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MONTHLY REVIEW
O f Credit and Business Conditions
F E D E R A L R E S E R V E B A N K OF N E W Y O R K
V olum e
39
AUGUST
1957
No. 8
MONEY MARKET IN JULY
The money market was steadily firm during July,
despite the potentially disturbing tensions and transfers
of funds that generally accompany a major Treasury re
funding operation, and wide variations in bank reserve
positions stemming from such diverse sources as the large
currency movements associated with the Independence
Day holiday and an abnormally high and sharply fluctuat
ing level of float. Over most of the month float remained
considerably above its usual levels for this time of the
year. However, the effective rate on Federal funds held
at 3 per cent on almost every day during the period, and
longer regular Treasury bill yields generally fluctuated
within a range of 3 Vs to 3Va per cent, except for a brief
decline to as low as 3 per cent shortly after midmonth
and a rise to the neighborhood of 3% per cent as the
month drew to a close. The capital markets strengthened
early in the month, and interest rates slipped from the
late June highs. Investor resistance developed as rates
moved lower, however, and the unfavorable reception of
several new issues, in combination with a growing calendar
of offerings for the months ahead, turned the market
around. For the period as a whole interest rates showed
little net change. The 3’s of 1995, for example, closed the
month at a price of 88 % 2 (bid)— the equivalent of a 3.58
per cent yield, 1 basis-point below the yield that had
prevailed at the end of June.
After the close of the market on July 18 the Treasury
announced that holders of 23.9 billion dollars of notes
and certificates maturing in August and October would be
offered the opportunity to exchange into the following new
issues: 3% per cent certificates maturing in four months,
4 per cent certificates maturing in one year, or 4 per cent
notes maturing in four years but redeemable at the option
of the holder in two years. The refunding operation was
successfully completed with about 5 per cent of the
total of the maturing securities and about 12 per cent of
those held by the public retained for cash payment. Fur
ther details on these and other developments are described
more fully below.
M
em ber
Bank R
eserve
P o s it io n s
Member bank reserve positions were primarily affected
by changes in the volume of currency in circulation and
fluctuations in the level of float during the five statement
weeks ended in July. Over much of the month the move
ments in these factors tended to reinforce each other,
simultaneously draining or supplying reserves.
The withdrawal of currency from banks prior to the
Independence Day holiday was more pronounced than
usual, so that on a daily average basis member banks lost
approximately 300 million dollars of reserves from this
outflow during the week ended July 3 and a further 167
million in the following week. And although float re
mained above normal levels, it still declined substantially
during these two weeks, thereby further depleting reserve
balances. In addition, average required reserves rose by
226 million dollars in the week ended July 10 as the banks
made payment by credit to Treasury Tax and Loan
Accounts for their purchases of the 264-day tax anticipa
tion bills auctioned on June 26.
While the above factors absorbed a large amount of
reserves during the two weeks ended July 10, their impact
was offset in part by a decline in the Treasury’s balance
at the Reserve Banks and by purchases of Government
securities by the Federal Reserve System. The Treasury’s
balance declined by 117 million dollars on a daily average
basis during the week ended July 10, primarily as the
result of an unusually large cash outflow at the start of
the new fiscal year; average System holdings of GovernCONTENTS
Money Market in J u ly ........................................ .. 101
International Monetary Developments .......... , 104
Federal Finance in Fiscal Year 1957 .............
106
Commercial Bank Liquidity Ratios Abroad. ,. I l l
Selected Economic Indicators......................... . 116
102
MONTHLY REVIEW, AUGUST 1957
ment securities increased by 492 million dollars in the
two weeks ended July 10, with 372 million dollars of the
increase in the form of additional outright holdings of
Treasury bills and 120 million in the form of a net ex
pansion of short-term Treasury obligations held under re
purchase agreements. Nevertheless, during the week ended
July 10 the member banks stepped up their borrowings
from the Reserve Banks by about 150 million dollars to
a daily average of 1.2 billion dollars.
Changes in member bank reserve positions continued
to be heavily influenced by fluctuations in float and cur
rency during a good part of the two following weeks, but
during this period both factors reversed their movement
and supplied a large volume of reserves to the banking
system. Float rose to successive peaks in the statement
weeks ended July 17 and July 24, at the same time that a
large volume of currency was returning from circulation.
These additions to the reserve base were sufficient to
enable the member banks to reduce their average borrow
ings from the Reserve Banks by about 150 million dollars
during the week ended July 17 and by a further 320 mil
lion in the succeeding week. As a result, such borrowings
declined to 739 million dollars on a daily average basis
in the week ended July 24, the first week they had
averaged below 1 billion dollars since early in June. In
the last week of the period borrowings from the Reserve
Banks again declined, despite a sharp drop in float that
drained about 350 million dollars of reserves from the
Table I
Changes in Factors Tending to Increase or Decrease Member
B ank R eserv es, J u ly 1957
(In m illions o f dollars; ( + ) denotes increase,
(—) decrease in ex cess reserv es)
D aily averages— week ended
Factor
Operating transactions
Treasury operations*........................
Federal Reserve float........................
Currency in circulation....................
Gold and foreign account................
Other deposits, etc.............................
T otal..............................................
T
Julv
July
Julv
July
3
10
17
24
31
08
122
—
—
-
+
29
125
130
72
~r 15
+
+
56
115
184
28
15
-f
-j- 289
-j- 18
- 353
90
+
16
-f- 98
— 60
41
+
+ 102
-
133
-
246
196
+
+
521
-
49
143
+
229
8
-
17
-
151
+
4
-f
i 16
-
116
+
40
+
169
- f 213
64
+
H6
—
+
154
2
-
320
-
186
—
450
0
1
1
+
__
I
+
+
168
-
4-
-
1
1
+
+
2
_
_
—
+
—
2
+
—
—
215
+
492
-
276
-
-
171
-
40
_
+
443
226
~
4-
11
63
+
304
89
_
+
10S
GO
+
286
70
-
48
+
52
-
215
-
216
Effect of change in required reserves f ..
+
-
222
-j- 217
1,067
346
1,213
563
-
1,059
515
300
1
0
+
Excess reserves f ........................................
739
567
553
352
926+
469j
1
Note: Because of rounding, figures do not necessarily add to totals.
* Includes changes in Treasury currency and cash,
t These figures are estimated.
X Average for five weeks ended July 31.
8
322
32
-
306
84
D aily average level of member bank:
Borrowings from Reserve B a n k s ..
Excess reserves | .................................
-
117
87
167
81
6
— 297
__ 12
Direct Federal Reserve credit trans
actions
Government securities:
Direct market purchases or sales +
Held under repurchase agree
ments ............................................. +
Loans, discounts, and advances:
Member bank borrow ings.........
O ther.................................................
Bankers’ acceptances:
Boueht outright............................. +
Under repurchase agreements .. +
T otal..............................................
N et
chamges
uly
member banks. The effect of the float contraction on re
serve positions was moderated, however, by offsetting
changes in other factors.
Between June 26 and July 31 System outright holdings
of Government securities increased by 168 million dollars
and holdings of Treasury securities under repurchase
agreements expanded by 276 million. Outright purchases
were confined to the first three weeks of the period and
were partly offset by sales in the last two weeks, while
repurchase agreements were extended from time to time
throughout the entire five weeks in order to prevent the
build-up of undue tightness in the money market. Repur
chase agreements were outstanding in considerable volume
in the latter part of the month, reflecting agreements ex
tended to Government securities dealers during the
Treasury’s huge refunding operation.
G o v e r n m e n t S e c u r it ie s M
arket
The prices of most Treasury notes and bonds tended
slightly upward on balance during the first half of July,
continuing the reaction that began late in June after the
substantial price declines that had been recorded during
the preceding several weeks. Trading activity was light,
however, particularly as midmonth approached and inves
tors awaited the expected Treasury announcement regard
ing its forthcoming refunding operation.
After the close of the market on July 18 the Treasury
announced refunding terms open to the holders of the
12.1 billion dollars of 2% per cent notes due August 1,
the 3.8 billion dollars of 2 per cent notes due August 15,
the 7.3 billion dollars of 3Va per cent certificates of in
debtedness maturing October 1, and the 0.8 billion dollars
of IV2 per cent notes also due October 1. Holders of the
two August maturities were offered the opportunity to ex
change into any of the following three issues: a 35/s per
cent four-month certificate of indebtedness due Decem
ber 1, 1957, a 4 per cent one-year certificate of indebted
ness due August 1, 1958, and a 4 per cent four-year
Treasury note maturing August 1, 1961 but redeemable
(upon 90 days’ notice) at par at the option of the holder
on August 1, 1959. Holders of the two October maturities
were eligible to exchange into either the 4 per cent oneyear certificate or the 4 per cent four-year note, but not
into the 35/s per cent certificate. Subscription books were
open Monday, July 22, through Wednesday, July 24. The
physical exchanges took place on a par-for-par basis on
August 1 for all of the issues, with an interest adjustment
as of that date for the 2 per cent notes maturing August 15
and for the 3 V4 per cent certificates maturing October 1,
and an interest adjustment as of October 1 for the 1 Vi per
cent notes maturing on that date.
The terms of the multiple offering were favorably re
ceived by the market, and premium bids of y32 or
% 2 promptly appeared on all “rights” except the October
IV2 per cent notes, which remained below par but were
103
FEDERAL RESERVE BANK OF NEW YORK
not a significant market factor. The “when-issued” securi
ties also reflected the favorable market atmosphere, with
100%2 bid for the two 4 per cent issues and the 35/s per
cent certificates also at a small premium bid shortly after
the subscription books had opened. These quotations re
flected the feeling that the new issues were suitably
priced against the current market and that many holders
of “rights” might find the new 35/s per cent certificates
attractive even if they anticipated definite cash needs in
the relatively near future. Considerable interest was also
expressed in the four-year 4 per cent issue, since investors
were provided protection against a subsequent rise in
interest rates by the two-year optional redemption feature.
