View original document

The full text on this page is automatically extracted from the file linked above and may contain errors and inconsistencies.

of Credit and Business Conditions
S e c o n d

F e d e r a l

R e s e r v e

D is t r i c t

F ed era l E eserve B an k, N ew Y o rk

Money Market in January

raised by “ new

E a r ly in January, the President presented to Congress
the Federal budget estimates fo r the fiscal year begin­
ning Ju ly 1, 1943 and ending June 30, 1944, together
with revised estimates fo r the current fiscal year ending
June 30 next.

Total expenditures within the regular

budget fo r 1943-44 are estimated at $104,000,000,000, as
compared with


approxim ately




$80,000,000 ,000




$32,500,000,000 during the year which ended June 30,

The President also indicated that about $4,800,-

000,000 would be required fo r Government corporations
and agencies during the coming fiscal year, of which
$1,800,000,000 would be fo r retirement of their obliga­
tion s; consequently, the amount o f new money to be
raised between the first of Ju ly, 1943 and the end of
June, 1944 is estimated to be about $107,000,000,000.
W a r expenditures, both within the budget proper and
by Government corporations, are expected to aggregate
$100,000 ,00 0,00 0 fo r the 1943-44 fiscal year.


This is

billion dollars a month, which compares with recent

m onthly expenditures of approxim ately $6,000,000,000.
Rough estimates of the gross national product (that is,
the aggregate value o f the co u n try ’s production o f goods
and services, without deduction o f allowances fo r depre­
ciation and depletion) run around $190,000 ,00 0,00 0 for
the coming fiscal year.

m on ey”






be about

$74,000,000,000, as compared with $61,000,000,000 dur­
ing the current fiscal year, and $22,000,000 ,000 during

Proposed additional taxation, however, would

have the effect of reducing the necessary amount for bor­
rowing during the coming fiscal year.

In his message

to Congress, the President expressed the belief that not
less than $16,000,000,000 o f additional funds, through
taxation, savings, or both, should be sought during the
1943-44 fiscal year.
On June 30, 1943, at the end of the current fiscal year,


approxim ately






w ill


This compares with

$112,500,000,000 at the end of December, 1942. O f the in ­
dicated $25,500,000,000 rise in the direct and guaranteed
debt during the first h alf o f the current calendar year
(the second h alf of the 1942-43 fiscal y e a r ), a relatively
small part— about $1,500,000,000— presum ably will take
the form o f special issues to social security trust funds,
leaving approxim ately $24,000,000 ,000 to be borrowed
from the public during the first h alf of 1943.

approxim ately



O f this

raised by

borrowings in the period J anuary 1 to February 1 inclu­
sive: around $1,700,000,000 from net sales during Jan u ­
ary of W a r and Savings bonds and T ax Savings notes;
(In billions of dollars)

I t would thus appear that more
Fiscal years ended June 30

than h alf of the aggregate national production m ay be


F ebruary









fiscal year.





Total war expenditures*................................
Other expenditures!.......................................






A side from the prospect of

Total expenditures.................................






a continued rise in the national income, which w ill swell

Budget receipts (net).....................................
Borrowing from trust accounts......................
Borrowing from the public (net)...................






Total financing.......................................






Public debt, end of year (direct and






The amount to be raised by borrowing next year is not
so great as m ight be expected on the basis of the indicated
increase in expenditures.

tax receipts, the 1943-44 fiscal year w ill be the first one
to reflect the fu ll influence o f tax increases embraced in
the Revenue A c t o f 1942.

I t is estimated that net re­

ceipts, on the basis of present tax laws, w ill be $33,000,000,000, which is about $ 1 0,000,000 ,000 greater than in
1942-43, and $20,000,000,000 greater than in 1941-42.
I f no new taxes are levied the indicated amount to be

* Includes war expenditures of Government corporations.
f Includes net outlays, aside from war expenditures, of Government corporations
and trust accounts, but excludes redemptions of Government corporation
obligations held by the public ($1.8 billion in 1942, $1.2 billion in 1943, and
$1.8 billion in 1944).



$800 ,000 ,00 0 net from the sale o f discount bills on Jan u ­
ary 6, 13, 20, and 2 7 ; and approxim ately $620,000,000
net from certificate of indebtedness financing February 1,
involving the sale of $2,211,000,000 one-year % per
cent certificates and the redemption of a $1,588,000,000
m aturing issue.
Substantial funds accumulated from the V ictory Loan
Drive in December were, of course, available fo r helping
to meet Government expenditures during January.
Treasury deposits with the Federal Reserve Banks were
at an unusually high level at the close of December and
W a r Loan account deposits at commercial banks—
accumulated credits from “ book credit’ ’ paym ents fo r
Government securities sold— were up to $8,166,000,000.
Additional credits to W a r Loan accounts during the first
few days of January raised the total to $8,206,000,000
on the 6th.
B eginning January 7, and continuing
through January 23, the Government availed itself of
these deposits by calls for repaym ent aggregating
Over the January 7-23 period, calls
were issued for each business day of the week with the
exception of W ednesdays, when receipts from the sale
of Treasury bills took care of the net excess of disburse­
ments over receipts. In this manner, wide fluctuations
in Treasury deposits with the Reserve Banks were
avoided and aggregate cash receipts were maintained
in relatively close balance, from day to day, with aggre­
gate cash expenditures. Toward the end o f the month,
Treasury deposits with the Reserve Banks were drawn
down in anticipation of net cash receipts from certificate
of indebtedness financing on February 1.
M e m b e r B a n k R e s e r v e P o s it io n s

