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MONTHLY REVIEW
O f Credit and Business Conditions
F E D E R A L
V
o lum e
38
R E S E R V E
B A N K
AUGUST
OF
N E W
Y O R K
1956
No. 8
MONEY M ARKET IN JULY
Pressures in the m oney market remained relatively
focused on the refunding of 1 2 ,3 8 8 million dollars of 2 per
steady during Ju ly, despite the sizable flows of funds asso
cent Treasury notes due A ugust 1 5 and of 5 5 0 million of
ciated with the Fourth of Ju ly holiday and unusually wide
IV2 per cent notes due October 1 . Th e exchange offering
and erratic fluctuations in float.
of a new 2% per cent note to mature A ugust 1 , 1 9 5 7 met
with a favorable initial response and the “ rights” and
Th e effective rate for
Federal funds remained almost steadily at 2 3 per cent
A
throughout the month, although some trading at lower
“ when-issued” securities were quoted briefly at a premium.
rates took place from time to time. Th e over-all reserve
Price quotations slipped below par during the exchange
position of member banks fluctuated rather widely during
period, when it became apparent that a number of holders
the month, and on the whole w as somewhat easier than
of the maturing 2 per cent notes intended to sell their
securities or present them for cash redemption. Attrition,
expected, m ainly because of a high average amount of float
caused by an unusually heavy volume of checks and delays
according to the final Treasury report, amounted to 8 8 2
in their collection. Reserve positions of N e w Y o r k central
million dollars.
reserve city banks, however, tended to be tighter than in
In sharp contrast, the market for Treasury bills tended
the preceding month, and the rates charged by N e w Y o rk
banks on call loans to dealers in Governm ent securities
were generally at or above those which prevailed in June.
to be buoyant during most of Ju ly ; the average issuing
rate moved down and in the middle of the month reached
the lowest level since M arch. In part the decline early in
The general trend o f longer-term interest rates w as up
ward, while short-term rates tended to decline until the
latter part of the month.
Ju ly reflected the influence of large System purchases, but
Federal Reserve System holdings of Governm ent securi
ties showed a net decline over the four weeks from June 2 7
month despite sales from the System ’s holdings. Th e de
to Ju ly 2 5 of 1 5 5 million dollars, including a net reduction
o f 1 2 5 million in outright holdings and a 3 0 million decline
in repurchase agreements with Governm ent securities deal
ers. During the week ended Ju ly 4 when member bank
reserves were subject to a heavy drain caused by the sea
sonal outflow of currency, outright holdings rose by 3 4 8
million dollars, but this rise was more than offset by sales
and redemptions of 4 7 3 million dollars during the three
succeeding weeks.
The market for Governm ent notes and bonds, which had
the strength of nonbank demand w as such as to carry bill
rates even lower during the second and third weeks of the
mand for bills diminished subsequently, however, and
yields rose moderately.
Th e corporate and municipal markets exhibited a heavy
tone during Ju ly, partly because o f an overhang of unsold
issues from the previous month and partly because of a
large volume of new corporate flotations. In addition, these
CONTENTS
Money Market in July.................................... . 105
shown mixed movements in June, w as marked by declining
International Monetary Developments......... . 109
prices during most o f Ju ly. Th e growing market opinion
Securities Markets in the First Half of 1956.. . 110
that a renewal of economic expansion after the end of the
steel strike would result in heavy demands for funds and
tighter credit conditions, as well as the large current volume
Monetary and Banking Developments
in Canada ................................................... . 113
of corporate security flotations at relatively attractive yields,
Federal Finances in the Fiscal Year 1956.... . 117
tended to depress the prices of longer-term Government
Selected Economic Indicators...................... . 120
securities.
A t the shorter end o f the market, attention
106
MONTHLY REVIEW, AUGUST 1956
SELECTED MONEY MARKET RATES
Per cent
Directly placed finance
company paper*
P e
rrm
(.30-89days)
com ercial paper* 1
m
v
*
•
r--*
2.50 — ■ r
j—•
*
•
t.
3.00
below the average for the four statement weeks ended in
June.
the increase of currency in circulation associated with the
Fourth of Ju ly holiday, as well as from a lower average
level of float— which did not, however, decline as much as
is usual at this time of the year. A t the same time holdings
(4-6 months)
i
----------------------
{ A
rV\ ,
* i f \A
r i/ ” \
1
\
Av /
\ /
\ / V
y
/
2.00
\
T"""
net borrowed reserves remained close to the levels that pre
vailed in the last two weeks in June. A verage member
bank borrowings from Federal Reserve Banks amounted
to 7 3 6 million dollars over the four weeks, 5 3 million
* A
/1 \\/ \
/ V M
2.50
\J
- * fJ
Y
y v If \ l
* v
Treasury bills
2.00
( average issuing rate)
\
3.00 _
Per cent
E a rly in the month, banks lost reserves as the result of
of Governm ent securities by the Federal Reserve Banks
rose sharply, thereby releasing reserves to the banking sys
I
1 .5 0
a
s
i
i
o n
1955
i
d
1
i
j
i
f
m
i
i
a m
1956
i
|
j
i WV
I*
J
Note: Latest data plotted are for July 26.
^ Midpoint of range of rates.
tem. O n balance, average net borrowed reserves were
almost unchanged between the final statement week of
June and the first statement week of Ju ly, and declined
only slightly in the succeeding week.
During the remainder of the month, market factors
tighter credit conditions that depressed the Government
tended on balance to add to the reserves of member banks,
and Federal R eserve security holdings were reduced sub
bond market. Y ield s on outstanding corporate and munici
stantially. H owever, member bank reserve positions fluctu
markets were influenced b y the same anticipations of
pal issues tended upward over the month, several proposed
ated rather widely, reflecting the large midmonth increase
offerings were postponed, and the breaking-up of under
writing syndicates was frequently marked by price conces
and subsequent decline in float, the return flow of currency
from circulation in the wake of the Fourth of Ju ly holiday,
and changes in Treasury balances at the Federal Reserve
sions to make slowly moving issues more attractive.
Th e strength of the Treasury bill market was a factor in
the decline in several closely related short-term money
market rates during the month (see ch art). O n Ju ly 5 a
number of the finance companies that place their paper
Table I
Changes in Factors Tending to Increase or Decrease Member
Bank Reserves, July 1956
(In millions of dollars; ( + ) denotes increase,
(—) decrease in excess reserves)
directly with investors reduced by Vs per cent their rates
on paper with maturities up to 2 4 0 days, thus bringing the
range of rates on 3 0 to 8 9-d a y paper to 2 % - 2 % per cent
from a flat 2Vs per cent. A t the same time some dealers
in commercial paper reduced the rates on prime four to
six-month commercial paper by Vs per cent, and a further
reduction of Vs per cent became effective Ju ly 2 0 ; the
Daily averages— week ended
N et
changes
Factor
July
4
July
11
July
18
July
25
+ 81
-1 3 8
-2 7 8
+
6
1
+ 61
- 62
-1 6 0
+
9
+ 11
-1 5 6
+243
+115
- 10
+ 15
+ 35
- 19
+176
+ 33
+
4
+ 21
+ 24
-1 4 7
+ 38
+ 29
-3 2 9
-1 4 3
+206
+232
-
34
+296
+ 17
+
-
-3 3 9
7
-
-
44
26
-1 1 3
—
+236
+
1
-
30
1
-2 7 6
—
-1 8 3
__
+
-
1
—
__
—
+
+
Operating transactions
Treasury operations*...............................
Federal Reserve float..............................
Currency in circulation..........................
Gold and foreign account......................
Other deposits, e tc ...................................
range of rates is now 3V8-3V i per cent as compared with a
T otal............................................
flat 3 % per cent at the start of the month. In each case
these were the first general declines in rates on either type
o f paper since m id -19 5 4 . In contrast, rates on bankers’
Direct Federal Reserve credit transactions
acceptances, which had been reduced by Vs per cent in
m id-June, were raised an equivalent amount on Ju ly 19 ,
bringing the offering rate on unindorsed 90-day accept
Government securities:
Direct market purchases or sa les..
Held under repurchase agreements.
Loans, discounts, and advances:
Member bank borrowings.................
Bankers’ acceptances:
Bought outright....................................
Under repurchase agreements.........
1
—
78
33
79
3
1
—
1
M
em ber
B ank R
eserve
+201
+281
-3 7 7
-3 5 7
-2 5 2
-1 2 8
+
8
+ 138
+146
-1 7 1
+ 37
-1 2 5
+ 36
-2 8 6
+227
-1 2 0
+284
-1 3 4
-
-
64.3
472
879
756
849
622
P o s it io n s
N et borrowed reserves averaged 1 4 0 million dollars dur
ing the four weeks ended Ju ly 2 5 , down by 6 7 million dol
lars from the average in the preceding four weeks, as float
remained at unusually high levels throughout the month.
H owever, until the statement week ended Ju ly 2 5 , average
T otal............................................
Effect o f change in required reservesf . . . .
ances to 2 Vi per cent.
Daily average level of member bank:
Borrowings from Reserve B anks. . . .
Excess reservesf........................................
N ote: Because of rounding, figures do not necessarily add to totals.
* Includes changes in Treasury currency and cash,
t These figures are estimated,
t Average for four weeks ended July 25.
89
573
533
59
736J
596 1
107
FEDERAL RESERVE BANK OF NEW YORK
Banks. System holdings of Governm ent securities on an
outright basis were reduced by 4 7 3 million dollars between
Ju ly 4 and Ju ly 2 5 , the cumulative effect being to counter
act the easing tendencies stemming from other factors.