However, the quotations on the “rights” and “whenissued” securities began to slip lower while the subscrip
tion books were open, as a widely scattered but persistent
supply of “rights” came into the market, mostly from cor
porations or public bodies anticipating specific cash needs
within a few weeks. Moreover, a sharp drop in bond
prices drew attention to the fact that some outstanding
intermediate-term Treasury issues were yielding above 4
per cent and carried an even more favorable after-tax
yield differential as compared with the new 4 per cent
“when-issued” obligations. Nevertheless, as the subscrip
tion period drew to a close, an air of renewed confidence
was again apparent: the maturing issues continued to trade
around par, with no sizable blocks reportedly still avail
able for sale at that level, and par bids were maintained
for all the “when-issued” securities.
Cash redemptions amounted to about 340 million dol
lars (or 3 per cent) of the maturing August 1 issue, 375
million dollars (or 10 per cent) of the August 15 issue,
and 375 million dollars (or 5 per cent) of the two October
issues; in the aggregate, attrition thus amounted to about
1.1 billion dollars, 5 per cent of the 23.9 billion dollars of
maturing securities and 12 per cent of the amount which
had been held outside the Federal Reserve System and
Government investment accounts. About 9.9 billion dol
lars of the new four-month certificates were issued by the
Treasury, 10.5 billion dollars of the one-year certificates,
and 2.5 billion of the four-year notes.
The prices of most Treasury bonds and notes declined
between midmonth and July 24, but the market stabilized
after the refunding operation had been successfully com
pleted and prices moved fractionally higher on balance
over the remainder of the period. Over the month as a
whole, the prices of most Treasury notes and bonds matur
ing through 1962 showed mixed changes of about % 2 of
a point, while issues due after 1962 through 1972 gener
ally rose by about V2 of a point. However, the 31/4 ’s of
1978-83 declined by 2% 2 of a point to 93% 2 (bid), the
equivalent of a 3.66 per cent yield, 5 basis-points above
the yield at the end of June. All of the new Treasury
securities closed the month at par bid or above, with the
new four-year notes attracting particular buying interest
from some savings banks and others and closing the
month at 100%2Treasury bill yields generally declined gradually over
the first half of the month, reflecting primarily a growing
scarcity of some maturities as well as a moderate nonbank
demand. In addition, the expectation of a substantial re
investment demand in connection with the Treasury’s
refunding operation may also have strengthened the tone
of the market. Thus the average issuing rate established
in the weekly Treasury bill auction declined from 3.238
per cent in the auction held on July 1 to 3.171 per cent
one week later and then to 3.092 per cent on Monday,
July 15. By Friday, July 19, all outstanding regular
Treasury bills were trading below 3 per cent. However,
with the subscription books for the refunding operation
open on the following Monday (July 22), relatively little
interest was shown in the bill auction and a degree of
caution emerged as market opinion tended to the belief
that bill yields had fallen abnormally low in view of the
underlying degree of pressure in the money market as well
as revised expectations of lower attrition than had been
expected previously. A further upward influence on bill
yields in this auction and over the remainder of the month
was the competitive attraction of the 35A per cent coupon
available on the new four-month certificates. The average
issuing rate established on July 22 thus climbed to 3.158
per cent, with accepted bids ranging from 3.003 per cent
to 3.248 per cent, the widest spread in a regular auction
in two months. In the last weekly auction of the month,
held on July 29 for bills dated August 1, the average issu
ing rate rose further to 3.363 per cent.
O
ther
Se c u r it ie s M
arkets
The markets for new corporate and municipal bonds
were generally strong early in July, but as the month
progressed the prospect of continued large demands for
funds in the near future led to a somewhat weak under
tone. Occasional underwriter attempts to lead the rate
structure lower thus met with considerable investor re
sistance and were largely unsuccessful. Nevertheless, new
offerings generally found a favorable response when priced
in line with the yield structure established late in June.
Moody’s index of seasoned Aaa-rated corporate bonds
rose from 3.97 per cent at the end of June to 4.05 per cent
on July 31. while the long-term Aaa-rated municipal bond
index increased from 3.23 per cent on June 26 to 3.25
per cent on July 31.
Most of the larger new corporate issues floated early
in July were rapidly sold out and moved to premium bids,
and, while no large new municipal issues were offered to
investors until close to midmonth, the several small offer
ings that did come to market were generally well received
at prevailing rate levels. Encouraged by these first signs
of firmness in a number of weeks, underwriters bid ag
gressively for new issues from time to time, but the result
104
MONTHLY REVIEW, AUGUST 1957
ing higher reoffering prices were unenthusiastically re
ceived and in each case the groping toward a lower yield
structure was soon abandoned. For example, on July 9 a
30 million dollar issue of 35-year AVi per cent coupon
Aaa-rated public utility debentures met with a poor re
sponse when reoffered at 101.25 to yield investors 4.43
per cent, 42 basis-points below the reoffering yield on the
last previous Aaa-rated utility flotation, which had been
successfully marketed in mid-June. (In addition to the
reoffering yield of 4.85 per cent, the mid-June issue had
also carried a five-year noncallable provision designed
to assure investors that they would earn this rate for at
least that long. This feature was not included in the 4.43
per cent flotation, although it did provide that the call
price would be 110 for the first five years.) On the other
hand, late in the month a 60 million dollar Aa-rated
utility issue that carried a five-year noncallable clause
was quickly sold out when reoffered to yield 4.95 per cent.
After the early part of the month a sluggish atmosphere
generally permeated both the corporate and municipal
markets, a tendency probably attributable in good part
to frequent reports regarding additional large new flo
tations being scheduled for the forthcoming months.
The volume of public offerings of corporate bonds for
new capital purposes is estimated to have been about 595
million dollars during July, 45 million dollars less than
in the previous month but 30 million higher than in July
of 1956. The estimated volume of new public municipal
offerings during the month was about 405 million dollars
as compared with 330 million in June and 260 million in
July of 1956.
M
em ber
B a n k C r e d it
Total loans and investments at the weekly reporting
member banks decreased by 1,426 million dollars during
the five weeks ended July 24, as loans declined by 938
million dollars and investments by 488 million.
The loan contraction included net repayments of 386
million dollars in security loans and 684 million in busi
ness loans, with over half of the decline in business loans
attributable to a reduction of about 370 million dollars in
loans extended to sales finance companies by the reporting
banks. The 684 million dollar business loan decline com
pares with a 293 million dollar reduction in these loans
during the similar weeks last year, with the larger decline
apparently in part due to the larger volume of borrowing
which took place this year during the immediately preced
ing tax period.
Investment holdings of the reporting banks fluctuated
sharply over the five-week period. A substantial drop in
holdings of Treasury obligations during the week ended
June 26 was primarily attributable to the cash redemption
of maturing tax anticipation bills and certificates which
had not been used to make tax payments. In the following
week, bill holdings expanded by over 1.3 billion as the
banks acquired the new 264-day tax anticipation bills
that had been auctioned by the Treasury on June 26.
Thus far this year total loans have declined by 281
million dollars at the weekly reporting banks, with busi
ness loans expanding by 507 million. (In the comparable
weeks last year total loans increased by 2.3 billion, 2.0
billion of which was in the form of business loans.) While
total loans thus show a 2.6 billion shortfall as com
pared with last year, investments have correspondingly
declined 3.1 billion less: in the first thirty weeks of 1957
investment holdings of the reporting banks have fallen
1.4 billion dollars, while in the similar weeks last year
they fell 4.5 billion. As a result of the above, thus far
in 1957 total loans and investments at the reporting banks
have fallen by 1.7 billion, or 0.5 billion less than the
2.2 billion decline that took place in the comparable
period last year.
Table II
W eekly Changes in Principal Assets and Liabilities of the
W eekly Reporting Member Banks
_____________________________ (In millions of dollars)
Statement weeks ended
Change
Item
June
26
July
3
July
10
July
17
26, 1956
to July
24, 1957
July
24
Assets
Loans and investments:
Loans:
Commercial and industrial
+
Agricultural loans..................... +
Security loans............................
Real estate loans...................... _
All other loans (largely con+
58
4
128
8
+
+
-
220
5
65
18
4
96
+
2
+
21
Total loans adjusted*......... +
20
-
172
-
Investments:
U. S. Government securities:
Treasury bills........................
558
O ther........................................ — 160
+ 1,349
+
44
+
T o ta l.................................... _ 716
2
Other securities......................... —
+ 1,393
+
11
718
+ 1,404
-
698
Loans to banks................................... +
169
18
Total investm ents................ Total
Loans
loans
and
adjusted*
122
2
+
114
2
36
12
286
1
83
9
-f
-
507
37
663
186
+
+
21
310
-
120
+
5
+
283
-
356
-
281
321
31
-
293
85
-
239
180
-
455
976
-
290
23
+
378
7
-
419
71
- 1 ,4 3 1
+
31
-
313
-
371
-
490
- 1 ,4 0 0
+ 1,232
-
-
125
-
623
-
491
-
846
- 1 ,6 8 1
10
+
81
+
191
+
81
-
161
-
333
-
113
-
427
-
250
- 1 ,4 2 2
47
+ 1.886
+
+
443
8
1,186
+
+
417
40
760
+
_
403
9
712
- 2 ,6 4 4
+ 1,513
28
+
-
+
150
2
+
528
37
- 1 ,0 4 0
+
10
—
— 204
—
_
_
—
_
_
—
_
investm ents
and
“other”
+
Liabilities
Demand deposits adjusted............. — 547
Time deposits except Government. O- 116
U. S. Government deposits............ + 326
Interbank demand deposits:
Dom estic..........................................
424
81
+
673
33
4
.
88
21
+
* Exclusive of loans to banks and after deduction of valuation reserves; figures for the indi
vidual loan classifications are shown gross and may not, therefore, add to the totals shown.
INTERNATIONAL MONETARY DEVELOPMENTS
M
onetary
T rends
and
P o l ic ie s
Discount rates were raised in four European countries
in July in order to tighten monetary policy further in the
fight against inflation. This brings to ten the number of
discount rate increases by foreign central banks in 1957.
Sweden. Effective July 11 the central bank raised its
discount rate to 5 per cent from 4; this was the third in
crease since April 1955 when the discount rate was 2%
FEDERAL RESERVE BANK OF NEW YORK
per cent. Following the central bank’s action, the govern
ment, which apparently had not been notified in advance,
made public its disapproval of the increase and requested
the resignation of the chairman of the bank’s board of
directors. In Sweden, the central bank does not neces
sarily lend at the official discount rate, and changes in the
latter serve mainly to underscore the bank’s views on
economic conditions and to signal adjustments in its
credit policy.