Excess reserves of all member banks, which had tem ­
porarily dropped to $1,660,000,000 on December 30,
rose to $2,330,000,000 on January 6, and thereafter
tended to decline.
On January 27 they amounted to
$2,090,000,000. The recovery in excess reserves during
the statement week ended January 6 resulted principally
from a drawing down o f Treasury deposits with the
Federal Reserve Banks from the unusually high level
of $811,000,000 on December 30. The decline between
January 6 and 27 was in considerable measure the result
of banks “ putting their excess reserves to w o rk ,” by
actively bidding fo r the weekly issues of Treasury bills
or reacquiring bills previously sold to the Reserve Banks
under repurchase option. A ggregate tenders fo r Treas­
u ry bills ran between $1,000,000,000 and $1,300,000,000
each week during January.
W eek ly offerings o f bills were stepped up from
$600,000,000 to $700,000,000 beginning January 20, re­
sulting in an increase in the outstanding su pply of
$ 800,000,000 fo r the month.
Nevertheless, Federal
Reserve B ank holdings were reduced from $854,000,000
on January 6 to $611 ,000 ,00 0 on January 27, indicating
an aggregate market absorption o f Treasury bills of
over $1,000,000,000.
Dem and fo r Government securities during January
was not restricted to bills, nor was the source of de­
m and lim ited to banks.
Despite the sale of nearly
$13,000,000 ,000 o f Government obligations in the D e ­
cember V ictory Loan D rive, including more than
$10,000,000 ,000 of the types which are traded in the
open market, there was a persistent and strong demand
fo r Treasury bonds, notes, and certificates of indebted­
ness, b y banks and other investors alike.

of indebtedness and bonds which had been acquired by
dealers during the December cam paign fo r later sale
were rapidly absorbed. The shrinkage in the “ floating
su p p ly ” o f Government securities m ay be measured, in
a very rough way, by the reduction in outstanding
loans to brokers and dealers in securities of the weekly
reporting member banks in N ew Y o rk City.
loans, which ran up from $333 ,000 ,00 0 on Novem ber 25
to $952,000,000 on December 23, dropped to $461 ,000 ,00 0
January 13.
Inasmuch as there w ill not be another m ajor war
financing drive until A p r il, keen interest was displayed
in the $2,000,000,000 certificate o f indebtedness offering,
form ally made January 21. W ith the heavy over-sub­
scription to this issue, and the allotment basis o f only
14 per cent on the larger bank subscriptions, there was
an added stimulus to the demand fo r outstanding G ov­
ernment securities.
To help meet the demand, the
Federal Reserve Banks, between January 6 and Jan u ­
ary 27 reduced their holdings o f Government bonds by
$75,000,000 and Treasury notes by $ 2 4 ,0 0 0 ,0 0 0 ; certifi­
cates o f indebtedness holdings, however, were enlarged
to the extent of $ 38,000,000 over the three weeks’ period.
Taking account of the drop in their Treasury bill hold­
ings, discussed in a foregoing paragraph, the total of
Government securities in Federal Reserve Bank port­
folios declined $303,000,000 between January 6 and 27.
In N ew Y o rk C ity, excess reserves o f the central re­
serve N ew Y o rk C ity banks rose from $235,000,000 on
December 30 to $500 ,000 ,00 0 on January 6, and during
the follow ing three weeks dropped back to $210,000,000.
The weekly reporting member banks in New Y o rk C ity
enlarged their holdings of Treasury bills by $179,000,000,
to an aggregate of $2,079,000,000, over the three weeks
ended January 27. New Y o rk banks lost reserve funds,
on balance, through Treasury transactions, in continua­
tion of the general tendency which prevailed last year.
Reflecting the high proportion of W a r Loan account
deposits held here, repayments o f such deposits b y New
Y o rk institutions during January, in response to Treas­
ury calls, reached an aggregate of $1,115,000,000. These
and other cash receipts by the Treasury from the New
Y o rk market were greater than the offsetting flow o f
Government checks deposited in New Y ork.
On the
other hand, there was a substantial inflow of commercial
and financial fu n ds into N ew Y o rk from other parts o f
the country during the month.
Money Rates in New York
Jan. 31, 1942 Dec. 31, 1942 Jan. 30, 1943
Stock Exchange call loans.....................
Stock Exchange 90 day loans................
Prime commercial paper— 4 to 6 months
Bills—90 day unindorsed.......................
Average yield on taxable Treasury notes
Average yield on tax exempt Treasury
bonds (not callable within 12 years). .
Average yield on taxable Treasury bonds
(not callable within 12 years)............
Average rate on latest Treasury, bill
sale 91 day issue......................... .
Reserve Bank discount rates:
On advances to member banks se­
cured by Government obligations
callable or maturing in one year
or less...............................................
On other advances to member banks
secured by Government obliga­
tions, and on rediscounts...............
Reserve Bank buying rate for 90 day
indorsed bills.......................................
* Nominal






A5 -U






















W a r F in a n c in g

In view of the large volume of funds accumulated from
the V ictory Loan D rive in December, no m ajor financing
was undertaken by the Treasury during January. N et
public borrowing totaled only about $2,500,000,000 repre­
senting the sale o f W a r and Savings bonds, T ax Savings
notes, and net Treasury bill issues.
In addition the
Treasury sold fo r delivery on February 1, $2,211,000,000
of % Per cent certificates of indebtedness, providing
$623 ,000 ,00 0 of “ new m o n ey ” as well as funds fo r the
redemption of $1,588,000,000 m aturing certificates.
Sales o f W a r and Savings bonds reached a record peak
estimated at abou+ $1,300,000,000 fo r the month, surpass­
ing the previous high marks of $1,061,000,000 in January,
1942 and $1,014,000,000 in December, 1942. In part, the
new high was accounted for by purchases of Series F and
G bonds up to the $100 ,000 lim it fo r any one calendar
(T he lim it on such purchases in January, 1942
was $50,0 0 0 .)
Sales of Series E bonds, however, m ay
also have exceeded the previous records of $667,000,000
in January, 1942 and $726,000,000 in December, 1942.
Total sales during the calendar year 1942 amounted to
$5,990,000,000 Series E bonds and $3,168,000,000 Series
F and G bonds.
In the Second Federal Reserve D istrict, sales of
W a r and Savings bonds during January by agencies
other than post offices were $200,000,000, an amount
second only to the $254 ,000 ,00 0 sold in January a year
ago and a substantial increase over the sales of $161,000,000 in December. Sales of Series E bonds, amounting to
$112,000,000, exceeded the $94,000,000 sold in December,
but fell short of the record $135,000,000 in January,
Second D istrict sales during the year 1942 by
agencies other than post offices totaled $880,000,000 for
Series E bonds and $806,000,000 fo r Series F and G
bonds combined.
Sales of T ax Savings notes, which had reached a record
high o f $1,312,000,000 in the December V ictory Loan
D rive, are estimated at about $500,000,000 for the month
o f January.
Redemptions approxim ated $100,000,000.
D u rin g the four months starting in September, when the
new series tax notes were first placed on sale, a total of
$3,944,000,000 was sold. A t the end of December, tax
notes outstanding aggregated $6,384,000,000.
A bo u t $800 ,000 ,00 0 in “ new m on ey” was raised from
the sale o f Treasury bills during January, $200,000,000
from each of the fou r weekly offerings. W eek ly bill offer­
ings were increased from $600,000,000 to $700,000,000 on
January 20, when maturities increased from $400,000,000
to $500,000,000.
On January 21, the Treasury announced the offering
o f approxim ately $2,000,000,000 of % per cent one year
certificates o f indebtedness dated F ebruary 1, 1943 to
provide funds fo r the redemption o f $1,588,000,000
certificates m aturing on that date.
Subscriptions to
the new issue totaled $6,402,000,000 as compared with
$3,105,000,000 on a, sim ilar certificate refunding operation
in November. A llotm ents in fu ll, totaling $1,163,000,000,
were made to all subscribers other than banks which
accept demand deposits.
A llotm ents in fu ll, totaling
$309,000,000, were also made on bank subscriptions of
$100,000 or less. The remaining commercial bank sub­
scriptions were allotted on a 14 per cent basis. O f the
total allotments, 49 per cent were taken in the Second
Federal Reserve District.


