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MONTHLY REVIEW O f Credit and Business Conditions F E D E R A L V o lu m e R E S E R V E 35 B A N K DECEMBER O F N E W Y O R K 1953 No. 12 MONEY M ARKET IN NOVEMBER The money market tightened in November, under seasonal M e m b e r B a n k R eserve P o s it io n s pressures, following some weeks of relative ease. Seasonal Member bank reserve positions were relatively easy at the factors did not exert as much pressure upon bank reserves, however, as they have in some other recent years. Nevertheless, beginning of the statement week ended November 4, but they firmed there was a convergence of demand upon the money market month-end outflow of currency was responsible for most of as the banks put to use the reserves which had been made the banks’ losses, but Treasury operations and a decline in float also absorbed reserves. Only a small part of these losses available to them earlier in the fall. The demand for bank progressively through the week. A substantial loans in November continued to be modest, and the banks was offset by foreign account disbursements and changes in in the aggregate were able to add a sizable volume of Govern other factors affecting reserves. To help compensate for net ment securities to their portfolios. reserve losses, the System Open Market Account purchased 50 W ith the tightening of the money market, yields on Govern million dollars of bills outright in the market (its first such ment securities of all maturities rose moderately. Treasury purchases since the early part of October) and the Federal bill rates, which in market trading in October had fallen to Reserve Bank of N ew York took 49 million dollars of bills as low as 0.80 per cent for the shortest-term issue outstanding and 1.2 5 per cent for the longest issue, climbed back to a from dealers under repurchase agreements. Member banks still range of 1.10 -1.5 2 per cent by November 2 7 (the last day covered by this review). The rate on Federal funds, which was 1 1 4 per cent or less during most of October, was quoted at 1 % per cent or above during most of November. Prices of intermediate and long-term bonds also declined and closed on November 2 7 quotations. several 32nds below their October 30 Aside from the seasonal money market factors, the most important influences affecting the Government security market during November were the Treasury’s financing operations. On November 9, the Treasury issued for cash 2X billion dol A lars of intermediate bonds. Considerable switching occurred within the market as subscribers made preparation for this payment. The market was also influenced over the first half of the month by various expectations concerning the Treasury’s decision on refunding of the roughly 10 billion dollars of 2 Vs per cent notes maturing December 1. The announcement on found it necessary to increase their borrowings and draw on their excess reserves. For the week as a whole the daily aver age level of discounts rose 16 8 million dollars to 460 million and the daily average level of excess reserves declined 1 1 9 mil lion to 6 15 million dollars. In the following statement week, although the outflow of currency continued to be fairly heavy, reserve gains and losses were about even for the banking system in the aggregate. But the new reserves tended to flow to banks outside the money market centers, and the situation in N e w York continued to be relatively tight. The Reserve System purchased another 60 million dollars of bills for the System Account, and early in the week the Federal Reserve Bank of N ew York took a large CO NTENTS M oney M arket in N o v e m b e r................................. 17 7 R ecent Trends in W est G erm an y’s November 16 of a split offering— 12 ^-m onth notes or bonds B alance of P a y m e n ts............................................ 18 1 of December 19 5 8 — was followed by further market adjust P riva te Pension P la n s .............................................. 18 5 D epartm ent Store T ra d e ...................................... 18 9 Selected Econom ic In d icato rs............................... 190 ments. A ll Treasury operations were well received, and the Government security market showed underlying strength. Prices generally sagged through the first half of the month and then recovered irregularly over the last half. 178 MONTHLY REVIEW, DECEMBER 1953 Table I offsetting influence, at times, through borrowing outside N ew York or security sales that, in effect, returned funds to N ew W e e k ly C hanges in F a c to rs T e n d in g to In cre a se o r D ecrease M e m b e r B a n k R eserves, N o v e m b e r 1953 ( I n m illio n s o f d o lla rs ; ( + ) denotes incre a se , York. As a consequence, by the end of the week they had (— ) decrease in excess reserves) repurchased all of the bills which they had previously placed N ov. 4 N ov. 11 N ov. 18 N ov. 25 Four weeks ended N ov. 25 T reasury o perations*............................ Federal Reserve flo a t............................ C urrency in c irc u la tio n ........................ Gold and foreign a ccou n t.................... Other deposits, e tc ................................ - 18 - 40 -1 6 0 + 17 + 84 +842f + 63 -1 1 2 + 5 -1 6 5 -1 8 3 +311 + 53 + 29 + 139 9 -2 9 7 -2 0 4 - 59 + 63 +632 + 37 -4 2 3 8 + 121 T o ta l........................................ -1 1 7 +6 3 3 +349 -5 0 6 +359 G overnm ent securities D ire ct m a rket purchases or sales.. H eld under repurchase agreements. Loans, discounts, and advances......... In the final statement week of the month (the one ended November 2 5 ) , the banking system was generally under some + 50 + 49 +463 —440 f +1 1 6 -4 5 8 -1 6 5 + 230 + 35 + 29 + 173 —355 + 29 +4 0 8 pressure. The volume of Federal Reserve float outstanding T o ta l........................................ +5 6 2 -7 8 2 + 65 +237 + 82 in response to the normal rise in demand which comes over Total reserves............................................... Effect of change in required reserves........ +445 - 14 -1 4 9 -1 4 5 + 414 - 90 -2 6 9 + 15 +441 -2 3 4 Excess reserves............................................ + 431 -2 9 4 + 324 -2 5 4 +207 the Thanksgiving holiday and with the approach of the Christmas shopping season. In addition, the gold stock declined D a ily average level of discounts............ D a ily average level of excess reserves.. 460 615 396 830 398 849 491 753 436 762 Statem ent weeks ended Factor Operating transactions Direct Federal Reserve credit transactions N ote: Because of rounding, figures do n o t necessarily add to tota ls. * Includes changes in Treasury currency and cash. f Reflects effect of the sale b y the Federal Reserve Banks to the T reasury fo r retirem e n t of 500 m illio n dollars of Treasury notes and paym ent therefor b y deposit of gold certificates w ith the Federal Reserve Banks. with the Federal Reserve Bank of N ew York under repur chase agreements. Some banks, on the other hand, had to increase their borrowings at the end of the week. For member banks in the aggregate, there was virtually no change in the average amount of borrowings or excess reserves outstanding. The System Open Market Account did not enter the market. declined sharply and currency in circulation again increased 49 million dollars. As a partial offset, reserves were provided through System Account purchases of 35 million dollars of bills, and through (net) repurchase agreements of 29 million by the Federal Reserve Bank of N ew York. Member bank borrowings rose, both on a Wednesday-to-Wednesday and a daily-average basis. amount of securities under repurchase agreements. Later, how ever, Government security dealers were able to obtain some funds at a lower rate in other parts of the country and re T r e a s u r y Fi n a n c i n g a n d t h e M a r k e t G o v e r n m e n t Se c u r it ie s for acquired part of their securities from the Federal Reserve Bank. The most important influences on the Government security As a result, the net increase in repurchase agreements at the markets during November were the Treasury’s financing oper N ew York Reserve Bank was limited to 1 1 6 million dollars ations and the usual seasonal developments in the money mar over the week. The volume of reserves that actually flowed through the market during the week ended November 1 1 is obscured because, as noted in the footnote to Table I, the Treasury used 500 million dollars of its free gold to purchase Treasury notes from the Reserve Banks. This transaction, though necessarily included in the totals for Treasury opera tions and System sales of securities, had no direct money market effect. Actually the market gained about 340 million dollars during the week as the result of other Treasury oper ket. Prices of both long and short-term issues fluctuated over ations; the increases in currency and in required reserves (reflecting the increase in Government deposits on November 9 in payment for the new 2 Ya a fairly wide range during the month, but by November 27, prices of most issues except the longer notes closed at levels below the quotations current at the beginning of the month. A t the end of October the Treasury had announced a cash offering of 2 % per cent, seven-year and ten-month bonds. The market response was clearly favorable and the issue was greatly oversubscribed. On November 2 the Treasury announced that subscriptions for $10,000 and less would be allotted in full, and that the larger subscriptions would be allotted on a percentage basis: 24 per cent for mutual savings per cent bonds) were the banks, insurance companies, pension funds, and State and local major offsets. Member banks used the reserves gained from governments, and 16 per cent for all other investor groups, the Reserve Banks’ net purchases of securities from the mar including commercial banks. The total amount allotted was ket, plus a part of their excess reserves, to repay almost all the 2,238 million dollars. In order to stay within the statutory money borrowed from the Reserve Banks in the preceding debt limit, as already noted, the Treasury on November 9 week. ( the issue date for the new bonds) purchased from the Federal The banking system as a whole gained reserves on balance during the week ended November 18, primarily as a result of Reserve Banks 500 million dollars of 2 Vs per cent notes of the usual midmonth rise in float. A return flow of currency Reserve Banks with 500 million dollars of gold certificates December 1, 19 5 3 . It paid for the notes by crediting the and further foreign account disbursements also provided some and reducing its "free” gold by a like amount. This gold repre reserves, but these funds were more than absorbed by Treasury sented part of the “profit” which the Treasury acquired when operations. The distribution of the reserve gains among banks the dollar was devalued in 19 3 4 ; no gold certificates had in the various sections of the country, however, was again previously been issued against this gold. The transaction had uneven. Government security dealers were able to exert an no effect on the supply of bank reserves. 