, the influx of gold and foreign exchange into the official reserves and, secondly, expanded government borrowing to meet the needs of agriculture during the months when the unusually large 1953 crops had to be harvested and put on the market. Significantly enough, there was only a limited expansion in total bank credit extended directly to the private sector, while bank lending to the government for purposes other than the financing of agriculture was reduced. With industrial production running almost 40 per cent higher than in the previous year, agricultural output one third larger, and foreign sales booming, the increase in the money supply does not seem unduly out of line. Nevertheless, the monetary authorities took a number of steps in the first quarter of 1954 to prevent continued monetary expansion from jeopardizing economic stability. The release of counterpart funds, arising from United States aid, for the financing of investment out lays was temporarily slowed down, reserve requirements against certain types of deposits of official entities with commercial banks were raised, and the Bank of Greece curtailed its own lending activities. The governments resolve to prevent a renewal of inflation was also indicated by its fiscal policies. Despite continued heavy defense expenditures, which still accounted for some 50 per cent of total ordinary expenditures, the ordinary budget for 1953-54 called for a 300 billion drachma (10 million dollar) surplus, which may well have materialized. While such a surplus represents less than 4 per cent of total ordinary 107 expenditures, its very existence is a stabilizing psychological factor. The 300 billion drachma surplus on the ordinary budget is being applied toward the financing of the government’s invest ment program, which, after having been curtailed in 1951 and 1952 as part of the stabilization effort, is scheduled for a sub stantial expansion, with particular emphasis on electric power, agriculture, and mining. The investment outlays are, however, to be subject at all times to review in the light of over-all monetary developments. Indeed, it was in line with this policy that, as previously noted, the release of counterpart funds was slowed down at the turn of the year to halt the continued expansion of the money supply. The government’s investment program is also being partly financed by means of a 300 billion drachma, seven-year loan— the first truly voluntary domestic bond issue since the war. Issued at par, the new government bonds carry tax-free coupon interest at 5 per cent per annum and, in addition, have a lottery feature providing for cash, automobiles, tractors, and similar prizes, which are also tax exempt. The principal of the new issue (but not the coupon interest) is protected against further devaluation through linkage to the United States dollar, with redemption payments to be effected on the basis of the official exchange rate at the time of payment. The issue, which opened on June 9, was oversubscribed by 35 per cent within a ten-day period primarily by nonbank investors, thus provid ing convincing proof of the growth of confidence in the drachma during the past two years. The free market for the gold sovereign, where the 50 per cent exchange rate devaluation has not led to a fully com parable rise in the gold price in terms of drachmas, has also reflected the growing conviction on the part of investors that no early renewal of rapid price inflation is to be expected. Domestic economic expansion at relatively stable prices offers more promising profit opportunities than the purchase of gold; in addition, the gold quotation has tended to move in line with the world-wide decline in free-market gold prices. Some Longer -term P roblems of G reek Economic P olicy The relative success of the Greek stabilization program has important implications for the longer-term problems facing the Greek Government, more particularly to insure that suffi cient new investments will be made to provide satisfactory employment and higher living standards for the country’s grow ing population. Two major conditions must be fulfilled if this aim is to be accomplished while maintaining reasonable economic balance: an increasing pan of the internal expendi tures involved must be financed by means of budgetary sur pluses and voluntary private savings, and additional foreign aid or credits will have to be obtained. As far as securing the needed internal financing is concerned, it is encouraging that public investment outlays are now being partly financed by the surplus on the ordinary budget and 108 MONTHLY REVIEW, AUGUST 1954 through an internal loan, and that recently a certain amount of private investment seems to have been financed with funds obtained through the dishoarding of gold and foreign ex change. The external financing problem, on the other hand, is more difficult because of the reduction and prospective end ing of United States economic aid. It is therefore vital that exports of goods and services be expanded and diversified, and with this aim in view the Greek development program is con centrating heavily on the promotion of mining activities and export agriculture. Moreover, the continued expansion of agricultural and industrial production will permit a further curtailment of imports, thus releasing foreign exchange for the financing of capital goods imports. Action is also urgent in promoting tourism for which the country’s potential is great. In addition, there appear to be some possibilities of cushion ing the impact of the reduction in United States Government grants by securing loans from foreign and international public lending agencies, and by encouraging the inflow of foreign private capital. Negotiations are reportedly under way con cerning development loans by the International Bank for Reconstruction and Development. In addition, a new foreign investment law has been enacted that gives foreign private capital favorable tax treatment and liberalizes the transfers of earnings and the repatriation of capital. It is noteworthy that similar privileges apply to Greek shipowners if they transfer their ships from foreign to Greek registry. Moreover, with a view to improving the country’s international credit standing, the government is trying to arrive at a settlement of Greece’s prewar external debts, which are in default. Conclusion The very real progress toward internal and external stability in Greece in recent years shows how large-scale for eign aid, by helping a country to achieve a sizable recovery of output, income, and productivity, can set the stage for the successful application of the traditional fiscal and monetarypolicy weapons and promote the constructive use of available internal funds. Combined with a timely devaluation of the currency, the recent Greek anti-inflation program has laid the basis for a renewed and stable advance in output and income. With the easing of the tensions and pressures that had pre cluded successful stabilization in Greece during the earlier postwar period, there have emerged relatively favorable eco nomic and political conditions under which the approximate internal and external economic balance recently attained has some promise of enduring. T R E A S U R Y F IN A N C IN G IN F IS C A L 1954 The fiscal year that ended June 30 was marked by the transi tion of the nation from a fighting to a cold war economy and was accompanied by a contraction in business activity. Treasury receipts and expenditures during the year reflected the changes in the economy that stemmed from these developments. While defense expenditures declined substantially, certain of the so-called "built-in stabilizers” called for larger outlays. The full impact on Treasury income and outgo of the business recession that began to develop about a year ago was not