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O f Credit and Business Conditions





V ol . 28




No. 12

The announcement on November 18 that the Treasury will
redeem the entire December 15 maturity of Treasury notes,
amounting to 3,261 million dollars, probably represents the
conclusion of the Treasury’s program of using surplus funds
which, in effect, were obtained during the Victory Loan drive
a year ago, to retire outstanding Government debt. This
operation, together with the redemption of approximately 500
million dollars of unexchanged certificates of indebtedness
which mature on December 1, will reduce the general fund
balance of the Treasury by the end of December to 2 V2 to
3 billion. And these December redemptions will increase to
about 23 billion dollars the total amount of marketable Govern­
ment securities retired by the Treasury since the program
started on March 1.
End-of-month figures for the general fund balance are shown,
together with monthly data on cash expenditures of the Gov­
ernment, in the accompanying chart for each month since the
beginning of 1940. As these data indicate, the general fund
Treasury Cash Expenditures and General Fund Balance*








* Expenditures are monthly tota ls; balances are end-of-month figures.
Novem ber and Decem ber 1946 estimated by Federal Reserve Bank of New
York. In the December estimate for general fund balance, no allowance is
made for any effect of Treasury transactions in connection with this country’ s
subscription to the International Monetary Fund.

balance of the Treasury was usually maintained at a level in
excess of monthly cash disbursements until 1942, when the
rapid development of the war program caused a sharp rise in
the rate of Government expenditures. W ith the adoption of
the War Loan drive method of financing, it became necessary
for the Treasury to acquire enough funds in each drive to meet
the estimated excess of expenditures over current tax receipts
for several months ahead, as well as to assure ample funds with
which to meet any unforeseen requirement. The Treasury bal­
ance rose far above the current monthly rate of Government
expenditures following each War Loan drive, and was drawn
down rapidly in subsequent months, but even at the low points
before each succeeding War Loan the balance remained far
larger than before the war.
The final drive, the Victory Loan, in November and Decem­
ber 1945, was intended to provide enough funds to complete
the financing of war expenses, but in view of the rapid shrink­
age in the rate of Government disbursements, the goal for the
drive was reduced to 11 billion dollars. The unexpectedly
heavy oversubscriptions, amounting to more than 10 billion
dollars, raised the general fund balance at the end of December
1945 to approximately 26 billion dollars, a record level and
an amount far in excess of the Treasury’s prospective require­
ments, especially in view of the fact that Government expendi­
tures were falling more rapidly, Savings bond redemptions
were smaller, and Government revenues were better sustained
than had been anticipated earlier. As a result, it was apparent
that a large volume of funds was available for the retirement
of outstanding Government debt.
The program which was initiated in March was directed to
the redemption of securities held largely by the banks in order
to avoid an accentuation of inflationary pressures by adding
to the already large money supply in the hands of the public
through the retirement of securities held by nonbank investors.
The redemption of securities held largely by the commercial
and Federal Reserve Banks has made possible the extinguish­
ment of very large amounts of Treasury deposits in the banks
without adding very greatly to the amount of deposits owned



by the public. As a result, commercial banking statements now
show rather generally substantial reductions in total earning
assets and total deposit liabilities compared with a year ago.
W ith the -reduction of the general fund balance of the
Treasury to an amount, at the end of December, which may be
regarded as approaching a current peacetime level, further
redemptions of bank-held Government securities will depend
upon the availability of funds from an excess of tax receipts
over Government expenditures, or from an excess of sales of
Savings bonds and other securities over redemptions at the
initiative of the owners.
M e m b e r B a n k R eserve P o s it io n s

Pressure on member bank reserves was renewed in the first
half of November, as the effects of sizable payments of funds
out of foreign deposits with the Reserve Banks were out­
weighed by substantial needs for reserve funds resulting from
transactions in connection with the first-of-the-month redemp­
tion of about 2 billion dollars of Treasury certificates, relatively
large Treasury receipts from Social Security and withheld
income taxes, and an increase in currency in circulation and
in reserve requirements. The strain on member bank reserve
positions was relaxed temporarily after the middle of the
month, when Treasury cash receipts and expenditures were
approximately in balance, currency in circulation declined mod­
erately, and further payments from foreign deposits in the
Federal Reserve Banks were offset by a continued increase in
reserve requirements. Member bank demands on Federal
Reserve credit consequently were substantial in the first half
of the month and fell off in the second half.
Treasury transactions were principally responsible for the
pressure on the money market in the two weeks ended Novem­
ber 13. A considerable part of the 2 billion dollars withdrawn
from War Loan deposit accounts in connection with the retire­
ment of a like amount of certificates maturing on November 1
was not returned to the commercial banking system owing to
large Reserve Bank holdings of the redeemed securities. Fur­
thermore, the deposit in the banks of the proceeds of nonbank
investor holdings of retired certificates brought an increase in
reserve requirements of almost 60 million dollars in the week
ended November 6. In the following week, as a result of heavy
Social Security and withheld income taxes Treasury receipts
exceeded expenditures by a wide margin and Treasury balances
in the Reserve Banks increased.
The drain on member bank reserves was heightened in this
period by a further substantial increase in currency in circula­
tion which, for the first time this year, carried the volume of
outstanding currency above the peak established toward the
close of 1945. As the funds gained from payments out of
foreign deposit accounts with the Federal Reserve Banks fell
far short of their needs, member banks bolstered their reserve
positions through resort to the credit facilities of the Federal