179 FEDERAL RESERVE BANK OF NEW YORK Movements of prices of short-term securities during Novem ber tended to parallel the fluctuations of the longer issues, On November 16, the Treasury announced that it would offer holders of the maturing December 1, 2 Vs per cent notes a choice of 1 % per cent, 12 ^ -m o n th notes, or 2 Vi per cent bonds maturing in December 19 5 8 (the latter represented a reopening of a bond issue sold in February 1 9 5 3 ) . This offer November, the firming of the money market in response to the seasonal pressures pushed the prices of bills down and was also very favorably received in the market. The "rights” yields correspondingly moved upward. Dealers were unable although for somewhat different reasons. In the early part of maintained a quotation of 1 0 0 % 2 nds or better until the to move, as rapidly as they had anticipated, the relatively large exchange was completed. Approximately 10.0 billion dollars inventories of bills which they had acquired in October. By of the notes were outstanding (nearly 7 billion of them held the middle of the month, average rates of discount on the by the Reserve Banks). Only 12 2 million were turned in for cash; 8,170 million (including all of the Reserve System hold ings) were tendered in exchange for the new 1 % per cent regular weekly offerings of new bills, which had reached a notes and 1,750 million for the 2 l/ 2 per cent bonds. low of 1.220 per cent on October 29, climbed to 1.30 6 on November 5 and to 1.482 per cent on November 12. Yields of short-term bonds and notes and of certificates followed In the first half of November prices of intermediate and long-term securities eased under some selling pressure. Although the volume of this selling was not large, it was suffi much the same pattern as bills. Soon after the middle of the month prices of Treasury bills and other short securities again reversed direction. The cus cient in the thin market prevailing to push prices down, in tomary midmonth rise in float and the resulting ease in the some cases almost a full point. This selling was reported to money market were partly responsible. In addition, since a 2 Vs have originated with savings banks, small insurance companies, number of corporate holders of the maturing and some other groups of investors who were seeking to do one of two things— shift part of their assets into higher- notes were interested only in securities with less than twelve months to maturity, they had disposed of their "rights” and yielding mortgages or corporate bonds, or make room in their were seeking new short-term investments. There was also a portfolios for their allotments of the new 2 % per cent bonds corporate demand for short securities for the purpose of invest ing the proceeds of new security financing. The resulting of 19 6 1, which were issued on November 9. Another influ ence was the announcement by General Motors Corporation that it was planning to offer for sale in the early part of per cent increase in demand was sufficient to push yields on the shortest bills back to the 1.00 per cent mark for two days, and rates December a very large issue of long-term debentures. This on the longest maturity eased to 1.40 per cent. But once the announcement, following closely upon several other sizable switching occasioned by the refunding had been completed security offerings, tended to depress the market. and the money market began to firm again with the approach of the month end, rates rose. The possibility that the Com As a result of these various forces, long-term bonds declined as much as 3 % 2n <is between October 30 and November 13 , modity Credit Corporation would soon offer another large dropping back to the levels of late September or early October. amount of Certificates of Interest also tended to depress the The intermediate issues declined by smaller amounts. Even bill market. Average yields on the third and fourth issues of the new 2 M ’s of September 19 6 1 Treasury bills during the month, the issues dated November 19 declined from a peak quotation on November 2 of 10 0 3 % 2 nds (bid basis) 1001% 2nds on November 13. to and 27, were 1.4 3 3 per cent and 1.488 per cent, respectively. By the close of the market on November 2 7 bill rates ranged from 1.10 for the shortest issue to 1.52 per cent for the long est one. After the middle of the month, and particularly after the terms of the December 1 refunding had been announced, mar ket sentiment began to improve and bond prices quickly recovered much of the two previous weeks’ losses. A growing belief that the Treasury would not offer a marketable obliga The leveling-out of the demand for loans, which had been evident earlier in the fall, continued in November, and for tion in exchange for the maturing F and G Savings bonds also the first time in several years investment portfolios have grown M e m b e r B a n k C r e d it tended to buoy prices. But in the last week of the month some faster during the fall season of the year than loans. Total loans moderate selling reappeared, and prices of intermediate and and investments of the weekly reporting member banks in long-term issues again eased, only to make a partial recovery creased 1,468 million dollars during the four weeks ended again on November 25 and 27. A t the close of the market November 18 ; loans rose 582 million, and investments 886 on November 27, prices of the long-terms were as much as million reflecting primarily purchases of the new 2 % per cent 2 % 2 nds below the closing quotations on October 30. The bonds. In the corresponding four weeks last year, loans in 3 1 4 ’s of 19 78 -8 3 were quoted at 1 0 3 2 % 2 nds (b id ), or a creased 900 million dollars (net) while Government security 3.03 per cent yield, compared with 1 0 3 3 %2*ids (bid) or holdings declined 5 72 million and portfolios of other types a 3.02 per cent on October 30. of securities were off 15 6 million. There were no comparable The 2 ^ ’s of December 19 6 7-72 were priced at 9 4 2 % 2 nds (2.8 7 per cent yield), purchases of new Government securities last year. compared with 9 5 1 % 2 nds or 2.8 1 per cent at the end of the The change in the demand for loans is quite evident in previous month. The new 2 % ’s of 19 6 1 closed at 10 0 2 % 2nds. the accompanying chart. The lines plotted are the cumulative 180 MONTHLY REVIEW, DECEMBER 1953 Cumulated Weekly Changes in the Commercial, Industrial, and Agricultural Loans and “All Other” Loans of the Weekly Reporting Member Banks, 1952 and 1953* the food, liquor, and tobacco group, and most other industries have borrowed approximately the same amount this fall as they did last year. The rise in consumer loans, as the chart for “all other” loans indicates, was considerably greater in the early part of 19 5 3 than it was in 19 52, but when summer arrived, the volume of these loans outstanding tended to stabilize and has since remained on a plateau. Last year there was a fairly steady growth in the amount outstanding throughout the period charted. The net increase in the two years for the 10Vi-month period was not greatly different, 7 1 2 million this year against 8 33 million dollars last year, but by the end of this year, if the present trends continue, the spread will have widened significantly. In order to support the expansion in their loan portfolios in the fall of 19 5 2 , the weekly reporting banks disposed of a fairly sizable volume of short-term securities. Their hold ings of Treasury bills and notes declined 3 2 4 million and 2 10 million dollars, respectively, in the four weeks ended Novem ber 19, 19 52. This year, in contrast, there was no net liquida # Cum ulated fro m the beginning o f the year through the th ir d week in Novem ber; the last figures plotted are fo r the weeks ended Novem ber 19, 1952 and November 18, 1953. tion of short-term securities, and this group of banks added to their portfolios a substantial amount of the new 2 % per cent bonds of 19 6 1, which the Treasury issued on November 9. weekly changes, for this year and last, in the two most import During the week ended November 1 1 , total bond holdings ant types of commercial bank loans— business loans and "all other” loans (the largest part of which are consumer loans). In the first eight months of both years changes in the commerical, industrial, and agricultural loans of the weekly report of the weekly reporting member banks increased 898 million dollars. According to the figures released by the Treasury Department, 1,299 million dollars of the issue was sold directly to commercial banks. ing banks followed somewhat similar patterns, although the contraction in the first quarter was somewhat greater in 19 5 3 than in 19 5 2 and the contraction in the second quarter of 19 5 3 somewhat less. But at the beginning of September the two lines diverge sharply. In the following two and one-half months in 19 5 2 the amount of loans outstanding rose abruptly, but this year the amount outstanding declined and then rose only moderately. The only marked increase this fall since September was in the week ended October 28 when the weekly reporting banks added to their portfolios nearly half of Table II Weekly Changes in Principal Assets and Liabilities of the Weekly Reporting Member Banks ( I n m illio n s o f d o lla rs ) S tatem ent weeks ended Ite m Oct. 28 N ov. 4 N ov. 11 N ov. 18 Change fro m Dec. 31, 1952 to N ov. 18, 1953 Assets T o ta l loans and in v e s tm e n ts ... . +466 -1 2 5 + 1,081 + 46 + 1 ,0 5 4 +365 - 70 + 426 -1 3 9 + 1,407 Com m ercial, in d u s tria l, and a g ric u ltu ra l loa n s............. S ecurity loans........................ Real estate loans................... Loans to b a n k s ..................... A ll other loans (largely consum er)........................... + 189 +199 + 13 — 44 + 14 +180 - 11 -2 5 1 + + + + 25 209 18 180 + 37 — 160 + 12 - 17 — — + + 13 193 362 567 + - - - + 712 T o ta l investm ents..................... +101 — 55 + 655 +1 8 5 - 353 +207 +1 6 6 -1 4 3 -1 5 2 + - 796 84 + 157 +1 5 6 362 - 1 ,8 5 5 Some possible explanations for the leveling-out in the de U. S. G overnm ent securities Treasury b ills .................... O ther U. S. Governm ent securities......................... Other securities..................... + 41 -1 0 6 + 9 + 88 + - 880 141 + 1 + 28 + 1 ,4 9 3 + 9 mand for loans were discussed in the preceding issue of this Loans net and other securities. . . . +259 + 18 + 285 -1 1 1 + 1 ,4 1 6 Review, and no new factors entered the situation in the four Liabilities +724 -6 8 7 - 330 + 22 - 1 ,6 7 6 + 48 -2 0 3 + 51 + 23 + 39 +1,492 — 102 +307 + 1,186 + 588 -2 1 5 + 9 +291 + 6 + - +145 + 23 — - the 360 million dollars of Certificates of Interest sold by the Commodity Credit Corporation. From the beginning of the year through the 18th of November, commercial, industrial, and agricultural loans of the weekly reporting member banks showed a net reduction of 1 3 million dollars this year, com pared with an increase of 1,4 5 5 million in the corresponding period last year. weeks ended November 18. The sharp drop in demand this fall as compared with last fall continues to reflect for the most part the net repayments of bank loans by firms in the metals and metal products industries and by sales finance companies, Loans, n e t * ................................ Dem and deposits a d ju s te d . . . Tim e deposits except G o vernm ent........................... U. S. G overnm ent deposits. . . In te rb a n k demand deposits . . D om e stic................................ 8 1 7 95 25 10 540 133 and also a marked decline in the net new loan demands of commodity dealers. Retail and wholesale trade establishments. * Figures fo r various loan item s are shown gross (i.e., before deduction of va lu a tio n reserves); th e y therefore m ay n o t add to the to ta l, w hich is shown net. FEDERAL RESERVE BANK OF NEW YORK 181 RECENT TRENDS IN WEST GERMANY’S BALANCE OF PAYMENTS In the five and a half years since the German currency reform of June 19 4 8 the Deutsche mark has become one of improvement in Germany’s current-account position appears to be in the order of magnitude of 1.5 billion dollars. W hile the strongest currencies in Europe.1 The reform restored over night the normal functions of a currency and re-established merchandise imports have more than doubled in value since 1949, exports have quadrupled; in terms of physical volume, incentives to work and save; in short, it laid the foundation of what has become known as the "miracle of the Deutsche mark”. imports increased by 30 per cent and exports by 80 per cent between 19 50 and the third quarter of 19 5 3 (see Chart I ) . The reform was accompanied by a restoration of freedom to the price system and by strong economic and financial policy the improvement in Germany’s terms of trade— the relation A n important factor in this striking development has been measures designed to stimulate investment and restrain con between prices obtained for exports and those paid for imports. sumption. The success of these policies is reflected in Germany’s re markable economic and financial recovery. Her industrial The terms-of-trade index had risen by the third quarter of Moreover, exports have been encouraged by tax incentives, production has increased by more than 14 0 per cent since 19 48; the number of employed has risen to 16 million from retention scheme 13.5 million in 1949, while the unemployed have decreased from 1.2 million to 940,000,2 or to less than 6 per cent of the potential labor force. The cost of living has remained virtually unchanged since 1949, while real industrial wages have risen 19 5 3 to approximately 14 per cent above the 19 5 0 level. the provision of long-term export credits, a dollar-exchange(which, however, was discontinued last Jun e), export credit insurance, and export promotion on the part of private industry. The "export-mindedness” of German industry also may have played an important part in Germany’s comeback in international markets. substantially. A t the same time, Germany’s balance-of-payments position has steadily strengthened. In line with this progress, T h e D o l l a r Ba l a n c e German economic and financial policy is now officially oriented toward restoring a large measure of convertibility to the A s regards the dollar area, Germany’s balance-of-payments position has improved markedly in the last few years. Her Deutsche mark. current-account deficit with the area, which in 19 4 9 amounted To a considerable extent, the success of the currency reform to 926 million dollars, was reduced to 39 million in 19 5 2 ; and and the subsequent rapid recovery of the German economy in the current year she may even show, for the first time since may be attributed to the provision of dollar aid in amounts the war, a small surplus. In the early years after the currency far in excess of what Germany has had to contribute to the cost of the occupation. Germany has also benefited over the reform, her large deficits with the dollar area were financed chiefly by United States aid, but such aid declined from 9 2 3 last few years by a variety of favorable circumstances. Unlike million dollars in 19 4 9 to 1 1 5 million in 19 5 2 , and in the her neighbors, she has not had to devote any of her resources to the support of an army of her own and has been free of economic and defense commitments toward overseas areas, which have proved a considerable drain on the economies of several other European nations. Similarly, Germany’s central government has not had to honor the large domestic debt that Chart I German Foreign Trade Volume and Terms of Trade (A verage for 1950=100) Per cent Percent had been incurred prior to the currency reform; nor has the country had until recently to service its foreign debt, public or private. Finally, the partial shift to war production in most other industrial countries after the outbreak of hostilities in Korea has given German industry a decided advantage in the world markets for machinery and other manufactured goods. A c h ie v e m e n t of a B a l a n c e -o f -P a y m e n t s Su r p l u s From a balance-of-payments deficit on current account of more than 1 billion dollars’ equivalent in 1949, Germany worked up to a 560 million surplus in 19 5 2 . For 19 5 3 the surplus may prove to be somewhat smaller; even so, if the pres ent surplus is compared with the deficit in 1949, the over-all 1 For a fuller account of Germany’s currency reform and subsequent developments, see the articles published in this Review in September 1948, May 1950, April 1951, and January 1953. 2 The difference between this reduction in unemployment and the 2.5 million increase in employment reflects mainly the absorption of workers from East Germany. * Term s o f trade = ra tio o f export prices to im po rt prices. Source: Statistisches Bundesamt, Der Aiissenhandel der Deutschland, P a rt I . Bundesrepublih MONTHLY REVIEW, DECEMBER 1953 182 current year is running at about 35 million. This decrease, however, is being partly offset by the expenditures by United Chart II Germany’s Cumulative Accounting Position with the EPU (A s of end of period) States troops, which are running at present at an annual rate of 200 million dollars, as against 4 3 million in 1949. If it were not for these outlays, Germany would still show a con siderable deficit on current account with the dollar area. Y et the progress that Germany has made through her own efforts is remarkable. In 19 5 2 merchandise exports to the dollar area were almost four times their 19 4 9 value, while imports declined by nearly one fourth. Germany was thus able to reduce her merchandise deficit with the dollar area from 861 million dollars in 19 4 9 to 2 1 9 million in 19 5 2 and pre sumably to an even lower level in the current year. On the import side, the improvement has been largely brought about by increased domestic output of coal and wheat, which had been imported extensively, as well as by a shift of raw material purchases from the dollar area to other sources of supply. On the export side, the continued high level of business in the United States has helped German exporters to recover markets here and elsewhere in the dollar area. As already noted, exports to the dollar area were also encouraged by a dollar-exchangeretention scheme established in July 1950, which, in varying forms and with a temporary interruption, was maintained until last June, when it was formally abandoned. T he EP U Position Germany’s greatest strides have been made in trade with licenses, coupled with a raising of the discount rate and of commercial bank reserve requirements as well as a drastic reduction in the volume of commercial bank credits, quickly redressed the situation. Since March 1 9 5 1 the monthly EPU the EP U countries— Germany’s largest trading area— which accounting has shown almost continuous surpluses. By the end of last April, Germany, with a credit balance of 292 million together account for over two thirds of both her exports and dollars, had become the largest creditor in the EP U — a position her imports of goods and services. In 19 5 2 , the value of such that she has since retained. By the end of October 19 5 3 her exports was 3.3 times as large as in 1949, while such imports cumulative credit position amounted to 705 million. The net were 2.7 times as large. The rise in imports reflected in part the shift in German imports from the dollar area to the EPU countries, especially the sterling area. W hile the dollar and EPU areas provided in 19 49 about 4 7 per cent each of Germany’s total imports, the share of the dollar area declined to about 1 7 per cent in 19 5 2 whereas that of the EPU area rose to 69 per cent. In 19 5 2 Germany’s current-account surplus with the EP U area amounted to 4 58 million dollars— the out improvement from March 1 9 5 1 through October 19 5 3 totaled 1,16 2 million dollars: over this period Germany recovered 17 4 million dollars that she had previously paid the EPU, acquired net dollars from the EP U to the amount of 300 million, paid come of a surplus of 580 million dollars with the Continental the Netherlands, and Portugal; of the continuing deficits with off 283 million of debts to the EPU, and became a net creditor of the EPU to the amount of 405 million. Germany’s rather persistent surpluses since March 1 9 5 1 have reflected direct sur pluses with all EP U member countries except the sterling area, E P U nations and a deficit of 12 2 million with the sterling these three, only those with the sterling area have loomed area. In the current year Germany’s over-all surplus with the particularly large. E P U area is expected to be even larger. It may be recalled that in the early stages of the European Under these conditions the arrangements for settling Ger many’s EP U surpluses have had to be gradually extended. Her Payments Union, following its establishment in July 1950, EP U quota, originally set at 320 million dollars, was raised in Germany had large deficits with the organization (see Chart I I ) . July 1 9 5 1 to 500 million. However, the upswing in Germany’s From July 19 50 through February 1 9 5 1 she incurred a cumula EP U position has been so large that since the fall of 19 5 2 sev tive deficit of 4 5 7 million dollars, which cost her a large eral so-called "rallonges”, totaling 200 million dollars, have had amount of dollars, made her the E P U ’s largest debtor, and to be added to Germany’s quota— the latest one of 50 million threatened the very existence of that organization. The deficit having been agreed upon with the Organization for European was attributable chiefly to heavy German imports of raw mate Economic Cooperation last October. Germany’s EP U facilities rials before the post-Korea rise in commodity prices had have thus been raised to a total of 700 million, with recent sur reached its peak. However, swift action on the part of pluses having to be settled 50 per cent in gold or dollars and Germany’s central bank in suspending the issue of import 50 per cent in Germany’s credits to the EPU. The settlement 183 FEDERAL RESERVE BANK OF NEW YORK for October 19 5 3 resulted in a cumulative surplus of 705 million, thus leaving 5 million uncovered by the current settle ment arrangements.3 Germany’s EPU surpluses averaged about 2 1 million dollars monthly in the first quarter of 19 5 3 and about 45 million in the second quarter. The July surplus of 44 million was still at the second-quarter level, but in August and September it G old and F o re ig n E x c h a n g e H o ld in g s o f th e B a n k d e u ts c h e r L a e n d e r ( In m illio n s o f d o lla rs ) E n d of G old D ollars Gold and dollars 1950— Decem ber........ 1951— Decem ber........ __ 27.6 92.3 139.8 184.5 209.4 285.6 148.4 337.7 354.8 496.9 534.4 619.8 746.0 148.4 365.3 447.1 636.7 718.9 829.2 1 ,0 0 4.6 declined to 12.6 million and 26.9 million, respectively. The D ecem ber........ 1953— M a rc h ............... decline appears to have been due at least partly to the first Septem ber. . . . payments under the London debt agreement and to the settingaside of claims in EP U currencies for future use in making O ther foreign exchange n.a. n.a. 354.5 n.a. 527.0 626.8 680.5 T o ta l gold and foreign exchange holdings n.a. n.a. 801.6 n.a. 1,2 4 5.9 1 ,4 5 6.0 1,685.1 n.a. N o t available. Source: Monatsberichte of the B a n k deutscher Laender. payments under that agreement; if these claims had been entered into the monthly settlements, they would have resulted in larger surpluses. In October the surplus was again 44.4 mil lion— about the same as during the April-July period. T h e Su r p l u s e s w it h "B i l a t e r a l ” C o u n t r ie s T h e R e c o n s t i t u t i o n o f G o l d a n d Fo r e ig n E x c h a n g e R eserves Germany’s balance-of-payments surpluses since 1 9 5 1 have resulted in large additions to her gold and foreign exchange reserves (see table). It is true that her gold and dollar reserves W ith a number of countries that belong to neither the dol had increased as early as 1950, but this had been due exclusively lar nor the EP U area, German trade and other payments are to the fact that United States aid in that year exceeded by a settled by bilateral clearings. Under the bilateral agreements in force, debit balances may be incurred by either partner up dollar area. This was also the case in 1 9 5 1 and 19 52, but at a to the so-called "swing limit”, with the proviso that debit progressively declining rate; at the same time, as already noted, sizable amount Germany’s current-account deficit with the balances exceeding this limit are to be settled in dollars. Trade Germany’s EP U surpluses became her largest source of gold with this rather heterogeneous group of nations, which in and dollars. By the end of September 19 5 3 , Germany, which at the time of the currency reform had virtually started from cludes such countries as Argentina, Brazil, Finland, and Y ugo slavia, has greatly expanded. However, while exports of goods scratch, had built up a total gold and foreign exchange reserve and services to this group in 19 5 2 were 8.4 times as large in equivalent to 1,685 million dollars; of this, more than 1 billion, value as in 1949, imports from the group were only 3.3 times as large. or slightly less than 60 per cent, was in gold and dollars. The The imbalance in trade resulted in a 19 5 2 current-account Germany’s current imports of goods and services, the gold and dollar portion alone being equivalent to almost three months surplus with this group equivalent to 14 2 million dollars, and in the piling-up of net clearing claims on the part of Germany total is equivalent to more than four and a half months of of such imports. totaling 18 5 million by the year end and 2 1 7 million by Germany’s gold and foreign exchange acquisitions, of course, October 19 5 3. Of the latter, some 80 million dollars’ equiva lent, or more than one third, arose from trade with Brazil, which exceeded its "swing limit” of 13.5 million dollars’ equivalent by some 65 million but without settling the differ are to a large extent the counterpart of reserve losses incurred ence in dollars. The rise in Germany’s claims on this group of countries primarily reflects the strong demand for German capital goods, the export of which was made possible by credits and the other promotion schemes noted above. It also reflects the inability of these countries to provide raw mate rials and foodstuffs at competitive prices. by her European trading partners. To an even larger extent they also reflect the rising indebtedness to Germany of the EP U nations as a group as well as of her bilateral-clearing partners in other parts of the world. In fact, these nations as a whole are experiencing Deutsche mark deficits, which in 19 5 2 reached the equivalent of 540 million dollars and during 19 5 3 have been running at the somewhat lower annual rate of roughly 4 30 million. Under these circumstances some of Germany’s trade partners have begun restricting their imports Trade between W est and East Germany is based on short from her; this in turn may adversely affect certain German term payments arrangements and generally takes the form of export industries and thus impair the further expansion of the global compensation deals. It had fallen to a very low level German economy as a whole. Since Germany is apparently in 19 5 1-5 2 , but has subsequently increased somewhat; in 19 5 2 unable to increase her imports, she is faced in many cases with it represented less than 1 per cent of W est Germany’s total the choice of either extending further credits or accepting foreign trade. Trade with Eastern Europe and the U SSR also a reduction in exports and the loss of a market where she only recently has regained a foothold. has been small. 3 Further OEEC decisions in October stipulated that any amounts T r a d e L i b e r a l iz a t i o n a n d E x p o r t C redits by which Germany’s cumulative surplus at the end of October may exceed 700 million would be settled by additional German credits to Germany appears to be well aware that she has a major the EPU, with the proviso that at the time of the November settle interest in increasing, so far as she can, her trading partners’ ment (in mid-December) the question of the settlement of EPU surpluses in excess of 700 million would be reviewed. capabilities to import from her. W ith this in view, she has 184 MONTHLY REVIEW, DECEMBER 1953 liberalized her European trade to a high degree and has pro moted capital exports in various ways, especially to the bilateral-clearing countries. goods to Israel over twelve to fourteen years up to the equiva lent of 8 2 1 million dollars; since the bulk of these goods will be produced in Germany and are not normally export goods, After having found it necessary to suspend all previous Germany will forego, as a result of the agreement, only small liberalization measures vis-a-vis the EP U nations at the end amounts of foreign exchange. of February 1 9 5 1 when her payments difficulties were acute, Finally, Germany on August 2 8 , 1 9 5 3 authorized the transfer Germany resumed the liberalizing of her imports in January into foreign currencies of current earnings accruing after 19 52. January 1, Since then she has gradually freed from quantitative 19 5 3 on the foreign investments blocked in Germany since July 15 , 1 9 3 1 when she introduced foreign restrictions up to about 90 per cent of her private imports from the EP U countries. A considerable margin for further liberali exchange controls, provided that such investments have not zation seems to exist only as regards imports of food and changed their owner except through legal succession. The new feedstuffs, which have been freed from quota restrictions only regulations will particularly benefit foreign direct investments to the extent of 70 per cent, as against 98 per cent for in made in Germany between the stabilization of the mark in dustrial raw materials and 94 per cent for manufactured 19 24, and 1 9 3 1 when exchange controls were introduced. products. Excluding the deliveries to Israel, these arrangements affect, according to a German official estimate, foreign loans and Furthermore, with a view to relieving the Deutsche mark deficit, especially as regards the less developed nations, and in investments totaling the equivalent of some 4.9 billion dollars. order to facilitate further export expansion, export credits up Interest and amortization payments in foreign exchange con sequently will be resumed on about two thirds of Germany’s total present foreign debt, which is officially estimated at the to five years are being extended by the Export Credit Corpo ration. This organization has access to rediscount facilities at Germany’s central bank; its credits amounted at the end of equivalent of 7.2 billion dollars. The transfers on the two March 19 5 3 to the equivalent of some 17 0 million dollars. In addition, private direct investment, even if on a moderate scale thirds of Germany’s foreign indebtedness that are to be made in the years 19 5 3 through 19 5 7 have been officially put at the and India. Finally, the International Bank for Reconstruction equivalent of 200 million dollars annually, of which 1 1 9 mil lion is to be in EP U currencies and 7 7 million in dollars. The and Development has extended some of its credits in Deutsche annual transfers will rise by considerable amounts beginning only, appears to be getting under way in countries like Brazil marks, the marks actually disbursed under such credits amount 19 58, when Germany starts amortizing the debts covered by ing at the end of September 19 5 3 to the equivalent of 8.6 the London agreement. A t that time the transfers will rise to million dollars. the equivalent of 247 million dollars, of which 1 3 1 million T h e Fo r e ig n D e b t Se t t l e m e n t s is to be in what are now EP U currencies and 1 1 1 million in February 27, 19 5 3 and made effective on September 16, the bulk of Germany’s prewar debts as well as all of her public dollars. N o definite arrangements have thus far been made regarding the transfer of earnings or amortization on the remaining one third of the country’s present foreign indebtedness. This por tion of Germany’s foreign debt, which amounts to the equiva lent of 2,34 5 million dollars, includes: ( 1 ) the restitution and compensation claims that are to be accorded, under German postwar debts (most of which were incurred to secure food and raw materials from the United States) were subjected to a comprehensive settlement. The initiative for this settlement legislation now in preparation, to individuals victimized by Nazi persecution who had taken up residence abroad ( 1,2 8 5 million dollars’ equivalent); ( 2 ) blocked mark balances, and The ability of a number of countries to increase their im ports from Germany will also be affected by her resumption of service on a substantial portion of her large foreign indebted ness. Under the international agreement signed in London on was taken largely by the creditor nations, but it met with investments made from such balances either by their original Germany’s cooperation, since she wished to restore her interna holders or by foreign residents who have acquired them for tional credit standing. Since 1 9 3 1 Germany had made only investment purposes (46 5 million); and ( 3 ) miscellaneous scant transfers on her large privately held foreign debt. Under direct investments and claims, the bulk of which are certain the London agreement, interest payments are to be resumed mark claims not covered by the London agreement that this year, while amortization has been postponed until 19 58, originated prior to 1 9 3 1 (5 9 5 million). Transfers on these with the last interest and amortization payments to take place claims and investments will have to wait for further German as late as 1994. Moreover, by a special agreement with Switzerland con decisions, but the German Government has already announced cluded on August 2 6 ,1 9 5 2 , Germany settled the wartime clear transfer of earnings on investments owned by emigrants who ing debt to that country. Part of the Swiss claims were funded took up residence abroad after 19 3 1. its intention to issue "as soon as possible” regulations on the into two twenty-year loans, while the remainder is to be amor tized over some thirty years. Of a still different nature is the I n d ic a t io n s of St r e n g t h of the G erm an M ark reparations agreement concluded with Israel on September 10, The remarkable recovery of Germany’s economy and her 19 5 3 under which Germany has committed herself to deliver comparatively strong balance-of-payments position, as well as 185 FEDERAL RESERVE BANK OF NEW YORK the progress she has made toward resuming the service on her foreign indebtedness, have been reflected in the rising confi dence in the German mark both at home and abroad. In Germany herself, signs of confidence have appeared in the growth of savings deposits, which have been increasing during the current year at an annual rate of 643 million dollars’ equivalent, compared with 540 million in 19 5 2 and 207 by a remarkable expansion in output and the absorption of several millions of workers into the productive process and, internationally, by the emergence of a balance-of-payments surplus and the reconstitution of gold and foreign exchange reserves. However, with full employment nearly reached and with industrial capacity in many branches of industry approach ing full utilization, the recent rate of expansion of output and million in each