real ized, however, because of offsetting developments. On balance, the Treasury’s financial position was better in fiscal 1954 than in fiscal 1953, both on a cash and on a budget basis. Nevertheless, the Treasury borrowed almost as much from the public as in the preceding year in order to raise its operat ing cash balance to a more comfortable working level. Through the choice of issues both in refunding operations and in new money borrowings during the year, the Treasury was able to alter the maturity schedule of the debt so that by the end of the fiscal year the amount of issues maturing within five years was 8.8 billion less than at the beginning of the year. Also, some progress was made in lengthening the average maturity of the marketable debt despite the passage of time which brings out standing issues closer to maturity; the average maturity of this portion of the public debt moved from 5.5 years at the year’s beginning to 5.7 years at the end of June. dollars, were almost 4.5 billion lower than in fiscal 1953, the peak year for the rearmament drive following the outbreak of the Korea conflict. However, cash receipts at 71.8 billion dollars were close to the collections in fiscal 1953. Consequently, the Treasury closed its books on cash operations with a small deficit of 150 million dollars, whereas in the preceding year, as Table I indicates, the cash deficit had amounted to over 5 billion dollars. Various counteracting developments served to bring about this virtual extinction of the cash deficit. The most notable development of the year was the drop in defense spending. Following the signing of the truce in Korea in July 1953, spending for defense and related programs declined steadily and, by the final quarter of fiscal 1954, was running at an annual rate of around 44 billion dollars, compared with an annual rate of over 53 billion in the last quarter of the preced ing fiscal year. This decline left total outlays for defense in the past fiscal year several billion dollars below the level planned as recently as January. The larger-than-anticipated cut back reflects in part a delay in the rearmament program arising from the shift in the basic structure of the military organiza tion adopted during the year, as well as military economies following the end of hostilities in Korea that were larger than had been expected. The total impact on the economy of the change in the defense program was greater than the change in current expenditures because of a sharp contraction in obligations incurred for future Cash O perations purchases. The decline in new orders placed by the Defense Mainly as a result of lower defense expenditures, cash dis Department, which began in the fall of 1952, continued bursements by the Government in fiscal 1954, at 71.9 billion through the second quarter of the past fiscal year. This decline FEDERAL RESERVE BAN K OF NEW YO R K in the rate of contract-letting carried new orders (obligations) substantially below expenditures, as shown in the accompany ing chart. Some military contracts were canceled after the Korea truce, while new orders for other items apparently were delayed pending a revision in the basis of the defense program. Despite a small increase in contracting in the subsequent months—January through May 1954 (June data are not yet available)—the volume of outstanding orders dropped by over 13 billion during the first eleven months of the past fiscal year to almost 19 billion dollars below the peak of over 50 billion dollars reached in September 1952. At the end of May, how ever, the Defense Department had over 22 billion dollars in unobligated spending authorizations, or almost half the total provided for the past fiscal year. Nearly 9.5 billion of these unobligated balances are available for major procurement and production, or in other words for ordering military hardware, and another 7.5 billion are available for ‘undisclosed” purposes. In the nondefense area, expenditures showed a net decline despite growing unemployment compensation payments, result ing from the general reduction in economic activity, and an increase in the need for farm price-support loans. The decline in market interest rates reduced the need for Government sup port of the mortgage market, and a greater reliance on private financing of farm price-support loans and of housing loans by the Public Housing Authority reduced Federal cash outlays. At the same time, foreign economic aid fell short of the prior year’s spending. T a b le I Cash In com e and O u tg o o f the U nited S tates T rea su ry , F iscal Y ears 1953 and 1954 (In billions of dollars) I. Change 1953-54 71.8 + 0 .5 32.6 21.7 6 .8 14.1 - 3 .4 + * + 0 .2 + 0 .3 + 0 .3 - 0 .3 7 1.3 C ash in c o m e Individual income taxes.............................. Corporate income taxes............................... Trust funds f .................................................. All other.......................................................... Refunds........................................................... 1954 1953 Transactions 32. Qp 21. op 6 .5 13.8 - 3 .2 71.9 —4 .5 50.7 25.7 47.3 24.6 - 3 .4 -1 .1 Interest on d eb t......................................... Veterans...................................................... International finance and aid§............... Government corporations#..................... Trust funds t .............................................. All other...................................................... Clearing account for outstanding checks III. 76.4 National defenseX.......................................... Nondefense...................................................... II. 4 .7 4 .3 1.9 2 .0 5 .2 7 .4 + 0 .3 - 4 .6 4 .2 1.2 0 .4 6 .8 7 .6 0 .1 _ * -0 .1 - 0 .7 -1 .6 + 1 .6 + 0 .2 - 0 .4 - - 0 .2 + 4 .9 Cash, o u t g o P N et ca s h d eficit (I -I I ) 5.1 N ote: Because of rounding, figures do not necessarily add to totals. V The breakdown is based partly on estimates by the Federal Reserve Bank of New Y ork. * Less than 50 million dollars. f Covers only the major trust funds (i.e., funds covering old age, railroad retire ment, unemployment, veterans’ life insurance, and civil service retirement). X Covers military outlays by the Defense Department and related expenditures for strategic and critical materials, the National Advisory Commission for Aeronautics, and the Selective Service System, as well as military assistance under the Mutual Security Act, the Atom ic Energy Commission, government maritime activities (formerly under the Maritime Commission), the Coast Guard, expenditures for defense production, and the redemption of Armed Forces leave bonds. § Covers economic and technical assistance under the Mutual Security A ct and other foreign assistance programs, as well as the net redemption of notes issued to the International Monetary Fund. # Covers R FC, C CC, Export-Im port Bank, F N M A , and other wholly owned Government corporations. The partially owned corporations are included in the disbursements under “ All other” . Source: Daily Statement of the United States Treasury. 