Reserve System. Member bank borrowing from the Reserve
Banks rose about 160 million dollars to nearly 400 million on
November 13, highest since the elimination in April of the
preferential discount rate on advances secured by short term
Government obligations. Member banks also sold substantial
amounts of Treasury bills and other short term Treasury obli­
gations directly and indirectly to the Reserve Banks. Despite
the substantial redemption of maturing Treasury certificates
held by the Reserve Banks, their Government security holdings
rose 76 million dollars.
The pressure on member bank reserve positions relaxed
considerably in the third week of November. Treasury cash
receipts and expenditures were more nearly in balance, and
gains of reserves resulting from payments of funds out of
foreign deposit accounts with the Federal Reserve Banks ap­
proximately offset a further increase in reserve requirements.
The rise in currency in circulation was temporarily halted, and
in the week ended November 20, 72 million dollars of cur­
rency was returned to the Reserve Banks, an unusually large
return flow of currency for this time of the year. The net
effect of these transactions was to reduce substantially the need
for reserves and for Federal Reserve credit. Federal Reserve
Bank loans and discounts and Government security holdings
declined in the week ended November 20, as the member
banks, particularly in New York City, used their excess reserves
to retire Federal Reserve credit. Loans and discounts declined
further in the following week but Government security hold­
ings rose substantially when some banks had to correct reserve
deficiencies and there was a renewed rise in currency circulation.
The New York City banks gained substantial amounts of
reserves through the redemption of Treasury certificates on
November 1, because of the large amounts of these securities
held in New York. But a heavy withdrawal of funds to other
parts of the country during the early part of the month more
than offset the reserves gained from Treasury operations as
well as from disbursements out of deposit accounts maintained
by foreign central banks and governments with the Reserve
Bank. Consequently, the metropolitan banks sold short term
Treasury securities directly and indirectly to the Reserve System,
and increased their borrowings, in order to adjust their reserves
to required levels.
Around the middle of the month a sizable return flow of
funds to New York caused a temporary accumulation of excess
reserves in the New York City banks. The banks repaid their
borrowings and bought large amounts of Treasury bills from
the Reserve Bank, allowing their reserves to fall substantially
below their requirements on November 20. A renewed outflow
of funds from New York together with a loss of reserves result­
ing from net Treasury receipts forced these banks again to
resort to Federal Reserve credit in substantial amounts in the
final week of the month.


Member B a n k C redit
Total loans of the weekly reporting member banks rose in
the four weeks ended November 20, with "commercial” loans
continuing to show the widest gains. Less than one third of
the increase of about 500 million dollars occurred among
reporting member banks in New York City. Real estate and
“other” loans continued to increase principally among out-oftown institutions. Government security holdings of all weekly
reporting member banks fell about 1.7 billion dollars reflecting
the cash redemption of Treasury certificates maturing Novem­
ber 1. This decline brought the volume of Government obli­
gations held by these institutions to 37.9 billion dollars, or to
the levels existing around the beginning of the Fifth War
Loan drive in June 1944. The decrease in holdings since the
beginning of the Treasury’s retirement program on March 1
amounted to approximately HV 2 billion dollars.
The announcement by the Board of Governors of the Federal
Reserve System of the removal on December 1 of most of the
credit restrictions under Regulation W and the modification of
those remaining in force has focused attention on recent devel­
opments in the consumer credit field. Under the latest amend­
ment of the regulation, all restrictions on charge accounts and
single-payment loans have been lifted. Instalment sales of and
loans on all but 12 major categories of consumers’ durable
goods which are still in short supply are also freed from con­
trols. Minimum down payments have been reduced to 20 per
cent in the case of rugs and have been maintained at that figure
for furniture but are still 33 Ys per cent for the remaining ten
categories of durable goods. The maximum permissible length
for all new instalment contracts has been increased from 12
months to 15 months.