Member Bank Credit
Between December 23, 1942 and January 20, 1943
total loans and investments of the weekly reporting
member banks in New Y o rk C ity declined $69,000,000.
In contrast, in the 100 cities outside New Y o rk , report­
ing member banks added $973,000,000 to their earning
assets. In New Y o rk C ity there was a contraction of
$545,000,000 in the volume o f loans to brokers, dealers,
and others fo r the purpose of carrying securities; most
o f this fall was due to repaym ent of funds borrowed
during December to finance purchases o f Government
securities in the T rea su ry ’s V ictory Loan D rive of that
month. There was also a further decline of $109,000,000
in commercial, industrial, afid agricultural loans out­
stan din g; in all, loans were off $701,000,000. In addi­
tion, these banks lightened their holdings o f Treasury
bonds by $100,000,000 over the fou r weeks’ period, and
sold $74,000,000 net of Treasury notes. H owever, hold­
ings o f certificates o f indebtedness were enlarged by
$698,000,000, prim arily reflecting purchases o f the D e­
cember issue fo r which the banks made paym ent on
December 28. Treasury bill holdings o f the N ew Y o rk
banks were reduced $62,000,000 during the week ended
December 30 but were increased $159,000,000 during
the three follow ing weeks.
Outside New Y o rk C ity, where bank loans were em­
ployed to a much smaller extent to finance purchases o f
Government securities in December, security loans o f
the weekly reporting member banks in 100 cities were
off only $44,000,000. Commercial, industrial, and agri­
cultural loans declined by $100,000,000, and total loans
fell by $260,000,000. On the other hand, the reporting
banks outside New Y o rk made substantial purchases o f
Government securities.
Their holdings o f Treasury
bonds rose $127,000,000, of Treasury bills $238,000,000,
and of certificates o f indebtedness $866,000,000.
D u rin g the first three weeks o f January, as the Treas­
u ry spent funds it had received from the sale o f new
issues of Government securities in December, more than
h alf o f the drop in adjusted demand deposits that had
occurred during that month was recovered.
F o r the
member banks in 100 cities outside New Y o r k C ity, all
o f the loss was made up, and adjusted demand deposits
reached a new peak o f $18,311,000 ,000 on January 20,
some $72,000,000 above Novem ber 25, 1942.
In New
Y o rk , however, adjusted demand deposits recovered only
part of the December loss; by January 20 they were
still $824,000,000 short o f the Novem ber 25 level. Gov­
ernment deposits with the reporting member banks as
a whole were drawn down, through calls on the W a r
Loan deposits, fio m $6,756,000,000 on December 30 to
$5,360,000,000 on January 20.

Ration Banking
The widening system o f wartime rationing is now
placing upon the commercial banks a new task, albeit
in principle one logically related to their role in our
norm al distributive mechanism. Since late October an
experimental test in “ ration b an kin g” has been in
operation in the A lbany-Troy-Schenectady area of New
Y o rk State.
The results o f this test, designed as a
laboratory model, indicated that the plan would be



feasible for nation-wide use. On January 6 explanatory
letters went out from the Office of Price A dm inistration
to all banks in the U nited States, to prepare them to
institute, January 27, a plan to clear ration coupons
through banking channels on a country-wide basis.
The transfer of hundreds of millions or billions o f
ration coupons (or stam ps) from stage to stage through
the channels of distribution is necessarily a complicated
F o r this task, the banking system, with its
experience and facilities for handling and clearing cur­
rency and checks, appeared uniquely adapted. Under
the ration banking plan, individual consumers w ill not
have their own ration coupon bank accounts; fo r that
matter, neither will individual gasoline stations nor
m any small food retailers.
Coupons will continue to
be distributed to consumers, as in the past, by the local
W a r Rationing Boards.
Consumers w ill continue to
turn over their coupons to retail merchants, in the usual
w ay, in m aking purchases of rationed commodities.
Ration banking comes into p lay in distribution and
processing channels, as a machinery fo r gearing the
wholesale trade in rationed commodities to the retail
A t the start, on January 27, only sugar, coffee, and
gasoline are being included in the program . A s ration
coupons are received by larger retailers or wholesalers
the latter w ill deposit them in special ration coupon
bank accounts. A merchant w ill open his special coupon
account or accounts in the bank which carries his regu­
lar checking account. A dealer in food, fo r example,
will have a ration coupon account fo r sugar, stated in
pounds, and another in coffee, again stated in pounds.
Special deposit slips and check books w ill be provided
so that a dealer, in replenishing his stock o f a rationed
item, can transfer to his supplier, sim ply by drawing a
check, the amount of ration coupons which he has received
from his customers. Claims against the ration coupons
deposited in the first instance at a bank m ay thus be
transferred from stage to stage through the distribution
and processing channels without subsequent physical
rehandling o f the coupons.