109 DEFENSE DEPARTMENT EXPENDITURES AND OBLIGATIONS, FISCAL 1951-54 prior to that time, p Preliminary average of April and May only. Source: Defense Department and Treasury Department. While both defense and nondefense expenditures dropped for the reasons just given, revenue remained essentially un changed. Collections of income and profits taxes were sub stantially the same as in the preceding year, despite the decline not only of economic activity but also of tax rates on both individual and corporation incomes. Individual income tax collections remained level with the previous year, because per sonal income—although declining moderately on a quarterly basis throughout the year—was higher in fiscal 1954; the larger tax payments on this higher income apparently offset the losses arising from the January 1 reduction in rates on individual incomes. Corporate tax collections also changed very little from the previous year; although the average profits—on which the collections in fiscal 1954 were based—were higher,1 the increase in liabilities on the basis of profits alone was apparently offset by the larger reduction arising from the cumulative credit for new capital additions under the excess profits tax. It should also be noted that neither the fairly sharp reduction in corporate profits that occurred with the onset of the business contraction in mid-1953, nor the demise of the excess profits tax on January 1, 1954, was reflected in the tax collections of fiscal 1954, since the tax payments for most corporations on the lower calendar-1954 profits—on which the lower rates are effective—would not be due until later in the new fiscal year. 1 The tax collections in these two fiscal years were based on profits in the three calendar years, 1951-53, which varied considerably. Because of the Mills plan— under which tax collections are being progressively moved ahead so that payments will be completed in the six months following the income year— collections in fiscal 1954 included 90 per cent of the tax liabilities on calendar-1953 profits; the latter were almost 3 billion higher than the 1952 profits, on which 80 per cent of the tax liabilities from that income were paid by most corporations in the comparable half of fiscal 1953. The increase in tax collections in fiscal 1954 from this pattern of payments and varia tion in profits more than offset the decline in collections in the first half of fiscal 1954 from the comparable half of fiscal 1953, arising from the lower proportion (20 per cent as against 30 per cent on the second calendar-1951 profits) due on the smaller volume of calendar1952 profits. 110 MONTHLY REVIEW, AUGUST 1954 Budget O perations In contrast to the small cash deficit, the budgetary deficit, representing the excess of budget expenditures over receipts, amounted in fiscal 1954 to slightly over 3 billion dollars. This deficit compares with a net budgetary deficit of over 9.4 billion dollars in the preceding year. The difference between the budgetary and the cash deficit in fiscal 1954 is accounted for in large part by: (1) the inclusion in budget expenditures of 2.7 billion in noncash intra-Governmental payments and accrued liabilities, such as the transfer of interest and other payments to the trust funds and the excess of accrued interest on Savings bonds over the interest actually paid on Savings bonds that were redeemed; (2) by the exclusion from the budget accounts of slightly over 150 million of net cash receipts from the public by the trust accounts; and ( 3 ) by adjustments both for net receipts by the miscellaneous group of funds (including the partially owned Government corporations) in the Deposit Fund Accounts and for a decrease in outstanding checks. While the cash position in fiscal 1954 was almost 3 billion better than the budget position, the improvement was about a billion and a half less than the nearly 4.4 billion difference between the cash and budget deficits in the preceding year. The smaller difference in fiscal 1954 was mainly the result of a sharp drop in the excess of cash collections over disburse ments by the trust funds, which primarily reflected the shift in the transactions of the Unemployment Fund from net receipts to net disbursements. Receipts by the Old-Age and Survivors* Insurance Fund increased as a result of the increase in tax rates from 1Vz to 2 per cent each on employers and em ployees, effective January 1, but the rise was less than the rise in benefit payments by that fund, and the net collections by that fund, although substantial, were not quite so large as in fiscal 1953. Variation D uring Fiscal 1954 As in most recent years, the Treasury’s regular cash opera tions showed considerable variation over the fiscal year. The Mills plan has progressively increased by 10 per cent, in each of the past four years, the corporation tax payments falling due in the first half of the calendar year. Furthermore, despite greater reliance by individuals upon current withholding arrangements, there has continued to be a decided concentra tion of individual income tax payments in the January-June period. Consequently, the first half of a fiscal year, JulyDecember, has been a period of lean tax collections, during with the Treasury has been compelled to borrow large amounts. The variation in cash receipts was felt most acutely in the past fiscal year, because at the beginning of the period there was a margin of less than 9.5 billion dollars between the exist ing debt and the legal limit. Although the cash balance on hand at the beginning of the year totaled over 4.5 billion dollars, this was less than one month’s anticipated operating disbursements (and part of it had been raised by anticipating the September receipts through the sale of tax anticipation bills in June). Operating outlays in the six months were expected to exceed receipts by some 9 billion dollars; while the cash borrowing needed to cover the operating needs could be under taken within the free margin below the debt ceiling, this would leave only minimal leeway to cover the expected increase in liabilities to the trust funds and the increase in accrued interest. When the President’s request for an increase in the debt ceiling was denied, the Treasury resorted to several measures. First, to keep cash needs within the debt limit, over 800 mil lion of farm price-support loans by the Commodity Credit Corporation was resold to commercial banks. Secondly, to leave room within the statutory debt ceiling for the sale of a marketable bond in November, the Treasury terminated the sales of Savings notes late in October. Until then, the latter issue could be purchased at will by investors. Finally, to obtain the maximum feasible public subscription to that bond within the debt ceiling, the Treasury in November retired 500 million dollars of a marketable note issue by using half of the "free” gold in its General Fund. The notes were purchased from the Federal Reserve System and, since the gold was transferred to the System, the operation had no immediate effect on bank reserves. During this first six-month period, nearly 8.7 billion of "new money” was raised in the market. The large volume of new money borrowing in this six-month period was necessary not only to finance the net cash deficit and to redeem a small issue of tax anticipation bills maturing in September 1953, but also to cover the attrition (the unexchanged portion) of maturing marketable issues as well as some net redemption of Savings bonds. The substantial volume of net cash borrow ing, along with an increase in noncash borrowing of 1.1 billion dollars (that occurred through the issuance of Treasury obliga tions to the trust funds and other Government agencies and through the net increase in accrued interest on Savings bonds), brought the debt subject to the statutory ceiling to 274.7 bil lion dollars by the end of December, only 329 million short of the maximum allowable. During the last half of the year, the Treasury realized a sub stantial surplus of close to 8 billion dollars which was used to redeem close to 5.7 billion net of debt (including Government corporate issues) held by the public and to add about 2.2 bil lion to the Treasury’s working balance. Since almost 1.6 billion in noncash borrowing occurred in the second half of the fiscal year, the debt subject to the ceiling declined by 3.9 billion to somewhat less than 271 billion dollars. This left a raargin of slightly over 4.2 billion dollars to cover requirements in the coming period of lean tax collections in the new fiscal year. Comparison