G o v e r n m e n t Se c u r it ie s M
arket
issued” 2 3 per cent notes reached the market in some size
A
at or just above par from investors who had apparently
been holding the 2 per cent notes with a view to meeting
early cash needs. Since offsetting demand was light, the
bid price on both rights and when-issued securities declined
Following temporary advances at the beginning of Ju ly,
as much as % 2 ° f a point below par, at which level sellers
tended to hold off. O f that portion of the two maturing
the prices of Government notes and bonds declined almost
issues held outside the Federal Reserve Banks and the
Th e rally at the beginning of the
Government investment accounts, 8 8 2 million dollars was
month was partly connected with the onset of the steel
strike which suggested that economic activity and demands
for bank credit might temporarily slacken; in addition,
retained for cash redemption, a rate of attrition of about
large purchases of Treasury bills by the Federal Reserve
bid at
System were interpreted as confirmation of the willingness
of the System to assist the banks in meeting regular sea
2 3 , but later m oved down to
without interruption.
sonal pressures on their reserves. A fte r Ju ly 5 , however,
1 8 per cent; the total subscription to the new issue
amounted to 1 2 ,0 5 6 million dollars. Th e new notes were
y32 below
par on a when-issued basis through Ju ly
%2
below par bid in line
with the general decline in Government security prices.
prices turned down and market sentiment became increas
In contrast to the upward trend in yields on Government
notes and bonds, Treasury bill rates generally m oved
ingly bearish over the rest of the month. T h e wide spread
downward during the first three weeks of Ju ly, following
between yields on long-term Governm ent securities and
a month of near stability. E a rly in the month the market
yields on newly offered corporate bonds w as one factor
w as strongly influenced by the substantial outright pur
chases of bills by the Federal Reserve System, as well as
tending to depress the Governm ent securities market, as
was the continued large volume of new corporate security
flotations. M arket opinion veered toward the view that,
by the temporary advance in the prices of other G overn
ment securities. In the Ju ly 2 auction the average issuing
once the steel strike was terminated, a vigorous economic
rate dropped to 2 .4 0 9 per cent from 2 . 5 3 5 per cent in
expansion— perhaps with an inflationary potential— would
develop, and that in consequence credit policy might be
late June. Substantial demands from investors who had
apparently missed in the auction drove the rate on the
come more restrictive.
longest outstanding bill down to 2 .2 9 per cent (bid) b y
In this environment, offerings of
intermediate and longer-term Governm ent securities by
the close of Ju ly 5 , the lowest level since M arch.
insurance companies, trust accounts, and savings banks
though System holdings o f bills were reduced by over 3 5 0
million dollars in the two weeks ended Ju ly 1 8 , the average
switching into higher yielding corporate securities met with
only limited demand. O ver the month as a whole most
issues maturing after 1 9 6 1
1 2%2
% 2 and
declined by between
and 1 2 % 2 points and shorter issues by between
1 % 2 * The two longest bonds declined by over 2 Vi points.
On Ju ly 1 2 the Treasury announced the refunding terms
for 1 2 , 3 8 8 million dollars of 2 per cent notes due August
1 5 and 5 5 0 million dollars of IV2 per cent notes due O cto
ber 1 . Holders were offered in exchange for these notes a
new 2 3 per cent note maturing A ugust 1 , 1 9 5 7 . Th e new
A
notes were dated Ju ly 1 6 with interest adjustments as of
that date, thus providing an immediate increase in the
interest return to holders choosing to make the exchange.
The subscription books were open Ju ly 1 6 through Ju ly 1 8 ,
and the physical exchange was effected on Ju ly 2 5 .
Since the bulk of the maturing \Vi per cent notes was
E v en
issuing rate continued to move down, in part influenced b y
the investment of the proceeds of corporate security flota
tions, falling to 2 .3 8 7 per cent in the Ju ly 9 auction and
to 2 . 2 3 7 per cent in the subsequent week. In the two suc
ceeding auctions, however, as nonbank demand tapered off
somewhat and dealers became more cautious over the out
look for interest rates, the average issuing rate moved up,
first to 2 .3 0 3 per cent and then to 2 .3 7 8 per cent.
O t h e r Se c u r it ie s M
arkets
Th e markets for corporate and municipal bonds were
marked by a somewhat heavier tone during most of Ju ly ,
as the volume of current and prospective flotations con
tinued to be large.
Conditions in these markets also re
flected the spreading opinion that a renewed upsurge of
held by the Federal Reserve Banks, interest centered on
business activity would develop following the termination
the terms of the exchange of the 2 per cent notes, of which
of the steel strike. Th e reception accorded to new issues
about 5 billion was held outside the Federal Reserve Banks
was mixed and, in a number of instances, the breaking-up
and Governm ent investment accounts. Initial response was
of underwriting syndicates led to markups in yields. A v e r
generally favorable, and the 2 per cent “ rights” rose above
age yields on outstanding corporate issues, as reflected in
par bid on the day after the exchange was announced.
M oo d y’s A aa-rated corporate bond index, rose b y 7 basis-
A fter the week end, offerings of both rights and the “ when-
points during Ju ly, following near stability throughout
108
MONTHLY REVIEW, AUGUST 1956
June; yields on similarly rated long-term municipal bonds
also advanced b y 7 basis-points, almost offsetting the de
cline in the previous month. In each instance the upturn
year thus far, amounted to 6 3 million dollars, com pared
with net borrowings of 2 0 7 million in the four preceding
weeks.
in yields on outstanding issues represented a reversal from
the downward trend that had prevailed since early M ay.
loans registered a m ajor drop, largely concentrated in the
The estimated volume of publicly offered corporate
week ended June 2 7 and for the most part reflecting repay
bonds for new capital rose to 5 6 5 million dollars, more
than twice as much as in June. M ost investors held off
ment of loans made b y N e w Y o r k banks to dealers in
Governm ent securities during the preceding week. C on
In addition to the decline in business loans, security
early in the month awaiting the test of the market that
sumer loans declined b y 2 3 million dollars over the four-
occurred on Ju ly 10 , when a 2 5 0 million dollar issue of
week period ended Ju ly 1 8 , in contrast to increases in
A a-rated A m erican Telephone and Telegraph Com pany
recent months, and real estate loans, which rose 4 5 million,
debentures w as offered to yield 3 . 7 3 per cent. T h e good
reception accorded this issue led to some display of
advanced much less rapidly than earlier this year.
strength, and prices of m any outstanding issues advanced
investment portfolios of w eekly reporting member banks
temporarily.
O ver half of the nearly 1 billion dollar decline in the
Subsequently, however, markets were again
was attributable to a reduction o f 5 3 5 million dollars in
under pressure and several proposed issues were deferred.
holdings of Governm ent securities other than Treasury
Public offerings of municipal bonds amounted to an esti
bills, partly reflecting the redemption o f maturing tax
mated 2 6 0 million dollars in Ju ly, compared with the un
anticipation certificates on Jun e 2 2 . Holdings of Treasury
usually large offerings of over 600 million dollars in June.
bills declined by 2 5 8 million and holdings
Governm ent securities by 1 6 2 million.
Dealer inventories remained at high levels throughout the
month, partly in consequence of the heavy June offerings,
and in a number o f cases price concessions were made
with a view to speeding the sale of slowly moving issues.
of non-
Table II
Weekly Changes in Principal Assets and Liabilities of the
Weekly Reporting Member Banks
(In millions of dollars)
The resistance of investors also led to the postponement
of two sizable highway bond flotations that had been an
nounced earlier. Despite the tapering-off of new issues, the
municipal market remained sluggish toward the end of the
Statement weeks ended
Item
June
27
M
em ber
B a n k C r e d it
Total loans and investments o f weekly reporting member
banks declined 1 .4 billion dollars during the four weeks
ended Ju ly 1 8 , following an expansion of 1 . 2 billion dol
Total loans adjusted*..
lars in the preceding four weeks. Loans dipped by 4 7 9
million dollars and investments decreased by 9 5 5 million.
Investments:
U.S. Government securities:
Treasury bills.......... ..
A b ou t half of the decline in total loans was accounted
for by a drop in business loans (including agricultural
million dollars, which was considerably
larger than the 4 million dollar decline in the comparable
period of 1 9 5 5 .
—
—
—
+
+
showed relatively small changes, of about the same size
Sales finance companies, which had bor
rowed heavily from banks prior to the June tax date, made
net repayments of 2 4 5 million dollars, more than offsetting
their borrowing during the week ended June 2 0 ; last year,
repayments by sales finance companies in the comparable
four-week period after the tax date were m arkedly smaller.
Repaym ents by metal and metal products companies,
whose borrowings have been so marked a feature of the
106
3
71
28
- 80
+
3
+ 21
+
8
} + 1 ,9 5 0
+
497
480
+
664
53
-
50
-
22
-
4
-2 1 0
-
47
-
175
-
47
+ 2 ,4 8 5
-1 1 3
-3 6 0
+
-
5
28
—
-
105
105
— 45
- 42
997
-2 ,8 6 3
T o ta l...................................
Other securities.............. ..
-4 7 3
- 31
-
23
31
—
—
210
4
— 87
- 96
-3 ,8 6 0
459
Total investments..............
-5 0 4
-
54
-
214
-1 8 3
- 4 ,3 1 9
-7 1 4
-1 0 1
-
389
-2 3 0
- 1 ,8 3 4
—
133
+
+
-
179
-1 4 3
+ 2 ,0 2 6
T o ta l loans and in vestm en ts
A sid e, however, from loans to sales
finance companies, the chief categories of business loans
8
+
6
+ 25
— 15
July
18p
11
Loans and investments:
Loans:
Commercial and industrial
Agricultural loan s.. . . . . . . .
Security loans..........................
Real estate loans....................
All other loans (largely
consumer)..............................
as a year ago.
- 64
7
-2 1 6
+ 24
July
Assets
month.
loans) of 2 5 9
July
4
Change
from Dec.
28, 1955
to July
1 8 ,1956p
Loans to banks.................................
+177
48
246
Loans ad ju sted* and “ other”
-2 4 1
-
-6 9 5
-9 6 2
+
98
+424
- 3 ,1 1 2
+ 80
+303
- 26
+194
72
- 1 ,1 2 9
- 46
-1 4 4
+
+
209
74
-1 6 4
+806
+ 28
+
-
— 273
+ 45
—
+
136
45
78
Liabilities
Demand deposits adjusted..........
Time deposits except
Government..................................
U. S. Government deposits.........
Interbank demand deposits:
l +
5
217
5
.
p Preliminary.
* Exclusive of loans to banks and after deduction of valuation reserves; figures
for the individual loan classifications are shown gross and may not, therefore,
add to the total shown.
FEDERAL RESERVE BANK OF NEW YORK
109
INTERNATIONAL M ONETARY DEVELOPMENTS
M
onetary
T rends
and
P o l ic ie s
In the United Kingdom, the Chancellor of the Exchequer
late last month urged on the banking community that a
policy of credit contraction be “ resolutely pursued” .
