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MONTHLY REVIEW
O f Credit and Business Conditions
FEDERAL
VbL. 28
RESERVE
BANK
FEBRUARY
OF
NEW
YORK
1946
No. 2
MONEY MARKET IN JANUARY
One of the outstanding developments in the financial mar
kets in January was a sharp increase in Government secur
ity prices, particularly in prices of long term bonds restricted
in ownership to nonbank investors. The money market was
considerably easier, reflecting the first substantial return of
currency from circulation since the start of the war, large net
disbursements by the Treasury from its balances in the Reserve
Banks, and a moderate increase in the monetary gold stock.
Gains to bank reserves from these sources were only partly
offset by an increase in reserve requirements resulting from the
customary postdrive shift of deposits from War Loan to private
accounts, which were on a considerably smaller scale than
after preceding War Loan drives. The consequent ease in
bank reserve positions led to a broadening of the banks’ demand
for Government obligations to include short term issues, espec
ially certificates of indebtedness, and to a substantial retirement
of Federal Reserve credit.
The process which developed during the war whereby non
bank investors acquired long term restricted Treasury bonds,
partly with funds obtained from the sale of unrestricted bonds
to commercial banks, continued at an accelerated rate during
January. A growing feeling that, since the funds raised by the
Treasury in the Victory Loan were substantially in excess of
probable requirements for some time to come, the Treasury
might offer no further issues of long term securities for an
extended period, was a major factor in the steep rise in the
prices of restricted bonds.
The rise in prices of long term restricted bonds was much
sharper than that of bonds which the banks are eligible to pur
chase. To a large extent, the relatively moderate advance in
eligible Treasury bonds in January may be attributed to the
high prices previously attained as the result of a marked
upward movement during most of last year, as illustrated in
the accompanying chart, which shows the price trends of an
the middle of January, this issue and the new 2 Vi per cent
bonds offered in the Victory drive surpassed 103, and the new
2Va per cent Victory Loan bonds reached a premium of 2Va
points. Some temporary weakness then developed in the
market for Treasury bonds, but prices turned upward again in
the latter part of the month and the longest 2 Vi and 2*4 per
cent restricted bonds rose to new high levels, at premiums of
more than 3Vi and 2Vi points.
The advance in Treasury security prices (decline in yields)
was not confined to long term bonds, but occurred in some
degree across the entire list of Government issues. Insistent
demands of the banks for certificates of indebtedness during
the month brought the yield for the longest issue to 0.78 per
cent in the third week of January from 0.85 per cent at the end
of December, reflecting chiefly the easier reserve positions of
the banks. Because of lack of market supply, the Federal Reserve
System became the chief supplier, selling large amounts from
its holdings. Despite the strength in this section of the market,
the gap between the yield on the one-year Treasury certificates
Prices of Restricted and Unrestricted Long Term
Treasury Bonds*
PRICE
issue of unrestricted bonds (the 2Vis of September 1967-72)
and of restricted bonds {2Vzs of June 1967-72). Longer
term restricted bonds showed no comparable rise in 1945,
and as shown in the chart, the June 2Vis of 1967-72,
issued in the Seventh War Loan drive, never exceeded 101 Vi
(based on closing bid prices) up to the end of December. By
1945
* Closing bid prices, Wednesday dates.
1946
Latest figures are for January 23.
MONTHLY REVIEW, FEBRUARY 1946
14
and medium term maturities of bonds was narrowed to less
than V4 per cent for bonds callable in 3 years and to less than
Yz per cent for bonds callable in 6 years.
Yields on both high and second grade corporate bonds
moved in consonance with those of Government bonds and
also reached new low points in January. Moody’s average of
Aaa bond yields fell to 2Vi per cent and the average of Baa
corporate bonds to less than 3 per cent. Stock prices moved
irregularly higher with new peaks scored in the averages.
M e m b e r B a n k R eserve P o s it io n s
The ease in member bank reserve positions which promoted
the strong bank demand for short term Government obliga
tions was brought about mainly by a very considerable return
flow of currency from circulation and by large Treasury cash
expenditures in excess of receipts. A 70 million dollar increase
in the monetary gold stock and other foreign account transac
tions in the four weeks ended January 23 also tended to expand
bank reserves. The aggregate of all these transactions was far
larger than those tending to absorb reserves and to increase
reserve requirements.