with Budget Forecasts The close approach to a cash balance achieved in fiscal 1954 was about as forecast in the Budget Message submitted to Congress last January by President Eisenhower. But, while the net result was close to the mark, cash receipts and expenditures 111 FEDERAL RESERVE BAN K OF NEW YO R K were each more than 3 billion below the January expectations. The decline in cash outlays below the January Budget estimate occurred mainly in defense outlays, while most of the reduc tion in receipts occurred in income and profits taxes. Corporate profits during the 1953 calendar year (on which taxes were paid by most corporations beginning March 1954) were less than originally assumed. In addition, the cumulative credit for new capital additions under the excess profits tax law apparently tended to lower corporate tax liabilities more than anticipated. At the same time, personal income sagged somewhat, whereas stability had been assumed in the January estimate. Also, indi viduals apparently made larger-than-normal prepayments of taxes on calendar 1953 incomes through withholdings, so that the amount of final payments in 1954 on 1953 incomes was less than had been projected. Both of these factors led to an overestimation of individual income taxes and an underestima tion of refunds (which are deducted from receipts). Other receipts were around 800 million below the Budget forecast, reflecting for the most part less-than-anticipated collections of excises and below-estimated contributions to the trust funds. C hanges in the P ublic D ebt Even though the Governments operating cash deficit was much smaller than in the preceding year, borrowings from the public in fiscal 1954 were only slightly less than in fiscal 1953. The net borrowing in excess of the deficit resulted in a larger working balance at the close of the year than at the beginning. Nevertheless, the cash balance in the General Fund, together with the remaining margin of borrowing authority under the debt ceiling, was not expected to be sufficient to meet net expenditures during the first half of the new fiscal year and to leave an adequate working balance at the close of the period. During fiscal 1954 over 2.7 billion dollars net was borrowed in cash from the public, as shown in Table II, but, after adjust ing for the redemption of nearly 225 million of Government corporation issues (which in effect reduced the size of the Table II Cash Deficit and Public Debt, Fiscal Years 1953 and 1954 (In billions of dollars) 1954 1953 Source and use of funds* Chanee 1953-54 Cash operating deficit................................... Change in Treasury balance, cash operations + - 5 .1 2 .3 + + 0 .2 2 .6 t -4 .9 + 4 .9 Cash borrowing from the public, n e tt.............. + 2 .8 + 2 .7 - Cash borrowing on direct debt, net................... Gold retirement of direct d e b t............................ Noncash borrowing on direct d eb t..................... + 2 .9 + 4 .0 + + 3 .0 0 .5 2 .7 + § —0 .5 - 1 .3 Increase in the public direct d eb t.................. + 7 .0 + 5 .2 -1 .8 1 Public direct debt at end of year#..................... 266.1 271.3 + 5 .2 Treasury’s balance at end of year. ................... 4 .7 3 .2 6 .8 5 .7 0 .5 + 2 .1 + 2 .5 -0 .5 + 0 .1 Gold....................................................................... 1.0 0 .5 0.6 Note: Because of rounding, figures do not necessarily add to totals. * Plus ( + ) indicates the provision of funds by borrowing to cover a deficit or build up the balance. f The net change in the General Fund reflects the reduction in gold for the purpose of retiring debt, as well as the change in deposits from cash operations with the public. J Includes a small amount of redemptions of Government corporation issues. § Less than 50 million dollars. # Ineludes a small amount of debt not subject to the statutory ceiling. % Deposits in Tax and Loan Accounts at commercial banks and in available funds at the Federal Reserve Banks. Source: Daily Statement of the United States Treasury. Table III Changes in Gross Public Debt, Fiscal Years 1953 and 1954 (In m illions o f d olla rs) T ype of issue Marketable obligations.......................................... United States Savings b o n d st.............................. Treasury Savings notes.......................................... Investment Series bonds— Series B-1975-80. . . Special issues.................... ....................................... All other obligations............................................... T o ta l...................................................... 1953 1954 + 6 ,8 6 6 * + 170 - 2 ,1 6 4 755 § + 2 ,7 9 9 + 49 + 3 ,1 3 5 f + 212 + 628 479f + 1 ,6 9 1 + 3 + 6 ,9 6 6 + 5 ,1 8 9 N ote: Because of rounding, figures do not necessarily add to totals. * Takes into account the issuance of 921 million dollars of 1 H per cent marketable Treasury notes in exchange for Investment Series B bonds (714 million dollars of this was exchanged by the Federal Reserve System), and 417 million dollars of SH per cent marketable bonds issued on M ay 1, 1953 in exchange for Series F and G bonds, as well as a reduction of 132 million dollars of market able bonds arising from delayed payments on subscriptions, under a special instalment arrangement, to a cash and exchange offering made in M ay 1952. t Takes into account the issuance of 479 million dollars of 1 H per cent marketable Treasury notes in exchange for Investment Series B bonds. J Includes discount accrued during the year on all unredeemed Savings bonds, i.e., the increase in the redemption value arising from accrued interest. § Change includes a reduction of 921 million in exchange for 1 A per cent market X able notes and an increase of 166 million arising from delayed payments on subscriptions to a cash and exchange offering made in M ay 1952. Source: Daily Statement o f the United States Treasury. Treasury’s net cash direct borrowing) and for the retirement of debt to the extent of 500 million with "free” gold, the cash increase in the direct public debt came to nearly 2.5 billion dollars. Noncash borrowing, mainly from the trust funds, and the net increase in accrued interest on Savings bonds amounted to over 2.7 billion dollars. Thus, the public debt increased nearly 5.2 billion dollars. The net increase in the public debt was roughly equivalent to the rise in holdings of Government securities by the bank ing system. Nonbank investors liquidated about 2 billion dol lars of their holdings (even after counting the increase in the redemption value of Savings bonds arising from accrued interest), and this was about equivalent to the increase in the investments of Federal agencies and trust funds. The decline in nonbank private holdings centered in holdings by business corporations and may reflect the drop in tax liabilities on the current years profits, arising both from the slackening in pro duction and from the termination of the excess profits tax on January 1. Changes in Composition of D ebt Substantial changes in the composition of the debt were effected during the year, as shown in Table III. Outstanding marketable issues increased by over 3.1 billion dollars net, reflecting not only an excess of new borrowing over the attri tion on maturing and called issues in exchange offerings and the retirement of debt with "free” gold, but also a net increase arising from conversions of nonmarketable issues. During the year, nearly 480 million of Investment Series B bonds were converted by private investors into IV2 per cent marketable notes. This was more than double such conversions in the preceding year. The decline in market rates during the year made the sale of such issues more advantageous than in the preceding year, when the notes could be sold only at a discount, and more investors apparently took advantage of the opportunity to shift some of their funds from the Investment Series B bonds into other, more attractive investment: outlets. 