According to the latest statement of the London clearing
banks, advances rose by 6 5 million pounds during the six
weeks ended June 30 , as against only some 0.8 million
during the preceding four-week period. Th e latest increase,
ment some 80 billion francs through bank purchases of
short-term Treasury securities.
R ecent Canadian monetary and banking developments
to the m idyear are discussed elsewhere in this Review .
During Ju ly the chartered banks’ liquidation of govern
ment bonds, which had accelerated this spring, slowed
down considerably. Business loans, while continuing the
upward trend evident since early 1 9 5 5 , last month ad
vanced less rapidly and on Ju ly 1 8 were 2 8 .0 per cent
which is attributable in part to the semiannual inclusion of
a number of extraneous items, leaves advances still almost
above a year earlier, as against 2 9 .5 per cent at the end
1 0 per cent below the m id -19 5 5 level. A t the same time
the banks’ liquidity position has improved, with the liquid
same time, the banks’ indebtedness to the B an k of Canada
ity ratio on June 3 0 standing at 3 3 .6 per cent, as against
of June and 3 0 .5 per cent at the end of M a y .
A t the
continued, and even increased. Security yields, which gen
3 3 . 2 in m id-M ay and 3 0 .1 on June 3 0 , 1 9 5 5 .
erally had declined during M a y and June, last month
moved upward once more, with the three months’ Treasury
The British Building Societies’ Association, in the face
of continued heavy demand for mortgage credit, recom
mended to its members that they increase their lending and
bill tender rate rising to 2 .6 5 per cent on Ju ly 2 6 from the
year’s low of 2 .4 0 on Ju ly 5 . Th e chartered banks, after
borrowing rates; these increases, to which six of the largest
the interest rate on savings deposits to
societies already have agreed, involve rises to 6 from
per cent in the minimum rate on new loans, to 3 Vi from
cent, i. e., to the highest level since the early thirties.
3 per cent in interest paid on fully paid shares, and to
3 from 1 V2 per cent in interest on deposits. In response to
having raised their loan rates in A p ril, in Ju ly increased
2 Va
from 2 per
The Chilean authorities, following up the credit restric
tions set for the first half of 1 9 5 6 (which had provided,
among other measures, for a diminishing rate of monthly
the Treasury’s offer of 4 Vi per cent Conversion Stock
of 1 9 6 2 in exchange for 8 2 4 million pounds of 2 Vi per
cent National W ar Bonds maturing in m id-August, about
allow an over-all July-D ecem ber credit expansion of 1 1
per cent, as against 1 5 per cent in the first half. In Colom
80 per cent of the old issue w as tendered (the bulk re
portedly coming from official p o rtfo lios); this leaves about
bia, the 6 0 per cent supplementary-reserve requirement
against increases in deposits imposed in A p ril was abol
1 6 7 million to be paid off in cash. Y ield s o f gilt-edged
securities declined somewhat in the first half of Ju ly; the
regulations also put into force in A p ril have apparently
yield of 2Vz per cent Consols fell to 4 .7 4 per cent on
remained unchanged. A t the same time, commercial bank
Ju ly 9, but rose again to 4 .8 3 on Ju ly 3 1 .
credit expansion), now have announced rates that will
ished as of Ju ly 1 ; however, the more restrictive discount
Th e average
reserve requirements were reduced to 1 4 from 1 8 per cent
tender rate for three months’ Treasury bills, which had
stood at 5 . 1 3 per cent at the last June tender, declined to
for sight and to 5 from 8 per cent for all other deposits.
4 .9 8 at the last Ju ly tender.
E xchange R ates
The French National Credit Council last month took its
first action, since the beginning of the current boom in
Sterling rates during the first half of Ju ly fluctuated
within fairly narrow limits in a rather quiet market undis
Western Europe, to restrain the growing French inflation
ary pressures. First, the council tightened the instalmentcredit terms for finance companies by raising minimum
tinguished by any noteworthy pressures. Am erican-account
sterling eased during the first week o f Ju ly, moving as low
downpayments to 2 5 from 2 0 per cent and reducing the
affected, either by the Ju ly 3 announcement that Britain’s
lending capacity of such companies to eight from ten times
gold and dollar reserves had risen 1 6 million dollars in
their combined capital and reserves. Secondly, it set com
Jun e or by the information that Britain had run a 2 5 . 2
as $ 2 J 9
1%2
on Ju ly 6. Th e market w as not noticeably
mercial bank security-reserve requirements at a minimum
million dollar deficit with the E P U . A fte r noon on Ju ly 6
of 2 5 per cent of their demand liabilities; heretofore, these
the rate m oved upward, remaining stronger at about
requirements (which date back to 1 9 4 8 ) had called for
reserves of 2 0 per cent against increases in deposits. Th e
$ 2 .7 9 %
until midmonth, as commercial demand in N ew
Y o rk (prim arily on the part of oil com panies) along with
2 5 per cent requirement will, in effect, alleviate the Treas
small offerings of dollars in London lent some firmness
ury’s cash position, since it is expected to net the govern
to the rate.
110
MONTHLY REVIEW, AUGUST 1956
A lack of substantial activity also characterized the m ar
ket for other types of sterling during the first half of Ju ly.
Sterling for three and six months’ delivery remained vir
somewhat, with three and six months’ sterling quoted at
1 Vi and 2Vs cents discount on Ju ly 3 1 . Transferable
tually unchanged at discounts of about 1 % 6 and 2 sy 32
declined to $ 2 . 7 6 1 0 , while securities sterling m oved errati
cents.
The transferable-sterling market also appeared to
cally between $ 2 . 6 9 1 i and $ 2 . 6 6 ^ , with the lower quota
/
be rather narrow and quiet, with the rate fluctuating be
tween $ 2 . 7 7 2 0 and $ 2 . 7 7 4 5 . Securities sterling continued
tion at the month’s end.
Th e Canadian dollar met with good investment demand
to weaken and dropped as low as $ 2 . 6 7 % .
from London and N e w Y o rk as well as commercial de
A fte r midmonth, however, sterling came under increas
ing pressure.
G ood demand for dollars in London, par
ticularly on the part of oil and tobacco interests, along
sterling was under slightly less pressure but nevertheless
mand in N ew Y o r k and m oved as high as $ 1 . 0 2 1 4 early
in Ju ly.
Subsequently the rate remained
quite firm,
although there was some tendency for it to ease in a smaller
with substantial sales of sterling in N ew Y o rk lowered the
market in the closing days of the month; on Ju ly 3 1 the
rate to $ 2 . 7 9 % 2 on Ju ly 2 4 . Such pressures continued
subsequently and, with the development of uncertainties in
the M iddle East, sterling declined further, to as low as
Canadian dollar was quoted at $ 1 . 0 1 2% 2.
The W est Germ an “ liberalized capital” m ark continued
$ 2 . 7 8 x% 2 on Ju ly 3 0 and 3 1 . A t the same time, the dis
counts on sterling for forw ard delivery tended to narrow
above the rate for the freely convertible mark, with the
rate quoted as high as 2 4 .6 2 cents on Ju ly 2 7 .
to reflect good investment interest and moved substantially
SECURITIES MARKETS IN THE FIRST HALF OF 1956
Th e heavy demand for capital funds during the first half
o f 1 9 5 6 placed pressure upon the securities markets and
was reflected in an upward adjustment in the level of bor
billion dollars, the largest amount in any first six months
on record. A s shown in the table, corporate flotations for
and underwriters of the prospects for long-term interest
financing plant and equipment expenditures were higher
than in the first half of 1 9 5 5 , reflecting the continued up
trend in business capital outlays this year. A more sub
stantial increase over 1 9 5 5 occurred in offerings to raise
additional working capital, which was needed mainly be
rates and to relatively large and frequent swings in prices
cause of rising inventories and record income tax p ay
and yields of bonds and stocks during the period.
ments. On the other hand, the rise in borrowing costs
made it less attractive for corporations to refinance out
standing securities, with the result that the volume of re
funding issues declined m arkedly from the first six months
of 1 9 5 4 and of 1 9 5 5 .
rowing costs. Changing views concerning the future course
o f economic activity, together with recurrent uncertainty in
political affairs, led to frequent reappraisals b y investors
Flotations of both corporate securities and State and
local government issues were larger in the first half of this
year than in the same period of 1 9 5 5 . W hile seasonal net
redemptions of Treasury securities also were greater than
in 1 9 5 5 , a substantial part of these redemptions repre
sented securities turned in for tax payments and thus did
not release funds for reinvestment in other securities or
for private debt repayment.
M arket reception of the heavy volume of bond offerings
A noticeable shift in the types of securities offered by
corporations to investors occurred during the past half
year; issues of common stock declined both in absolute
Corporate Securities Offered for Cash
(In millions of dollars)
w as highly selective during most of the first half, and
underwriters often encountered difficulty in distributing
new issues at their original offering prices. Sluggishness in
1955
Offerings
1953
Total
the bond markets was particularly pronounced during
M arch and A p ril, despite widespread price concessions and
increasingly attractive yields in that period. A temporary
improvement in buying interest during M a y and June
brought about a decline in market yields on high-grade
bonds. A t midyear, long-term interest rates resumed their
upward movement.
V
olum e
of
O f f e r in g s
The gross proceeds of corporate securities offered for
cash in the first half of 1 9 5 6 totaled approximately 5 .3
1956
Jan.-June
1954
Jan.-June
July-Dee.
Type of security:
Common stock..................
Preferred stock..................
Bonds and notes................
1,326
489
7,083
1,213
816
7,488
2,185
635
7,420
1,320
319
3,305
865
317
4,116
1,000
400
3,900
Total gross proceeds___
8,898
9,516
10,240
4,944
5,298
5,300
Purpose of offering:
Plant and equipment.........
Working capital.................
Retirement of securities_
_
Other purposes..................
5,647
2,313
260
535
5,110
1,670
1,875
709
5,333
2,624
1,227
864
2,488
1,314
627
415
2,846
1,310
600
449
2,700
1,800
300
400
Total net proceeds.........
8,755
9,365
10,049
4,844
5,206
5,200
Note: Because of rounding, details may not add to totals shown.
Sources: Securities and Exchange Commission; 1956 partly estimated by the Federal Reserve
Bank of New York.