The governor of the central bank indicated that the
immediate purpose of the discount rate increase was to
counter the growing expectation of further inflation, which
had led to dangerous speculative developments; in recent
weeks the bond market had been very weak while stock
prices had risen to “unreasonably high levels”. The gov
ernor also pointed out that a rise in interest rates was
necessary in order to make it possible to raise funds for
the housing program on the capital market and thus avoid
further inflationary financing through bank credit. Finally,
he stated that, “against the background of the present
budgetary situation and the weakened financial policy”, it
was necessary for monetary policy to shoulder an even
greater share of the burden of stabilization. While the
Swedish balance-of-payments deficit was reduced some
what in 1956, the import surplus has continued at a very
high level this year; however, because of increased short
term borrowing from abroad, there has been only a sea
sonal decline in the nation’s gold and foreign exchange
reserves. Although there were signs of better balance in
the domestic economy last year and prices remained stable
in the first five months of 1957, investment and consump
tion have been rising more rapidly this year than in 1956.
Netherlands.
On July 17, the Netherlands Bank raised
its discount rate to AVa per cent from 3%; during 1956
the discount rate had been raised VA per cent in three
stages. It was officially stated that the new step was
taken because of a “continuing lack of equilibrium in the
Netherlands economy”, which had “led in the last few
weeks to increased borrowing from the Netherlands Bank
and a new decline in foreign exchange reserves”.
The Dutch balance of payments, which began to deteri
orate in 1956, has grown steadily weaker this year; during
January-June the trade deficit rose to more than 600 mil
lion dollars’ equivalent, nearly two-thirds greater than
a year previous. While sales abroad of internationally
known Dutch securities have eased the strain on the for
eign exchange reserves, there was a decline of some 50
million dollars’ equivalent in 1957 through July 22. The
worsening of the Netherlands’ balance of payments testi
fies to the continuing growth of excessive demand at home;
the rise in consumer spending has slowed only slightly this
year, while investment expenditure appears to have been
expanding even more rapidly than in 1956, when it in
creased some 18 per cent. As the nation’s productive
resources have become fully employed, the increase in
105
demand has not been met by a corresponding rise in out
put; so far this year, industrial production has been rising
less rapidly than in 1956. The cost of living, which in
creased 5 per cent in 1956, rose a further 9 per cent in
the first half of this year. A substantial part of the increase
in demand has been generated by the public sector; despite
a program of fiscal restraint, the deficit in the central gov
ernment’s current budget is expected to be as large as last
year’s, and the local authorities’ spending has continued
to rise rapidly.
Spain. The Bank of Spain increased certain of its lend
ing rates effective July 22; the rate applicable to the dis
counting of commercial paper directly from the public,
which in Spain is the official discount rate, was raised to
5 per cent from AVa , and the rate charged the banks for
rediscounting such paper was increased to 4 per cent from
3.4. These rates which cover, however, only a small por
tion of central bank credit had previously been increased
in September 1956.
In recent years, Spain has been suffering from severe
inflationary pressures, reflected in rapidly rising prices and
wages and in a serious deterioration of the balance of pay
ments. While unfavorable weather has contributed to
the difficulties of Spain’s primarily agricultural economy,
the inflation is basically a by-product of the great increase
in expenditures in the country in recent years. The expan
sion of domestic public and private investment has been
financed largely by bank credit, a substantial part of which
has in the last analysis come from the Bank of Spain.
Belgium. The central bank’s principal discount rate was
raised 1 per cent to 4Vi, effective July 25; the rate had
been increased to 3 Vi from 3 last December.
Increasing domestic demand has sustained the rapid
expansion of economic activity in Belgium, which received
its initial impetus in 1955 from soaring exports. As the
margin of unutilized resources has diminished, however,
the continued rise in demand has tended to become infla
tionary; last year the cost of living increased 3 per cent,
and in order to restrain further increases this year the
government has sought to freeze prices and wages. The
excess of domestic demand has been a major factor in the
steady increase in the trade deficit since last summer; im
ports have risen markedly and exports have leveled off,
partly owing to the diversion of production to the home
market. The central bank’s gold and foreign exchange
reserves have fallen by about 110 million dollars’ equiva
lent since September 1956. While the reserve loss has
reduced the liquidity of the banking system, the demand
for credit from the government and from private bor
rowers has increased, producing a stringency in the
money and capital markets that has been reflected in
a rise in interest rates. The central bank’s discounts of
commercial paper and its advances on collateral of govern
ment securities have nearly doubled this year; the heavy
dependence of the commercial banks on central bank
106
MONTHLY REVIEW, AUGUST 1957
credit makes changes in the discount rate of special signifi
cance in Belgium.
The United Kingdom. Inflation and the use of monetary
restraint to combat it were also prominent subjects of
official concern in Britain last month. The Chancellor of
the Exchequer emphasized that inflation was Britain’s
“most intractable and difficult problem”, and made it clear
that it would be necessary to continue the credit squeeze.
At the same time the governor of the Bank of England
stated that “a policy of credit restrictions in the City . . .
must, as the Chancellor has said, go hand in hand with a
similar policy of restraint in Whitehall and throughout the
country”. Reflecting the general concern over further in
flation, there was substantial weakness in the gilt-edged
securities market, where the price of 2 Vi per cent Consols
fell precipitously to the lowest levels since 1921; Consol
yields touched 5.17 per cent on July 17, but there was
some recovery during the latter part of the month and they
closed the month at 4.98 per cent.
There was a sharp expansion of bank credit during the
nine weeks ended July 17; the 237 million pound increase
in the London clearing banks’ net deposits was nearly
double the rise in the same period a year ago. This in
crease in deposits occurred despite an 88 million pound
drop in advances in the first two weeks of July that more
than canceled the increase in the preceding six weeks. It
was the rise in the banks’ liquid assets, and especially in
their Treasury bill holdings, that provided the counter
part for the increase in deposits; the increase in the
banks’ Treasury bill holdings since mid-March has can
celed more than half of the reduction achieved in the first
quarter of the year by the government’s funding program.
On July 17 the average liquidity ratio of the clearing banks
was up to 35.5 per cent, compared with 32.9 per cent in
mid-May.
E xchange R ates
The rate for American-account sterling generally de
clined during July, largely reflecting normal seasonal pres-
sures. The quotation remained at about $2.79% 6 during
the first week of the month; by July 12, however, it had
dropped to $2.78x%6, presumably as a result of renewed
concern about the danger of inflationary pressures in
Britain, and despite fair demand for the pound both in
New York and London. Although some covering of short
positions in the market strengthened the rate to $2.78 2%2
at the midmonth, it soon eased to $2.78% where it was
maintained, chiefly by commercial demand, until July 23.
After the new outbreak of disturbances in the Near East,
the rate again declined, falling to $2.78%6 at the month
end. The pressure was also evident in the forward market
where the discounts on three and six months’ sterling
widened from 2% 2 and lVs cents to 12%2 and 2% 6.
Transferable sterling appreciated early in July to $2.78,
the highest quotation since May 1956, but then began to
move downward. Rather substantial offerings of such
sterling from Switzerland during the month were only par
tially offset by occasional demand from the Continent and
from sugar interests. On July 31 transferable sterling was
quoted at $2.7735.
Securities sterling rose sharply from its opening quota
tion of $2.62V£ to $2.73 on July 5, following the adoption
of measures to make more effective the exchange regula
tions governing securities transactions. Subsequently, how
ever, the rate moved lower in a moderately active market,
and at the month end stood at $2.71.
The Canadian dollar strengthened further during the
month, to reach another new high. Vigorous investment
demand from New York and London along with commer
cial demand, notably on the part of mineral and chemical
interests, caused the quotation to rise fairly steadily from
$1.042%2 t0 $1.051%2 on July 25 and 30. The con
version of the United States dollar proceeds of Canadian
bonds marketed last month in the United States, and the
demand for Canadian dollars associated with the auction
of oil leases in Canada, were major contributors to the
higher quotations. On July 31 the Canadian dollar was
quoted at $1.053%4-
FEDERAL FINANCE IN FISCAL YEAR 1957
The expansion of the tax base generated by rising
national income and production carried Federal tax
receipts to an all-time high in fiscal year 1957, while
Federal expenditures reached the largest fiscal-year total
since World War II. The rise in receipts in the consoli
dated cash budget was 2 Vi billion dollars less than that in
expenditures; nevertheless, the Treasury still was able to
close its books on June 30 with a fiscal-year surplus, the
second in a row (see Chart I ). The latest surplus was 2.7
billion dollars on a cash basis, as against 5.1 billion in the
previous fiscal year. For reasons given below, the decline
in the cash surplus was not reflected in the conventional
administrative budget surplus, which remained virtually
unchanged at 1.6 billion dollars in each of the last two
fiscal years.
The frequency of the Treasury’s cash offerings increased
considerably during the past twelve months, partly because
of unexpectedly large cash requirements in the second half
of the fiscal year, when an upsurge in defense and foreignaid spending was superimposed upon increasing Savings
bond redemptions and heavy attrition on refundings.
Moreover, the strength of competing demands for funds
by private borrowers throughout the year restricted the
Treasury largely to short-term financing, part of which fell
due within the year and had to be refinanced. To maintain
adequate working balances the Treasury raised new cash
FEDERAL RESERVE BANK OF NEW YORK
107
C a sh E x p e n d it u r e s
C hart I
CASH RECEIPTS AND EXPENDITURES OF THE
FEDERAL G O VERN M EN T, FISCAL YEARS 1947-57
B il li o n s of d o l l a r s
B i l l i o n s of d o l l a r s
90 r--------------------------------
90
Cash expenditures
.
\
Cash receipts
60
£5^1 S u r p l u s
Defic it
30
1947
1949
1951
(953
J___ I___ L
1955
S o u r c e s : D a i l y S t a t e m e n t of the U n it e d S t a t e s T r e a s u r y a n d
30
1957
T r e a s u r y B u ll e t in .
through the public sale of securities in eight of the twelve
months of fiscal 1957. However, a modest amount of net
debt retirement was reported for the fiscal year as a whole.