obtain immediate use of goods, particularly of durables, which
he cannot afford to purchase out of current income. When
the business outlook is clouded or clearly unfavorable, he hesi­
tates to make new commitments of this sort, and lenders are
less willing to extend credit. During the war, while incomes
rose to unprecedented levels, the decline in the production of
consumers’ durable goods, together with Government credit
restrictions, caused a sharp reduction in the volume of con­
sumer credit outstanding. The ratio between consumer indebt­
edness and disposable income declined to 3.8 per cent in 1944,
the lowest ratio for the entire period for which such statistics
are available. Since V-J Day consumer credit has been rising
faster than incomes, but the ratio between them is still far
below the prewar figure. The total volume of consumer credit
currently outstanding could more than double before the pre­
war relationship between consumers’ disposable income ( at the
present level) and consumer credit outstanding would be
Although still low in relation to consumers’ current income,
the total volume of consumer credit outstanding has shown a
tremendous increase since the end of the war. Between the end
of September 1945 and the end of September 1946, the amount
outstanding rose nearly 2.7 billion dollars, or 47 per cent, the
largest 12-month increase ever recorded. As the accompanying
chart shows, all major components of the total except instal­
ment credits are now above their 1941 peaks. Normally instal­
ment credits constitute the most important form of consumer
indebtedness, but currently, because of the very restricted sup­
plies of such durables as automobiles, they account for only
about 40 per cent of the total amount outstanding, compared
with 62 per cent in September 1941, and are only about half
of their peak volume.
Consumer Credit by Major Types
(Estimated amount outstanding epd of September 1941, 1945, and 1946*)

In announcing these changes, the Board of Governors stated:
This revision narrows the scope of the regulation to what
the Board considers a minimum consistent with the exercise
of a stabilizing influence in this area of the economy. In this
form, the Board believes the regulation can be better under­
stood and its merits and defects better appraised. When
present inflationary pressures have subsided, the terms of
the regulation would need to be modified further.
Over the past twenty years consumer loan techniques have
been refined and their field of application has been expanded.
In the years from 1929 through 1941 the total amount of
consumer credit outstanding was equal to about 8 to 11 per cent
of consumers’ disposable income, the percentage rising in times
of high national income and falling in periods of recession.
When business prospects appear to be good, the average con­
sumer is willing to mortgage a part of his future income to


’4 5


1941 *45


September 30, 1946 preliminary.

1941 '45


f941 *45




The largest part of the years increase in total consumer
credit outstanding, nevertheless, was the 1.3 billion dollar
increase in instalment credit. Somewhat over 400 million
dollars of this rise represented a net increase in the direct
consumer instalment cash loans of commercial banks. This
increase in the loans of commercial banks, while small in
relation to the increase in total consumer credit, represented
a doubling of the volume of this kind of business handled by
the banks and has attracted widespread interest. The propor­
tion of consumer instalment cash loans originated by the com­
mercial banks grew very rapidly in the decade preceding Pearl
Harbor. The war sharply reduced their volume, but in the last
two years through persistent efforts the banks have been able
to resume expanding their consumer loan volume at a rate
faster than any of the other lenders in the field. By the end of
last September, according to the Boards estimates, the com­
mercial banks accounted for nearly 39 per cent of the total
volume of consumer instalment cash loans outstanding, a
slightly higher proportion than at the end of 1941. Some of this
increase may, strictly speaking, represent loans to small busi­
ness rather than consumers, but the amount is probably small.
Today over 10,000 commercial banks are operating consumer
loan departments or have announced their intention to do so.
In the past year, in addition to increasing their direct con­
sumer loans, the commercial banks have also substantially
expanded their purchases of automobile and other retail instal­
ment paper and more than doubled their outstanding volume
of repair and modernization loans.
Commercial banks in the Second District have shown even
greater proportionate increases in their consumer instalment
loans than the banks in the rest of the country. Most of the
expansion in their portfolios has been in personal instalment
cash loans and in repair and modernization loans. Percentage­
wise, the automobile paper held by these banks increased par­
ticularly sharply, but it still constitutes only a very small pro­
portion of their total volume of consumer loans. Reports from
37 member banks in this District indicate that at the end of
September retail automobile paper accounted for 7 per cent of
the amount of their consumer credit outstanding compared
with 32 per cent for the country as a whole.
The expansion in the instalment cash loans of other lenders
during the year ended September 30, 1946 was much more
moderate. Small loan companies showed the biggest dollar
increase, amounting to approximately 157 million dollars net.
The rise in instalment credits granted by most retail dealers
during the year continued to be restricted by the shortage of
consumers* durable goods. Automobile paper, which increased
more than any other type, rose about 230 million dollars to a
level of approximately 430 million. This was more than double
last year’s volume, but still less than 20 per cent of the 1941