of the two preceding years. There have also exports may very well slow down. In addition, Germany’s been reports that sizable amounts of German capital held export potential may well be reduced somewhat if, upon the abroad are being repatriated. termination of the occupation regime, she has to set aside part Internationally, the German mark has shown signs of of her economic resources for defense purposes. It is also pos strength in several ways. In the multilateral exchange trading sible that payments difficulties on the part of the less developed among eight European currencies inaugurated under the countries or the limitations on Germany’s own capital forma auspices of the O EEC last May, the mark has proved to be tion may obstruct a further increase in capital goods exports. consistently strong. Moreover, the premium on the so-called Furthermore, Germany’s relatively favorable terms of trade "dollar import rights’* under the dollar-retention scheme, which may not be susceptible to further improvement, particularly in amounted to about 20 per cent in April 19 5 2 when such view of possible increased export competition in world mar "rights” were made negotiable, had declined to a fraction of kets. 1 per cent prior to June 19 5 3 when the scheme was aban the added burden of interest and amortization payments as a doned. The mark is currently at a premium vis-a-vis the result of her recent commitments to resume the service on currencies of some of the countries with which trade is being about two thirds of her large foreign debt. Finally, Germany’s balance-of-payments position faces settled on a bilateral basis. In addition, the rate for the so- The outlook, nevertheless, is not unfavorable. Germany has called blocked marks, which are freely traded abroad, has some prospect of increasing further her exports to the sterling strengthened markedly; when acquired, such marks can be area, and thus of reducing her sterling deficit, in consequence used only for investments in Germany, which in turn are of the announcement that Britain would free from quota blocked. Despite their limited use, the discount on blocked restrictions a larger part of her European imports. As regards marks declined from about 46 per cent in March 1 9 5 1 , when the dollar area, Germany would benefit from any increase the transfer of blocked funds between residents abroad was in United States offshore purchases in Germany, which so far authorized by Germany, to about 30 per cent in November have been rather small. Upon the termination of the occupa 1 9 5 3 ; this fall apparently reflected, for the most part, increased demand for foreign investment in Germany. Finally, the rate tion regime and with the consequent gradual termination of for Deutsche mark notes in Zurich has strengthened, the dis expect substantial dollar outlays for installations and other count on such notes declining from 28 per cent at the end of goods and services for the United States armed forces. Finally, 19 49 to about 7 per cent in October. Germany’s vigorous efforts to restore her international credit C o n c l u s io n The increasing strength of the W est German economy has been an outstanding feature of recent economic developments in Europe. This recovery has been characterized, domestically, German expenditures for occupation costs, the country can offer some hope of increased access to the international money and capital markets. Accordingly, although some slackening in the current rate of improvement in Germany’s balance of pay ments is doubtless to be expected, her international financial position appears likely to remain generally strong. PRIVATE PENSION PLANS Since the prewar years there has been a marked growth in G row th of Pe n s io n P l a n s the number of pension plans adopted by business enterprises. Although private pension plans are not of recent origin, the The growth of these private pension funds has in turn created first pension program having been adopted by the American a large, distinct source of savings which have been generally Express Company in 18 7 5 , it was not until the 19 3 5 passage invested in quality securities of the larger, well-established of the Social Security Act that the pension fund movement corporations. These investment practices reflect the institutional gained momentum. In 19 3 7 , when contributions under the investor’s usual preference for debt issues and have tended Act first began, the Federal program covered about 25 million to strengthen the market for the securities of older corpora employees of business and industry. This legislation greatly tions as compared with those of newer concerns, although increased employer and employee interest in, and conscious there has been an increasing investment in equities during the ness of, the desirability of providing through advance financ past few years. This article undertakes to trace the growth of ing for the economic hazards of old age. But possibly the the private pension movement and to analyze the significance most important stimulus to private pension plans was the of this development for the capital markets. sharp increase during World W ar II in Federal corporate 186 M ONTH LY REVIEW, income tax rates which encouraged corporations to make taxfree contributions to pension funds with relatively little effect D E C E M B E R 1953 cannot be answered with any assurance. To the extent that employees would otherwise fail to make adequate provision on after-tax earnings. During and after the war, the efforts for old age, it can be contended that employee contributions of business enterprises to attract and retain employees, particu to pension funds represent money that would be spent. For larly salaried employees, under restraints imposed by the Federal wage and salary stabilization policy increasingly for it is doubtful that saving for other purposes— for emergen the most part, these savings may be added to other savings, took the form of favorable pension arrangements. A new cies and for the purchase of a home (including retirement of spurt in the growth of private pension plans after 19 4 9 reflects home mortgage debt)— will be reduced because of the assur to a considerable extent a National Labor Relations Board ance of pensions. On the other hand, to the extent that the decision making pensions an appropriate subject for collective assurance of a pension makes individuals less concerned with bargaining. Finally, an increased sense of responsibility among the problem of retirement income and thus results in reduced corporations and other business enterprises for the future personal saving, employee contributions would represent a security of their employees has been an important contributory diversion of savings. However, it is probable that without the influence.1 aid of a pension most persons individually would fail to make Although data collected on private pension programs are spotty and inadequate, some indication of the growth of adequate financial preparation for old age. Employee contri butions may consequently be regarded as new savings. pension plans and the number of persons covered may be seen It is even more difficult, if not impossible, to trace the inci from the accompanying table. In 19 30, according to estimates prepared by the Social Security Administration, there were in dence on spending and consumption of the much larger em existence only 720 plans, covering 2.4 million persons. A decade later, almost 2,000 plans were in force with nearly expense of business, the costs of such contributions are passed on to consumers in the form of higher prices, it might be 4 million persons included. The swift wartime growth of the argued that such employer contributions represent forced sav ployer contributions to pension plans. To the extent that, as an private pension movement increased the total number of plans ings drawn from the consuming public. On the other hand, to more than 7,400, involving more than 5.5 million persons. pension contributions by corporations might also be regarded as In the following six years through 19 5 1, the number of plans a reduction of retained earnings, dividends, and income taxes. almost doubled to reach an estimated 14,000, covering over A 9.5 million persons.2 Since 1 9 5 1 , it is estimated that at least sumably result in a shift from corporate savings to savings reduction in corporate undistributed profits would pre 1,500 new plans have been adopted, raising the total coverage in the form of pension fund contributions, with the accom of the private retirement programs to roughly 1 0 - 1 1 million panying effect of increasing the importance of external finan persons. This still falls far short of the Government’s old-age cing through the capital markets as a source of corporate and survivors insurance (O A S I) program which now covers funds. Perhaps the only conclusion that can be reached is that more than 66 million persons, while another 7.5 million or more are covered under State, local government, and other corporate contributions to pension funds represent in part a source of new savings and in part a shift in the form of savings. public programs. The marked growth in the number of private pension plans and in the number of employees covered has had its financial counterpart in a large and growing volume of funds accruing The stability of savings through pension plans is also somewhat uncertain. In providing retirement income for their employees, employers have made relatively fixed, long term commitments. Actual contributions, however, depend largely on the stability of employment of persons covered to the credit of employees as future pension benefits. Whether by pension plans, fluctuations in the rate of funding past these funds constitute new savings or merely represent a diver service liabilities, the variability of benefit payments in the Ef f e c t on O t h e r Sa v in g s and Sp e n d in g sion of savings from one form to another is a question that 1 Among other influences tending to promote the adoption of private pension plans, the provision of retirement income for officers, supervisory employees, and other higher-paid employees, whose after tax income has suffered most from increased Federal income tax rates and from inflation, represents a factor of unknown or unmeasurable significance. Inasmuch as Section 165 (a) of the Internal Revenue Code requires that in order for pension contributions to be tax exempt the contributions or benefits may not discriminate in favor of any individual or small group of employees, all employees within a broad class come under private pension plans. 