The following financial review of the fiscal year, as well
as the accompanying charts and tables, is based upon the
Federal Government’s cash accounts as recorded in the
Daily Statement of the United States Treasury, rather than
upon the conventional administrative budget accounts.
The cash accounts are generally considered more satisfac
tory than the budget accounts for purposes of economic
analysis, because they exclude intragovernmental transfers
and present the consolidated results of budget, trust fund,
and agency transactions. They thus provide an all-inclusive
measure of the flow of cash payments and receipts between
the public and the Federal Government.1 The surplus in
the cash accounts, when adjusted for changes in the Treas
urer’s balance, indicates the amount of net cash debt
redemption.
The difference between the budget and cash surpluses
was only about 1 billion dollars in the fiscal year 1957,
compared with a 3V2 billion dollar difference in the previ
ous fiscal year. The substantial narrowing of the margin
resulted largely from the changed cash position of the OldAge and Survivors Trust Fund, which failed to produce a
significant excess of tax contributions over cash outlays in
1957 for the first time since it was established, and from
dollar drawings by the International Monetary Fund. The
latter increased cash, but not budget, expenditures.
In the fiscal year 1957 total Federal cash expenditures
increased by 7.2 billion dollars, reaching 79.2 billion— a
rate exceeded only in the two peak spending years of
World War II. As illustrated in Chart I, the highest pre
vious year for Federal spending in the post-Korea period
was fiscal 1953, when cash expenditures were 76.4 billion
dollars.
Increased outlays for defense and related programs
accounted for the largest single share of the total advance
in expenditures in the latest fiscal year. Defense and
related spending rose to 42.8 billion dollars, or 2.7 billion
more than in the previous year and about 1.6 billion
more than estimated in the President’s January Budget
Message. The possibility exists, moreover, that the ex
penditure breakdown given in Table I, which is compiled
from the Daily Treasury Statement, understates defense
spending in fiscal 1957— and also understates spending
for several other programs— owing to a change in the
method of processing Treasury checks. A few months ago,
in connection with the installation of new tabulation ma
chines, the Treasury revised the procedures for tabulating
Government disbursements, and it appears that the classi
fication of checks by expenditure programs has lagged dur
ing the transition period. The rising backlog of unclassi
fied and canceled checks is reflected in the substantial
Table I
Cash Income and Expenditures of the Federal Government
Fiscal Years 1957 and 1956
(In billions of dollars)
Item
1956
1957
Change
1956-57
C ash in c o m e — t o t a l.............................................
77.1
81 .9
+ 4 .8
Withheld income taxes.......................................
Non withheld income taxes................................
Corporate income taxes.....................................
Excise taxes...........................................................
Old-age and railroad retirement trust funds*.
Unemployment trust fund................................
All other receipts.................................................
Less: tax refunds..................................................
24.0
11.3
21.3
10.0
7 .0
1 .4
5 .8
- 3.7
26.6
12.3
21.5
10.7
7 .3
1.6
5 .9
- 4 .0
+ 2 .6
+ 1 .0
+ 0 .1
+ 0 .7
+ 0 .3
+ 0 .2
+ 0 .2
- 0 .3
C ash exp en d itu res— t o t a l.................................
72.0
79.2
+ 7 .2
Defense and related 1"..........................................
International finance and a id j.........................
Interest on the debt............................................
Veterans Administration...................................
Commodity Credit Corporation......................
Old-age and railroad retirement trust funds..
Unemployment trust fund................................
All other expenditures........................................
Clearing account..................................................
40.1
1.5
5.1
4 .6
3 .8
6.1
1.4
9.1
0 .3
42.8
2 .3
5 .5
4 .8
3 .1 §
7 .3
1.6
9 .9
1.9
+ 2 .7
+ 0 .7
+ 0 .4
+ 0 .2
-0 .7
+ 1 .2
+ 0 .2
+ 0 .9
+ 1 .6
N et cash in co m e ( -j-) | .........................................
+ 5.1
+ 2 .7
-2 .4
Note: Because of rounding, figures do not necessarily add to totals.
* Includes Federal Disability Insurance Trust Fund.
t Military outlays by the Defense Department and related expenditures for
strategic and critical materials, as well as military assistance under the Mutual
Security Act, Atomic Energy Commission, maritime activities (formerly the
Maritime Commission), the Coast Guard, expenditures for defense production,
and the redemption of Armed Forces Leave bonds.
% Economic and technical assistance under the M utual Security Act, and net
redemption of notes issued to the International Monetary Fund.
§ Includes Soil Bank beginning August 1956.
1 However, the cash accounts as derived from the Daily Statement $ On the basis of the series entitled “Receipts from and Payments to the Public” ,
the fiscal 1956 cash surplus was 4.5 billion dollars; data on this basis for fiscal
exclude certain transactions of Government-sponsored enterprises not
1957 are not as yet available, but preliminary data suggest a surplus slightly in
cleared through the Treasurer’s account. These transactions, usually
excess of 2 billion dollars. The difference between that series and the data
given in the table is accounted for chiefly by net payments by Governmentsmall in the aggregate, are included in the Treasury Department’s
sponsored corporations from cash balances held outside the Treasury, The
series on receipts from and payments to the public, compiled from the
latter payments are not reported in the D aily Statement.
Monthly Statement of Receipts and Expenditures of the United States
Sources: Based on Daily Statement of the United Stales Treasury and Monthly State
Government.
ment of Receipts and Expenditures of the United States Government.
108
MONTHLY REVIEW, AUGUST 1957
growth of the Clearing Account in recent months. Thus,
more than 10 per cent of total expenditures in the last
quarter of the fiscal year appears under the Clearing Ac
count. Further, the Clearing Account increased by 1.6
billion dollars over the fiscal year as a whole, which is the
second largest year-to-year increase shown in the table.
A better indication of the recent trend in defense spend
ing can be obtained from the Treasury’s Monthly State
ment of Receipts and Expenditures, which is on a checksissued basis and is not distorted by the recent lag in tabu
lating checks cashed. Between July-December 1956 and
January-June 1957, for example, the expenditures of the
Department of Defense (military functions) rose from
18.4 billion to 19.9 billion dollars. This marked advance
seems to have been associated chiefly with an acceleration
of the guided missiles program.2
Treasury disbursements for old-age and retirement bene
fits increased by 20 per cent from fiscal 1956 to 1957,
which is in line with the increases in other recent years.
These disbursements were partly related to the continual
growth in the retired population; in addition, benefits first
became available in fiscal 1957 to farmers given coverage
under the 1955 amendments of the social security law, and
to women whose retirement age was lowered to 62 by the
1956 amendments.
Another relatively large increase in spending occurred
in international finance and aid, which rose from 1.5 bil
lion to 2.3 billion dollars. Almost the entire change was
accounted for by the substantial dollar disbursements by
the International Monetary Fund in December 1956, fol
lowing the Suez crisis. In that month the Treasury was
asked to redeem 580 million of special noninterest-bearing
notes representing a large part of this country’s participa
tion in that institution. This redemption, which added to
Treasury cash outlays, provided the IMF with needed dol
lars. Subsequently, the IMF’s dollar disbursements— and
the associated cash redemptions of special notes— aver
aged about 100 million a month, but the cash drain on the
Treasury was largely offset: the IMF repurchased 600 mil
lion of notes with gold in order to replenish its note hold
ings, and the Treasury monetized the gold.
Much of the 900 million rise in “all other” expenditures,
as tabulated in Table I, was related to increased purchases
by the Federal National Mortgage Association of mort
gages on the secondary market.
The only major decline in expenditures during the latest
fiscal year was for the Commodity Credit Corporation.
This reduction was mainly attributable to lower cropsupport costs. The CCC paid out about 500 million dol
lars for the new Soil Bank program in fiscal 1957, but
there were no redemptions of special certificates of interest
secured by crop loans, as there had been the year before.
C a sh I n c o m e
The growth in the tax base in recent years more than
offset the effects of the important tax reductions made
three years ago. From a level of about IIV 2 billion dollars
in fiscal years 1953 and 1954, cash receipts declined
to about 68 billion dollars in the following year and then
rose to 77 billion dollars in fiscal year 1956 and to almost
82 billion dollars in fiscal 1957.
As indicated in Table I, every category of Federal in
come increased in fiscal 1957, although the total increase
was not much more than half that of the previous year,
when the economy was expanding at a more rapid pace
than recently. Most of the 4.8 billion dollar increase in
fiscal 1957 receipts is accounted for by withheld and non
withheld income taxes (3.5 billion dollars) and excises
(750 million); by contrast, corporate income taxes
changed but little. Personal income, which reflects rather
closely changes in the individual income tax base, ad
vanced from 317 billion dollars to about 336 billion dol
lars between fiscal 1956 and fiscal 1957. On the other
hand, corporate profits before taxes experienced only a
slight improvement from 42.5 billion dollars in calendar
year 1955 to 43.0 billion in calendar 1956.3
Individual income tax collections rose some 15 per cent
above the level of 1953, when higher tax rates prevailed,
and 10 per cent over last year’s amount. For corporate
income taxes, the rise in profits to a record level was not
quite enough to compensate for the loss of revenue
attributable to the repeal of the excess profits tax as
of December 31, 1953. Although corporate tax liabili
ties actually were slightly higher in calendar 1956 than in
calendar year 1953, this rise in liabilities was submerged
by other factors, such as the changed timing of tax pay
ment dates.
Excise tax receipts in fiscal 1957 were augmented by
the advance in highway-user taxes on July 1, 1956, which
were designed to defray costs under the new Federal-aid
highway program, as well as by continued rising purchases
by consumers of taxable items. Similarly, receipts by the
old-age and railroad retirement trust funds benefited from
tax-rate increases, effective January 1, 1957, to finance the
new Disability Trust Fund. Adding to the growth in these
receipts were the expanded coverage under the Social
Security Amendments of 1956 and a general increase in
taxable payrolls.
P
u b l ic
D
ebt
T
r a n s a c t io n s
In the period since the end of World War II, the Federal
debt passed through declining and rising phases, but its
2
"W e are shifting to new guided missiles as our m ajor deterrent
weapon, but we dare not abandon our older, conventional defenses.