Charge accounts have shown the largest percentage increase
of any of the major types of consumer credit since the end of
the war. Between the end of September 1945 and the end of
September 1946 accounts receivable rose nearly 70 per cent, or
1.0 billion dollars, despite the adverse effects on trade in the
New York and Pittsburgh areas of the trucking and power
strikes in the latter part of September. This rise in charge
accounts reflects the considerable increase in the dollar volume
of total department store sales resulting from both the sharp
rise in prices which has taken place in the past year and the
marked postwar rise in the proportion of consumers’ incomes
being spent on nondurable goods. Department stores in gen­
eral have been actively seeking new charge account customers
and have succeeded in increasing charge sales relative to cash
sales, though not yet to the extent of approximating the prewar
pattern. In September approximately 38 per cent of total sales
were charged compared with 32 per cent a year ago and a
pre-Pearl Harbor average of close to 45 per cent. W ith the
approach of the Christmas season and the lifting of Govern­
ment restrictions on charge accounts, the volume of charge
sales may by the end of the year reach levels far exceeding
all previous records.
The other two major categories of consumer credit, single­
payment loans and service credit, showed much smaller
increases (both relatively and absolutely) during the year than
instalment credits or charge accounts. Single-payment loans
rose about 270 million dollars net to a level of approximately
1.7 billion dollars, which still represents a sizable proportion
of the total volume of consumer credit outstanding. This type
o f loan is made largely by commercial banks. The relatively
slow rise in the volume of such loans in recent months is
attributable largely to the successful promotion by banks of
instalment loan techniques, with the resulting shift in emphasis
away from the single-payment type of loan. The net increase
in service credit, as the chart shows, was less than 100 million
dollars. While the volume of service credit does tend roughly
to follow changes in incomes, consumers* needs for doctors,
hospitals, laundries, and other services do not usually rise or
fall in proportion to their incomes.
The unprecedented growth in consumer credit since V-J Day
has been limited mainly by the available supply o f durable
goods. Regulation W has, of course, had. an additional re­
strictive influence. The large amount of liquid funds in the
hands of some groups of consumers may also have tended to
restrict the demand for credit. Recent surveys of liquid asset
holdings, however, would appear to indicate that not as large
a proportion of the total volume o f liquid savings as some
have assumed is held by the income groups which in the past
have bought the largest amounts "on time,” and the sharp rise
in prices in recent months may induce some consumers to
borrow who might not otherwise have done so. In some in*



stances, though, dealers have been and still are reluctant to sell
on time as long as demand exceeds supply by a wide margin.

in the first two weeks of November was practically equal to

In the months ahead, all forms of consumer credit may be
expected to continue to rise, particularly if the output of
passenger cars reaches the goals now set. Whether the volume
outstanding will attain the prewar relationship to disposable
income is not certain. This will depend on a number of
factors, including possible changes in consumer attitudes re­
sulting from increased liquidity.

prewar records. Radios, washing machines, vacuum cleaners,
electric ranges, electric irons, and passenger car tires were all

The first part of November 1946 marked the climax of a
year’s progress in peacetime production since the low point of
the reconversion period last fall. Although a series of industry­
wide labor disputes hindered achievement of high rates of
production in many lines during the winter and spring, there­
after total industrial activity began to rise steadily. In October,
production (as measured by the Federal Reserve index of
industrial production) had reached a point 12 per cent higher
than a year earlier and 82 per cent above the prewar (1935-39)
average. This high level of activity was maintained during
November up to the beginning of work stoppages in the
bituminous coal mines. The duration of the coal strike will
determine the seriousness of the repercussions upon the nation’s
economy; if the strike is prolonged and coal shortages are
intensified, hundreds of thousands, if not millions, may be
temporarily thrown out of work. In any case, another series
of labor disputes like last spring’s would postpone for some
time the prospects of surpassing October’s high rate of civilian
goods output.

the average 1941 rate, while truck output had earlier exceeded

coming out of the factories in September in far greater numbers
than in 1940 and 1941. By October, the Federal Reserve index
of durable goods manufacturing had risen 15 per cent above
the year-earlier level and 55 per cent above the low point
reached in February during the steel strike. Future advances
in the index, on the assumption of continued consumer demand
and comparatively peaceful labor-management relations, will
be limited principally by the availability of basic raw mate­
rials, the domestic production o f which has been near current
capacity levels. Under present conditions of nearly full em­
ployment of the country’s labor supply, increased output must
come mainly from increased productivity. The already strained
transportation facilities may become another limiting factor.

The extraordinarily strong consumer demand for nondurable
goods has been one of the major factors in maintaining the
national output at a high level throughout the reconversion
period. Output of textiles, clothing, and processed foods has
been at a high rate, although production in some lines, such
as meatpacking, flour milling, and leather tanning, has been
curtailed by shortages from time to time.