There were indications during the past month that the
influence of the war on public demands for currency had greatly
diminished, and might even have ended. Currency in circula
tion fell some 672 million dollars in the four weeks ended
January 23, the largest January return flow of currency on
record, exceeding the prewar seasonal movement by 200 to
300 million dollars. Although the contraction came after the
largest Christmas trade in history, and appears to have been
mainly seasonal, the decline may also have been caused in part
by other short-run factors. These include the payment in
January of fourth quarter instalments of 1945 personal income
taxes, and possibly a temporary decrease in currency require
ments for payrolls, owing to the further spread of strikes.
Nevertheless, the size of the return flow suggests that the war
time growth in currency circulation has largely spent itself.
The gradual shrinkage in the gold stock of the United
States, which got under way after this country entered the war
and was attributable to heavy expenditures abroad for commodi
ties and for the maintenance of our Armed Forces, also seems to
have come to an end. In fact, since the low point was reached
in the first week of December 1945, this country’s gold stock
has increased by more than 100 million dollars. A large part
of this increase occurred in the two weeks ended January 23.
Treasury cash disbursements greatly exceeded cash receipts
in the three weeks ended January 16, and the Treasury’s de
posits with the Federal Reserve Banks, which amounted to
1,199 million dollars on December 26, fell 927 million to 272
million on January 16. In the following week, the Treasury
made a moderate withdrawal of funds from War Loan deposits
to replenish its balances with the Reserve Banks, which rose to
578 million dollars on January 23. Treasury expenditures
during the month were augmented by refunds of excess profits
taxes which amounted to more than 800 million dollars in the
first three weeks. Collections of income taxes, other than
withheld taxes, amounting to almost one billion dollars (exclu
sive of 160 million dollars of Savings notes turned in in lieu of
cash), were substantially heavier than for the corresponding
period of 1945, but the Treasury limited its War Loan with
drawals to 921 million dollars between January 4 and 9 and 348
million on January 17 and 18, as a means of bringing its
balances in the Reserve Banks to more normal levels.
The additions to member bank reserves enabled the banks
to retire considerable amounts of Federal Reserve credit, prin
cipally by acquiring large amounts of Treasury certificates of in
debtedness indirectly from the Federal Reserve Banks through
the market. They also reduced their borrowings from the Reserve
Banks by 270 million in the first week of this period and by
small amounts in the following three weeks, and utilized their
Treasury bill holdings and excess reserves to meet temporary
needs for funds. On the whole, member banks acquired bills
from the Treasury and the Reserve Banks in the first three
weeks of this period, but sold substantial amounts in the week
ended January 23 when Treasury receipts exceeded disburse
ments by a substantial margin.
Strength in the securities markets was accompanied by a
substantial inflow of funds into the New York market, which
was only partly offset by a reduction in correspondent bank
balances with City institutions, so that the New York City
banks shared in the generally easier situation of member banks
with respect to reserve positions.
M e m b e r B a n k In v e s t m e n t s
The persistent bank demand for Government bonds in
January was reflected in net purchases of 491 million dollars
of bonds by the weekly reporting member banks in 101 cities
between December 26 and January 23. Of this total, New
York central reserve city banks acquired 212 million and
reporting banks in the other 100 cities 279 million. In the
first few days of this period, toward the close of December, the
member banks sold certificates and notes (taken together be
cause of an exchange of notes for certificates), in order to reduce
their borrowings from the Reserve Banks shown in their yearend statements, but subsequently an active bank demand for
such securities developed. In the two weeks ended January 16,
the New York City reporting member banks added 227 million
to their holdings of Treasury certificates and notes and report
ing banks in other parts of the country added 194 million.
As against the 421 million dollars of certificates and notes taken
by all weekly reporting banks, the Federal Reserve Banks sold
495 million, indicating the virtual absence of selling from other
sources. These sales by the Reserve Banks had the combined
effect of exercising a stabilizing influence on the market and
of absorbing surplus funds in the banking system. In the
week ended January 23, the Federal Reserve Banks made
further net sales of 377 million dollars of certificates of indebt
FEDERAL RESERVE BANK OF NEW YORK
edness and notes, most of which apparently were acquired by
banks in other parts of the country or by nonbank investors,
since the New York City banks also made net sales of 31
million of those types of securities.