3 Most corporate tax collections in fiscal year 1957 were based on
W e have just entered into an era of overlapping, double costs; research
profits earned in calendar year 1956. How ever, a p art of these collec
and developm ent of missiles, at a fantastic price, on top of a complete,
tions was based on earlier earnings, since approxim ately one fourth
strong conventional weapons arsenal.” (Address by R. E. M erriam ,
of these taxes is paid by corporations w ith tax periods that do not
Assistant D irector, Bureau of the Budget, May 23, 1957)
coincide w ith the calendar year.
FEDERAL RESERVE BANK OF NEW YORK
C h a rt li
GROSS PUBLIC DEBT, END OF FISCAL YEAR 1946-57
1947
1949
195!
1953
1955
1957
^ P a r t l y est imated by the Fe d e ra l R e s e r v e B an k of N e w York.
Source: T r e a s u ry B u lle t in .
— -- — --—-- —-- --- ------------ -—.....
.........._ _
size on June 30, 1957 was about the same as in mid-1946.
Chart II illustrates the reduction of the gross public debt
from about 270 billion dollars at the end of fiscal 1946 to
a low of 252 billion at the end of fiscal 1948, the relatively
steady rise after the Korean emergency to a peak of 274
billion dollars at the end of fiscal 1955, and the gentle
downturn thereafter to 270.5 billion at the end of fiscal
1957.
The distribution of ownership of the Federal debt be
tween Treasury investment accounts and other holders has
changed markedly, however. The Treasury investment ac
counts almost doubled the value of their investment port
folio between fiscal 1946 and fiscal 1957, chiefly as a result
of the growth of reserves as a counterpart to the rising
social security liabilities to the public. These accounts held
about 55 billion dollars of Federal securities on June 30,
1957. On the other hand, the share of the public debt held
outside the Treasury declined from 240 billion dollars at
the close of fiscal 1946 to about 215 billion at the end of
fiscal 1957. During fiscal year 1957, the combined effect
of an over-all reduction in the debt and the continuing
acquisition of Government issues by the Treasury invest
ment accounts decreased the debt held by the public by
more than 4 billion dollars (see Table II). At present,
approximately 80 per cent of the public debt is held out
side the Treasury, compared with almost 90 per cent in
1946.
The Treasury’s operations within the past fiscal year
were notable for the frequency of cash offerings, the heavy
reliance placed upon short-term issues in both cash and
refunding operations, and the relatively high attrition ex
perienced during several refundings. Essentially, this
experience seems to have been an outgrowth of a per
109
sistent tendency for cash requirements to run ahead of
expectations, and of intermittent pressures on the securi
ties markets.
All told, the Treasury engaged in twelve major market
financings during the fiscal year, of which four were re
fundings of maturing issues totaling 37.1 billion dollars,
two involved the roll-over of special bill issues amounting
to 3.4 billion dollars, and six raised a total of 12.5 billion
dollars of new cash. In addition, the regular weekly bill
issue was increased upon seven occasions during the late
winter to raise an additional 1.1 billion dollars. Except
for a two-month lapse between early August and midOctober 1956, this heavy financing schedule required the
Treasury to enter the market at intervals of one month
or less.
The number of refundings, which was determined by the
structure of the debt at the start of the fiscal year, was not
exceptional for postwar years, and the major exchange
operations were fairly widely spaced in August, December,
February, and May. Where possible, issues coming due
within a few months were combined into one exchange
offering, so that the four refundings encompassed five
maturing notes and two maturing certificates. By calling
one partially tax-exempt bond of 1 billion dollars for re
demption, and by not calling other optionally dated issues
callable during the year, the Treasury minimized the fre
quency and to some extent the size of its refundings.
The frequent cash financings after October 1956 were
partly a consequence of seasonal operating deficits, unex
pectedly heavy defense expenditures, and large drawings
on the IMF by foreign countries. A sizable share of the
cash borrowing also went to meet cash drains from debt
operations, such as the heavy redemption of Savings
bonds, the sizable attrition on refundings, and the roll-over
of very short-term borrowing. The two offerings of tax
anticipation bills in January and February, for example,
Table II
Federal Cash Operations and Changes in Debt
Fiscal Years 1956 and 1957
(In billions of dollars)
1956
Item
Add:
1957
Cash surplus ( —) .....................................................
-
5.1
-
2.7
Change in Treasurer’s balance................................
+
0 .3
-
1.0
4 .8
-
Equals: N et cash debt redemption ( —) or borrowing
from the public..............................................
Less:
N et sales of securities of Government corporations...................................................................
Equals: N et change (cash basis) in gross public debt held
by the pu blic...........................................................
Add:
N et investments by Government agencies and
trust funds.......................................................
N et accruals of interest on Savings bonds..........
Other noncash borrowing.........................................
Equals: Net reduction ( —) in gross public debt........
Memorandum (end of year):
Gross public debt...................................................................
D ebt subject to ceiling..........................................................
Treasurer’s balance................................................................
-
0 .7
-
-
5 .5
3.7
0 .7
-
4 .4
3.2
0 .4
0.2
-
2 .4
0 .3
0 .6
1.6
-
2.2
272.8
272.4
6 .5
Note: Because of rounding, figures do not necessarily add to totals.
Source: Daily Statement of the United States Treasury.
270.5
270.2
5 .6
110
MONTHLY REVIEW, AUGUST 1957
merely replaced special 91-day bills. Subsequent cash bor
rowing late in March and May, as well as the tax bill
auctioned in late June, was associated with the retirement
in March and June of large tax-anticipation issues that
absorbed the seasonal cash surpluses in those months.
The bulk of the new money issues and refundings car
ried short maturities. Of a total of 16.9 billion dollars of
new money raised during the fiscal year (including the
roll-over of the special bills), about two thirds were retired
by the fiscal-year end; less than a billion of the remainder
matures beyond the current fiscal year. Of the 33.5 billion
dollars of new issues taken in exchange for maturing secu
rities, 90 per cent must be repaid or refinanced in fiscal
1958; only 6 per cent of the total will mature as late as
1960 or 1962. As a result, the average maturity of the
marketable debt fell from five years five months at the end
of fiscal 1956 to four years nine months at the end of
fiscal 1957.
The extensive reliance upon short-term financing did
not prevent a significant rise in the Government’s interest
costs. The ratcheting-upward of interest rates is clearly
illustrated by the experience in the Treasury’s refunding
operations. In the first exchange offering of the fiscal year
a note issue carried a 2% per cent rate; the second refund
ing offered twro certificates at 3 V4 per cent, the third a 3%
per cent certificate and a 3 V2 per cent note, and the fourth
a 3Vi per cent certificate and a 35/s per cent note. Thus,
from the first note to the last, the interest rates offered
rose by nearly 1 percentage point. Interest costs on new
cash offerings followed a similar pattern, but the trend is
blurred somewhat by the effects of granting Tax and Loan
Account credit for the majority of those issues.4
The heaviest attrition on refundings during the fiscal
year was experienced in the refinancing of May 1, when
28 per cent of the outstanding amount of the maturing
issue was turned in for cash. For the fiscal year as a whole,
attrition averaged 9 per cent of the total exchange offer
ings, compared with 4 per cent in the previous fiscal year.
The higher rate of cash redemption of maturing Federal
issues during this period was associated with the generally
strong competition for available funds by private and State
and local government borrowers.
The repercussions from the pressures in the capital mar
kets also were apparent in the Savings bond sector of the
Federal debt. All told, net redemptions of Savings bonds
(at issue price) in fiscal 1957 amounted to 3.2 billion dol
4 Commercial banks were perm itted to make paym ent for m ost of
the cash offerings by crediting their Treasury Tax and Loan Accounts.
T his arrangem ent encouraged the banks to bid aggressively for the
new securities sold at auction, thereby holding down the average issu
ing rate for such securities.
lars, a sharp increase from net redemptions of 1.2 billion
a year earlier. Most of the rise in Savings bond redemp
tions and the falling-off of sales reflected the response of
relatively large investors to the upward adjustment in in
terest rates on other debt instruments. A change in the
law enabled the Treasury to raise the return on Series E
and H Savings bonds held to maturity from 3 per cent to
3Va per cent, effective February 1, 1957, but at the same
time the annual limit for such purchases was lowered from
$20,000 to $10,000. In addition, on May 1 the Treasury
discontinued the sale of Series J and K bonds, which had
been intended primarily for larger investors.
Seasonal F acto rs
in
T
rea sury
F
in a n c in g
The seasonal fluctuations in the Treasury’s cash require
ments, while still sizable, were smaller in fiscal year
1957 than in other recent years. In the first half of the
fiscal year (July-December 1956) the Government in
curred a cash deficit of 5.7 billion dollars, while in the
second half (January-June 1957) there was a cash surplus
of 8.4 billion dollars. The deficit-to-surplus turnaround in
fiscal 1957 thus amounted to about 14 billion dollars, com
pared with 19 billion in fiscal 1956.
The reduced seasonal swing last year was partly due to
the timing of cash expenditures, since the large increase
in defense spending took place in the second half of the
fiscal year, thereby holding down the surplus of that
period. On the receipts side, the progress of the “current
payments” plan for corporate taxes reduced the imbalance
of tax receipts in the two halves. Nevertheless, out of 21.5
billion dollars of corporate taxes in the fiscal year, the
Treasury still collected about 75 per cent in the JanuaryJune period; a year ago that proportion had been 80 per
cent. While the major share of individual income taxes is
subject to current withholding arrangements, or is collected
through quarterly payments of estimated nonwithheld
taxes, receipts continue to be somewhat clustered in the
January-June period because final returns for the preced
ing year, as well as three of the four quarterly payments
of estimated tax, are received then.
It is interesting to observe that the pattern of Treasury
borrowing during fiscal 1957 was not determined simply
by the seasonality of its current receipts and expenditures.
Although there was the usual cash surplus in the JanuaryJune period, the amount of new money borrowing (9.3
billion dollars) in that period was larger than in the pre
vious six months (7.6 billion). As noted above, a sub
stantial amount of funds was required in the JanuaryJune period to redeem the short-dated debt sold in the pre
vious half year as well as to meet the drains from attrition
on refundings and heavy net Savings bond redemptions.