The flow of finished goods to the consumer in recent months
has increased even more rapidly than is indicated by the index
of industrial production, which, in effect, measures activity at
all stages of production. In many lines, where data on output
of finished goods are not available, the index measures monthly
fluctuations in industrial activity by changes in the production
or consumption of raw materials or in the number of manhours worked. In the first half of this year, many manhours of work went into reconversion, setting up assembly
lines, and doing maintenance work. Raw materials and man­
power have been used extensively both in the fabrication of
goods which remained unfinished for lack of critical component
parts and in the manufacture o f spare parts for prewar models.
W ith reconversion largely accomplished and a steadier flow
o f materials and component parts, the same number of manhours of work should now result in a greater output of finished
goods. Furthermore, in past months large quantities of goods
have been absorbed in the replenishing of normal business
inventories. As "pipelines” are filled and stocks of finished
goods reach normal levels, a greater proportion of the output
will be available for civilian consumption.

The biggest reconversion problems, o f course, were faced
by the durable goods industries. These were also the industries
most seriously affected by the labor disputes last winter and
spring. Production o f durable goods was impeded not only
by strikes at the fabricating and assembling plants, but also
by raw material shortages. Largely the result of extremely
high industrial demands, these shortages were intensified by
low price ceilings on some goods and by strikes (as well
as by the effect of the coal strike) at steel mills and at
nonferrous metal mines, smelters, and refineries. Nevertheless,
output o f many types o f consumers’ durable goods has recently
reached or exceeded prewar levels. Passenger car production

This accumulation of inventories has raised questions as to
whether stocks are likely to become overexpanded and whether
consumer demand will be sufficient to take up the slack once
the absorption of goods into inventories tapers off. By the end
of October, the value of manufacturers’ inventories had reached
the record level of 19-5 billion dollars, a net gain of 3 billion
dollars over a year earlier, more than three quarters of which
was added in the last four months. If the replacement of war
materials with civilian goods is taken into consideration, the
gain in manufacturers’ inventories since V-J Day has actually
been about 7 billion dollars, and if wholesalers’ and retailers’
stocks are included, the gross increase in this period was at least



10 billion dollars. However, much of the recent rise has been


the result of increased prices as well as greater physical volume.
On the whole, taken in relation to the present high level of

On November 9, President Truman announced the immedi­
ate removal of practically all remaining controls over prices
and wages. Pointing out that a large proportion of the economy
had previously been freed from price control, he stated that
any benefits derived from continuing the remaining controls
would have been far outweighed by consequent distortions in
production and by scarcities induced by withholding of goods
from market in hopes of higher prices. At the end of August,
the Office of Price Administration is estimated to have had
under its control 60 per cent of the nations economy, including
the prices of about 70 per cent of all food products. Prices of
livestock and meats were decontrolled in mid-October and
most foods and many other commodities were freed from
controls between that time and November 9. Prior to the
decontrol order of November 9, department store executives
estimated that as much as 95 per cent of their business was
still subject to O.P.A. price regulations. After November 9,
the only price controls still in effect were those on sugar, rice,
and new residential construction, plus the ceilings on rents.
Since the prices of most farm and food products had already
been freed of controls, the principal reactions to the President’s
order occurred among basic industrial commodities and manu­
factured products. Prices of nonferrous metals rose sharply,
bringing domestic prices of copper, lead, zinc, nickel, and tin
closer to world levels. Steel scrap prices advanced about $5.00
per ton, or 25 per cent, but owing to the tendency to upgrade
scrap under the O.P.A. ceilings, the actual increase in cost to
mills was somewhat less. Hides, which had been decontrolled

shipments, the aggregate volume of stocks held does not appear
excessive. Matters of more concern are the continuing high
rate of inventory accumulation and the fact that stocks are
unbalanced in the case of many individual lines. Because of
the uneven flow of materials and component parts, many man­
ufacturers hold expanded inventories of unprocessed and semi­
processed goods. In 1939, 43 per cent of factory inventories
were in the form o f finished goods; by September 1946, only
29 per cent were finished goods. Despite an increase over
1939 of 127 per cent in the dollar value of shipments, the
value of stocks ready for shipment was by September only 28
per cent greater, and the physical volume was probably less
than in 1939In the past year, the nation has achieved a high level of
peacetime activity with less reconversion delays and unemploy­
ment than were generally expected. Despite a record amount
of time lost by labor-management disputes and widespread
shortages o f materials, employment rose to a new peak and
unemployment never exceeded 2.7 million persons. The total
national output of goods and services is the highest it has ever
been in peacetime, and income payments to individuals have
likewise broken all records. Whether the nation will be able
to consolidate these gains and achieve a stable prosperity will
be largely dependent on whether consumer demand is main­
tained, prices are kept within reasonable limits, and more stable
labor-management relations are achieved.