Amalgamation of Sterling Accounts
On January 26 the B ritish Treasury announced that
arrangements had been completed to sim plify the m an­
agement of sterling accounts held by residents o f the
U nited States. I t w ill be recalled that since J u ly, 1940
there have been three principal types o f such sterling
accounts, nam ely, U nited States registered, U nited
States sterling area, and “ o ld ” ( “ fr e e ” ) accounts.
A s of Feb ruary 2, the latter two w ill be converted into
United States registered accounts. This will have the
effect o f extending to sterling area and “ o ld ” ( “ fr e e ” )
accounts the guarantee of convertibility into dollars
at the rate o f $ 4 .0 2 % , which has heretofore applied
only to registered accounts. B y virtue o f this amalga­
mation, holders of the form er accounts are enabled, after
F ebruary 2, to use their sterling funds fo r the paym ent
o f sterling area exports which heretofore required
registered sterling. In connection with this conversion
and amalgamation, which it is expected w ill result in
the elimination of New Y o rk quotations fo r “ fr e e ”
sterling, registered accounts m ay be opened in the
names of individuals, as well as banks and corporations
to which they had been lim ited in the past.

New Security Issues
D u rin g January, domestic corporate and m unicipal
new security financing amounted to about $61,000,000 as
compared with $93,000,000 in the previous month. In
addition, the Dom inion o f Canada provided the first
market offering of foreign Government obligations in
recent years with the sale of $90,000,000 refunding bonds.
Corporate issues amounted to only $9,000,000, the lowest
for any month in recent years. M unicipal awards, which
aggregated about $52,000,000, included an issue of
$37,013,000 New Y o r k C ity H ousing A u th o rity 2 to
4 % per cent refunding bonds m aturing from 1944 to
1981, awarded at a net interest cost o f 2.13 per cent and
reoffered to yield from 0.70 to 2.14 per cent.
The Dom inion of Canada financing consisted o f three
$30,000,000 issues: 2 % per cent bonds due in 1948,
priced at p a r ; 3 per cent bonds due in 1953, priced at
1 0 0 % to yield 2.94 per cen t; and 3 per cent bonds due
in 1958, priced at 9 8 % to yield 3.13 per cent. A t the
close of the month, market quotations on the three issues
had advanced to a point where the yields were 2.23, 2.81,
and 2.95 per cent, respectively, at the bid prices.

Security Markets
The Government security market displayed consider­
able strength during January. This strength was due to
a variety of factors including the release o f uninvested
funds which had been held as cash over the year end fo r
statement purposes, and the success o f the December
V ictory Loan Drive. Interest in intermediate and long
term Treasury bonds was most apparent during the first
week of January and near the end o f the month, while
notes of longer maturities, certificates of indebtedness,
and discount bills were in active demand throughout the
month. The average yield on the taxable 3 to 5 year
Treasury notes declined 0.13 to 1.26 per cent between
December 31 and January 30. On Jan uary 30 the 1%
and -2 % per cent Treasury bonds issued in December
were selling at premiums o f about % point. The new
% per cent certificates o f indebtedness to be issued on
F ebruary 1 were quoted on a yield basis of 0.77 at the
close o f the month.







Movement of Stock Prices (Standard and Poor’s 90 stock index;
1926=100 per cent)


Prices o f municipal bonds held steady from the m iddle
o f December to the middle o f January, follow ing the
downward reaction o f early December.
D u rin g the
second h alf o f January a slight recovery took place, as
is indicated by a decline o f 0.02 to 2.26 per cent between
January 13 and 27 in the average yield on prim e m unici­
pal bonds computed by Standard and P o o r ’s Corpora­
tion. A ccom panying a considerable increase in market
activity, domestic corporation bond prices continued to
rise in January.
The principal strength was shown
among the medium and lower grade railroad issues, which
gained approxim ately 4 points on the average, accord­
ing to M o o d y ’s Investors Service index o f B aa railroad
Stock prices again moved up in January, extending the
general advance which got under w ay last M ay. In this
nine m onth period, the general level o f stock prices rose
nearly 40 per cent, according to Standard and P o o r’s
index o f 90 stocks. A t the end of January the index
was about 7 per cent higher than a month earlier and at
the highest point since September, 1941.

Wartime Increases in Currency Circulation—
Four Major Countries
The adjoining chart compares the increases since early
in 1939 of currency in circulation in the U nited States,
Great B ritain, Canada, and Germ any. A sem i-logarith­
mic scale is used to facilitate comparison of the r a te s of
Currency in circulation has risen sharply in all four
countries since the beginning of the war— in general,
more sharply than bank deposits. These increases stem
directly from the higher levels o f business activity and
national income arising out of the war. The expansion
in currency circulation frequently has been more rapid
than the rise in the national income. This tendency is
explainable in large measure by the fact that income
paym ents to wage earners, who predom inantly use
cash rather than cheeks, have risen at a considerably
faster rate than the total o f income paym ents. B eyond
that, there appears to have been in a num ber o f countries
an increased preference since the beginning o f the war
fo r currency as compared with bank deposits. A number
of reasons have been cited fo r this shift. In m any coun­
tries, numerous individuals apparently have been in­
duced to hold a larger proportion o f their incomes in
the form o f cash because o f such factors as the fear o f
unforeseeable emergencies arising out o f wartime condi­
tions, m igration from one area to another, disruption
o f the normal channels o f trade, reduction in banking
facilities in some areas, and lowered interest rates on
deposits. Other factors leading to an increased propor­
tion o f cash to deposits m ay have been “ black m arket”
transactions, and efforts b y some persons to conceal
income and thus to evade taxation.
In the case o f
Germ any a minor factor has been the extension o f the
use of German currency to annexed territories, such as
the Sudetenland, D anzig, M em el, Luxem bourg, and
A lsace-Lorraine.
The chart reveals a rather striking parallelism in the
rates o f change o f m onetary circulation in the fou r




Currency in Circulation in Four Countries (Plotted on ratio scale
to show proportionate rates of increase)

countries, particularly after the end o f 1940, indicating
the basic underlying sim ilarity o f forces at work. The
greater proportionate rise in the case o f Canada, par­
ticularly from the beginning o f the war to the end o f
1940, corresponds to the somewhat more rapid rate of
expansion o f national income during this period in
Canada than in the other three countries.
The sharp rise in B ritish currency circulation from
M a y to A u gu st, 1940, apparently reflected note hoard­
ing induced by the collapse of France. This was also
the period o f the sharpest rise in Canadian currency
I t is o f interest to note that the rate o f
expansion o f German circulation was considerably less
in 1940 than in 1939, 1941, and 1942. This m ay have
been due in part to the belief which is said to have pre­
vailed among sections o f the German population, after
the fa ll o f France, that an early peace was in pro sp ect;
such a belief would have tended to encourage bank
deposits and reduce note hoarding. In the main, how­
ever, the smallness o f the 1940 increase in German
currency circulation was probably due to the fact that
the German invasion armies, which had been paid in
reichsmarks while on German soil, were paid in a special
currency (Reichskreditkassenscheine) in the occupied
territories; this special currency is not included in the
statistics o f German currency circulation.
The curve
fo r the U nited States reveals a remarkably smooth u p ­
ward trend throughout the entire period, although the
rate o f growth increased somewhat in 1942 as a result
o f the greatly accelerated mobilization o f the A m erican
economy after P earl H arbor.