TE R M LOANS
The growing importance of term loans to business— those
maturing in more than one year up to 5 or 10 years and
occasionally more— was acknowledged by several officials of
leading New York City banks at recent annual meetings of
their stockholders. Although this growth is not a tendency
that has just appeared in the last year or so, the term loan is
of relatively recent origin having first been developed a little
more than ten years ago. During the war, the expansion of
term loans was greatly stimulated as a result of the extension
of a substantial volume of war production loans, many of
which matured in more than one year. In addition, the con
tinuation of the prewar decline in interest rates was also
responsible for a marked increase in the last year or two in new
term credits for the purpose of retiring outstanding corporate
securities, thus enabling borrowers to effect substantial savings
in annual interest charges.
The expansion of term loans during the war is shown in the
accompanying chart. The data represent the totals of new
commercial and industrial loans maturing in more than a year
made by a number of member banks in 19 cities in various
parts of the country during the first 15 days of March, June,
September, and December of each year from 1939 through
1945. The data therefore do not measure the entire volume
of loans made by the reporting banks for any one year, and
so do not necessarily measure accurately the changes from one
year to the next, since the periods of peak lending may not
coincide with those for which reports are made. Thus,
although a decline is shown for the 1945 reporting periods
from those in 1944, the indicated reduction in lending volume
New Term Loans Made By Selected Member Banks
in 19 Cities*
m il l
sons
_
* Figures represent totals of new loans maturing in more than one year made
in the first fifteen days of March, June, September, and Decem ber of each year.
15
may be open to question. It is believed, however, that the data
do reflect the trend over a number of years.
The reports cover the term lending activities of 87 of the
larger member banks (and their important branches) in
principal cities. As illustrated in the chart, the bulk of the
loans were made by the New York City banks, which accounted
for more than three quarters of the total volume for the entire
period. In contrast, the New York banks made less than a
fourth of the number of loans.
Total term loans for all four reporting periods in 1939
aggregated 113 million dollars, as compared with 457 and
432 million in the corresponding periods of 1944 and 1945,
respectively. The level of new term loans made in the
1945 period was four times that of 1939 among banks in
New York City and 7 Northern and Eastern cities, but among
the institutions reporting from 11 Southern and Western
cities it was only twice the volume of the 1939 period, despite
the greater wartime industrial expansion of the South and
West. Among the reasons that may be cited for the failure of
new term loans of banks in the latter areas to grow with the
sharp rise in industrial activity are: (1 ) the Treasury financed
most of the wartime industrial expansion; (2 ) most of the
new war plants were operated by established, large corpora
tions with long standing banking connections in the East; and
(3 ) many of the term loans for war purposes were too large
for most of the banks of the South and West to handle, except,
perhaps, in participation with banks in the principal financial
centers. In this connection, it is interesting to note that for
all term loans reported from 1939 to 1945, the average size of
loans made by New York City banks was 800 thousand dollars,
against an average loan size of 95 thousand dollars for the
banks in 7 other Northern and Eastern cities and 30 thousand
for the Southern and Western reporting institutions.
It appears that, while the amount of term loans extended
by New York City banks in each of the four periods in 1945
was lower than in the corresponding periods in 1944 so that
the total reported for the 1945 period was 15 per cent less than
in 1944, new peaks were scored in 1945 in the volume of term
loans made by institutions in the other cities. Although some
caution should be used in comparing changes in these figures
over short periods of time, since the periods covered by the
reports may not be typical of the year as a whole, the decline
in term lending in New York City is nevertheless somewhat
surprising in view of the frequent press reports of large term
loans arranged by large business corporations with leading
City institutions.
If the data reported for 1945 accurately portray the changes
in lending activities, they may throw some light on the nature
of the recent expansion of business loans among weekly re
porting member banks, since the New York City banks report
ing term loans include 12 of the 16 banks reporting weekly
condition statements. New York City weekly reporting mem
ber banks had an important share in the 1Vi billion dollar
16
MONTHLY REVIEW, FEBRUARY 1946
expansion of commercial, industrial, and agricultural loans of
all weekly reporting banks in 101 cities from the end of May
to the end of December 1945, accounting for 42 per cent of
the increase, in contrast to 32 per cent of a 672 million dollar
advance in such loans in the corresponding period of 1944.
It would appear, therefore, that the growth in business loans
in 1945 may have consisted more largely of short term com
mercial loans than did the 1944 increase. The data on short
term loans reported to the Federal Reserve Bank of New York
indicate that New York City banks granted a substantially
larger volume of new business loans maturing in a year or less
during the 1945 period than in 1944.