FEDERAL RESERVE BANK OF NEW YORK
111
COMMERCIAL BANK LIQUIDITY RATIOS ABROAD
Since the war a new credit-control instrument, some
times called minimum liquidity ratios and sometimes securi
ties reserve requirements, has been developed in a number
of foreign countries. Under these requirements, commer
cial banks have to hold minimum reserves, in specified
proportions of their deposits, in the form of prescribed
liquid assets such as cash and government securities. Such
liquidity ratios are in force both in countries that have
cash reserve requirements1 and in countries where
cash reserve requirements do not exist. Essentially, the
ratios are a means of ensuring that the commercial banks’
holdings of Treasury bills or of other government securi
ties remain at, or above, a prescribed minimum level. The
purpose for which the ratios have been instituted, however,
has varied among individual countries. Thus, soon after
World War II, and again during the post-Korea inflation,
several European countries turned to them in an effort to
halt the excessive expansion of bank credit; in certain
cases, the ratios also resulted in channeling bank funds into
the financing of budget deficits. On the other hand, dur
ing the course of the postwar period, a number of less
developed countries have established the ratios as a selec
tive credit-control tool. More recently several countries,
notably Canada, have introduced the ratios as a supple
ment to other quantitative credit-control instruments. In
the United Kingdom, informal minimum liquidity ratios
have been observed by the commercial banks for some
time.
O r ig in
of
the
R a t io s
Initially, minimum liquidity ratios were established as
a means of ensuring good banking practice. Thus, in the
1930’s such ratios became a feature of the commercial
banking legislation in the Scandinavian countries and
Switzerland; ratios of this type still exist in these countries
as well as in several others outside Europe, but they have
become less significant than the ratios that were subse
quently introduced for monetary policy purposes.
Belgium was the first country to turn to liquidity ratios
as a weapon of quantitative credit control, adopting them
in 1946;2 Italy and France followed in 1947 and 1948.
Sweden, the Netherlands, and Austria also turned to this
instrument during the year following upon the outbreak of
the Korean conflict in mid-1950. In Belgium, Italy, and
France, the abnormally heavy wartime and immediate
postwar accumulation of government securities in com
mercial bank portfolios created the risk that the banks
would try to meet the postwar surge in the demand for
1 See "Com m ercial Bank Reserve Requirem ents A broad”, Monthly
R eview, October 1955.
2 T he Belgian authorities in 1935 had received statutory power to
establish liquidity ratios for the purpose of ensuring good banking
practice, but never exercised this authority. T he ratios were finally
established in 1946, not for this purpose, but for m onetary policy uses.
loans by resorting to massive redemptions of government
securities or to sales of these securities to the central
bank. The liquidity ratios therefore were introduced in
these countries as a means of immobilizing the government
securities portfolios of the commercial banks, rendering
the banks dependent on the central bank “discount win
dow” and thereby preventing an excessive extension of
credit to private borrowers. In Austria, the Netherlands,
and Sweden, which adopted liquidity ratios during the
post-Korea inflation, the circumstances were similar al
though less extreme. The Netherlands abolished the ratios
in 1952, but subsequently reintroduced them on a stand
by basis.
More recently, liquidity ratios have been established in
Australia, Canada, and the Union of South Africa in order
to supplement the monetary authorities’ other powers over
bank credit expansion. In Australia, cash reserve require
ments, called “special accounts”, are the main instrument
of monetary policy. At times, however, the Australian
commercial banks’ liquidation of their government securi
ties holdings, in a market supported by the central bank,
largely nullified the restraining effect of these requirements.
In 1954 such selling of government securities by the Aus
tralian banks prompted the central bank to propose that
the banks observe a ratio of 25 per cent between their
liquid assets (including all government securities) and
their total deposits; the central bank stated that its mone
tary policy would thereby be made more effective. Two
years later the central bank was able to report that all
banks had given assurances that they would not let their
ratio of liquid assets and government securities to deposits
fall below an agreed uniform minimum.
In the case of Canada, minimum liquidity ratios were
introduced in mid-1956 in an effort to reinforce the effec
tiveness of the Bank of Canada’s primary credit-control
instruments of open market operations and cash reserve
requirements. At present the Canadian liquidity ratios are
set at 15 per cent of deposits and, in contrast to the Aus
tralian regulations, include among eligible liquid assets
only Treasury bills (in addition to cash and day-to-day
loans to government securities dealers) instead of the
broad range of government securities. According to the
Bank of Canada, the primary purpose of the liquidity
ratios is to limit the scope, during periods of credit re
straint, for commercial bank liquidation of Treasury bills
to support an expansion of bank loans. The commercial
banks, thus restrained from running down their secondary
reserves of liquid assets, would quickly be confronted with
the necessity of selling off less liquid assets, such as gov
ernment bonds, to finance loan expansion. In such circum
stances it is expected that the capital losses likely to be
incurred on such sales would compel the banks to scruti
112
MONTHLY REVIEW, AUGUST 1957
nize loan applications more carefully and would generally
temper the inducement to expand loan portfolios. Any
judgment of the effectiveness of the Canadian liquidity
ratios is handicapped by the brief period during which
the ratios have been in effect, but the experiment will con
tinue to be studied with interest by central banks through
out the world.
In the Union of South Africa, which had statutory fixed
cash reserve requirements, the central bank in 1956 ob
tained authority to impose liquidity ratios above the level
of the statutory cash minima as well as to increase the cash
minima themselves. The new powers were intended as an
added means of controlling credit, in order to provide a
further safeguard against inflationary pressures. The cen
tral bank was given the power to introduce liquidity ratios,
mainly in order to neutralize possible substantial exten
sions of central bank credit to the government or public
institutions.
A minimum liquidity ratio is also observed by commer
cial banks in the United Kingdom. The ratio, which in
a loose form appears to have been maintained by British
commercial banks for some time, has become an acknowl
edged practice in the past few years. In 1955, the authori
ties are reported to have secured an understanding from
the commercial banks for its observance. The minimum
ratio is not rigid— it tends to vary seasonally— but at the
seasonal low the banks are expected not to let their hold
ings of cash, call money, and commercial and Treasury
bills fall below 30 per cent of their deposits. The British
minimum liquidity ratio which, like the Canadian ratio,
does not cover the banks’ government bond holdings
operates on the principle that, as the actual liquidity ratios
decline to the minimum, the banks will be forced to re
strain the growth of their less liquid assets or even to
reduce their government bond holdings and/or their loans.
Or, as the governor of the Bank of England said, “when
government borrowing is in hand but bank advances are
increasing too fast, the liquidity ratio rings a bell of warn
ing to the banks”. On the other hand, when the banks’
liquidity is rising, the ratio may point up the need for a
change in the government’s fiscal and debt management
policies— i.e., “when bank advances are in hand but gov
ernment short-term borrowing is mounting dangerously,
it rings a bell of warning to the government”.
In addition to being used as an instrument of quantita
tive credit control, liquidity ratios have also been estab
lished primarily for selective credit-control purposes— to
direct credit into desired channels— generally in countries
with less developed financial systems. Thus, in a number
of countries in Asia and Latin America such ratios were
introduced during the wartime and early postwar years in
order to lodge a portion of the government debt in com
mercial bank portfolios, and often were intended to help
develop a market for government securities. More recently,
they were introduced, also as a qualitative instrument, in
a few additional countries in Asia and Latin America;
thus, in Cuba and Honduras existing cash reserve require
ments were changed in 1955 to permit the banks to hold
a part of their required reserves in government securities,
while in Indonesia, where no commercial bank reserve re
quirements had existed, liquidity ratios were established in
1957. Furthermore, in a few of these countries (e.g., Israel
and Mexico) the requirements have been used to channel
bank funds into specific types of nongovernment loans that
the authorities wish to promote, by authorizing the banks
to count such loans as meeting a part of their reserve
obligations.
C h a r a c t e r is t ic s
of
th e
R a t io s
The liquidity ratios that have been established as instru
ments of quantitative credit control in Western Europe and
the British Commonwealth are of much wider interest than
those used as qualitative instruments, and the remainder
of this article will be focused upon them. While these
ratios naturally exhibit certain common characteristics,
they vary widely as regards both the way in which they
are administered and the kind of assets which they cover.
They have a statutory basis in Belgium, France, Italy, the
Netherlands, and the Union of South Africa (in the last
two countries they are at present not in force). In Aus
tralia, Austria, and Canada, on the other hand, they exist
under special agreements between the authorities and the
commercial banks, and in Sweden under “unilateral rec
ommendations” of the central bank; in Sweden, in addi
tion, the central bank has statutory authority to make the
liquidity ratios compulsory. In the United Kingdom, as
already noted, they are basically a matter of banking prac
tice. The monetary authorities are specifically empowered
to vary the ratios in the Netherlands, Sweden, and the
Union of South Africa, but they can also do so in the other
countries either under their general powers or through
renegotiation of existing agreements with the commercial
banks.
In those countries where the authority to set the liquidity
ratios is not given exclusively to the central bank, the bank
nevertheless has great influence in the formulation of
policy. Thus, in Austria the liquidity ratios are set by
agreement between the Finance Ministry and the commer
cial banks, but only after consultation with the central
bank; in France and Italy, the central bank plays the lead
ing role within the policy-making body entrusted with the
supervision of the ratios— the National Credit Council in
France and the Interministerial Committee on Credit and
Savings in Italy. In Belgium, it is true, the liquidity ratios
are the responsibility of the Banking Commission, under
the general authority of the Finance Ministry, but even
there the central bank has an important voice. In the
Union of South Africa, however, the central bank has
power to impose and vary the ratios only with the consent
of the Treasury.
FEDERAL RESERVE BANK OF NEW YORK
Cash reserves held under existing minimum cash ratios
are included in the computation of the liquidity ratios in
Austria, Belgium, Canada, the Netherlands, and the United
Kingdom; in Australia and in the South African legisla
tion, on the other hand, such cash reserves are excluded,
and the liquidity ratios are in effect supplementary require
ments. Cash assets are also included in the liquidity ratios
in the countries that do not have cash reserve requirements
except France; in that country, where the commercial
banks have long operated with very small cash ratios and
have used Treasury bills for adjusting their positions, such
bills are the only liquid assets that can be included in the
ratios. In Italy, eligible liquid assets comprise only gov
ernment securities besides balances with the central bank.