D u rin g the year 1942 the total volume o f construction
contracts awarded in 37 E astern States was the largest
on the records o f the F . W . D odge Corporation. The
y e a r ’s total exceeded 1941 b y roughly one third and
topped the previous peak o f 1928 by a substantial
m argin.
The tremendous demands o f the w ar con­
struction program much more than offset the sharp
curtailment o f private construction which became neces-





B IN G H A M T O N - E N D I C O T T J 'O H N S O IM C I T Y






PA'r'R O L L S ^.

1 50




1919’2 0

Value of Construction Contract Awards in New York and Northern
New Jersey and in All of the 37 States Covered in
the Reports of F. W. Dodge Corporation

sary during 1942 in order to conserve critical materials.
D u rin g the current year the volume of war plant con­
struction is expected to drop sharply, releasing a large
su pply of materials and labor which can be used effec­
tively in putting new plants into operation.
A s the accom panying chart indicates, construction
contract awards in New Y o rk and Northern N ew Jersey
during 1942 ran at about the same level as in 1941, and
accounted fo r slightly less than one tenth of total con­
tract awards in the 37 Eastern States. The same ratio
also applies to the distribution of public construction
awards during 1942. I t is clear that the reduced pro­
portion o f construction work in this area is but another
aspect o f the fact that war production centers have been
developed in other sections o f the country to a relatively
greater extent than in the N ew Y o rk area.
In the
1 9 3 0 ’s, the total volume of construction contract awards
in New Y o rk and Northern N ew Jersey accounted for a
little over one fifth of the total fo r the 37 States. D u rin g
the 1 9 2 0 ’s, when building was exceptionally active in
this region, the proportion was about one fourth of the
37 State total.

5 0 ...1 1 .1

.. II !

.1. L....I....

1 1 1

1 1 1



1 1 I

Factory Employment and Payrolls in Selected Industrial Areas in New
York State, as Reported by New York State Department of
Labor (1935-39 averages 100 per cent; data plotted on
ratio scale to show proportionate changes)

the industrial areas in the State, as m ay be seen from the
accom panying chart. In the Buffalo and A lb a n y dis­
tricts, factory em ployment has roughly doubled and p a y ­
rolls quadrupled since A u gu st, 1939. In U tica, where
em ployment increased 59 per cent in the same period,
payrolls were almost three and one-half times as great
as in A u gu st, 1939. In general, m anufacturing em ploy­
ment and payrolls have expanded most rapidly in the
“ h eavy” m anufacturing centers, where industrial capac­
ity could be easily converted to making war equipment.
On the other hand, in centers where production o f non­
durable or semidurable consumer goods is of predom i­
nant importance— N ew Y o rk C ity and B ingham ton are
examples— expansion in em ployment has been compara­
tively moderate, though increases in payrolls have fr e ­
quently been very substantial. In Bingham ton, where
em ployment has increased only 20 per cent over the war
period, payrolls have more than doubled. E m ploym ent
and payrolls in New Y o rk C ity, showing their usual wide
seasonal fluctuations, were 29 and 84 per cent larger,
respectively, in December, 1942 than when war broke
out in E urope.

Employment and Payrolls
Production and Trade
Factory em ployment in N ew Y o rk State increased 10
per cent during the course o f 1942, and factory payrolls
increased 34 per cent over the year. A ccording to the
State D epartm ent o f Labor, average weekly earnings in
factories were $41.52 in December, 1942, as compared
with $34.07 in December, 1941, and $26.23 in A u gu st,
F ro m m id-Novem ber to m id-December, 1942,
em ploym ent in m anufacturing industry in N ew Y o rk
State expanded 1 % per cent, and payrolls 3 % per cent.
E m ploym ent in war plants increased generally through­
out the State, more than compensating fo r a slight reduc­
tion in the working forces engaged in the m anufacture
of food products, chemicals, apparel, and petroleum
P ayrolls increased in all m ajor industrial
groups except apparel and petroleum.
The impact o f the war on m anufacturing em ployment
and payrolls has varied considerably among certain of

The 1943 war production program , while providing for
a lean but sound and healthy civilian economy, antici­
pates munitions production double that of 1942, accord­
ing to a join t statement by the W a r Production B oard
and the W a r and N a v y Departm ents. The program calls
for about twice the number and fou r times the weight o f
planes produced last year, more than twice the merchant
ship tonnage, a considerable increase in the naval escort
program , and more combat vessels..
P relim inary inform ation now at hand indicates that
the high level of industrial activity reached late in 1942
was at least maintained during January. A lth ou gh steel
production was tem porarily reduced somewhat during the
early days o f the month, owing to interruptions caused
by flood conditions in some producing areas, the operat­
ing rate subsequently recovered to the highest point since


the end o f October, and fo r the month as a whole pro­
duction was probably about the same as in December.
Electric power production appears to have continued
near the record level reached in December, whereas some
decline usually occurs between December and January.
The daily output o f the bitum inous coal mines during
the first h alf of January ran at a somewhat higher rate
than in December, but the production of anthracite was
curtailed owing to the strike affecting mines in the P enn­
sylvania fields. Production of crude petroleum in Jan u ­
ary continued at about the same rate as in recent months.
P r o d u c t io n


T rade


D ecem ber

In December the seasonally adjusted index o f produc­
tion and trade computed at this bank declined to 123 per
cent o f estimated long term trend, 2 points below the
record figure fo r November, but 10 points above that fo r
December, 1941. The decline in December was largely
attributable to the failure o f retail trade to increase as
much as in most other years from the level reached last
November, when sales were enlarged by a considerable
amount of early Christmas shopping. A fte r adjustm ents
fo r seasonal variations, sales by department stores, chain
store systems, and m ail order houses were all lower in
December than in November.
Productive activity advanced slightly fu rth er in D ec­
ember, although the various component groups o f the
production index showed relatively m inor changes from
the preceding month. A lth ou gh the production of war
goods continued to mount, the index of output of pro­
ducers’ durable goods was little changed between Novem ­
ber and December largely owing to an offsetting decline
in nonresidential construction and a slight reduction in
steel m ill operations. Electric power production, which
generally reaches its yearly peak in December, showed
more than the usual increase over November. The daily
rate o f cotton consumption dropped a little below the
high level maintained during the earlier months of
the year.