Indexes of Daily Spot Market Prices of Selected Basic Commodities, June-November 1946*
(June 1946 average=100 per cent)



1 f>r



i 80









i 946

* Latest figrures are for N ovem ber 25.
S ource: Actual data, U . S. Bureau of L abor Statistics; converted to June 1946 base by Federal Reserve Bank of New York.


(8 0




at the end of October, more than doubled their old ceiling price
but later declined somewhat because of resistance to the high
prices. Quotations for wool tops, rayon yarn, and cotton fibre
also rose in the week following decontrol. The Bureau of
Labor Statistics index of spot market prices of 16 raw indus­
trial materials rose sharply after decontrol and on November
25 was 43 per cent above the level prevailing at the end of
June under the original price control act.

October, which entails a corresponding reduction in prospec­
tive demands for feed grains. Wheat prices, on the other hand,
have stayed at a high level because of sustained export demand,
and in the third week of November they were at the highest
point in 26 years. A sizable drop in cotton prices in the last
two weeks of October wiped out the advance of 33 per cent
made in the previous four months; this decline was caused
partly by the liquidation of speculative holdings.

These increases in raw material costs are expected ultimately
to have some effect on prices of manufactured goods. How­
ever, a number of manufacturers have announced that they are
going to keep prices unchanged or keep increases to a mini­
mum until the effects of higher raw material prices and
prospective increases in labor costs become apparent. N o
general increase in steel prices has been made, but if coal
prices advance further and another wage increase is granted
by the steel mills, some price adjustments will almost certainly
be made. This in turn would affect the prices of most durable
goods. In some manufacturing lines, and also in construction
work, hope has been expressed that part of the increased cost
of materials may be offset by lower overhead expenses and
increased physical output owing to a steadier flow of materials
and a consequently higher rate of production. In other lines,
however, where costs were already felt to be out of line with
O.P.A. ceiling prices, numerous price increases have occurred
since controls were lifted. Among the principal items which
have shown price rises at the factory are some makes of auto­
mobiles, radios, and other consumer durable goods, as well as
shoes, soap, carpets, and paints. At retail levels, similar price
increases have also occurred, but retail food prices appear in
many cases to have reached or passed their peak; in the case
of some of these items, notably meat, consumer resistance has
played a large part in reducing prices from the extreme levels
reached shortly after decontrol.

Farm prices are generally not expected to advance much
beyond their present levels. The Department o f Agriculture
estimates that prices received by farmers in 1947 may average
10 per cent below the present level and that prices for the
1947-48 marketing season may be as much as 15 to 20 per
cent lower than at present. Such declines would be caused by
continued high levels of production coupled with weakening
in both domestic and foreign consumer demands. Traders’
opinion of the prospect is indicated by the behavior of futures
prices, which in some markets have been considerably below
spot prices in recent months. The accompanying chart illus­
trates the case of cotton. Whereas in mid-June there was little
more than a one-cent spread between the New York spot price
and the various futures quotations, two months later the differ­
ence had widened to 4 cents, and by late November the Dec­
ember 1947 futures were selling about 7 cents below the spot
market price. In other words, in the five months ended N o­
vember 21, spot cotton prices made a net gain of about one cent,
while July 1947 futures declined 1lA cents and December 1947
futures dropped AVz cents in the same period.
A really severe drop in farm prices, however, would un­
doubtedly be prevented by Government price support activity,
although an accompanying decline in prices of commodities
bought by farmers would lower the price levels at which sup­

The foregoing chart shows the daily movements of
market prices of selected agricultural commodities since the
expiration of the orginal price control law at the end of June.
Prices of hogs increased nearly two thirds over the old ceiling
price in the following five weeks. Nearly a month of fluctua­
tion, mostly downward, ensued before the reinstatement of
ceilings at the beginning of September. Thereafter for six
weeks the official quotations moved on a plateau somewhat
above the June level but well below the prices prevailing in
August. Prices soared to a new record peak when controls
were removed again, but soon receded to about the August
level. Prices of steers have followed a similar pattern, and in
the case of both hogs and steers prices rose during November.
Corn prices, on the other hand, after rising abruptly upon
decontrol, have fallen decidedly in the past six weeks and are
now below the old ceiling prices. This decline reflects largely
the heavy marketing of livestock since decontrol in mid-

Spot and Futures Cotton Prices, New York City
(Thursday closing prices, June-November 1946*)

4 0









* Latest figures are for N ovem ber 21.
S ource: New Y ork Cotton Exchange.