111
FEDERAL RESERVE BANK OF NEW YORK
amount and in relative importance, compared with the
exceptionally large volume of such offerings during the
com parable period of last year, while flotations of bonds
and preferred stocks gained in importance over the first
six months of 1 9 5 5 . A somewhat larger proportion of this
somewhat higher proportion of total municipal offerings
during the recent half year than in the first half of 1 9 5 5 ,
but were still considerably less important than during late
1 9 5 3 and calendar year 1 9 5 4 (see Chart I).
year’s corporate bond issues has been privately placed than
amounted to 10 .0 billion dollars during the first six months
of this year. This amount was twice as much as a year ago,
in the corresponding periods of 1 9 5 4 and 1 9 5 5 .
State and local governments floated 3 . 1 billion dollars of
N et cash redemptions o f Federal Government securities
since tax receipts were higher this year, while Federal out
long-term bonds during the first half of 1 9 5 6 , an increase
lays
over the 2 .8 billion raised during the same period of last
Treasury security offerings in this period were confined
rose
only
slightly from
the first half
of
19 55.
year but substantially less than the record 3 .8 billion in
the first six months of 1 9 5 4 . Revenue bond issues were a
to relatively short-term issues, in contrast to the first half
of 1 9 5 5 , when Federal flotations included a forty-year
3 per cent bond.
ChartI
GROSS PROCEEDS OF NEW SECURITY ISSUES
Millionsof dollars
Quarterly
T he C ost
of
B o r r o w in g
Millions of dollars
Borrowing costs and market receptivity to new issues
were subject to rapidly changing influences during the ini
tial six months o f this year. Broadly speaking, the securi
ties markets went through three phases, each one lasting
about two months. T h e separate phases are clearly appar
ent in Chart II, which illustrates the movements in market
yields for seasoned corporate, municipal, and Governm ent
bonds and for industrial common stocks.
During the first phase, roughly from the beginning of the
year to the latter part o f February, market yields on long
term bonds tended downward. Th e belief appeared to be
widespread at the time that a peak in economic activity
had probably been reached and that a subsequent down
turn might bring lower interest rates in the future. M ore
over, uncertainty over the President’s intentions as a candi
date for re-election had an unsettling effect on investment
Chart 31
MARKET YIELDS OF SELECTEDSECURITIES
Weekly *
Per cent
5.0
Per cent
5.0
Industrial common stocks
3.5
Baa corporate
Aaa corporate^
3.0
2.5 -
Long-term Treasury issues +
Aaa municipal
1.5 i i i i i I i i i i i I i i i i i I i i
1955
1956
Sources: Securities and Exchange Commission and Bond Buyer • 1956 partly
estimated by Federal Reserve Bank of New York.
1.5
* Weekly averages, except end-of-week data for industrial common stocks
and Thursday close for municipal bonds.
* Old series.
Sources: Federal Reserve Bulletin and Moody’s Investors Service.
112
MONTHLY REVIEW, AUGUST 1956
markets. The volume of new corporate security issues dur
ing these months was relatively light, and was generally
end of 1 9 5 5 . M oreover, the yields on some intermediateterm Treasury issues rose temporarily above those on
well received despite the economic and political uncertain
longer bonds, producing a “ bulge” in the yield curve; for
ties. H owever, there w as an upsurge in State and local
government borrowing during February, and the slow dis
tribution of the new offerings left large unsold balances
in the hands of municipal bond dealers.
In late February and early M arch , a change in market
climate took place as investors found it necessary to reap
praise the economic and political outlook. Th e President’s
decision to seek re-election cleared the air of this uncer
example, on A p ril 1 6 the bid yield on the 2 %
per cent
notes of June 1 9 5 8 stood 1 8 basis-points higher than the
yield on the 3 per cent bonds of 1 9 9 5 .
Th e securities markets entered a third phase in early
M ay , when indications of a slackening of demand for auto
mobiles and other consumers’ durable goods created the
expectation among m any large investors that at least a
temporary decline in business activity might be in prospect,
tainty, while the Federal R eserve survey of consumer
and that no further credit tightening w as in the offing.
finances gave evidence of consumers’ intentions to m ain
Buying interest in both new and recent corporate securities
tain a high level o f expenditures during 1 9 5 6 . M oreover,
the joint Department of Com m erce and Securities and E x
showed a marked recovery beginning in M a y, and dealers
were able to reduce their swollen inventories. A s shown
change Commission survey of business plans for capital
in Chart II, the decline in yields during this phase was
outlays in 1 9 5 6 imparted an improved tone to the business
centered mostly in Federal securities and municipal bonds.
B y the end of June, average yields on high-grade, seasoned
outlook, and gave rise to expectations of enlarged demands
for capital funds particularly on the part of public utilities
companies.
municipal issues registered a decline of 1 7 basis-points
from the peak in early M ay , while the longest-term G o v
The markets for new issues of corporate and municipal
ernment bond fell off 1 2 basis-points in yield from the
bonds were characterized b y congested conditions during
earlier high. In contrast, average yields on A a a corporate
the months of M arch and A p ril. Despite higher yields on
bonds declined early in M a y b y only 4 basis-points from
new issues and substantial price concessions on recent
the peak and then remained stable through the end of June,
issues following the termination of some underwriting
syndicates, m any investors preferred to remain on the side
while average yields on B a a corporate bonds continued to
edge upward during M a y and June.
lines to await still more attractive yields. W ith large un
In the stock market, dividends-price ratios on industrial
sold balances of municipal bonds in their portfolios,
common stocks tended to m ove in inverse relationship to
bond yields in each of the phases described above. G en
underwriters bid cautiously for new security offerings, and
the cost of borrowing rose to the highest level since 1 9 5 3 .
erally speaking, the factors which generated caution among
During this period of market congestion, average yields
on long-term municipal bonds rated A a a b y M oo d y’s In
vestors Service rose 3 4 basis-points from 2 . 1 7 per cent in
late February to a peak o f 2 . 5 1 per cent in early M a y . The
advance in high-grade seasoned corporate bond yields w as
investors in fixed-yield obligations caused investors in
from 3 .0 7 per cent to 3 . 3 1 per cent, while the yields on
new issues rose even more sharply. In the Governm ent
securities market, the yield on the “ bellwether” forty-year
bonds rose b y 1 3 basis-points between m id-February and
early A p ril; following the raising of discount rates by the
equities to become more optimistic; similarly, when debt
issues rose in investors’ favor, equities tended to decline in
attractiveness.
In the early weeks o f the year, common stock prices
sagged, while bond prices firmed. Then, stock prices began
a strong upward climb, moving into new high ground at
about the same time that bond prices reached their 1 9 5 6
lows. A relatively sharp setback in stock prices occurred
during M ay, but a recovery got under w a y in June.
Federal R eserve Banks in m id-April, there was a further
A s shown in C hart II, the dividends-price ratio for
rise of 3 basis-points in yields on the longest Governm ent
industrial common stocks (M o o d y’s series) declined from
bond to a peak of 3 . 1 3 per cent on A p ril 1 7 .
a peak of 4 . 1 3 per cent in late Jan u ary to a low of 3 .6 5
In general, short-term Treasury bill rates m oved up
per cent in early A p ril when stock prices attained their
faster than long-term Governm ent yields in this period;
highs for the first half of 1 9 5 6 . In early M a y , and again
consequently, the trend toward a flattening of the yield
during Ju ly, common stock yields declined slightly below
curve which had developed during the second half o f 1 9 5 5
became even more marked. On A p ril 1 9 , there w as a
the market yields available on B a a corporate bonds.
spread of 3 6 basis-points between the yields on the longest
heavier tone and long-term yields began once more to rise.
N ear the end of June, the bond markets took on a
Treasury bill issue outstanding and the longest Government
Th e large volume of Ju n e offerings of State and local gov
bond, compared with a spread o f 4 9 basis-points at the
ernment bonds encountered stiffened investor resistance to
FEDERAL RESERVE BANK OF NEW YORK
prevailing yields, and dealers’ attempts to reduce their
heavy inventories b y cutting prices during Ju ly met with
little success. M arket yields continued to rise despite a
decline in the volume of municipal offerings, and two high
w ay bond issues scheduled for m id-July were deferred. In
the corporate bond market, the calendar of new issues was
113
average yields on high-grade corporate bonds reached
3 . 3 3 per cent, a new high for the year, while yields on
long-term Governments were close to their previous peaks.
Underlying these recent changes in the tone of the bond
markets w as the growing market expectation that a renewal
of economic expansion and possibly of inflationary pres
heavily weighted b y a 2 5 0 million dollar offering of deben
sures might follow the settlement of the steel strike, and
tures by the Am erican Telephone and Telegraph Com pany
that demands for capital and credit financing would in
and by several other sizable flotations. A t the end of Ju ly ,
crease in the months ahead.
M ONETARY AND BANKING DEVELOPMENTS IN CANADA
The Canadian monetary and banking scene during the
past two years has been active indeed. A series of institu
tional and legal changes have broadened the money m ar
ket. A t the same time, credit policy has assumed a new
importance in the fostering of balanced economic growth,
in contrast to the earlier postwar years when greater re
liance was placed on fiscal policy. These changes in the
inoperative; moreover, central bank open market opera
tions lacked a firm fulcrum, in the form of a stable cash
reserve ratio, against which to exert an effective leverage.
Th e Canadian monetary authorities had long sought to
encourage the growth of a short-term market, and begin
ning in 1 9 5 3 they took a number of m ajor steps in this
financial fram ework reflect in large measure the increasing
direction. Th e government changed its regular issue of
Treasury bills from a fortnightly to a w eekly tender and
maturity of the Canadian economy, which has shown a
remarkable growth in recent years.1
began issuing nine months’ as well as three months’ bills,
increasing both the total volume of bills and the number
W ith the rapid upsurge in production and employment
after the mild 1 9 5 3 - 5 4
recession, monetary conditions
of maturities available to the market. T h e B an k of Canada
Severe
then made its credit available, through repurchase agree
ments, to government securities dealers willing to take posi
inflationary strains, however, have remained absent; ac
tions in the short-term market. T o encourage further the
have gradually changed from ease to tightness.
cordingly the prim ary aim of monetary policy has not been
development o f market intermediaries the B an k of Canada,
to prevent a credit expansion, but rather to match available
funds to the growth of available resources. In pursuing
this aim, monetary policy has gained flexibility and
in its market transactions in Treasury bills, progressively
strength from the new m oney market and from the in
and discontinued making payment in immediately available
funds for bills purchased from banks, paying instead in
clearing house funds. M oreover, the B an k of C anada
creased scope that it has given for central bank action.