2 The number of plans is not identical with the number of enter prises having such plans, since a single company may have more than one plan. Because the figures in the table include only those employees meeting minimum eligibility requirements (as to age, duration of service, etc.,) in those plans which have such requirements, the number of persons covered is bound to grow merely with the passing of time, other things remaining equal. aggregate, and the financial ability of employers to meet their pension obligations during slack times. The most important of these influences are, of course, the volume and stability of employment. Inasmuch as most industrial pension plans are integrated with the O ASI program, a sizable part of the retirement income provided by private plans goes to, or will go to, those in the higher wage and salary brackets (above the first $3,600 yearly covered by O A SI) whose employment is generally steadier than those in the lower brackets. Nevertheless, the widespread coverage of factory and other workers by plans adopted during the war and par ticularly since the negotiation of a large number of collective bargaining plans beginning in 19 4 9 may have made contribu 187 F E D E R A L R ESER VE B A N K OF N E W Y O R K tions to pension funds more susceptible to cyclical changes in employment than formerly. The stability of pension fund accumulations is also affected by variations in the rate of fund ing past service liabilities (the rate at which employers set aside funds to provide for pensions for those employees at or near retirement age who have sufficient past service to meet eligibility requirements at the time a plan is adopted). Fluctuations in aggregate benefit payments are likely to add some further variability to the (net) accumulation of pension funds. During slack times, employees at or beyond the retire ment age who might otherwise have remained in the labor force may be expected to retire, and others who might other wise have become unemployed may take advantage of the early retirement provisions of many plans. Benefit payments may then take a spurt just when the volume of contributions may be falling off or increasing only slowly. On the other hand, to the extent that private pension fund E s tim a te d N u m b e r o f P r iv a te P e n sio n P la n s a nd N u m b e r o f P e rson s C o v e re d * N um ber of persons covered ( In m illions) Plans Y ear A ll 1 9 3 0 ... , 1935........ 1940. ., 1 9 4 5 .,, 1950. , , 1951 1952 720 1,090 1,965 7,425 12,330 14,000 — Insured f _ — 1,530 6,700 11,230 12,260 1 3 ,500p U ninsured J _ — 435 725 1,100 1,740 — A ll plans 2 .4 2 .6 3 .7 5 .6 8 .6 9 .6 ~ Insured plans f — — 0 .7 1.5 2 .9 3 .3 3 .5 p U ninsured plans J — — 3 .0 4.1 5.7 6 .3 * Figures include only employees w ho have m et m in im u m e lig ib ility conditionsin those plans w hich have such requirem ents fo r p a rtic ip a tio n . Insured plans in clude a sm all num ber of p u b lic plans causing an understatem ent of the data fo r uninsured plans w hich are derived as a residual, t Plans adm inistered b y life insurance companies. t Plans adm inistered p rin c ip a lly b y corporate fiduciaries and inve stm e n t com m ittees of corporations. P re lim ina ry. ource: A ll plans and coverage, Social Security A d m in is tra tio n as published in Pension Funds in the United States, a stu d y prepared fo r the J o in t C om m ittee on the Econom ic R eport b y the N a tio n a l P lanning Association, 1952, page11; insured plans and coverage, In s titu te of L ife Insurance. liabilities are concentrated among the very large corporations of greater financial strength, the risk of employer inability to Aside from inflationary wage trends, two related factors are fulfill pension fund payment obligations during periods of pension plans adopted in recent years, particularly by large declining economic activity is lessened. In this connection, it industrial corporations, and the characteristic pattern of accel is noteworthy that employer contributions to pension funds erated growth in the early years of each new pension fund. currently constitute less than one half of one per cent of aggre gate corporate sales (but a larger percentage, of course, of the sales of corporations with pension plans and especially those with plans covering all their employees). To the extent, then, that the bulk of private pension con tributions are made by large, well-established corporations, that efforts to stabilize employment are successful, and to the extent that private pensions cover the relatively stable white collar and executive occupations, it appears that pension con tributions are likely to be a relatively stable form of savings, possibly more so than the availability of private investment opportunities. largely responsible: the marked growth in the number of new Especially rapid has been the growth of "uninsured” pension plans, those administered principally by corporate fiduciaries or investment committees, representing predominantly the plans of large corporations, providing retirement income for large numbers of employees. From the table it can be seen that the increase in uninsured plans between 1940 and 1 9 5 1 accounted for about 10 per cent of the growth of all private plans (by number) and for well over half the increase in the number of employees covered. Similarly, although this is not shown in the table, the larger, group-annuity type of insured plans of larger business enterprises accounted for the bulk of the growth of employee coverage under programs handled by Rate and Amount of G rowth In the absence of adequate machinery to collect data on the accumulation of funds in private pension plans, only approximations, which admittedly may be wide of the mark, are available. Pension fund managers estimate that more than life insurance companies. The pattern of growth of the individual pension fund has also been an important influence tending to increase pension fund accumulations in recent years. This result follows from the nature of a pension fund. The accumulations of periodic contributions to the credit of employees are invested, and the 1 7 billion dollars are currently lodged in pension funds and that about 2 to 2l billion dollars flow into such funds each A year (representing net growth in pension funds, including con principal and interest are used to pay retirement incomes at some future date— usually at the retirement age of 65.3 Because tributions and investment income less benefit payments). A t adoption of a plan, pension funds build up most rapidly in the this rate, the annual accrual of pension funds is roughly a early stages, and then level off at some theoretical point where fifth of the net annual growth of savings through other major income from investments and current contributions equal outgo benefit payments are small in the first years following the financial institutions— the net increase in time and savings in the form of pension benefits. The build-up in the early deposits of commercial and mutual savings banks, share capital stages is usually made even more rapid by the funding of past (deposits) of savings and loan associations, and policyholders’ service liabilities. It is the usual practice for the employer to reserves of life insurance companies other than pension fund 3 Theoretically pensions can be financed on a pay-as-you-go basis with employers making benefit payments directly to retired employees. However, such a method of financing is not considered satisfactory from the employees’ standpoint, since the hazards of economic life may be such that employing concerns may become defunct or other wise financially unable to continue with benefit payments. For this, and other reasons the pay-as-you-go method is little used in practice, annuity reserves. The annual rate of accumulation has been particularly rapid in recent years. One estimate places the annual increase in net pension contributions at 300-350 million dollars since 1949. 188 MONTHLY REVIEW, DECEMBER 1953 make all or most of the contributions for past service, and this tends to swell the early growth of the fund.4 I n v e s t m e n t R e q u ir e m e n t s Aside from questions of size, stability, and growth, the expansion of pension funds has raised immediate and practical questions for the capital markets as to the investment require ments of such funds and the investment practices of those managing them. In general, as already indicated, pension funds are handled principally by life insurance companies and cor porate fiduciaries and have been placed largely in private debt instruments, with a large concentration in obligations of sea soned, well-established corporations. The investment policies of life insurance companies as compared with those of banks and trust companies as pension trustees have been similar with two exceptions: the latter have by and large almost ignored the real estate field as a source of investing pension funds, but they have been much more active in the purchase of common stocks. Of the two major classes of administrators or managers of such funds, the life insurance companies handle between 40-45 per cent of the funds going into pension plans (as the table shows, insured plans account for a much smaller proportion of persons covered by private pension arrangements). In 1 9 5 1 , the net increase in reserves against insured pension plans amounted to almost 1 billion dollars, according to the Institute of Life Insurance. Such funds, of course, are merged with other life insurance funds and are invested in all the various forms of instruments in which life insurance companies regu larly place their funds— mainly the debt securities of business and industry, and mortgages on residential and commercial real estate, and almost solely in such obligations since 19 4 5. The remaining 55-60 per cent of currently accruing pension funds, administered principally by trust departments of banks and by trust companies and to a lesser extent by investment committees appointed by corporate contributors, have been made almost entirely available to business and industry in recent years. Unlike the insurance companies, trustees of self-insured pension plans have placed a sizable portion of their funds in better-grade common stocks. The proportion of pension trust investments in equities varies widely for individual trusts. A typical ratio appears to be in the neighborhood of 25 per cent, with perhaps 5 per cent or more in preferred stocks. Government securities comprise another 1 5 per cent or less, mainly accounted for by pension plans adopted before the end of the war. Corporate debt securities of the better grades account for the remaining 55 per cent. These percentages are admittedly only approximate, and for the newer trusts should be raised for corporate stocks and lowered for corporate bonds and Government issues. For the most part, pension trustees have ignored mortgages because of the greater costs of ad ministering investments in that field including the larger staffs required. However, a few trustees are reported to have dis played some interest in large mortgage loans on incomeproducing real estate, sale-and-lease-back agreements in connec tion with large commercial buildings, and oil payment con tracts. Many trustees, furthermore, have acquired corporate debt securities through direct purchases from the debtor, since such private placements usually earn a somewhat higher investment return than has been obtainable on comparable securities offered publicly in the new issue market. The composition of pension trust portfolios consisting principally of long-term and equity investments reflects their investment requirements: the absence of need for liquid in vestments (since liquidity is assured by the constant inflow of new money to be invested), the emphasis on quality, and the tendency to regard fluctuations in market prices of investments as a secondary consideration. Although the investment require ments of self-insured pension trusts are similar to those of life insurance companies, trustees as a rule are less circum scribed by legal restrictions. It is then possible for them, within the limitations (if any) of the pension trust instrument, to acquire common stocks and generally to pursue a more flexible investment policy.5 Pr o s p e c t s for Fu t u r e G r o w t h The most dynamic phase of the growth of pension funds has probably been reached or will be reached in the next few years. In view of the very substantial number of pension plans adopted over the last dozen years by very large corporations, it is not likely that further impetus to the pension fund move ment from this source will be as strong as in the past. It is probable, too, that many enterprises are too small ever to adopt pension plans. Furthermore, the marked growth in the num ber of private pension systems adopted since the beginning of the war, particularly by the larger corporations, has brought an even more rapid growth of pension contributions because of heavier payments into funds for past service retirement credits and because the number of pension beneficiaries is usually small in the early years of pension plans, as already indicated. Moreover, as plans mature and pension rolls build up, benefit payments tend to increase, and contributions for past service credits tend to fall off since such costs are amor tized. The rate of amortization has been especially rapid in recent years of high corporate tax rates and prosperous busi ness conditions. W hile there are a number of factors that may tend to bring about an increase in the volume of funds going into pension plans, they are likely to be increasingly offset by the gradual maturing of most pension plans and the accompanying growth in pension payments. It is clear, how ever, that pension funds are likely to grow, even though at a more gradual rate, as long as the economy and the labor force continue to expand, so that, just as in the case of life insurance, the accumulation of pension funds may continue indefinitely. 