112 M ONTHLY REVIEW, AUGUST 1954 Net sales of Savings notes in fiscal 1954 amounted to over million dollars despite the termination of their sale late in October. After October, redemptions of outstanding issues to meet the large quarterly corporate tax payments and other requirements reduced the amount of Savings notes outstanding by nearly 1.2 billion dollars, largely offsetting earlier net sales. Savings bonds rose slightly more than 200 million dollars in redemption value during the fiscal year, as the net increase of almost 600 million from accrued interest somewhat more than offset the excess of redemptions (at issue price) over sales. Reflecting the renewed interest in Savings bonds (particu larly by investors of large means) following the decline in yields on comparable market issues, sales of Series E and its companion Series H bonds set a new record level since fiscal 1946, and exceeded redemptions (at issue price) of these issues by around 850 million dollars. Sales of Series J and K bonds also increased, but they fell short of redemptions of these and F and G bonds by nearly 1.3 billion dollars, mainly as a result of redemptions of matured bonds of the latter two series. Apparently, individuals to some extent reinvested the funds obtained on the maturing F and G bonds in Series H, J, and K bonds and also in the larger-denomination E bonds, while institutional investors, which are also holders of F and G bonds but are not eligible to purchase E and H bonds, increased their purchases of J and K bonds but not sufficiently to replace all of the maturing F and G bonds in their portfolios. Special issues, which are available only to trust funds and other Government agencies, increased in fiscal 1954 by over 1.9 billion as a result of the noncash intra-Governmental bor rowing, but part of this rise was offset by the cash redemp tions of these issues by the Postal Savings System to cover the continued net withdrawals by their depositors. The rise in 625 special issues in the past fiscal year was considerably less than in fiscal 1953, mainly because of a shift by the Unemployment Fund from net purchases in fiscal 1953 to net redemptions in fiscal 1954; with the rise in unemployment during the past year, the fund drew on its reserves to cover the excess of com pensation payments over receipts, as mentioned previously. M a rk e ta b le Issues The composition and maturity schedule, as well as the vol ume, of marketable issues were altered during the year. The amount of Treasury bonds outstanding, after increasing in fiscal 1953 for the first time since February 1946, declined by over 700 million dollars. Treasury note issues, on the other hand, increased by more than 1.5 billion as a result of the new issue offered in May, while certificates increased by almost 2.6 billion as a result of switches from bonds in exchange offerings. The change in the maturity schedule of the marketable issues was even more marked than the change in the volume of the debt and the types of issues. By the end of June, outstanding issues maturing within five years were 8.8 billion less than at the end of June 1953, while those maturing in more than five years were 11.9 billion higher. The Treasury achieved notable success during the past fiscal year in refunding almost 19 billion of maturing and called issues into intermediate issues and in confining almost ail of its net new money borrow ing in the market to such issues. Despite this accomplishment, over 60.1 billion dollars in marketable issues (including Treas ury bills outstanding at the beginning of the year) will mature, and must be refunded, within the current fiscal year. In fiscal 1954, almost 67 billion dollars of maturing and called issues were refunded. T H E V E L O C IT Y OF D E M A N D DE P O S ITS IN N E W Y O R K C IT Y Following the revision made last year of the monthly data on debits to demand deposit accounts other than Government and interbank and the related data on the rates of deposit turn over or velocity,1 this Bank recently completed the computation of revised seasonal factors for the monthly series on deposit turnover. Indexes of the revised turnover data, on a seasonally adjusted basis, are now shown regularly in the table on Selected Economic Indicators that appears elsewhere in this Review as well as in a separate release. The accompanying chart shows the actual turnover rates (i.e.. debits divided by average deposit balances for the month), adjusted for normal seasonal variation, of the deposits of the banks in New York City, six other financial centers, and all other (338) reporting centers. The chart discloses significant differences, not only in the levels of the three series, but also in the ways in which they reflect changes in general busi ness conditions or are affected by purely financial develop ments. The indexes of velocity that appear in the table on Selected Economic Indicators, on the other hand, do not permit a direct comparison between the rates of deposit turnover for the different series. These indexes indicate only the compara tive change in velocity for each series from its own level during a base period rather than absolute rates of turnover. As may be noted on the chart, the velocity series for the 338 outside centers, which has remained well below the level of the series for New York or for the six other financial centers, shows clearly the recession of 1949, the subsequent recovery in the spring of 1950, and the rapid increase in economic activity following the outbreak of the war in Korea. This series, how ever, has shown relatively little movement since 1951 and has failed to reflect, to any degree, the recessionary tendencies which developed after the middle of last year. Velocity at the six financial centers other than New York City, after declining in similar fashion during the 1949 recession, has registered only very moderate increases since 1951. In sharp contrast, the New York City velocity series has been rising almost continuously l See "Bank Debits and Velocity: Economic Indicators” in the since the end of the postwar reconversion period except for May 1953 issue of this Review. See also “Postwar Changes in the brief interruptions during the 1949 recession and again in 1951. Velocity of Deposits” in this Review for March 1949. FEDERAL RESERVE BAN K OF N EW YO R K Furthermore, the rate of increase has shown no signs of slack ening during the last two years, when velocity in the other centers rose very little. As a result, the spread between the level of the New York City series and those for the outside centers has widened considerably over that period. Moreover, the rate of deposit turnover in New York City, even after adjustment for normal seasonal variation, has exhibited frequent and sizable short-term fluctuations of a magnitude greater than those shown by the six other leading financial centers and much greater than those of the other reporting centers. To a large extent, the difference between the levels of the velocity of demand deposits in New York City and in other reporting centers arises from the fact that a relatively large proportion of New York City debits results from purely financial transactions. The growing discrepancy over recent years in these levels probably stems directly from the greatly increased volume of activity in certain financial markets. Historically, trading on the stock exchange has been the most important source of financial debits, but in the years during and since the last war the importance of debits arising from trading in Government securities has increased considerably. The fact that operations in the market for Government securities have given rise to such substantial (and