ports would become effective. Most farm prices are still mate­
rially above the existing support levels; the potato crop was
the only one to require a considerable amount of price support
in 1946. The Department of Agriculture estimates that Gov­
ernment supports would check a decline in farm prices about
halfway between the peak and the prewar level, but the De­
partment does not anticipate a decline of this magnitude in
The dollar volume of department store sales in the Second
Federal Reserve District during November is estimated to
have been about 25 per cent greater than in November of last
year. This increase carries the seasonally adjusted index of
sales to within 10 per cent of the all-time high reached in
August. The November sales increase was in part a result of
the public’s postponement of buying during September and
October because of the trucking and delivery strikes, but it also
reflected further price increases, as well as buying in anticipa­
tion of price increases.
October sales of department stores in the Second District
were only 3 per cent greater than in October 1945. The strike
of United Parcel Service workers which affected stores in New
Department and Apparel Store Sales and Stocks, Second Federal
Reserve District, Percentage Change from the Preceding Year

York and Newark, with resulting curtailment of deliveries and
picketing of receiving platforms, was the principal factor in
the smallness of this increase, but shortages of merchandise
caused by the trucking strike during September and unseason­
ably warm weather in October were also contributing causes.
Receipts of merchandise at New York City department stores
during October were nearly 20 per cent below last year’s Octo­
ber receipts, while Second District stores outside New York
City had receipts averaging 25 per cent higher than a year ago.
Similarly, inventories on hand in New York City stores at the
end of October were only 12 per cent greater than a year ago,
while in stores outside the City inventories on hand had
increased 43 per cent over the same period. The ratio of
stocks on hand at the end of October to sales during the month
was 2.6 for New York City stores, and 2.9 for stores outside
the City. For the entire Second District, the stock-sales ratio
at the end of October was 2.7, a figure slightly higher than the
prewar level.
The merchandise which New York City department stores
failed to receive because of the delivery workers’ strike con­
tinued to be reported in outstanding orders. This resulted in
a slight increase in orders outstanding from the end of Septem­
ber to October 31. Outstanding orders of Second District
stores outside New York City declined about 10 per cent dur­
ing October.
Indexes of Business

Net sales

Stocks on
Jan. through
October 1946 October 1946 Oct. 31, 1946

Department stores, Second D istrict-----

+ 3



New Y ork C ity ......................................
Northern New Jersey...........................
Westchester and Fairfield Counties. .
B ridgeport...........................................
Lower Hudson River V alley...............
Upper Hudson River V alley...............
A lb a n y .................................................
Central New York S tate.....................
Mohawk River V alley......................
U tica.................................................
Northern New Y ork State..................
Southern New Y ork State...................
B in gh am ton .......................................
Elm ira..................................................
Western New Y ork State....................
B uffalo.................................................
Niagara Falls......................................
R ochester.............................................

— 7
+ 1
— 6
+ 21
+ 9

+ 31


Apparel stores (chiefly New Y ork City)

+ 11




Indexes of Department Store Sales and Stocks
Second Federal Reserve District
(1935-39 average = 1 0 0 per cent)

Industrial production*, 1935-39 = 100.,
(Board o f Governors, Federal Reserve
Electric power output*, 1935-39 = 100.
(Federal Reserve Bank o f New York)
Ton-miles of railway freight*, 1935-39 = 100
(Federal Reserve Bank o f New York)
Sales of all retail stores*, 1935-39 = 100.
(Department o f Commerce)
Factory employment
United States, 1939 = 100....................
(Bureau o f Labor Statistics)
New York State, 1935-39 = 100.........
(New York State Dept, o f Labor)
Factory payrolls
United States, 1939 = 100....................
(Bureau o f Labor Statistics)
New York State, 1935-39 = 100.........
(New York State Dept, o f Labor)
Income payments*, 1935-39 = 100.........
(Department o f Commerce)
Composite index of wages and salaries*#,
1939 = 100.......................................................
(Federal Reserve Bank o f New York)
Consumers’ prices, 1935-39 = 100...........
(Bureau o f Labor Statistics)
Velocity of demand deposits*, 1935-39 = 100
(Federal Reserve Bank o f New York)
New Y ork C it y .......................................
Outside New Y ork C it y ........................
















19 5p







































Sales (average daily), unadjusted.................
Sales (average daily), seasonally a d ju sted ..





Stocks, unadjusted............................................
Stocks, seasonally adjusted ............................







* Adjusted for seasonal variation.
p Preliminary.
r Revised.
# A special monthly release tabulating the complete set of 15 indexes, supplanting
the index of “ wage rates” formerly com puted by this bank, will be sent upon
request. A general discussion of the new indexes appeared in the N ovem ber
1946 issue of this Review. Tabulations of the monthly indexes, 1938 to date, and
description of component series, sources, and weights may be procured from the
Research Department, Federal Reserve Bank of New York. A mimeographed
article discussing some of the technical problems involved is also available on


National Summary of Business Conditions
(Summarized by the Board of Governors of the Federal Reserve System)
and employment at factories were maintained at record peacetime levels in October.
The total value of goods distributed was maintained at a high level but below the level of
production, and inventories increased further. Prices in wholesale and retail markets generally
advanced considerably following the lifting of controls.