5 To some extent, this flexibility is inhibited by the tax laws which discourage the setting-up of an investment loss reserve. Thus, realized 4 Federal tax laws allow as deductions from income employer con capital losses may require additional contributions to the pension fund tributions on account of past service up to 10 per cent of the liability and capital gains may reduce the corporate contribution. As a result, in any one year, and so place a limit on the funding of past service switching of investments may be hampered somewhat, except as gains liabilities in any year. offset losses. 189 FEDERAL RESERVE BANK OF NEW YORK DEPARTMENT STORE TRADE Higher temperatures continued to exert a restraining influ ence on Second District department store sales in November. Election Day sales, in particular, were affected adversely; dol lar volume for the week declined 3 per cent below the yearearlier level. However, even though the hoped-for stimulus After eight successive months of year-to-year gains, Second District furniture store sales in May declined 3 per cent below the year-earlier figure. This, as shown in the table, was the first sign in the Second District of the recent slackening of con sumer interest in furniture store merchandise. In the follow of more seasonable weather failed to materialize, sales in the ing month dollar volume fell to the lowest level of any June second and third full weeks exceeded that of the like period since 1949. Although an upswing occurred in July when aggre last year. Aggregate dollar volume for the month is estimated gate consumer purchases of homefurnishings rose to a fouryear peak for that month, the renewal of consumer interest to have been about equal to November 19 5 2. was not sustained and sales in August declined contraseasonally below the July level to a new four-year low for the month. F u r n it u r e St o r e Sa l e s Although aggregate sales at Second District furniture stores The downtrend continued in September when sales were 8 per during the first ten months of this year have been slightly cent below the corresponding month in 19 5 2 , and October above the dollar volume of the corresponding months in 19 5 2 , sales were 1 per cent lower. year-to-year declines in sales during recent months may reflect It is difficult to evaluate the significance of the year-to-year a certain slackening of consumer demand for homefurnishings. declines in sales experienced by Second District furniture stores Unless November and December sales reverse this slackening, in five out of the last six months. The comparatively higher it seems possible, therefore, that sales for 19 5 3 as a whole may level of sales during the same six months a year ago may not equal the record volume of 19 52. reflect to some extent the temporary stimulus to consumer D e p a rtm e n t and A p p a re l S to re Sales a nd S to cks, Second F e d e ra l R eserve D is t r ic t , P e rce n ta g e C hange fro m th e P re ce d in g Y e a r May 7, 19 52. The subsequent easing of credit terms by furni demand brought about by the expiration of Regulation W on ture stores undoubtedly enabled them to attract many customers Net sales Locality Oct. 1953 Department stores, Second District........... New York—Northeastern New Jersey Metropolitan Area.......................... New York C ity * ..'............................. Nassau County................................... Westchester County........................... Northern New Jersey......................... Newark........................................... Fairfield County.................................... Bridgeport.......................................... Lower Hudson River Valley.................. Poughkeepsie...................................... Upper Hudson River Valley.................. Albany................................................ Schenectady........................................ Central New York State........................ Mohawk River Valley........................ Utica............................................... Syracuse Metropolitan Area............... Northern New York State..................... Southern New York State...................... Binghamton Metropolitan Area......... Elmira................................................. Western New York State....................... Buffalo Metropolitan Area................. Buffalo............................................ Niagara Falls.................................. Rochester Metropolitan Area............. Apparel stores (chiefly New York C ity )... - 3 - Stocks on hand Oct. 31, Jan.through Feb. through 1953 Oct. 1953 Oct. 1953 3 0 - 4 n.a. + 5 - 4 - 5 n.a. n.a. + 2 + 2 —5 - 7 4* 1 - 3 —5 — 2 —2 + 6 — 3 - 5 - 3 + 1 + 1 + 1 + 1 + 3 1 — 1 - 2 ( - 2) + 1 — 1 n.a. + 7 + 3 + 1 n.a. 3 (-2 ) + 4 + 3 + 1 n.a. n.a. + 4 + 5 - 1 - 2 + 3 + 5 + 3 + 4 + 5 + 5 + 4 + 3 + 2 n.a. n.a. + 4 + 5 — 1 - 2 + 3 + 4 + 3 4- 4 + 4 + 4 0 + 6 + 5 +14 — 3 +11 + 9 +11 +13 + 5 + 5 + 9 + 3 + 9 0 - 1 + 2 0 - 1 + 1 0 + 2 + + + + + 4 4 4 5 4 4 4 4 6 + + + + + 6 - 1 - 1 their demands. On the other hand, such random factors as unusual weather conditions or the signing of the Korean truce may have influenced sales adversely this year. In addition, it is possible that more fundamental readjustments such as the recent tapering-off of home-building have contributed to the reduction of homefurnishings demand. The year-to-year declines in sales experienced by Second District furniture stores over the past several months coincided with a lessened use of instalment credit. Beginning in May 19 5 3 and in each succeeding month through October, instal ment sales declined below year-earlier levels both in actual dol lar volume and as a proportion of total sales. It is difficult to determine whether the reduction in the use of credit in Second District furniture stores since May, in comparison with the + 8 - who would otherwise have been unable immediately to satisfy + 6 6 +10 +10 * The year-to-year comparisons given in parentheses exclude the data of a Brooklyn department store that closed early in 1952. n.a. Not available. previous year, merely represents a leveling off after the excepSales and S to c k s o f Second D is t r ic t F u r n it u r e S to re s * Percentage change 1953 fro m 1952 In sta lm e n t sales as a per cent of Stocks-sales ra tio to ta l sales M o n th T o ta l sales In d e xes o f D e p a rtm e n t S to re Sales and S to c k s Second F e d e ra l R eserve D is t r ic t (1 9 4 7 -4 9 a v e ra g e = 1 0 0 p e r c e n t) F e b ru a ry . . . . 1953 1952 Ite m Oct. Sept. Aug. Oct. Sales (average d a ily ), u na d justed ................. Sales (average d a ily ), seasonally a d ju s te d .. no 104 102 98 75 99 113 108r Stocks, una d justed ............................................ Stocks, seasonally adjusted............................. 130 116 123 117 118 122 In s ta l m ent sales E nd-ofm onth stocks 1953 1952 + 7 + 9 + 4 +11 - 3 - 3 + 4 - 4 - 8 - 1 +13 +10 + 8 +16 - 4 - 7 - 2 - 9 -1 0 - 1 - 3 - 1 + 1 + 4 - 3 - 2 - 9 -1 1 -1 2 -1 7 78 79 80 81 79 80 80 78 80 81 75 75 77 79 80 81 81 82 81 82 1953 1952 4 .5 5.1 5.1 4 .9 4 .4 4 .5 4 .9 4 .9 4 .4 3 .2 6 .0 5.6 5.1 5 .3 4 .4 4 .5 5 .6 5 .3 4 .6 3 .8 127r 113 J u ly ................ r Revised. S eptem ber. . . * D erived fro m data reported b y a constant sample of stores. T o ta l sales com pari sons are based on a larger num ber of stores th a n those fo r instalm e n t sales, stocks, and stocks-sales ratios. M O N T H L Y R E V I E W , D E C E M B E R 1953 190 tional rise immediately following the expiration of Regula tion W , or whether it reflects a substantial tightening both of produced stocks-sales ratios that were smaller, in general, than those of last year. W ith the weakening of sales, however, the furniture store credit policies and of the consumer’s desire or declines in stocks in the four months following June ranged ability to mortgage his future purchasing power. from 9 to 1 7 per cent below the year-earlier levels (inventories The relaxation of consumer demand in recent months may in both August and September dropped to the lowest levels explain, in part, the accelerating reduction of inventories held for these months in four years). These substantial declines by Second District furniture stores. During the first six months resulted in moderately smaller stocks-sales ratios than those of the previous year. of this year only modest changes in the dollar value of stocks SELECTED ECONOMIC INDICATORS United States and Second Federal Reserve District Percentage change 1953 Ite m 1952 U n it O ctober September A ugust October Latest m onth Latest m onth fro m previous fro m year m onth earlier U N IT E D S T A T E S Production and trade 100 100 100 $ $ $ $ $ 100 100 231 p 160 — 24.8 p 4 6 .3p 2 2 .4p 9 .9 p 14. Ip — — 1947-49= 100 1947-49= 100 1947-49= 100 billio n s of $ 1939= 100 thousands thousands hours thousands 86.4 110.2p 115.4 — — 4 9 ,147p 16,781p 4 0 .3p 1,162 In d u s tria l p ro d u c tio n *...................................................................... E le ctric power o u tp u t* ..................................................................... Ton-m iles of ra ilw a y fre ig h t* .......................................................... M a nufacturers’ sales*........................................................................ M anufacturers’ in v e n to rie s *............................................................ M anufacturers’ new orders, t o t a l* ................................................. M anufacturers’ new orders, durable g oo d s*................................ R e tail sales*......................................................................................... R esidential construction c o n tra c ts *............................................... N onresidential construction c o n tra c ts *........................................ Prices, wages, and employment Basic com m odity p ric e s f.................................................................. Wholesale p ric e s f............................................................................... Consumer p ric e s f............................................................................... Personal income (annual ra te ) * ...................................................... Composite index of wages and salaries*....................................... N o nagricultural em ploym ent * ........................................................ M a nu facturin g e m plo ym e nt*.......................................................... Average hours worked per week, m a n u fa c tu rin g f..................... U ne m p lo ym e n t................................................................................... 1935-39= 1947-49 = 1947-49= billio n s of b illions of b illions of b illions of billio n s of 1947-49= 1947-49= T o ta l investm ents of a ll commercial banks................................. T o ta l loans of a ll commercial b anks.............................................. T o ta l demand deposits a d ju ste d ..................................................... C urrency outside the Treasury and Federal Reserve B a n ks*. B a n k debits (U. S. outside New Y o rk C it y ) * ............................. V e lo city of demand deposits (U . S. outside New Y o rk C ity ) * Consumer instalm ent credit o u ts ta n d in g f................................... United States Government finance (other than borrowing) Cash incom e........................................................................................ Cash o u tg o .......................................................................................... N a tio n a l defense expenditures........................................................ m illion s of $ m illions of $ m illion s of $ m illion s of $ m illion s of $ 1947-49= 100 m illion s of $ Banking and finance m illion s of $ m illions of $ m illions of $ 76,790p 6 7 ,120p 100,270p 30,245p 92,291 n.a. 21,486 2,956p 5,752 p 4 , 113p 232 161 99 p 24.9 4 6.5 22.4 9 .9 14.0 180p 243p 235 169 104 25.4 4 6.2 22.4 9 .5 14. l r 184 220 230 147 100 2 4 .8r 43.4 2 4.2 r 11. 5r 14.2 185 227 # 1 5 # # # # # - 2 +10 # + 9 - 7 # + 7 - 7 -1 4 - 1 - 6 +11 - 88.9 111.0 115.2 2 85 .8p 251p 49,164 16,961 39.9 1,246 8 8.8 110.6 115.0 287.0 250 4 9 ,308r 1 7 ,137r 4 0 .4r 1,240 9 2.5 111.1 114.2 277.3 241 48,664 16,546 41.4 1,284 - 3 1 # - 1 + 1 - 7 - 7 - 1 + 1 + 3 + 5 + 1 + 1 - 3 -1 0 76,730p 66,310p 9 7 ,660p 30,267 94,305 n.a. 21,347r 7 7 ,090p 6 6 ,040p 9 7 ,480p 30,227 91,639 n.a. 21,218r 77,030 62,410 98,630 29,437 92,256r n.a. 17,611r # + 1 + 3 # - 2 — + 1 # + 8 + 2 + 3 # — +22 6,373 6,294 4,222 5,526 6,720 3,926 3,418 6,514 4,248 -5 4 - 9 - 3 -1 4 -1 2 - 3 # -1 4 +11 # # # - 7 - 1 + 1 -2 2 +61 + 1 + 1 # - 1 + 5 # # # S E C O N D F E D E R A L R E S E R V E D IS T R IC T E le ctric power o u tp u t (N ew Y o rk and New Je rsey)*................... Residential construction c o n tra c ts *................................................... N onresidential construction c o n tra c ts *........................................ Consumer prices (New Y o rk C it y ) f .................................................. N on a g ricu ltu ra l e m plo ym e nt*............................................................. M a nu facturin g e m plo ym e nt*.............................................................. B a n k debits (New Y o rk C it y ) * .......................................................... B a n k debits (Second D is tric t excluding N ew Y o rk C it y ) * ......... V e lo city of demand deposits (New Y o rk C it y ) * ............................ 1947-49= 100 1947-49= 100 1947-49= 100 1947-49 = 100 thousands thousands m illions of $ m illions of $ 1947-49= 100 135 — — 113.3 — 2 ,7 3 4 .4 p 54,152 4,321 n.a. 136 134p 248p 113.2 7 ,6 0 0 .3p 2,737.7 58,391 4,351 n.a. 142 155 225 112.7 7 ,6 2 3 .0 2 ,7 9 5.0 51,142 4,131 n.a. 134 167 161 112.4 7 ,5 6 4 .3r 2 ,7 3 6 .l r 54,893 4,120 n.a. N ote: Latest data available as of noon, December 1, 1953. p P re lim ina ry. * A djusted fo r seasonal v a ria tio n . r Revised. ^ t Seasonal variations believed to be m ino r; no adju stm e n t made, n.a. N o t available. Series in process of revision. # Change of less than 0.5 per cent. Source: A description of these series and th e ir sources is available fro m the Dom estic Research D ivision , Federal Reserve B ank of New Y o rk , on request. 191 FE D E R A L RESER VE B A N K OF N E W Y O R K NATIONAL SUMMARY OF BUSINESS CONDITIONS (Summarized by the Board of Governors of the Federal Reserve System, December 1, 1953) Industrial production, construction activity, and retail sales in October and November continued moderately below the highs reached earlier this year. Wholesale prices remained at C o n s t r u c t io n Expenditures for new construction in October, seasonally adjusted, continued at the third-quarter level, 6 per cent below about the level prevailing since late 19 5 2. Consumer prices the spring peak but 4 per cent higher than in October 19 52. rose slightly further in October. Bank loans and investments increased sharply in the first three weeks of November, reflect Value of contracts awarded in October reached a peak for the year as appreciable gains in awards for most categories of pri ing primarily purchases of new Treasury securities as bank vate construction offset declines in public awards. The 88,000 loans showed little change. Yields on Government and cor housing units started in October were nearly all privately porate securities rose slightly. financed, compared with 89,000 private starts in September I n d u s t r ia l P r o d u c t io n The Boards preliminary index of industrial production in October was 2 3 1 per cent of the 19 3 5 -3 9 average as compared with 2 32 in September and 230 in October a year ago. A and 99,000 in October 19 52. Em p l o y m e n t Employment in nonagricultural establishments, seasonally adjusted, was little changed in October at 49.1 million, follow decline of about 3 index points— or 1 per cent— is now indi ing slight reductions in the preceding two months, but was cated for November, reflecting mainly further curtailment in moderately larger than a year ago. Some further reduction in durable goods output from the very advanced rate reached manufacturing employment in October was offset by increases earlier this year to somewhat below year-ago levels. Auto output, after rising somewhat in October from the moderately reduced rates of September, was reduced about 30 per cent in November, primarily because of model changeovers. Steel mills operated at about 90 per cent of rated in other lines of activity. The average factory work week in creased to 40.3 hours in October but was one hour less than a year ago. Average hourly earnings continued at $1.7 8 , 5 per cent above the October 19 5 2 level, and weekly earnings at capacity in November after rising moderately to 95 per cent $ 7 1 .7 3 were about 2 per cent above a year ago. Unemploy ment in early October remained exceptionally low at 1.2 mil in October. Activity in producers’ equipment industries gen lion. N ew claims for unemployment compensation have in erally held steady in October, and there was little change in creased further since then and in early November were sub farm machinery following several months of sharp declines. Television production declined moderately from very high levels in the latter part of October. stantially above a year ago. D is t r ib u t io n Output of nondurable goods in October showed a small fur ther decrease to a level about 3 per cent below the peak rates Seasonally adjusted sales at department stores rose slightly further in the first three weeks of November, following some of spring. There were moderate further curtailments in textile and fuel industries. Moreover, production of industrial chemi recovery in October from the reduced September level. Total cals declined, reflecting lower output rates in various consum ing lines. Paper and paperboard output, however, reached a record level in October and early November, and meat pro duction continued sharply above a year ago. year-ago level, reflecting mainly continued high sales of new and used cars by automotive dealers. Seasonally adjusted stocks at department stores which had declined in September are esti mated to have shown little change in October. INDUSTRIAL PRODUCTION Federal Reserve indexes. retail sales changed little in October and were near their high EMPLOYMENT IN NONAGRICULTURAL ESTABLISHMENTS M o n th ly figures, latest shown are fo r October. Bureau o f L ab o r S tatistics data adjusted fo r seasonal va ria tio n by Federal Reserve. P ro prie to rs, self-employed persons, and domestic servants are not included. M id m o n th figures, latest shown are fo r October. 192 MONTHLY REVIEW, NOVEMBER 1953 C o m m o d i t y PgjCES The average level of wholesale prices changed little from change. Business loans increased only slightly, compared with a substantial rise in the same period last year. Livestock showed further Bank reserve positions continued generally easy during most decreases, largely seasonal, through early November, but sub sequently advanced sharply. Prices of pork and some other of November, although at times banks in major cities were under some reserve pressure. During the four weeks ended foods declined, but grains advanced, reflecting in part the influ November 25, excess reserves of member banks, on the aver mid-October through November. ence of Federal support programs. Average prices of industrial age, exceeded borrowings at the Federal Reserve by about 300 commodities continued to change little. There were reductions million dollars. System Open Market purchases of U. S. G ov in cotton textiles, alcohol, petroleum products, carpets, and ernment securities, and an increase in float supplied additional list prices for some makes of television sets. Acetate yarn was reserves but these were absorbed through currency outflows raised, however, and metal scrap increased slightly further. and increases in required reserves. Early in November the Consumer prices again advanced in October, reflecting fur Treasury used part of its free gold to retire securities held by ther increases in most groups of goods and services other than foods. the Federal Reserve Banks, a transaction which had no effect on member bank reserves. B a n k C r e d it and R eserves Se c u r it y M a r k e t s Total loans and investments at banks in leading cities increased substantially during the first three weeks of Novem Yields on U. S. Government and corporate securities rose slightly over the first three weeks of November, following sub ber, reflecting largely bank purchases of the new Treasury stantial declines in October. The Treasury offered 2Vz per cent bonds issued on November 9. A n increase in bank loans reflected mainly expansion in loans for purchasing and carrying bonds of December 19 5 8 or 1 % per cent notes of December 15 , 19 5 4 in exchange for the 2V$ per cent notes maturing Decem securities. Real estate and consumer loans showed little further ber 1, 19 53. PRICES AND TRADE COMMERCIAL LOANS Per Cent, 1947-49*100 W HO LESALE PRICES DISPOSABLE PERSONAL INCOME ^ SELECTED INDUSTRIES 1951 CUMULATIVE CHANGE FROM JUNE Seasonally adjusted series except fo r prices. P rice indexes compiled by B ureau o f Lab o r S tatistics. T o ta l re ta il sales and disposable personal income, Federal Reserve indexes based on D epartm ent o f Commerce data. D ep a rt ment store trade, Federal Reserve indexes. M o n th ly figures, latest shown are fo r October, except income (Septem ber) and departm ent store stocks (September 30). 1951 1952 1953 D ata fo r selected ind u strie s reported by over 200 o f the largest m ember banks. M etals, etc., includes m achinery and tra n sp ortatio n equipm ent. Foods and com m odity dealers include liq u o r and tobacco. Petroleum , etc., includes coal, chemical, and rubber products. Wednesday figures, latest shown are fo r November 11.