B r o a d e n in g
of the
M
oney
M
arket
Throughout the postwar period the absence of a devel
oped m oney market handicapped open market and dis
count rate policy in Canada. Th e issuing of Treasury bills
at regular fortnightly tenders, it is true, had begun as early
as the m id -19 3 0 ’s, but the bills were largely held within
the banking system and their volume remained relatively
small. In the absence of a broad bill market, the B an k of
C anada found itself the principal buyer of Treasury bills
from the banks, taking all offerings at a rate closely related
to the latest average tender rate.
C an ad a’s commercial
widened the spread between its buying and selling levels,
instituted a minimum for its individual buying transactions,
opened its wire transfer facilities to dealers to help them
avoid the costs of transferring bills between cities.
In m id -19 5 4 two more important changes were made.
First, the minimum required reserves of the chartered
banks— consisting of notes as well as B an k of Canada
deposits— were altered, as part of a revision of the
banking legislation, from a daily ratio of 5 per cent to a
monthly average of 8 per cent. Secondly, the chartered
banks were encouraged to start making day-to-day loans
to those government securities dealers that were carrying
inventories of short-term government securities.
banks (the so-called chartered banks) not only made use
of Treasury bills to adjust their reserve positions, but also
maintained ample cash reserves in excess of the then 5
T he M
oney
M
arket
A
rrangem ents
Thus the banks
Th e Canadian m oney market, unlike those in the United
seldom found it necessary to borrow at the B an k of
States and Britain, is not centered in one city but instead
per cent statutory reserve requirement.
Canada, with the result that the discount rate remained
1 For a discussion of the Canadian banking system, see Monthly
Review, December 1954.
has two main centers, Toronto and M ontreal; in other
respects, it combines certain N ew Y o r k and London fea
tures. The core of the market consists of twelve jobbers
MONTHLY REVIEW, AUGUST 1956
114
who, alone among Canadian government securities dealers,
Bank of England advances to the discount houses, in that
maintain continuous quotations in all maturities of Treas
every jobber to whom this facility is extended m ay draw
ury bills and other government securities up to three years,
upon it at his own initiative. Th e Canadian jobbers, how
hold portfolios of these m oney market securities, obtain
ever, must stay within their borrowing limits. T h e repur
day-to-day loans from the chartered banks, and have
chase
access to Bank of C an ada credit in the form of repurchase
discount rate, and are applicable to Treasury bills and
agreements
are made
at the Ban k
of C anada
agreements. The chartered banks’ day-to-day loans, made
other government securities with maturities up to three
against the pledge of Treasury bills and government bonds
years; they run up to thirty days, but the jobber m ay ter
maturing within three years, are the prim ary source of
minate them at any time. Since the bank rate is as a rule
funds for the financing of the jobbers’ portfolios. T h e rates
higher than the day-to-day loan rate, a jobber whose d ay-
on these loans are determined through over-the-counter
to-day loan has been called by one bank and who is unable
negotiations, and are kept competitive with the help of
to replace it by a loan from another bank will not turn to the
two special “ brokers” who serve on a salaried basis as
Bank of Canada until he has exhausted every possibility of
an information center for the batiks. T h e banks report to
obtaining nonbank funds. Central bank accommodation is
these “ brokers” the rate on each new loan, or any revised
also available to the banks as in this country but in con
rate on an outstanding loan, of one million dollars or
trast to the practice in England, where the discount houses
more. The “ brokers” inform all the other banks accord
and not the banks borrow from the B an k of England. T h e
ingly but themselves do nothing about matching up supply
borrowing takes the form of seven-day secured advances,
and demand. The day-to-day loan rate from its inception
which means that seven days’ interest would be charged
has generally been below the tender rate for three months’
even if the loan were repaid earlier, and that after seven
Treasury bills, thus enabling the jobbers to earn a small
days the advance has to be renewed.
profit on their carry.
T he total outstanding volume of day-to-day loans ex
W ith the broadening of the m oney market, the volume
of private paper has increased substantially and today
tended by the chartered banks to the jobbers m ay not
forms an important part of the market.
exceed a maximum determined b y the borrowing limits
issued by finance companies and by large nonfinancial cor
This paper is
of each jobber. These individual limits take in not only
porations, and has maturities ranging generally from three
the jobber’s day-to-day loans from the banks but also his
months to one year. T h e notes are placed either directly
borrowing facilities in the form of repurchase agreements
or through dealers, and the purchasers are mostly corpo
with the B ank of Canada. Outside these limits, the jobbers
rations with tem porary surpluses of funds. A t the end of
also obtain financing from nonbank sources in the form of
1 9 5 5 there w as believed to be about 2 0 0 million Canadian
either short-term loans or repurchase agreements.
dollars of finance com pany paper and about 5 0 million of
Th e day-to-day loan arrangements are of course in
other corporation paper outstanding.
tended to provide the banks with an interest-earning asset
Th e volume of Treasury bills, however, continues to be
through which they can easily adjust their positions, as
more important; on Ju ly 4 the total outstanding was 1 ,6 9 0
well as to provide a source of funds to finance the
million dollars, as against 6 5 0 million at the end of June
jobbers’ inventories. A bank desiring to replenish its cash
1 9 5 4 and 4 2 5 million at the end of Jan uary 1 9 5 3 . O f the
reserves m ay call part or all of its day-to-day loans by noon
current total, some 5 0 0 million is held outside the banking
for payment that day; and, when the borrower replaces this
system, compared with less than 10 0 million at the end o f
loan by a loan from another bank, deposits at the Ban k of
June 1 9 5 4 . Th e Treasury bills are at present mostly three
Canada are transferred to the bank short of reserves from
months’ bills, the tender for nine months’ bills having been
the one with ample reserves. T h e day-to-day loan market
discontinued last Novem ber. Th e weekly tenders are all
in C anada thus resembles that in London, and also has a
on a competitive basis, and are open only to prim ary
function similar to the Federal funds market in the United
distributors— that is, to the banks, the jobbers, and the
States.
other 300-od d securities dealers who take part in the
T h e day-to-day loan market, moreover, offers a
cushion for the entire commercial banking system: when
initial distribution of government securities.
the banking system as a whole is under pressure, it can
transfer this pressure onto the jobbers to the extent that
the jobbers borrow from the B an k of C anada and thus
replenish the reserves of the banking system.
B a n k C r e d it T r e n d s
The day-to-day loan market w as started during a period
of monetary ease when the Canadian economy was going
Th e B an k of C anada repurchase agreements with the
through a mild recession, and the climate thus was favor
jobbers differ from those in this country, but resemble the
able to a broadening of the money market. Nonbank in
FEDERAL RESERVE BANK OF NEW YORK
US
vestors had ample funds to invest in short-term securities.
Th e jobbers were anxious to enlarge their portfolios, on
which they could earn a profit with what they considered
to be a minimum risk of falling prices. Th e banks, due
to a slack demand for loans, were interested in expanding
their other interest-earning assets. M oreover, the banks
level. Th e banks’ liquidation of government bonds, how
ever, continued through Ju ly 1 9 5 6 . Altogether, the banks
reduced their government bond holdings from A ugust 2 4 ,
1 9 5 5 to Ju ly 1 8 , 1 9 5 6 by 1 ,3 8 0 million dollars, or 4 2
per cent.
had ample excess reserves even following the introduc
Th e reduction in the banks’ holdings of government
tion of the 8 per cent statutory reserve requirement.
securities was in part reflected in purchases by other
holders. From late A ugust 1 9 5 5 to Ju ly 1 8 , 1 9 5 6 the
The new money market continued to operate relatively
public’s holdings of marketable government securities rose
smoothly
tightened,
by 3 3 0 million dollars, while holdings b y government
although there was some decline in the volume of the
accounts rose by 5 9 million and holdings of the B an k o f
chartered banks’ day-to-day loans.
The changes in the banks’ other assets, however, were
Canada by 60 million. Th e larger part of the decline in
the banks’ government securities portfolios, however,
much more m arked as the downturn in business activity
found its counterpart in a 6 2 0 million fall in the total
gave w ay to a strong upturn. T h e 1 9 5 5 economic upsurge
marketable government debt (the increase in Treasury
even
after
monetary
conditions
did not at first give rise to an expansion of inventories, and
bills being more than offset by the retirement of short-term
bank loans resumed their growth only in A p ril 1 9 5 5 .
notes and other issues), since securities purchased by the
Thereafter the rise in general loans (i.e., excluding loans
government accounts were subsequently retired. T h e re
duction in the marketable government debt was made pos
to local governments and certain other special categories)
accelerated. The increase over a year previous amounted
sible b y the government’s strong cash position, arising
to 6 per cent at the end of the second quarter of 1 9 5 5 , and
from large budget revenues and net sales of savings bonds
to the public.
1 2 , 2 3 , and 3 0 per cent at the end of the following three
quarters. The expansion slowed down somewhat in June,
and on Ju ly 1 8 general loans were 2 8 per cent above a
year previous.
A s the banks expanded their loans, an increasing part
M
onetary
R
e s t r a in t
Open market operations have long been the major cen
tral banking instrument in Canada, and the changes in the
of their lending took the form of “ capital loans” — that is,
B ank of C an ad a A c t in 1 9 5 4 removed the last formal
term loans to corporations, with a duration of more than
one year, and acquisitions of corporate securities directly
impediments to the central bank’s operating over the
whole range of the government securities market. Discount
from the issuer rather than in the market. In Novem ber
rate policy has come to actively supplement open m ar
1 9 5 5 the chartered banks agreed with the Ban k of C an ad a
ket operations only since early 1 9 5 5 . W hile the B ank of
to cease making new commitments for such loans, after
Canada discount rate had been changed but twice from
a survey revealed that existing commitments were in excess
1 9 3 5 (when the bank had begun operations) to the begin
of 4 0 0 million dollars and that new commitments were
sion of the general banking legislation in m id -19 5 4 .