Department Store Trade
F o r the three weeks ended January 23, sales of the
reporting department stores in this D istrict were about
6 per cent below the corresponding period last year.
In January, 1942, however, sales were unusually active,
as actual or threatened shortages of certain articles,
together with the prospect of higher prices, resulted in
a heavy buying wave that affected m any lines o f goods.
On the basis o f the three weeks’ figures fo r January,
1943, it appears that the decline in sales from December
to January was somewhat less than is usual between
these two months.
D u rin g December department store sales in this D is­
trict were 7 per cent higher than in December, 1941,
and 4 per cent above December, 1929. The rise in sales
between Novem ber and December, 1942, however, was
somewhat smaller than in m any other years. F o r the
year 1942, sales were 7 per cent higher than fo r the year
1941, compared with an increase o f 13 per cent between
1940 and 1941.
Stocks on hand o f the reporting department stores
in this D istrict, which started fallin g off in A u gu st, 1942
after a prolonged rise beginning in June, 1941, contin­
ued to decline rapidly through December 31, 1942.
The index fo r December was only 12 per cent higher
than in December, 1941. Figures received from a limited
number of department stores in this D istrict indicate
that at the end o f December outstanding orders for
merchandise purchased by the stores, to be delivered to
them at a later date, were 11 per cent below November,
1942, but were still 31 per cent higher than in December,

Percentage changes from a year earlier
Net Sales

Department stores

New York City.......................................
Northern New Jersey.............................





Indexes of Production and Trade*

(100 == estimated long term trend)
Index of Production and Trade...............










Producers’ goods— total....................
Producers’ durable goods..............
Producers’ nondurable goods........





Consumers’ goods—total..................
Consumers’ durable goods............
Consumers’ nondurable goods. . . .





Durable goods—total........................
Nondurable goods—total..................





Primary distribution.............................
Distribution to consumer.....................
Miscellaneous services...........................











Westchester and Fairfield Counties. .. .
Lower Hudson River Valley.................
Upper Hudson River Valley..................
Central New York State.......................
Mohawk River Valley.......................
Northern New York State.....................
Southern New York State.....................
Western New York State.......................
Niagara Falls......................................

+ 7
+ 2
+ 3
+ 3
+ 4
— 1
— 6
+ 6
+ 2
+ 5

Stock on
Jan.through December 31,
Dec., 1942
+ 9
+ 7
— 5

+ 6
+ 3
+ 5
+ 4
+ 7
— 1
— 8
+ 8
— 3
+ 7
+ 9

+ 5
+ 6
+ 5
+ 7
+ 2

All department stores.................

+ 7

+ 7


Apparel stores.............................


+ 7

+ 6

Indexes of Department Store Sales and Stocks, Second Federal Reserve District
(1923-25 average = 100)

Cost of Living, Bureau of Labor Statistics

(100 = 1935-39 average)..........................




Wage Rates

(100 = 1926 average)...............................
Velocity of Demand Deposits*

(100 = 1935-39 average)
New York City.........................................
Outside New York City...........................

p Preliminary.




* Adjusted for seasonal variation.







Sales (average daily), unadjusted................
Sales (average daily), seasonally adjusted..





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






L a b o r M a r k e ts a n d M ig r a tio n

In an effort to promote more deliberate consideration
o f local labor resources in the allocation o f war contracts,
in early January the W a r M anpow er Commission again
classified the industrial areas of the United States accord­
ing to the adequacy o f their labor supplies. A lthough
the Commission acknowledged that factors other than
the immediate availability o f labor m ight well be para­
mount in procurement policy, it advised, where possible,
against renewal of old or allocation of new contracts to
areas o f acute labor shortage, those classified in Group I.
In the Group I I areas, where the labor market is currently
in balance but unable to meet further demands upon it,
the Commission recommended the renewal o f contracts
not in excess of current volumes. In general, to ease the
pressure on manpower resources in the various localities,
the W a r M anpow er Commission asked that “ all possible
effort should be made to renew contracts, place new con­
tracts and locate new production fa cilities” in areas of
labor surplus, that is, centers classified in Group I V .
I t is apparent from the classification o f Second D is­
trict industrial areas given below, that although the
largest city in the D istrict is still an area o f labor surplus,
most o f the im portant industrial centers have reached
about as high a level o f employment as they can at present
attain with the local labor supply.
Group I

Areas of aeute labor shortage:

Connecticut— Bridgeport
New Y ork — Buffalo
Group I I
Areas o f approximate balance of labor supply and
dem and:
Connecticut— Stam ford
New Jersey— Morristown, Newark, Paterson, Jersey City,
Perth Am boy, Long Branch
New York— Albany, Elmira, Rochester, Utica
Group I I I Areas where current balance o f labor market ia
expected to last six m onths:
Connecticut— N orwalk
New York— Auburn, Batavia, Binghamton, Dunkirk,
Jamestown, Kingston, Newburgh, Poughkeepsie, Sid­
ney, Syracuse, W atertown
Group I Y

Areas of labor surplus:

New York— New York City, Yonkers, Central Long Island

I t is generally true throughout the country that those
cities which are currently short of labor are the same
cities which received considerable additions to their work­
ing forces between 1940 and 1942. I n those years a sub­
stantial m igration occurred to industrial centers partici­
pating heavily in the production o f war materials and,
to a lesser extent, to those communities near large m ili­
tary encampments.
The movement originated, on the
other hand, in communities where industry had proved
less adaptable to w ar production.
A lth ou gh large scale m igration is not a new phenome­
non in this country, considerable attention has been
drawn to the m igration which occurred after the begin­
ning o f the defense program . The registration fo r sugar
ration books in M ay, 1942, provided a count o f civilian
population at that time, and a comparison with the census
o f A p r il, 1940, yields a basis fo r appraising changes
in population which occurred between the two dates.
A lth ou gh it is estimated that civilian population in the
country as a whole was virtu ally unchanged in the two

years, the regional figures m ay reflect withdraw Is to
the armed forces, as well as migration.
F or the nation as a whole, population inoreases from
1940 to 1942 were reported in the Pacific. South A tlan tic
and E ast N orth Central States. O f the New E n glan d .and
M iddle A tlan tic States, only Rhode Island, Connecticut,
and New Jersey have shown gains. The civilian popula­
tion o f Connecticut increased 67,000 or 3.9 p e r cent in
the period, and that of New Jersey increased by 85,000
or 2.0 per cent, while New Y o rk State lost 506,000 or 3.8
per cent of its 1940 civilian population. The largest abso­
lute population gains were recorded by California with
303,000 and M ichigan with 312,000. The population of
the D etroit area alone increased by 336,000 persons.
In Second D istrict m etropolitan areas, listed below,
population gains were registered only in Buffalo and
B ridgeport. There occurred a net influx of about 31,000
persons into Bridgeport in the two y ea rs; in the same
period, B u ffa lo ’s civilian population increased by 12,000
or 1.3 per cent. Labor shortages, however, have developed
in both localities despite the inward migration.
It would seem possible that some in-m igration of
civilian workers occurred in the A lb an y area, but a
definite outward movement from the Rochester, Syracuse,
B ingham ton, and the New Y o rk City-N ortheastern
New Jersey areas is indicated. There can be no doubt
that there was a decided movement of civilian population
from the U tica-Rom e area. A lth ou gh detailed inform a­
tion is lacking on the New Y o rk City-Northeastern New
Jersey figures, in view of the high level of war produc­
tion in the New Jersey portion of the metropolitan area
and the relatively less favorable condition o f m any of
New Y o rk C it y ’s industries, it is probably true that most
o f the 365,000 decline in civilian population occurred
in New Y o rk C ity proper.
W h ile areas o f labor surplus remain, it should be
noted that the number of such areas has been steadily
diminishing, and the amounts of unutilized labor re­
sources in them have been tending to contract. Difficul­
ties o f finding adequate help in the centers o f most
intensive war activities operate two ways in reducing
surplus labor resources in other areas, on the one hand
through migration, and on the other hand through lead­
ing to the allocation o f additional prim ary contracts or
subcontracts in the latter areas. So fa r as there is a
choice between the two methods o f gaining fu ll utiliza­
tion o f the national labor resources, the allocation of
additional contracts to the surplus areas has clear-cut
advantages, involving as it does, an absence o f the social
and economic problems of migration.
Estimated Changes in Civilian Population, 1940-42
Selected Industrial Areas of the Second Federal Reserve District

Area and labor
market classification

Change in civilian
April 1,1940 April, 1940 to May, 1942

Albany-Schenectady-Troy (II).................
Binghamton (III).......................................
Bridgeport (I).............................................
Buffalo-Niagara (I)....................................
NewYorkCity (IV)-Northeastern N.J.(II) 11,117,000
Rochester (II).............................................
Syracuse (III).............................................
Utica-Rome (II).........................................

Source: U. S. Bureau of the Cenaus.


Per cent

— 2,000
— 6,000
+ 31,000
+ 12,000
— 365,000
— 15,000
— 7,000
— 22,000

— 3.6
+ 7 .4
+ 1 .3
— 3.4
— 2.4
— 8.4






Business and Financial Conditions in the United States

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

Indexes of Wholesale Prices Compiled by United
States Bureau of Labor Statistics
(1926 averages 100 per cent)







—ff if ■






... deposits


. i....: ,


Member Bank Reserves and Related Items
(Latest figures are for January 13)




Z '*



* -~J'


- - '7 ^

S ' .... /—





Lr *
.. h
K r*










Wednesday Figures of Total Member Bank Re­
serve Balances at Federal Reserve Banks, with
Estimates of Required and Excess Reserves
(Latest figures are for January 13)