disproportionate) increases in debits and velocity in New York City is a result of the rapid turnover of the large dollar volume of such securities, together with the use of trading techniques that require full payment for each purchase (rather than payment of net balances after offsetting purchases and sales, as for private securities) and of financing practices that make it possible for traders to operate with small deposit balances. Trading in private securities and underwriting of new issues probably have continued to contribute heavily to the increased volume of New York debits and to account for some of the short-run changes in the rate of deposit turnover, which in the chart appear as irregular fluctuations, as well as for the propor tionally larger increase in the velocity of New York demand deposits in recent years. In each year since 1947, the volume of new corporate security issues has exceeded by a large amount 113 the volume issued during any year since 1929. Similarly, offerings of new municipal securities since 1947 have been at unprecedented levels. Furthermore, the volume of trading on the stock exchange in recent years has recovered from the low levels recorded during the late thirties and early forties, and prices have pursued an upward trend. It is clear, however, that the major irregular movements in the New York City velocity series during the war reflected the successive War Loan drives and, since the end of the war, have been associated with major Treasury financing operations and, on a few occasions, with Federal Reserve open market operations. While appropriate data are not available to demon strate this interdependence on a firm statistical basis, almost all peaks in the rate of deposit turnover in the new series can be traced either to Treasury financing operations or to increased activity in the market for Government securities arising from overt Federal Reserve policy actions or other influences. In many instances, peaks in the New York City velocity series are matched by corresponding, although much less pro nounced, movements in the series for the six other financial centers, but such peaks are proportionally much smaller in the series for the 338 other centers, if they appear at all. Increased financial debits in the six financial centers and in all the other reporting centers during such periods of activity probably reflect largely debits to the accounts of nonbank pur chasers of Government securities or the disposition of funds obtained by sellers, even though the bulk of Government securities transactions takes place in New York City. Trading in Government securities on the part of large corporations throughout the country has increased in recent years, as they have attempted to keep their funds more fully invested. During and immediately after World War II, eight succes sive peaks from January 1943 through the end of 1945 ia all three series reflect the War Loan and Victory Loan drives. The sharp increases in velocity during these drives were the joint result of sudden drops in private demand deposits and simultaneous increases in debits, as payments for subscriptions to Government securities were charged to private accounts. Thus, the numerator of the velocity ratio increased and the denominator decreased simultaneously. Since the drives were nation-wide, all three series show sharp peaks of comparable magnitude. Since the end of the Victory drive, most peaks in the velocity of New York City demand deposits have been accompanied by increased activity in the Government securities markets, fre quently related to portfolio adjustments by commercial banks and nonbank investors. These adjustments were in turn often precipitated by changes in reserve requirements or Treasury refunding operations. Thus, the sharp peak in August 1950 occurred during a period of great market activity associated with a large Treasury exchange operation involving substantial Federal Reserve port folio adjustments. The peak in March 1951 followed the announcement of the "accord” between the Treasury and the Federal Reserve System, the simultaneous exchange offering of M ONTHLY REVIEW, AUGUST 1954 114 nonmarketable bonds for a large volume of long-term market able securities, and heavy trading in other Treasury issues. In September 1953, still another peak was associated with a marked increase in market activity following a large refunding operation by the Treasury and the Federal Reserve System’s re-entry into the Government securities market after more than a month of inactivity although, in this instance particu larly, large offerings of private, and to a lesser extent municipal, securities may have been of some significance. The marked rise in the early part of 1954 apparently was also related to a pronounced expansion in activity in both private and public securities markets, but trading in short-term Government securities seems to have played an especially prominent role. As previously noted, the influence of large transactions in the Government securities market on the rate of deposit turn over is accentuated by the trading practices of such markets. Practically all payments among stockbrokers, Government security dealers, investment bankers, and related financial busi nesses are made in funds which either are immediately avail able to buyers or become so within one day. With a very large proportion of relatively prompt-payment items among the total checks deposited, traders have little need to hold substantial idle balances while awaiting the clearance of checks or while anticipating payments. Thus, the "efficiency” of deposit bal ances held by security dealers or others participating in the market is multiplied, and, even though the deposits of Govern ment security dealers are a relatively insignificant proportion of the New York City total, their exceedingly high rate of turnover exerts a disproportionate influence on the total velocity figures for the City. Moreover, Government security dealers (as well as security brokers and dealers in general) are able to conserve further on their holdings of deposit balances by virtue of their methods of financing transactions. As indicated, full cash payment, usually resulting in an equivalent debit (unless a bank is the purchaser), must be made daily for each purchase of Govern ment securities. Dealer payments are frequently financed through a special type of temporary credit accommodation known as a "day loan”. These loans, payable the same day as they are made, enable dealers either to pay for securities they have contracted to purchase or to pay off loans secured by securities that they wish to deliver. To the extent that the SELECTED ECONOMIC INDICATORS United States and Second Federal Reserve District Percentage change 1953 1954 Item Unit June M ay April June Latest month Latest month from previous from year month earlier U N IT E D STATE S Production and trade Industrial production*...................................................................... Electric power output*..................................................................... Ton-miles of railway freight*.......................................................... Manufacturers’ sales*....................................................................... Manufacturers’ inventories*............................................................ Manufacturers’ new orders, tota l* ................................................ Manufacturers’ new orders, durable g ood s*................................ Retail sales*........................................................................................ Residential construction contracts*.............................................. Nonresidential construction contracts*........................................ Prices, wages, and employment Basic com m odity p ricesf.................................................................. Consumer p ricesf............................................................................... Personal income (annual ra te )* § ................................................... Composite index of wages and salaries*....................................... Nonagricultural employment*}:...................................................... Manufacturing employment*^........................ . ............................. Average hours worked per week, m an ufacturing^ ................... Banking and finance Total investments of all commercial banks................................. Total loans of all commercial banks.............................................. Total demand deposits adjusted................................................ Currency outside the Treasury and Federal Reserve Banks*. Bank debits (338 centers)*.............................................................. Velocity of demand deposits (338 centers)*................................ Consumer instalment credit outstandingf.......... % ...................... United States Government finance (other than borrowing) Cash ou tgo.......................................................................................... National defense expenditures........................................................ 100 100 100 $ $ $ $ $ 100 100 124p 173 — 24.2 p 4 4 .5p 22.9 p 10.0 p — 224p 189 p 124 169 92p 2 4.0 4 4.8 22.8 10.0 14. Op 216 178 123 165 89 24.4 45.2 2 3.0 10.0 14.2 213 184 136 164 102 25.9 46.2 25.2 12.4 14.4 174 166 1947-49 = 100 1947-49= 100 1947-49 = 100 billions of S 1939= 100 thousands thousands hours thousands 9 2.3 110.Op 115.1 — — 48,116p 15,976p 3 9 .6p 3,347 92.8 110.9 115.0 285.2p 255p 4 8 ,148p 16,064p 39.3 3,305 92.5 111.0 114.6 284.4 255 4 8 ,260r 1 6 ,150r 3 9.0 3,465 87.2 109.5 114.5 287.3 248 49,970 17,575 40.7 1,562 millions of $ millions of $ millions of $ millions of $ millions of $ 1947-49 = 100 millions of $ — — — 30,006p 64,335 1 2 3 .lp 21,110 78,570p 6 7 ,120p 98,700p 30,013 60,854 119.4 20,932 7 7 ,360p 66,750p 9 8 ,600p 29,995 62,918 121.3 20,909 72,932 65,025 96,898 30,163 63,100 120.0 20,6 3 5r + + millions of $ millions of $ millions of $ 11,265 6,881 3,929 4,882 6,228 3,477 3,036 5,303 3,619 1 0 ,181r 7,901r 4,587 + 131 + 10 + 13 + 11 -1 3 -1 4 141 174 206 112.0 7 ,6 9 7 .0 2 ,8 6 8 .1 52,429 4,268 137.4 _ - 2 +30 + 13 + 1 - 3 - 8 + 15 + 2 + 14 1947-49== 1947-49 = 1947-49= billions of billions of billions of billions of billions of 1947-49= 1947-49 = + + + — + + — — — + + + + + # 2 4 1 1 # # 1 4 6 - 9 + 5 -1 3 - 7 - 4 - 9 -1 9 - 3 +29 +14 1 1 # # # # 1 1 1 + 6 # 1 # + 3 - 4 - 9 - 3 — 2 1 '# # 6 3 1 + + + + + + + 8 3 1 1 2 3 2 SECON D F E D E R A L R E S E R V E D IS T R IC T Electric power output (New Y ork and New Jersey)*................... Residential construction contracts*.................................................. Nonresidential construction contracts*............................................ Consumer prices (New Y ork C it y )f .................................................. Nonagricultural em ploym ent*............................................................. Manufacturing em ploym ent*.............................................................. Bank debits (New Y ork C ity )* .......................................................... Bank debits (Second District excluding New Y ork C ity )* ........ Velocity of demand deposits (New York C it y )* ............................ 1947-49= 100 1947-49= 100 1947-49 = 100 1947-49= 100 thousands thousands millions of $ millions of $ 1947-49= 100 139 — — 112.9 — — 60,153 4,347 156.1 140 223p 221p 112.9 7 ,4 6 7 .4p 2 ,6 1 8 .lp 60,750 4,016 164.1 138 208 216 112.5 7 ,5 1 3 .2 2 ,6 3 9 .5 60,479 4,313 159.9 + — — — + 1 7 3 # 1 1 1 8 5 N ote: Latest data available as of noon, July 30, 1954. § Revised series. p Preliminary. r Revised. # Change of less than 0.5 per cent. * Adjusted for seasonal variation. J Unemployment figures for June 1953 are on the basis of the old sample and, therefore, t Seasonal variations believed to be minor; no adjustment made. not necessarily comparable with the figures shown for 1954 which are on the new % Employment and hours data have been revised as a result of adjusting sample basis; consequently, a percentage change from a year ago is not shown. employment levels to a more recent benchmark. Source: A description of these series and their sources is available from the Domestic Research Division .Federal Reserve Bank of New Y ork, on request. FEDERAL RESERVE BAN K OF N EW YO R K transactions entered into by dealers do not add to their total inventories during the day, these day loans are extinguished by the end of the same day without any necessity for further bor rowing. Thus, a large amount of trading, giving rise to a great volume of debits, may take place without the dealers needing to hold large working balances and without any increase in deposits growing out of the temporary day loans. Another type of financial transaction, arising in part from the payment practices in Government securities markets and in part from the methods used by member banks in adjusting reserve balances, also has contributed, although in a less im portant fashion, to the expanded volume of debits in New York City since the end of World War II. When sales of Federal (immediately available) funds to dealers or other nonbank traders in the market take place, financial debits may be created. These debits arise because a sale of Federal funds requires for repayment, in many cases, a check drawn by the borrower; this check, in the case of a nonbank borrower, results in a debit. The effect of these transactions, which have been of increasing importance in recent years, is not entirely limited to the New York City series, as institutions outside New York 115 City have played an increasing role in this market in recent years. Both the velocity series for the six financial centers outside New York City and, to a much lesser extent, that for the 338 other centers have reflected from time to time fluctuations in activity in financial markets—especially those for Government securities. In the case of the 338 centers, however, velocity is shaped primarily by general economic forces,2 and the series for those centers remains an important tool for analyzing busi ness conditions and, in particular, the credit situation. On the other hand, the frequent and substantial fluctuations in the velocity of demand deposits in New York City, while generally explicable in terms of the structure and activity of the securi ties markets, tend to obscure the influence of broad economic developments. Consequently, the value of the New York City series in an analysis of general business conditions is sharply limited. 