During the early part of the 1 9 5 5 loan increase, the
ning of 1 9 5 5 , it has since been altered five times. Informal
agreements between the central bank and the commercial
banks have also been relied upon; these have been made
possible by the com pact nature of the country’s commer
cial banking system, which comprises only nine banks,
with nation-wide branch systems. H owever, the power to
vary the minimum cash reserve requirements of the char
chartered banks were able to continue the expansion of
their government bond holdings that had been under w ay
tered banks that w as given to the B an k of C anada in 1 9 5 4
has so far not been used, as it is intended, according to the
since m id -19 5 4 , but in the summer months of 1 9 5 5 this
Governor of the Ban k o f C anada, only for exceptional
circumstances.
being made at a rate of 5 0 million dollars a month.
A lo n g with the expansion in general loans cam e a rapid
rise in the banks’ holdings of insured residential mortgages,
which the banks were permitted to acquire under the revi
rise leveled off and in A ugust came to a halt. Since August
1 9 5 5 the banks, in order to satisfy the growing demand for
Throughout the mild economic downturn of 1 9 5 3 - 5 4
loans, have been net sellers of bonds in practically every
the Ban k of C anada pursued a policy o f active ease.
week. A b ou t the same time that the banks began unload
Treasury bill rates as well as the yields of short and
ing their holdings of government bonds, they also started
medium-term government bonds reached three-year lows
reducing their portfolios of Treasury bills. In Novem ber,
in February 1 9 5 5 (see ch art), leaving the B an k of Canada
however, they began to rebuild their Treasury bill hold
discount rate far out of touch with the market. B y early
ings in line with their agreement with the B ank of Canada
1 9 5 5 the day-to-day loan arrangements had become well-
discussed below; b y m id-July 1 9 5 6 their bill portfolios
established, and the authorities therefore thought it desir
were some 3 0 0 million dollars above the August 1 9 5 5
able, by instituting a more flexible discount rate policy, to
MONTHLY REVIEW, AUGUST 1956
116
SELECTED CANADIAN GOVERNMENT SECURITY YIELDS
AND THE CANADIAN DISCOUNT RATE
(Yields as ofapproxim atem idm onth)
to deposits, to be maintained during each month from
June 1 9 5 6 on. Such a ratio, it was said, would in the future
make monetary restraint measures more quickly effective,
since the banks would no longer be as free to liquidate
their Treasury bill holdings in order to satisfy a growing
demand for loans and would have to start selling longerterm government securities sooner.
A fte r the turn of the year a slight easing, partly seasonal,
occurred in monetary conditions, but the upward m ove
ment in interest rates was quickly resumed, and on A p ril 4 ,
1 9 5 6 the discount rate was raised to 3 per cent. B y the
beginning of M a y the Treasury bill rate reached an alltime peak of 2 .9 1
per cent and other market rates
approached the highs of late
19 5 3 .
M eanwhile,
the
pattern of Canadian yields changed m arkedly, with the
+ A veragetender rate.
Source: BankofCorvado.Statistical Summary.
three to five-year yields standing above the long-term
yields, while the spread of Canadian interest rates above
United States rates again widened significantly.
prepare for possible borrowing from the central bank in
Subse
quently, interest rates eased somewhat, but the banks re
the event of a tightening of monetary conditions: the dis
sumed their borrowings from the B an k of C anada and
count rate was accordingly reduced to IV2 from 2 per
their average cash ratio remained close to the minimum.
cent on February 1 4 , 1 9 5 5 in order to bring it into closer
N ot only are market interest rates now well above the 1 9 5 5
alignment with short-term market rates.
lows, but the chartered banks’ loan rates and their rates
During the following months, monetary policy can be
said to have been directed at moderate ease, and the banks
on savings accounts have also been adjusted upward, m ark
ing a departure from the tradition of rate stability.
were able to add to their reserves. However, as deposits
increased, the banks’ average cash ratio fell to a new low
T h e P r e s e n t Sit u a t io n
of 8 .3 per cent b y June, com pared with 8 .7 in the first
the third quarter of 1 9 5 5 , monetary policy became, accord
In its present form the Canadian money market has been
operating for only two years, but during this relatively
short period it has functioned fairly smoothly and, more
ing to the Ban k of C an ad a’s annual report, “ one of offer
particularly, it has come through its first period of tight
ing increasing resistance to further [credit] expansion” .
Reflecting the rise in market interest rates, the discount
rate was increased to 2 per cent on A ugust 5 . Credit policy
apparently became somewhat more restrictive in the fourth
quarter, interest rates continued to rise, and the discount
rate was raised in two steps to 2 % per cent. Th e chartered
banks and the jobbers had some recourse to B an k of
C anada credit during most of this time, a practice hitherto
money reasonably well. Appropriate instruments are avail
able for the successful operation and development of the
market, and the banks, the nonbank investors and bor
rowers, and the jobbing intermediaries have all shown
quarter, and short-term interest rates rose noticeably. In
rare in Canadian banking history.
marked interest and ability as participants. Som e technical
problems still remain, but with the passage of time the
market continues to acquire more experience and greater
adaptability to changing economic conditions.
W hile the broadening of the market has undoubtedly
M eanwhile, the B an k of C anada reviewed general credit
increased the effectiveness of credit policy, monetary re
developments with the chartered banks, and in Novem ber
straint has faced various problems. In particular, the char
made three requests of the banks pertaining to their opera
tered banks follow the general practice of making rather
tions. First, the Ban k o f C anada suggested that applica
large advance loan commitments to their customers, with
tions “ for new and increased credits should be examined
the result that monetary restraint is reflected in bank loans
very carefully, and existing credit limits surveyed with a
only after some delay.
view to maintaining control over future growth” . Secondly,
change rate has given the Canadian authorities a certain
M oreover, while the floating ex
the Bank of C anada obtained, as already noted, the agree
degree of freedom in their conduct of credit policy, the
ment of the banks to stop making new commitments for
interaction of the Canadian with the United States securi
term lending. Finally, agreement w as reached on the adop
ties market tends to impose a limit on the tightness that
tion of a minimum daily average ratio of 1 5 per cent of
the B an k of C anada can enforce on the market in C anada.
liquid assets— cash, day-to-day loans, and Treasury bills—
W henever the spread between Canadian and United States
FEDERAL RESERVE BANK OF NEW YORK
interest rates widens, there are always some Canadian bor
rowers who turn to the United States market, and at the
same time United States funds flow to Canada. O n the
other hand, this close link with the United States tends to
provide a cushion for the Canadian balance of payments,
and is a considerable advantage in the continued expan
sion of the Canadian economy.
Although the policy of credit restraint has not led to a
117
supply. M oreover, it has led to a reduction in banking
liquidity, so that a further slowing-down in loan expansion
seems in prospect, particularly since loan commitments
are being worked off. Th e reduced general availability of
funds has been felt throughout the economy, and seems to
have led to a postponement of some capital expenditures.
So far the pressures of excess demand have not been ex
decline in bank loans— and was not intended to do so—
treme, and the moderate monetary restraint exercised till
now has succeeded in keeping the financial expansion
it has significantly slowed down the expansion of the money
reasonably well within the limits of physical growth.
FEDERAL FINANCES IN THE FISCAL YEAR 1956
A
sharp increase in Federal tax receipts enabled the
Government to close the fiscal year 1 9 5 6 with surpluses
ing a tax cut until the surplus becomes more ample, or
until there is no longer any risk that a tax cut would have
of 1.8 billion dollars in the conventional administrative
undesirable inflationary effects.
budget and 5 . 1 billion dollars in the consolidated cash
The following review of the fiscal-year results, as well
budget. Save for a cash surplus of less than 5 0 million dol
as the accom panying charts and statistical tables, is based
lars in the fiscal year 1 9 5 2 , the Federal Governm ent has not
had either a budget or cash surplus since the fiscal year
upon the Federal Governm ent’s cash rather than its budget
1 9 5 1 , when the post-Korea rise in tax receipts exceeded
the increase in Federal defense spending (see Chart I ) .
L a st year’s surplus coincided with an advance in the
accounts. Th e cash accounts are generally believed to be
more satisfactory than the budget accounts for purposes
of economic analysis, because they exclude intragovern
gross national product to the highest level in the nation’s
mental transfers and present the consolidated results of
budget, trust fund, and Governm ent agency transactions;
history. In retrospect, it appears that the surplus— and the
thus, the cash accounts provide an all-inclusive measure of
modest amount of debt retirement which it permitted—
the flow of cash payments and receipts between the public
had a stabilizing influence on the econom y. Together with
and the Federal Governm ent. Th e surplus or deficit in the
the Federal Reserve policy of credit restraint, the excess
cash accounts (as reported in the Daily Statement of the
United States Treasury) , when adjusted for changes in the
of receipts over expenditures in the Governm ent’s accounts
helped to control inflationary forces. W hile the expectation
of a surplus stimulated discussion in some quarters of pos
sible tax reduction, the continued operation of the economy
at close to capacity reinforced the arguments for postpon-
cash borrowing or debt redemption.1
C ash In c o m e
In the fiscal year which ended Jun e 3 0 , Federal cash
Chartl
CASH RECEIPTS AND EXPENDITURES OF THE FEDERAL
GOVERNMENT, FISCAL YEARS 1948-56
Billions of dollars
Treasurer’s balance, indicates the amount of net Federal
Billions of dollars
income was b y far the highest on record. E v e n though
important tax reductions were made two years ago, the
growth of the tax base since then has more than offset the
effects of the lower rates. From a level of about 7 1 . 5 bil
lion dollars in the fiscal years 1 9 5 3 and 1 9 5 4 , cash receipts
declined to about 68 billion dollars in the following year
and then rose to 7 7 billion dollars in fiscal 1 9 5 6 .
A s shown in Table I, every category of Federal income
increased in fiscal 1 9 5 6 . O f the total increase of 9 .3 billion
dollars, 3 .7 billion was in individual income taxes (with
held and nonwithheld), 3 . 1 billion was in corporate income
taxes, and most of the remainder was divided between
excise taxes and old-age and railroad retirement taxes.
F o r the most part, these increases in receipts were a re
sponse to the substantial expansion of the tax base with the
improvement in business conditions during the year.
Sources: Daily Statement of the United States Treasury and Treasury Bulletin.
1 The Daily Statement excludes certain net expenditures and bor
rowing operations of Government-sponsored enterprises.