Call loans or their equivalent are eligible in Austria, Bel
gium, Canada, the Netherlands, and the United Kingdom,
commercial bills in Austria and the United Kingdom, and
in Austria also nongovernment bonds quoted on the Vienna
stock exchange; other approved nongovernment assets are
eligible in the South African legislation.
As regards government securities holdings, the liquidity
ratios in all these countries except Canada and the United
Kingdom cover all types of marketable government securi
ties (and sometimes government-guaranteed securities)
that are held by the banks to any important extent; in
Canada and the United Kingdom, Treasury bills are the
only government securities eligible (government bonds,
which are held by the banks in large amounts, are not
eligible). In France and the Netherlands, it is true, only
short-term marketable government securities are eligible—
in France, Treasury bills issued with original maturities of
up to two years, and in the Netherlands, Treasury bills of
up to one year and Treasury notes of up to five years— but
in these countries the commercial banks’ holdings of other
marketable govermnent securities are negligible. Belgium
makes all government securities eligible for the liquidity
ratios applicable to time liabilities, but specifies in detail
the composition of the required government securities
holdings against demand liabilities, certain longer term
securities being excluded. Austria, Italy, and Sweden, on
the other hand, permit the inclusion of all government
securities without restriction.3 In the Union of South
Africa, government securities with a maturity of up to
three years might be included, as well as any other assets
approved by the central bank, up to the amount by which
these securities and other assets exceed a bank’s holdings
as of a date specified by the central bank.
The liquidity ratios are based on total deposits except
in Sweden and Belgium. Sweden excludes savings deposits
from the base but adds some minor liabilities, while Bel
gium has separate requirements for sight and time liabili
3
Austria, in addition to an over-all liquidity ratio, has a prim ary
liquidity ratio, half of w hich may be satisfied through holdings of
Treasury bills and the rem ainder by cash assets. In Italy, the securities
in question m ust be deposited at the Bank of Italy.
113
ties. Ratios are generally related to current levels of de
posits, rather than to increases in deposits above some
specified amount; the only exceptions are in the Union of
South Africa where they may be imposed on either basis,
and in Italy where a 40 per cent minimum ratio against
increases in deposits applies until a bank’s actual ratio
reaches 25 per cent of deposits, at which point the lat
ter ratio becomes operative. The liquidity ratios are uni
form for all banks except in Belgium and Sweden. Bel
gium classifies banks in four categories according to size
and type, while Sweden differentiates among banks ac
cording to size alone; in the Netherlands, where the ratios
are not now in force, they would be adjusted according
to the size of the banks by exempting the first 10 million
guilders of deposits from the requirement.
The liquidity ratios apparently must be observed at all
times in most of the countries under discussion; in prac
tice, however, verification of such observance probably is
possible only at the time of the periodic bank statements.
The Canadian liquidity ratios provide for a monthly aver
aging, thus permitting day-to-day variations in the ratios
so long as the month’s average is not below the minimum;
such averaging is apparently also the practice in the United
Kingdom.
E
x p e r ie n c e
w it h
L iq u id it y R
a t io s
The effectiveness of the liquidity ratios as a quantitative
credit-control instrument has varied widely, mainly accord
ing to the circumstances at the time of their introduction
as well as the subsequent budget and debt-management
policies of the governments. In Belgium, France, Italy,
and the Netherlands, the ratios were successful in accom
plishing their immediate purpose of restraining bank credit
through a locking-in of the banks’ government securities
holdings. Even though the commercial banks in these coun
tries had some leeway in their operations at the time the
ratios were established, the point soon arrived when they
could no longer sell government securities in order to ex
pand loans to private borrowers. The banks were thus
forced to have recourse to central bank credit, the rates for
which were increased to discourage such borrowing; and
the expansion of bank loans slowed down markedly. In
Italy, in addition, the psychological impact of the introduc
tion of the ratios, during a period of rapid inflation, was
very important, since their establishment led to a drastic
revision of business expectations. On the other hand, in
Sweden, where the authorities felt it necessary after a time
to combine the ratios with directives to the commercial
banks regarding the level of their bank loans, the directives
seem to have been more instrumental than the ratios in
halting bank credit expansion.
With the passage of time, however, the requirement that
the commercial banks enlarge their government securities
holdings in proportion to their deposits has often had the
result that larger and larger amounts of bank funds have
114
MONTHLY REVIEW, AUGUST 1957
been channeled to the Treasury as the primary reserves of
the banks have been permitted to increase. The ratios
have thus tended in some of these countries to become
increasingly a vehicle for facilitating the financing of gov
ernment deficits and less a means of restraining bank
credit.
Moreover, in Belgium, where the ratios require unusu
ally large holdings of government securities, it has been
contended that they have actually had a destabilizing im
pact on the economy because of the way they affect the
financing of the government’s continued deficit. Thus, dur
ing periods of rapid world-wide expansion of demand,
when Belgium usually gains gold and foreign exchange, the
primary reserves of the commercial banks tend to increase.
On the basis of such reserve additions, the banks expand
their domestic loans, but because of liquidity ratios that
are as high as 65 per cent they have to acquire about two
francs of reserve-eligible liquid assets— in practice gov
ernment securities-—for every franc of the loans that they
wish to add to their loan portfolios. The government is
thus provided with an automatic method for financing its
deficits, and needs to rely relatively little on raising funds
in the capital market, making it easier for private bor
rowers to do so. In contrast, during periods of a decline
in demand for Belgian goods accompanied by a slowingdown or even a reversal of Belgian foreign exchange gains,
the additions to the primary reserves of the banks level
off or are even replaced by losses; as a result, the gov
ernment obtains less of its financing from the banks, and
has to rely increasingly on the capital market. In view of
these circumstances, it is not surprising that Governor
Frere has implicitly criticized on a number of occasions
the workings of the ratios.
Since their establishment, the actual minimum ratios
have been changed in Austria, France, and Sweden. In
Austria, they were increased within a year of their estab
lishment, but greater emphasis was subsequently placed
on credit-control regulations intended to restrain the ex
pansion of bank loans for nonapproved purposes. In
France, the ratio was changed in mid-1956 to apply to
total deposits instead of to increases in deposits. This
change, which made necessary an increase in the banks’
holdings of Treasury bills, was intended, according to the
Bank of France’s annual report, both to satisfy the imme
diate needs of the Treasury and to limit a possibly exces
sive credit expansion. In Sweden, the minimum ratios
were raised substantially in 1952, and at the same time
were put on an informal basis. The present informal ar
rangement, however, does not prevent the authorities from
reintroducing the requirements on a statutory basis. In
deed, in April 1955 the central bank announced that statu
tory ratios would be put into effect if by the following July
the commercial banks had failed to reach the minimum
ratios. However, the banks increased their holdings of
liquid assets in time. In addition, in Belgium, the com
position of the assets eligible for the liquidity ratios has
been changed slightly a number of times, primarily to pro
vide some diversification of the required reserves and thus
increase somewhat the freedom of the commercial banks in
the management of their government securities portfolios.
In the Netherlands, where liquidity ratios were established
in 1951 on a temporary basis, they were abolished within
fifteen months after having helped to slow down the
domestic boom, but later were reintroduced on a stand-by
basis.
In the United Kingdom, the actual liquidity ratios of the
banks have during most of the postwar period been so
much above the minimum that an evaluation of the impact
of the minimum ratio on the banks’ operations is difficult.
In late 1951, it is true, the actual ratios dropped low enough
to exert pressure on the banks. In the first half of 1955,
on the other hand, when the actual ratios again fell sharply,
bank loans continued to rise rapidly. The banks were able
to maintain their ratios above the minimum only by con
tinuous large sales of government securities. After mid1955 bank loans began to decline, but within a few weeks
thereafter the authorities specifically requested the banks
to reduce their loans; the further decline in loans must
therefore be attributed primarily to this request.
So m e M
a jo r
P roblem s
The foreign experience with liquidity ratios throws light
on some of the difficulties noted in the postwar United
States discussions of this instrument (for example, in the
various Patman Committee documents in 1952). Of these
difficulties, the problems of assuring equity as among indi
vidual banks and of limiting the amount of Treasury
financing at the banks and thus the volume of reserveeligible assets seem the most important. The equity prob
lem arises because of differences in the asset structures of
the individual banks, and foreign countries have attempted
to meet it in a number of ways. Thus, France, Italy, and
the Netherlands, when they first introduced the liquidity
ratios, linked the ratios to increases in deposits. Such ar
rangements, it is true, overcome the problem of the exist
ing differences in the asset structure of individual banks;
at the same time, however, they penalize those individual
banks whose deposits are growing most rapidly. If the
arrangement is only temporary, as it was in the Nether
lands, this discrimination against growing banks need not
be serious. In Italy, the problem tends to be mitigated by
the provision that the requirement of a 40 per cent mini
mum cover against deposit increases ceases to apply when
a bank’s total holdings of reserve assets has reached 25
per cent of its total deposits.
In Belgium and Sweden, the problem was met by adjust
ing the minimum ratio according to the size of the bank;
such an adjustment is also provided for in the Netherlands
where the ratios are on a stand-by basis. The Netherlands
has also used another method for meeting the problem.