In d u s t r i a l

Index of Physical Volume of Industrial Produc­
tion, Adjusted for Seasonal Variation
(1935-39 averages 100 per cent)

Pr o d u c t io n

Output at factories and mines, as measured by the Board’s seasonally adjusted index,
increased slightly further in October and was at a level of 182 per cent of the 1935-39 average
as compared with 180 in September. Production was maintained at this level in November up
to the beginning of work stoppages in bituminous coal mines.
Production of nondurable manufactures in October was at a postwar peak rate of 169 per
cent of the 1935-39 average. Output of manufactured food products rose sharply, reflecting
chiefly the exceptionally large volume of meat production after the middle of October when
Federal price controls were removed. The number of animals slaughtered under Federal inspec­
tion declined somewhat from late October levels during the first half of November. Output of
textile products advanced in October to a level of 170 per cent of the 1935-39 average and there
were also small gains in activity in some other nondurable goods industries.
Output of durable manufactures increased slightly in October as activity in the nonferrous
metals and machinery industries continued to advance. The number of passenger cars and
trucks produced increased further to a rate 14 per cent above the 1935-39 average and continued
to advance in the first two weeks of November. Activity in most other durable goods industries
was maintained at about the September level. During the first three weeks of November steel
output rose slightly to an average scheduled rate of 91 per cent of capacity, but in the fourth
week output dropped sharply owing to a cessation of operations at most bituminous coal mines
on Novetmber 21 as a result of work stoppages.
C o n s t r u c t io n

Indexes of Value of Department Store Sales and
Stocks, Adjusted for Seasonal Variation
(1935-39 average = 100 per cent)

Value of construction contracts awarded, as reported by the F. W . Dodge Corporation,
declined further in October to a level two-fifths below the May peak, but they were still about
double the 1939 average. Awards for residential building decreased by one fifth in October,
more than offsetting an increase in the value of contracts awarded for factory construction.

is t r ib u t io n

Department store sales, which usually increase from September to October, showed little
change this year, and the Board’s seasonally adjusted index declined to 258 per cent of the
1935-39 average as compared with 269 for September and 290 for August. Sales increased
seasonally, however, in the first half of November and were 22 per cent larger than a year ago.
Department store stocks continued to rise in October and the Board’s seasonally adjusted index
reached a new high of 235 per cent of the 1935-39 average, notwithstanding a further marked
decrease in stocks in the New York City area as a result of a trucking strike.
During October and the early part of November railroad carloadings of livestock were in
exceptionally large volume and shipments of most other classes of railroad revenue freight
were also maintained at high levels.
C o m m o d i t y P r ic e s

Indexes of Consumers’ Prices as Compiled by
Bureau of Labor Statistics. “All Items'* in­
cludes Housefurnishings, Fuel, and Mis­
cellaneous Groups Not Shown Separately
(1935-39 average =r 100 per cent)






20 (j _ ........... r ~ - ....



Following the initial sharp increases in prices of many basic commodities in October and
the early part of November, after the lifting of controls, prices of some agricultural products,
like cotton, corn, and poultry products, declined, while prices of wheat, flour, and sugar
advanced. Initial advances in prices of nonferrous metals, steel scrap, and rayon were main­
tained, and in the latter part of November prices of some of these industrial materials advanced
further. There were also reported in this period substantial increases in wholesale prices of a
number of finished manufactured products.
Retail prices of foods and numerous miscellaneous products increased considerably further
in October and November. Most of the increases occurred after the middle of October, at
which time the consumers’ price index was 2 per cent higher than in September and 15 per cent
above the level at the end of the war.
Ba n k



J V j







s .









Government Security Holdings of Banks in Lead­
ing Cities. Excludes Guaranteed Securities. Data
not Available Prior to February 8, 1939; Cer­
tificates First Reported on April 15, 1942

C r e d it

Commercial and industrial loans at reporting banks in 101 leading cities showed further
sharp increases in October and the first three weeks of November. Real estate and consumer
loans also continued to increase steadily. Government security holdings declined further,
reflecting principally Treasury debt retirement. Deposits of businesses and individuals have
shown little further change.
Member bank reserves showed little over-all change during October and the first three
weeks of November. Losses of funds by member banks as a result of an outflow of currency
and a transfer of deposits from member banks to Reserve Banks due to Treasury operations
were about equal to the funds banks obtained by borrowing at Reserve Banks and from an
inflow of gold. Government security holdings at Reserve Banks fluctuated considerably in Octo­
ber but were little changed over the period.