MONTHLY REVIEW, AUGUST 1956
118
Chart II
FEDERAL CASH RECEIPTS AND EXPENDITURES
BY TYPES, FISCAL YEARS 1953-56
RECEIPTS
j;:;-*:] Corporate income taxes
Y///\ Individual income taxes
m Other receipts
EXPENDITURES
Defense and related ^
International finance
Interest
Other expenditures
Billions of dollars
Billions of dollars
—t SO
so r
upward adjustment of Government salaries in the summer
of 1 9 5 5 , while the rise in benefit payments can be attrib
uted to the liberalization of benefit rates and the continued
growth in the number of retired persons eligible for social
security payments.
Veterans benefits also increased in
fiscal 1 9 5 6 . On the other hand, unemployment payments
declined, owing to the shrinkage in covered unemployment
as the economy advanced to near-capacity operations.
Expenditures by the Com m odity Credit Corporation
(C C C ) amounted to 3 .8 billion dollars in fiscal 1 9 5 6 ,
which is higher than in the year before. N ear-record
agricultural output in the calendar year 1 9 5 5 was accom
panied by only modest increases in domestic and foreign
demand.
Federal price-support activities through C C C
operations helped to stem the price decline for basic crops.
The cost of servicing the public debt in the fiscal year
20
1 9 5 6 increased by about 4 0 0 million dollars, to 5 . 1 billion
dollars, partly because of a somewhat larger average debt
1953
1954
1955
1956
1953
1954
1955
1956
* For items included, see Table I.
Sources: Daily Statement of the United States Treasury and Treasury Bulletin.
during the year and partly because of higher interest rates.
The computed average annual interest rate on the public
debt advanced from about 2 .3 per cent in the fiscal year
1 9 5 5 to 2 .5 per cent last year.
Despite the reductions in individual income tax rates
which were made on Jan uary 1 , 1 9 5 4 , receipts from this
P u b l ic D
ebt
T r a n s a c t io n s
tax were higher in the fiscal year 1 9 5 6 than in 1 9 5 3 , which
was the previous best fiscal year (see Chart I I ) . F o r cor
porate income taxes, however, the rise in fiscal 1 9 5 6 was
Th e amount of publicly held Federal debt (including
agency obligations) w as reduced by 4 .8 billion dollars in
not quite enough to compensate for the loss of revenue
Table I
Cash Income and Expenditures of the Federal
Government, Fiscal Years 1955 and 1956
attributable to the repeal of the excess profits taxes as of
Decem ber 3 1 , 1 9 5 3 .
Th e fiscal year 1 9 5 6 w as the first full year in which the
broadened earnings base and coverage under the Social
Security Amendments of 1 9 5 4 were effective. A s a reflec
tion of these legislative changes, the increase in receipts
was proportionally larger for old-age taxes than for any
other tax category.
C a sh E x p e n d it u r e s
C ash expenditures increased by about 2 billion dollars
in the fiscal year 1 9 5 6 , but at 7 2 billion dollars they were
still well under the post-Korea peak of nearly 7 7 billion
dollars in the fiscal year 1 9 5 3 .
A s illustrated in Chart II, since 1 9 5 3 there has been a
sizable cutback in defense and related expenditures, which
has been partly offset by increases in other expenditure
(In billions o f dollars)
Item
1955
1956
Change
1955-56
Cash income— total........................................
67.8
77.1
+ 9 .3
Withheld income taxes.........................................
Non withheld income taxes..................................
Corporate income taxes........................................
Excise taxes...............................................................
Old-age and railroad retirement trust funds.
2 1 .2
1 0 .4
1 8 .2
9 .1
5 .9
1 .2
5 .2
- 3 .4
2 4 .0
1 1 .3
2 1 .3
1 0 .0
7 .0
1 .4
5 .8
- 3 .7
+ 2 .8
+ 0 .9
+ 3 .1
+ 0 .9
+ 1 .1
+ 0 .2
+ 0 .6
-0 .3
69.9
72.0
+ 2.1
4 0 .9
1.7
4 .7
4 .1
3 .4
5 .0
2 .0
7 .9
0 .2
4 0 .1
1 .5
5 .1
4 .6
3 .8
6 .1
1 .4
9 .1
0 .3
- 0 .8
- 0 .2
+ 0 .4
+ 0 .5
+ 0 .4
+ 1 .1
- 0 .6
+ 1 .2
+ 0 .1
2.1
+ 5.1
+ 7 .2
All other receipts.....................................................
Less: tax refunds....................................................
Defense and related*.............................................
International finance and a id t ..........................
Interest on debt.......................................................
Veterans Administration.....................................
Commodity Credit Corporation.......................
Old-age and railroad retirement trust funds.
Unemployment trust fund..................................
All other expenditures..........................................
Clearing account......................................................
Net cash income ( + ) or deficit (—) t ..........
-
categories. From 1 9 5 5 to 1 9 5 6 , however, the reduction in
Note: Because of rounding, figures do not always add to totals.
defense and related expenditures w as very small, and the
* Military outlays by Defense Department and expenditures for strategic and
critical materials, military assistance under M utual Security Act, Atomic
Energy Commission, maritime activities, the Coast Guard, defense production
activities, and redemption of Armed Forces Leave bonds.
t Economic and technical assistance and “ direct forces support” under M utual
Security Act and net redemption of notes issued to International Monetary
Fund.
X On the basis of the series entitled “ Receipts from and Payments to the Public” ,
the fiscal 1955 cash deficit was 2.7 billion dollars; data on this basis for fiscal
1956 are not as yet available. The difference between that series and the data
given in the table is accounted for chiefly by net payments by Governmentsponsored corporations from cash balances held outside the Treasury. The
latter payments are not reported in the Daily Statement.
Sources: Based on Daily Statement o f the United States Treasury and Monthly
rate of these expenditures in the most recent months
showed little change from a year ago.
A ccording to the tabulation in Table I, the largest in
creases in expenditures in the fiscal year 1 9 5 6 were for
old-age and railroad retirement benefits and for “ all other”
expenditures (which include the regular operating costs of
the Governm ent).
The latter increase partly reflects the
Statement of Receipts and Expenditures of the United States Government.
FEDERAL RESERVE BANK OF NEW YORK
119
the fiscal year 1 9 5 6 . This amount is somewhat less than
the cash surplus because 3 0 0 million dollars of the surplus
was added to the Treasurer’s balance (see Table I I ) .
Exclusive of agency borrowing, net cash debt redemption
was 5 .5 billion dollars.
Only part of the cash debt redemption, however, repre
bill issue and an 8 2 0 million additional issue of the fortyyear bonds originally floated in February 1 9 5 5 .
A b ou t 2 9 billion of maturing issues during the fiscal
year were refunded into new issues of short or intermediate
maturity; the longest original maturity among the new
securities offered in exchange was two and one-half years.
sented a reduction in the gross public debt. A t the same
Due to the preponderance of short-term securities in the
time that the Treasury w as retiring publicly held debt, it
exchange offerings, the average maturity of the marketable
was also borrowing 3 .8 billion on a noncash basis, mainly
debt was reduced by six months during fiscal 1 9 5 6 to five
in the form of increased liabilities to the trust funds (see
years and five months.
Table I I ) . Thus, the reduction in the gross public debt
during the fiscal year was limited to 1 .6 billion dollars,
maturity had
from 2 7 4 .4 billion dollars to 2 7 2 .8 billion. This decline
marked a reversal of the generally rising trend of the public
debt since the fiscal year 1 9 5 1 .
The cash debt redemption in fiscal 1 9 5 6 included 1.9
billion dollars of Savings notes, 1 . 2 billion (net) of Savings
bonds (at issue p rice ), and almost 1 . 7 billion of market
able and other miscellaneous issues.
been
During fiscal 1 9 5 5 , the average
increased by
Se a so n a l F a c t o r s
in
three
months.
T r e a s u r y F in a n c in g
In fiscal 1 9 5 6 , as in other recent fiscal years, the
Treasury’s cash requirements underwent marked seasonal
swings. In the first half of the fiscal year (July-D ecem ber
1 9 5 5 ) the Governm ent incurred a cash deficit of 6.9 billion
dollars, while in the second half (January-June 19 5 6 ) there
T h e retirement of
was a cash surplus of 1 2 .0 billion. Th e first half’s deficit,
matured Treasury Savings notes just about closes the
along with the Treasury’s cash requirements to cover the
T reasury’s books on borrowing through such securities.
attrition in refundings and net redemptions in miscellane
None has been sold since October 1 9 5 3 , and at the end of
ous debt operations, w as met partly through drawing down
fiscal 1 9 5 6 less than 2 0 million remained to be redeemed.
the cash balance accumulated in the preceding six months
Flotations of new marketable issues (excluding the
and partly through new money offerings aggregating 8.8
roll-over of regular Treasury bills) totaled 3 8 .3 billion
billion dollars. T h e second half’s cash surplus, on the
other hand, went to retire debt (mostly tax anticipation
dollars in fiscal
1 9 5 6,2 or about one-third below the
volume in the prior fiscal year.
O f the 1 9 5 6 total, 8.8
billion represented new money borrowing.
M ore than
series) held by the public and to restore the Treasury’s
balance.
three fourths of the new m oney issues consisted of tax
Th e largest seasonal swing in Federal tax receipts dur
anticipation securities, and the remainder was obtained
ing fiscal 1 9 5 6 occurred in corporate income taxes. Out
through an increase of 1 .3 billion dollars in the weekly
of total corporate tax receipts of 2 1 . 3 billion dollars, the
Treasury
collected
more
than
three
quarters
in
the
2 The flotations included about 500 million dollars of l}/2 per cent
January-June period, with as much as 7 0 per cent being
notes (Series EA and EO) issued by the Treasury in exchange for
Investment Series B bonds.
received in two months alone— M arch and June.
This
seasonal concentration of corporate tax payments is the
result of the M ills plan, which starting in 1 9 5 1 gradually
compressed corporate tax payments into the six months
Table II
Federal Cash Operations and Changes in
Debt* Fiscal Years 1955 and 1956
(In billions o f dollars)
immediately following the close of each corporation’s tax
Item
1955
1956
Cash surplus ( — ) or deficit (~1~)........................
Add:
+
2.1
-
5.1
Change in Treasurer’s balance.................................
-
0 .5
+
0 .3
1 .6
-
Equals: N et cash debt redemption ( —) or borrow
ing ( + ) from the public........................................