(S um m arized by the B o ard of G overnors of th e F e d e ra l E eserve S ystem )
I N D U S T R IA L a c tiv ity continu ed a t a h ig h level in D ecem ber and th e first h a lf o f
J a n u a ry an d d istrib u tio n of com m odities to consum ers w as sustained. P rice s o f fa rm
p ro d u cts an d re ta il foods advanced fu rth e r, w hile prices o f m ost o th er com m odities
show ed little change.
P ro d u c tio n
In d u s tria l pro duction in D ecem ber show ed less th a n the u su al decline fro m N ovem ber
an d th e B o a rd 's seasonally a d ju ste d index rose tw o p o in ts fu rth e r to 196 p er c en t o f
th e 1935-39 average. M u nitio ns o u tp u t continu ed to increase, ra isin g to ta l d u rab le goods
pro d u ctio n to a level 33 p er cent h ig h er th a n in D ecem ber a y ear ago, w hile fo r th e
sam e perio d pro d u ctio n of n o ndu rab le goods w as only 4 p e r cen t la rg e r an d m in eral
o u tp u t w as som ew hat low er.
S teel p ro d u ctio n in D ecem ber an d th e first h a lf o f J a n u a ry av erag ed 97 p e r cen t
o f capacity , dow n slig h tly fro m th e O ctober an d N ovem ber levels. T o ta l steel p ro d u ctio n
fo r the y e ar show ed a 4 p e r cent increase over 1941 w hile the o u tp u t o f steel p late,
im p o rta n t in sh ip b u ild in g a n d ta n k p ro duction , rose 90 p er cent over th e previous y ear.
T his increase over a y e a r ago w as la rg e ly o b tain ed by conversion of e x istin g fa cilities.
O u tp u t o f lum ber, and stone, clay, an d glass pro d u ctio n in D ecem ber show ed la rg e r
declines th a n are usu al a t th is tim e o f y ear.
O u tp u t o f n o ndu rab le goods show ed little change fro m N ovem ber to D ecem ber.
T extile p ro d u ctio n continu ed a t th e h ig h level w hich h a d p rev ailed fo r th e p a s t y e ar a n d
a h a lf. M eat pack in g increased sharply, reflectin g exceptio nally la rg e hog sla u g h te r a n d
o u tp u t o f m ost other m an u fa ctu re d foods w as m ain tain e d a t a h ig h level.
M ineral pro d u ctio n w as low er in D ecem ber, reflectin g a decline in coal o u tp u t fro m
th e p eak reached in N ovem ber. B itu m ino us coal p ro d u ctio n in 1942 w as th e second
la rg e s t in th e h isto ry of th e in d u stry , av erag in g 13 per cent g re a te r th a n 1941. C rude
petro leum pro d u ctio n in D ecem ber continu ed a t th e level o f e arlie r m onths an d fo r the
e n tire y e a r w as slig h tly low er th a n 1941, reflectin g tra n sp o rta tio n sho rtages. In th e
first h a lf o f J a n u a ry p ro d u ctio n o f b itu m ino us coal an d petro leum w as m ain tain ed , b u t
a nu m b er o f a n th ra c ite m ines w ere closed by an in d u stria l dispute.
V alue of construction co n tracts aw ard ed in D ecem ber, according to th e F . W . D odge
C orporation, w as som ew hat hig h er th a n in N ovem ber. C o ntracts fo r a p artm en t-ty p e
b u ild in g s fo r housing w ar w orkers continu ed to rise and pu blic w orks increased sharply,
w hile aw ard s fo r m a n u fa c tu rin g b u ild in g s declined fu rth e r.
T he value o f co nstruction w as 3.2 billio n do llars in th e fo u rth q u a rte r o f 1942,
according to p re lim in ary estim ates o f the D e p artm en t o f Com m erce. T his w as ab o u t
25 p er cent low er th a n th e p eak o f 4.3 billio n reached in th e previous q u arter, b u t slig h tly
h ig h er th a n th a t of th e fo u rth q u a rte r of 1941. In sta lla tio n s fo r d ire c t m ilita ry use an d
in d u stria l fa c ilitie s accounted fo r alm ost th ree q u a rte rs of the to ta l, an d re sid e n tia l
b u ild in g c o n trib u te d som ew hat less th a n h a lf o f th e rem ain d er. F o r th e y e ar as a w hole,
co n stru ctio n is valued a t 13.6 b illio n d o llars— o f w hich alm ost fo u r-fifth s w as pu blicly
financed— an increase o f one-fifth over 1941. T he increase took place e n tire ly in m ilita ry
an d in d u stria l p ro jects, w hich rose 4.4 billio n dollars. A ll other types of co n stru ctio n
D is t r ib u t io n
D istrib u tio n o f com m odities to consum ers w as m ain tain e d a t a h ig h level in D ecem ber
an d th e first h a lf o f Ja n u a ry , a fte r allow ance fo r th e sh arp flu ctu atio n s th a t a re custo m ary
a t th is tim e o f year. T he 1942 C h ristm as b u y in g season exceeded th a t of an y previous
y ear, value o f sales a t d e p a rtm e n t stores, fo r exam ple, b ein g ab o u t 15 p er cent la rg e r
in N ovem ber an d D ecem ber th a n in th e correspon din g perio d o f 1941. T he increase over
th e y e ar perio d reflected in p a rt p rice advances b u t th ere w as also an increase in the
volum e o f goods sold.
F re ig h t c ar loadings declined ab o u t th e u su al seasonal am o unt in D ecem ber, and the
B o a rd ’s a d ju ste d index rem ained a t 134 p er cent o f th e 1935-39 average. G rain , livestock,
an d m iscellaneous load ing s rose som ew hat on a seasonally a d ju ste d basis, w hile coal an d
o th er pro d u cts declined sligh tly.
Co m m o d it y P

r ic e s

P rice s o f a g ric u ltu ra l com m odities advanced sh a rp ly fro m th e e arly p a rt o f D ecem ber
to the m iddle o f J a n u a ry . M axim um prices designed to re s tric t fu rth e r increases w ere
issued fo r som e o f these com m odities, in clu d in g corn an d m ixed feeds. F o r c e rta in other
pro ducts, how ever, like p o tato es an d tru c k crops, F e d e ra l price su p p o rts w ere increased.
W holesale prices o f m ost other com m odities continu ed to show little change.
F ro m m id-N ovem ber to m id-D ecem ber re ta il food prices advanced 1.6 p o in ts to
ab o u t 133 p e r cent o f th e 1935-39 average. F u rth e r increases in these prices are in d ica te d
in J a n u a ry as a re su lt o f advances p e rm itte d recen tly in m axim um levels fo r such item s
as flour, m ilk, an d p o u ltry .
B a n k C redit
E xcess reserves o f m em ber banks declined sh a rp ly in th e la st w eek o f D ecem ber,
an d d u rin g th e first h a lf o f J a n u a ry th ey av erag ed a b o u t 2.2 billio n do llars, as com pared
w ith 2.5 billio n fo r m ost o f D ecem ber. L arg e paym en ts to th e T rea su ry fo r new securities,
som e increase in currency, and other end-of-year requirem ents w ere responsible fo r d ra in s
on reserves d u rin g the la st w eek o f D ecem ber. T here w ere, how ever, su b sta n tia l sales o f
T rea su ry bills to F e d eral R eserve B ank s u n d er options to repurchase. In th e early p a rt o f
Ja n u a ry , red u ctio n in T rea su ry balances a t th e R eserve B ank s an d a re tu rn flow o f c u r­
rency sup plied banks w ith a d d itio n a l reserves, an d som e o f th e b ills sold to th e R eserve
B ank s w ere repurchased . D u rin g th is perio d R eserve B a n k holdings o f G overnm ent
secu rities, w hich h a d increased to 6.2 billio n do llars b y D ecem ber 31, declined to below
6 billion.
R eflecting larg e ly pu rch ases of th e % p e r cen t certificates o f indebtedn ess delivered
in th e w eek o f D ecem ber 30, holdings o f d irec t an d g u ara n tee d G overnm ent ob ligatio ns
a t re p o rtin g m em ber b a n k s in 101 cities increased b y 1.8 billio n do llars to 28 billio n
over th e fo u r w eeks ended J a n u a ry 13. N ew Y ork C ity banks took 640 m illion o f th e 1.5
billio n do llars o f certificates sold to re p o rtin g banks. C om m ercial loans in N ew Y ork
C ity declined by 90 m illion d o llars; outside N ew Y ork th ere w as little change. L oans to
bro kers an d dealers rose sh a rp ly in D ecem ber d u rin g th e V icto ry F u n d cam paign, b u t
declined correspon din gly in th e follow ing weeks. O ther loan s continu ed to decline.