FEDERAL RESERVE BANK OF NEW YORK
115
In 1954 the Dutch Treasury floated, for the most part in where during most of the postwar period the special re
exchange for short-term government securities, a special serve requirements were applied mainly as an instrument
issue of eight to ten-year securities marketable only among of selective credit control, the authorities more recently
the banks and ineligible for the liquidity ratios, in order to have used them to restrain over-all credit expansion by so
reduce the exceptionally high liquidity of the banking sys changing the requirements as to include in the required
tem. The issue, however, had the additional effect of re reserves certain securities available only from the central
moving the interbank differences in holdings of short-term bank.
government securities. The banks with especially large
Recent developments in the United Kingdom likewise
holdings of short-term government securities exchanged have pointed up the impact of fiscal and debt-management
these in larger amounts than the other banks for the new policies on the effectiveness of the liquidity ratios. Despite
funding issue, despite its restricted marketability, because the consistent efforts of the authorities to keep the floating
the yield was relatively high.
debt down to manageable size, this debt at times in recent
It is of course self-evident, however, that a funding issue years rose substantially. The banks’ Treasury bill hold
can be of no help in overcoming the problem of equity ings thus became large and their actual liquidity ratios
when the liquidity positions of individual banks are rela comfortable; consequently, as the governor of the Bank of
tively low. Under such conditions of low liquidity, a grad England pointed out, it became more difficult to maintain
ual introduction of minimum liquidity ratios can help pressure on the banks. Nevertheless, the British authorities
alleviate the unfavorable impact of the ratios on individual rejected the alternative method of operating through an
banks by giving them time to adjust their positions. This enforced variable minimum liquidity ratio, and continued
procedure was followed in Austria, Canada, and Sweden, to pursue their policy of reducing the volume of short-term
where the banks were allowed several months before the debt by budget economies, a savings drive, and a general
new ratios became fully effective. In Canada, moreover, funding program. The governor of the Bank of England,
because the banking system’s holding of Treasury bills had affirming his belief that the right decision had been taken,
fallen to an unusually low level by the time the ratios were stressed the need for an appropriate fiscal policy and noted
agreed upon, the Bank of Canada reportedly stood ready that “a mandatory increase in the liquidity ratio by forcing
to undertake swaps with the commercial banks by selling the banking system to hold more Treasury bills, would
them Treasury bills from its holdings in exchange for gov work in absolute contradiction with a policy of funding
ernment bonds; at the same time, the Treasury stepped up and reducing bank lending to the Government”.
its weekly issue of Treasury bills. The market repercus
sions of the new liquidity ratios thus were minimized, and
C o n c l u d in g R e m a r k s
the commercial banks were enabled to reach the minimum
The experience with the liquidity ratios as an instrument
ratios well before the target date.
One of the most serious problems to have confronted of monetary policy thus has been somewhat mixed. As a
those foreign countries that have relied on liquidity ratios qualitative instrument— their main use in the countries
as a quantitative credit-control instrument has been that of with less developed financial systems— the ratios have not
Treasury borrowing at the banks. The foreign experience been very successful. Where they have been utilized to
clearly confirms the view that minimum liquidity ratios do direct nongovernmental expenditures into desired chan
not necessarily have any credit-restraining effect unless nels, through the inclusion of approved bank loans among
budget and debt-management policies are such as to limit the reserve-eligible assets, they have had the usual weak
the volume of the reserve-eligible government securities. nesses of selective credit controls— particularly the diffi
It also shows that an increase in the minimum ratios to culty of determining the end-use of bank loans and the
offset the expansionary effect of a growing volume of possibility that borrowers may obtain larger loans for the
reserve assets has very rarely been a practical policy. “permitted” or “preferred” purposes and employ their own
The experience of Belgium, France, and Sweden is par funds thus freed on expenditures that the selective controls
ticularly revealing in this respect. The governments of are intended to discourage. In those Asian and Latin
these countries, faced by large budget deficits, resorted American countries where their establishment was regarded
increasingly to the issue of reserve-eligible government as a means of helping develop a market for government
securities. At the same time, the primary reserves of securities, they have had only moderate success in accom
the banks rose, mainly owing to an inflow of gold and plishing this purpose, even though they have resulted in
foreign exchange or government borrowing from the lodging a portion of the government debt in the commer
central banks. The banks therefore had little difficulty in cial banks’ portfolios.
expanding credit to private borrowers despite the existence
Where the ratios were established as a quantitative
of the minimum liquidity ratios. The credit-restraining instrument to deal with conditions of extreme bank liquid
effect of limiting the volume of reserve-eligible assets can ity, such as prevailed in Europe in the early postwar years,
be seen in the experience of Mexico. In that country, they generally fulfilled their objective. Their usefulness
116
MONTHLY REVIEW, AUGUST 1957
under less strained circumstances, however, is more diffi
cult to appraise, although it is clear that they have in some
cases been applied as a substitute for a flexible interest
rate structure and have thus hindered the conduct of an
effective monetary policy. In a number of countries the
efficacy of the ratios as a credit-control weapon has been
impaired by budgetary and debt-management policies that
have led to an increase in the volume of reserve-eligible
assets, particularly short-term government debt; where this
has happened, the existence of the liquidity ratios has
proved no obstacle to an excessive expansion of credit. In
other countries, the ratios have not been in force long
enough for their effectiveness to have been fully tested,
while in a few they have been only a temporary expedient
that was soon reinforced or replaced by other creditcontrol measures. However, in every case where minimum
liquidity ratios have been relied upon, the experience with
this instrument has served to highlight the vital importance
of reinforcing credit control by appropriate budget and
debt-management policies.
SELECTED ECONOMIC INDICATORS
United States and Second Federal Reserve District
Percentage change
Item
1957
1956
Unit
June
M ay
April
June
Latest month Latest month
from previous from year
month
earlier
U N IT E D STATES
Production and trade
Industrial production*........................................................................
Electric power output*........................................................................
Ton-miles of railway freight*!.
..............................................
Manufacturers’ sales *^f.....................................................................
Manufacturers’ inventories *11...........................................................
Manufacturers’ new orders, total* ^ ................................................
Manufacturers’ new orders, durable goods*1[..............................
Retail sales*lf.........................................................................................
Residential construction contracts*................................................
Nonresidential construction contracts*..........................................
Prices, wages, and employment
Basic commodity prices f ....................................................................
Wholesale prices f ..................................................................................
Consumer prices f ..................................................................................
Personal income (annual rate)*^[.....................................................
Composite index of wages and salaries*........................................
Nonagricultural employment* f t .............................................
Manufacturing employment* f f .......................................................
Average hours worked per week, manufacturing f ......................
Unemployment......................................................................................
U nemploy ment t ....................................................................................
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 (337 centers)*................................................................
Velocity of demand deposits (337 centers)*.................................
Consumer instalment credit outstanding f ....................................
United States Government finance {other than borrowing)
Cash incom e...........................................................................................
Cash outgo..............................................................................................
National defense expenditures..........................................................
1947-49 = 100
1947-49 - 1 0 0
1947-49 *= 100
billions of $
billions of $
billions of $
billions of $
billions of $
1947-49 «= 100
1947-49 = 100
143p
—
—
2 8 .4p
54. Op
27.2 p
13.2 p
—
—
—
1947-49 ■=100
1947-49 -1 0 0
1947-49 = 100
billions of $
1947-49 = 100
thousands
thousands
hours
thousands
thousands
89.7
117.4p
120.2
343.8p
—
52,615p
16,893p
39.9 p
3,030
3,337
millions of $
millions of $
millions of $
millions of $
millions of $
1947-49 = 100
millions of $
72,010p
93,280^
105,540p
31,088p
77,684
145.Op
32,344
millions of $
millions of $
millions of $
12,214
7,297
3,474
1947-49 = 100
1947-49 = 100
1947-49 = 100
1947-49 = 100
thousands
thousands
millions of $
millions of $
1947-49 = 100
1947-49 = 100
1947-49 = 100
—
—
—
117.9
7,829. Op
2,660.5p
69,637
4,946
181.7
117
134
143r
227
106
28 .7
53.7
27.9
13.2
16.3
n.a.
287
141
219
107
n.a.
n.a.
n.a.
n.a.
15.9
269
248
#
#
5
1
#
- 4
- 6
+ 1
n.a.
- 9
+ 1
+ 5
- 5
n.a.
n.a.
n.a.
n.a.
+ 4
n.a.
-1 1
88.2
117.1
119.6
342.9
155 p
52,639p
16,935p
39.7
2,489
2,715
88 .8
117.2
119.3
340.6
155
52,568
16,965
39.8
2,481
2,690
88.3
114.2
116.2
326.8
149
52,026
16,895
40.2
2,927
n.a.
+ 2
#
+ 1
#
#
#
#
+ 1
+22
+23
+
+
+
+
+
+
73,680p
91,180p
104,770p
30,955
85,408
148.1
31,901
73,970p
90,990p
107,250p
30,922
82,596
143.8
31,532
73,122
86,887
104,744
30,720
75,734
135.0
30,084
- 2
+ 2
+ 1
#
- 9
+ 1
+
+
+
+
+
+
7,487
7,017
3,166
4,804
6,726
3,280
12,192
6,898
3,505
+63
+ 4
+ 10
$
+ 6
- 1
156
n.a.
n.a.
117.2
7,829.0
2,665.0
73,245
5,393
184.4
115
131
154
n.a.
n.a.
116.9
7,836.0
2,669.9
73,059
5,340
181.7
109
131
156
230
285
113.8
7,867.6
2,723.0
66,106
4,892
166.0
114r
126
+ 1
n.a.
n.a.
+ 1
#
#
- 5
+ 2
n.a.
n.a.
+ 4
#
— 2
-4- 5
+ 1
+ 9
+ 3
+ 6
143
228
lOlp
28 .6
53.9
28 .4
14.1
1 6 .4p
n.a.
260
-
_
2
2
3
3
5
5
1
#
- 1
+ 4
n.a.
2
7
1
1
3
7
8
SECOND FEDERAL RESERVE D ISTRICT
Electric power output (New York and New Jersey)*...................
Residential construction contracts*....................................................
Nonresidential construction contracts*..............................................
Consumer prices (New York C ity )t....................................................
Nonagricultural employment*...............................................................
Manufacturing employm ent*................................................................
Bank debits (New York C ity)*............................................................
Bank debits (Second District excluding New York C ity )*..........
Velocity of demand deposits (New York C ity )* .............................
Department store sales*..........................................................................
Department store stocks*.......................................................................
-
8
- 1
+ 2
+ 2
Note: Latest data available as of noon, August 2, 1957.
t New basis. Under a new Census Bureau definition, persons laid off temporarily and those
p Preliminary.
waiting to begin new jobs within thirty days are classified as unemployed; formerly these
r Revised.
persons were considered as employed. Both series will be published during 1957.
n.a. N ot available.
§ Seasonal factors revised. Back data available from the Domestic Research Division,
* Adjusted for seasonal variation.
Federal Reserve Bank of New York.
t Seasonal variations believed to be minor; no adjustment made.
1[ Revised series. Back data available from the United States Department of Commerce.
# Change of less than 0 .5 per cent.
f t Revised series. Back data available from the United States Bureau of Labor Statistics.
Source: A description of these series and their sources is available from the Domestic Research Division, Federal Reserve Bank of New York, on request.
@FedFRASER