N et sales of securities of Government
corporations.................................................................
Equals: Net change in gross public debt held by the
public..............................................................................
Add:
Net investment by Government agencies and
trust funds....................................................................
Net accruals of interest on Savings bonds..........
Other noncash borrowing............................................
+
4 .8
Less:
Equals: Net reduction ( — ) or increase (+ ) in gross
public debt......................................................
Memorandum (end of year):
Gross public debt.......................................................................
Debt subject to ceiling............................................................
Treasurer’s balance...................................................................
0 .7
0 .9
—
1 .6
0 .5
0 .1
+
3.1
5 .5
of $ 10 0 ,0 0 0 in two equal instalments in September and
December of 1 9 5 5 , and to pay the remainder of their 1 9 5 5
3 .2
0 .4
0 .2
-
taxes in the following M arch and June. Increasingly larger
1.6
four years, until finally the larger corporations will be p ay
current-year payments will be required during the next
ing almost half of their taxes in the second half of their
2 7 4 .4
27 3 .9
6 .2
N ote: Because of rounding, figures do not always add to totals.
Source: Daily Statement o f the United States Treasury.
0 .7
able year. Th e “ current paym ent” provision of the Internal
Revenue Code of 1 9 5 4 , however, will effect a progressive
adjustment in this paym ent schedule. Under this provi
sion, calendar-year corporations were required to remit
10 per cent of their estimated 1 9 5 5 tax liability in excess
2 7 2 .8
2 7 2 .4
6 .5
taxable year and the balance in the six months after the
close of the year.
Th is change will bring about a more
even distribution of tax receipts during the fiscal year and
thus reduce the Treasury’s need for seasonal borrowing.
120
MONTHLY REVIEW, AUGUST 1956
Individual income tax receipts are characterized by a
milder seasonal pattern. W hile the major share of these
taxes is subject to current withholding arrangements, or is
collected through quarterly payments of estimated non
withheld taxes, receipts continue to be somewhat clustered
in the Jan uary-Jun e period because final returns for the
preceding year, as well as three of the four quarterly p ay
ments of estimated taxes, are received then.
The influence o f these intra-fiscal-year fluctuations in
receipts on the public debt is illustrated in Chart III for the
period 1 9 5 3 - 5 6 . O n a quarterly basis the public debt
reached a high at the middle of each fiscal year. During
fiscal 1 9 5 6 Treasury borrowing to cover the first half’s
deficit raised the debt subject to statutory limitation to
2 8 0 .3 billion dollars on Decem ber 3 1 , or slightly under
the temporary ceiling of 2 8 1 billion dollars then in effect.
The debt subject to ceiling w as reduced b y about 8
billion dollars during the January-June period of surplus
financing. A t 2 7 2 .4 billion dollars on June 30 , such debt
was well under the permanent ceiling of 2 7 5 billion which
then became effective. Because the debt subject to ceiling
was 1 .5 billion dollars less than a year earlier, and because
a budget surplus is expected for the fiscal year 1 9 5 7 , the
Adm inistration requested a lowering of the temporary ceil
ing to 2 7 8 billion dollars. This request was enacted into
law on Ju ly 9, to remain in effect through June 30 , 1 9 5 7 .
Chart in
FEDERAL DEBT SUBJECT TO STATUTORY LIMITATION
END OF QUARTER, FISCAL YEARS 1953-56
Billions of dollars
300 r
200
5 D . M J S D M J S
D M J S D M
1952-53
1953-54
1954-55
1955-56
* The statutory limitation of 275 billion dollars has been in force since
June 26, 1946. It was temporarily increased, by an act approved August
28,1954, to 281 billion until June 30,1955. An act approved June 30,1955
continued that temporary increase to June 30,1956. An act approved July 9,
1956has set the new temporary ceiling at 278 billion until June 30,1957,
'J New temporary ceiling,
'
+ Includes debt held by the Federal Reserve System.
® Partly estimated by the Federal Reserve Bank of New York.
Source: Treasury Bulletin.
SELECTED ECONOMIC INDICATORS
United States and Second Federal Reserve District
Percentage change
1956
Item
1955
Unit
June
M ay
April
June
Latest month Latest month
from year
from previous
month
earlier
U N IT E D STAT ES
Production and trade
Industrial production*.............................................................................
Electric power output*. . ........................................................................
Ton-miles of railway freight*................................................................
Manufacturers’ sales*...............................................................................
Manufacturers’ inventories*..................................................................
Manufacturers’ new orders, to ta l*......................................................
Manufacturers’ new orders, durable’ goods*...................................
Retail sales*..................................................................................................
Residential construction contracts*....................................................
Nonresidential construction contracts*............................................
Prices, wages, and employment
Basic commodity pricesf.........................................................................
Wholesale pricest.......................................................................................
1 9 4 7 -4 9 1 9 4 7 -4 9 1947-49 billions of
billions of
billions of
billions of
billions of
1947-49 =
19 4 7 -4 9 =
141p
221
—
2 7 .7 p
4 9 .1 p
2 8 .1 p
1 4 .4p
—
280p
253p
1947-49 19 47 -49 =
19 47 -49 =
billions of
19 47 -49 =
thousands
thousands
hours
thousands
100
100
100
$
100
8 8 .3
1 1 4 .2p
11 6 .2
3 2 4 .2p
—
51,437p
1 6 ,828p
40 . lp
2 ,9 2 7
millions of $
millions of $
millions of $
millions of $
millions of $
1 947 -49 = 100
millions of $
Personal income (annual rate) *11.........................................................
Composite index of wages and salaries*...........................................
Nonagricultural em ploym ent*!............................................................
Manufacturing em ploym ent*!..............................................................
Average hours worked per week, m anufacturing!.......................
100
100
100
$
$
$
$
$
100
100
72,750p
87,720p
1 0 5 ,080p
30,720p
76 ,4 8 8
1 3 5 .6p
2 8 ,8 9 0
142
217
108p
2 7 .8
4 8 .6
2 8 .9
1 4 .9
1 5 .9p
286
237
143
215
113
2 7 .2
4 8 .0
2 7 .8
14 .1
1 5 .5
315
252
139
197
103
2 7 .1
4 3 .8
2 7 .8
1 4 .0
1 5 .3
290
228
+
-
9 0 .4
1 1 4 .4
1 1 5 .4
3 2 2 .8
147p
51,389p
16,892p
4 0 .0
2 ,6 0 8
9 1 .8
1 1 3 .6
1 14.9
3 2 1 .7
147
5 1,327
1 6,9 1 8
4 0 .3
2 ,5 6 4
9 0 .2
11 0 .3
11 4 .4
3 0 6 .0
141
50 ,0 7 3
16,649
4 0 .7
2 ,6 7 9
-
2
#
1
#
#
#
#
#
+12
+
+
+
+
+
+
+
7 3,570p
8 6 ,030p
1 0 4 ,190p
30 ,6 2 9
79 ,7 6 0
138.1
2 8,591
74,700p
8 5 ,3 4 0 p
1 0 6 ,llO p
3 0 ,5 5 1
7 5 ,5 4 8
13 8 .8
2 8 ,2 6 0
8 0 ,0 8 0
75 ,1 8 3
103,234
30,2 3 1
72,352r
13 0 .0
2 4 ,9 1 4
+
+
1
2
1
#
4
2
1
- 9
+17
+ 2
+ 2
+ 6
+ 4
+16
6 ,8 7 9
6 ,2 0 0
3 ,4 4 4
4 ,3 6 8
5 ,4 2 8
3 ,0 0 9
11,045
6 ,6 7 7
3 ,6 9 4
+77
+11
+ 2
+10
+ 3
- 5
149
215
277
1 1 1 .8
7 ,6 3 8 .7 r
2 , 6 9 9 .3r
6 2 ,6 2 4
4 ,8 0 0
15 8 .0
104
115r
+ 3
- 9
+17
+ 1
#
+ 1
- 8
- 5
- 8
+ 5
+ 2
+ 6
+22
+26
+ 2
+ 2
#
+ 5
+ 2
f 5
+11
+10
+
+
+
1
2
4
#
1
3
3
3
2
7
+
- 1
rl2
L 2
- 2
r l2
- 1
- 3
- 3
- 3
+11
2
4
2
6
4
3
1
1
9
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*§.
Velocity of demand deposits (337 centers)*...................................
Consumer instalment credit outstandingt........... ...........................
United States Government finance (other than borrowing)
millions of $
millions of $
millions of $
S E C O N D F E D E R A L R E S E R V E D IS T R IC T
1 2,192
6 ,8 9 8
3 ,5 0 5
1947-49 = 100
1 9 47 -49 = 100
1947-49 = 100
194 7 -4 9 = 100
thousands
thousands
millions of $
millions of $
1 9 47 -49 = 100
19 47 -49 = 100
1947-49 = 100
158
—
—
11 3 .8
—
2 ,7 0 5 .7 p
6 5 ,4 9 4
4 ,9 0 1
1 6 6 .0
115
126
+
,
Electric power output (New York and New Jersey)*.....................
Residential construction contracts*........................................................
Nonresidential construction contracts*.................................................
Consumer prices (New York C it y ) f .......................................................
Nonagricultural employment*...................................................................
Manufacturing em ploym ent*....................................................................
Bank debits (New York C ity )* ................................................................
Bank debits (Second District excluding New York C it y )* ..........
Velocity of demand deposits (New York C ity )* ...............................
Department store sales*...............................................................................
Department store stocks*............................................................................
153
258
315
11 3 .0
7 ,7 0 6 .4 p
2 ,6 8 0 .8
70 ,8 6 9
5 ,1 7 0
18 0 .2
110
123
157
285
268
1 1 2 .3
7 ,6 7 8 .2
2 ,6 7 0 .0
6 5 ,7 1 5
5 ,0 7 2
1 7 6 .0
104
124
N ote: Latest data available as of noon, August 1, 1956.
p Preliminary.
t Revised series. Back data available from U . S. Bureau of Labor Statistics,
r Revised.
# Change of less than 0.5 per cent.
§ Seasonal factors revised back through 1938.
f Revised series. Back data available from U. S. Department of Commerce.
• Adjusted for seasonal variation.
t Seasonal variations believed to be miner; no adjustment made.
Source: A description of these series and their sources is available from the Domestic Research Division, Federal Reserve Bank of New York, on request.