2 It also has a narrower range of seasonal fluctuations (monthly figures normally ranging between 94.0 and 105.5 per cent of the yearly average, compared with 86.5 to 113.0 per cent for the New York City series). D E P A R T M E N T STO RE T R A D E Preliminary estimates for July indicate that sales at Second District department stores, on a seasonally adjusted basis, rose 2 per cent above the level of the previous month and equaled sales in July 1953. Total sales during the first seven months of 1954 were approximately the same as in the comparable period last year. G ross T ransactions and Average Value per T ransaction at N ew Y ork City D epartment Stores Retail sales data are generally reported in dollar terms, and not in terms of the physical quantity of goods moved. The quantity of goods sold may frequently be a significant economic variable in itself, however; in addition, the analysis of trends in dollar sales data may often be made more meaningful through use of an indicator of changes in the physical quantity of goods sold. In department store statistics, an approximate indicator of physical goods movement is available in sales transaction data. A selected group of New York City stores reports regularly to this Bank on gross transactions (the total number of sales checks issued) and net dollar sales (gross sales minus re turns and allowances). One sales check frequently covers more than one item, of course, and transactions data conse quently tend to understate physical goods movement. But they do provide an approximate measure of it, and average transaction values derived by relating these data to net dollar sales are sometimes useful in analyzing certain aspects of con sumer spending in department stores—tendencies to buy higher-priced or lower-priced merchandise, for example. Hie total number of sales transactions reported by New York City department stores and the average value of these transactions changed only slightly in the first six months of 1954 from previous-year levels. (The accompanying table indicates that transactions declined 1 per cent and average value rose 1 per cent.) This relative year-to-year stability was in marked contrast to the experience of the previous year and a half. Then, consumers were indicating strong preferences for higher-priced merchandise, preferences which were evidenced by an increasing average value per transaction at a time when prices of department store type merchandise generally were gently declining. At the same time, however, consumers were reducing the number of their purchases at department stores to such an extent that New York City department store sales Gross Transactions, Net Dollar Sales, Average Value per Transaction, and Prices at New York City Department Stores, 1953-54 (P e rce n ta g e ch an ge fro m p reced in g yea r) Period 1953 January-June............................ Average Gross trans Net dollar value per tra n sa ction actions sales Prices* +5 -1 +4 -5 -4 -5 0 -3 +6 +6 +5 +5 +4 +1 -1 -1 -1 -1 0 -1 - 6 —2 +4 -1 + - July-Decem ber......................... -1 - 2 -1 0 - 8 - 9 - 4 - 4 2 2 3 7 2 2 -2 +2 -3 +6 -3 0 0 +4 0 -1 -1 +2 -1 -1 -1 -1 -1 -1 - 1 0 +1 -1 - 6 1954 January-June............................ ♦Weighted average of apparel and homefurnishings prices for New Y ork C ity, computed from data of the Bureau of Labor Statistics. 116 M ONTHLY REVIEW, AUGUST 1954 In the absence of the factors leading to this "borrowing” of sales by February and April from the months where they would otherwise have fallen, net dollar sales would have been lower in the two months when sales increased, but higher in some or all of the other four months when they decreased or did not rise. This points to an underlying element of stability in department store trade during the six months that was perhaps even greater than that actually shown by the monthly figures. Two alternative interpretations may be made of this stability. The more optimistic interpretation would emphasize the "bottoming out”, after a two-year decline, in the volume of gross transactions; the dimmer view would stress the leveling off, after a two-year rise, of the average value per transaction. Actually, the evidence of the half year’s experience does not seem strong enough definitely to confirm either of these inter pretations. But the evidence does indicate clearly that the first half of 1954 was a period of transition in consumers* preferences as to the prices and quantities of merchandise they actually declined from previous-year levels.1 These divergent would buy at New York City department stores. tendencies in transactions and average value per transaction are illustrated in the accompanying chart. Sales Second The first six months of 1954, on the other hand, was a Department and Apparel StoreChangeand Stocks,PrecedingFederal Reserve District, Percentage from the Year period of relatively stable net dollar sales, resulting from simi Net sales larly stable levels both of gross transactions volume and of Stocks Area on hand average value per transaction, in comparison with the preced Jan.through Feb.through June 30, June 1954 June 1954 June 1954 1954 ing eighteen months. As the table shows, sales increased (by - 3 2 per cent) in February, for the first time since July 1953, and Department stores, Second District.......... York— Northeastern New Jersey increased again (by 6 per cent) in April. In the other four NewMetropolitan Area.......................... + 2 + _ New York City.................................. months, sales either declined moderately from previous-year — — — Nassau County................................... Westchester County........................... +s + 4 + 4 + levels (in January, March, and May) or just equaled last year’s +2 - 2 Northern New Jersey......................... -f — level (in June). For the six-month period, the net dollar sales Fairfield County.................................... +23 + — -2 total was the same as for the first half of 1953. 4- i +4 Lower Hudson River Valley.................. + Poughkeepsie...................................... - 3 The February sales increase was associated with a 4 per cent Upper Hudson River Valley.................. + 3 - 3 - 2 — 3 Albany-Schenectady-Troy increase in average value per transaction, which in turn resulted - 2 Metropolitan Area...................... — 9 - 3 - 3 -1 3 in part from the fact that one department store remained open _ 9 — Schenectady.................................... _ — - 3 on Washington’s Birthday, for a feature promotion of "big Central New York State........................ —.5 Utica-Rome Metropolitan Area......... - 6 —5 — _9 — ticket” items—appliances and household goods. The April sales +2 — 2 Syracuse Metropolitan Area.............. 4Northern New York State..................... rise depended on a 7 per cent increase in transactions volume; Southern New York State..................... —5 —3 -4 - 2 -4- 2 _ -j-4 — Binghamton Metropolitan Area......... this reflected both the excise tax reductions of April 1 and the — S - 7 -j- ,‘i Western New York State....................... shifting of most of the Easter shopping season this year from o -3 Buffalo Metropolitan Area................. o -4 - 3 - 3 + 3 March, where it fell last year, into April. 2 Niagara Falls.................................. -f 4 Rochester Metropolitan Area............. + 4 -fo -r 3 4- 9 In the case of the Easter shift, it is clear that the April transactions and sales increases were partly "borrowed” from Apparel stores (chiefly New York C ity)... March. Also, the increases resulting from excise tax reductions were partly borrowed from preceding months, as consumers Indexes of Department Store Sales and Stocks held off from the purchase of taxed articles in anticipation of Second Federal Reserve District lower tax rates after April l.2 The February rises in sales and (1947-49 average=100 per cent) average value per transaction may represent borrowings from 11)04 subsequent months, to the extent that consumer purchasing Item i power used up in the Washingtons Birthday promotion was May June April J une not available for expenditure later. 98r 09 98 Sales (average daily), unadjusted................. +1 0 0 +1 0 0 1 0 2 — 7 — 7 - 0 0 1 1 7 7 1 0 1 7 1 1 1 0 3 0 0 +1 0 0 2 2 - -10 2 1 -1 0 3 2 1 7 0 2 2 0 -10 0 2 1 3 — - — r > — 6 4- +6 +2 1 1 0 Sales (average daily), seasonally a d ju sted .. 10 2 10 0 10 1 10 2 10 lr 1 See the last discussion of department store transactions data in this Review, November 1953, p. 172. Stocks, unadjusted............................................ Stocks, seasonally adjusted............................ 107 1H US 115 118 113 11 Or US 2 The initial impact of the excise tax reductions on department store trade w discussed in the July issue of this Review, p. 100. as r Revised.