The term loan has been typically a fairly large loan made to
a sizable business corporation and has been designed by the
banks to meet the changing financial needs of such enter
prises. Term loans, particularly the larger ones, are often
made by a syndicate of banks, the institution originating the
loan acting as manager and earning a fee for its services.
Judgment as to the quality of the loan involves an investment
analysis based on the borrower’s earning power and the longer
term outlook for the industry in which the borrowing organi
zation operates. Dealing directly with the borrower, the bank
has greater control of the credit and can prescribe safeguards
in the term loan agreement which may not be had by purchasr
ing new or outstanding corporate obligations. As against
corporate fixed interest securities, however, term loans have
the disadvantage of lack of marketability.
The American Bankers Association through its Postwar
Small Business Credit Commission is undertaking to promote
the application of the term loan technique to small business.
Although this campaign, if successful, may open up a large
new market for term loans, much of the increase may take
the place of short term business loans subject to renewal.
NATIONALIZATION OF BANKING IN FRANCE
On December 2, 1945 the French Constituent Assembly
enacted a law nationalizing, as of January 1, 1946, the Bank of
France and certain of the big commercial banks and providing
for the control and supervision of the banking and credit
system.
By the terms of the law, the shares of the Bank of France
were "transferred to the State, which owns them,” and the
councilors (directors) and auditors designated by the former
shareholders ceased exercising their functions. The banks
note issue privilege, which had been due to expire on December
31, 1945, was extended for an indefinite period. A second
law, to be promulgated by February 28, 1946, is to define the
bank’s new statutes, the composition of its General Council
(Board of Directors), and its tax status.
The Bank of France shareholders are to receive, in exchange
for their stock, negotiable registered bonds issued by the bank.
The redemption value of these bonds is to be equivalent to the
liquidation value of the shares, as fixed by a special committee
consisting of two designated government officials and a repre
sentative of the shareholders appointed by the Minister of
Finance. The liquidation value of the shares is not to exceed
their average quotation between September 1, 1944 and
August 31, 1945, or their price on the Paris Bourse between
September 1, 1945 and the date on which the liquidation value
is fixed. The type of bonds to be issued to the shareholders
and the terms of their redemption (which is to take place
within 50 years) are to be fixed by a decree of the Minister
of Finance. The bonds bear interest at a rate "which cannot
exceed 2 per cent,” and the interest paid for 1945 and 1946
cannot exceed the dividend for 1944. Interest payments will
be met by the Bank of France under a Treasury guarantee;
redemption will be effected by the Treasury.
In judging the importance of the change in ownership and
administration of the Bank of France, it should be remem
bered that the Governor and the First and Second Vice Gover
nors of the Bank o f France have been appointed by the
government since 1806; and that the General Council, which
administers the bank, has contained since 1936 only two mem
bers elected by the shareholders, all the rest (12 members
since the last revision in 1944) having been government
appointees.
Four deposit banks were nationalized by the new law: the
Credit Lyonnais, the Societe Generale, the Comptoir National
d’Escompte de Paris, and the Banque Nationale pour le Com
merce et l’lndustrie. These are the four largest commercial
banks in France; they have a country-wide network of branches
and in November 1945 held about 55 per cent of all French
bank deposits. As of January 1, 1946 the nationalized banks
were "transferred to the State in full ownership with all their
assets” and the powers of administration and control were
assumed by new boards of directors, each of twelve members:
four appointed by the Minister of National Economy to repre
sent industry, commerce, and agriculture; four appointed by
the labor unions under rules established by the Ministers of
Finance and Labor (two of these to be members of the staffs
of the nationalized banks); two appointed by the Minister of
Finance to represent the Bank of France and official credit
institutions; and two chosen by the Minister of Finance among
persons with extensive banking experience.
The nationalized banks are to deliver to their shareholders,
in exchange for the shares surrendered to the State, registered
profit-sharing certificates ("parts beneficiaires” ) which are to
entitle them to a profit distribution to be fixed annually by the
boards of directors. The amount distributed is not to be less
than the dividend paid on the shares for the year 1944, and is
guaranteed by the State. Beginning January 1,1947 the profitsharing certificates are to be repurchased by the State, over a
50-year period, at the average quotation of the shares on the
Paris Bourse between September 1, 1944 and October 31,
1945.
FEDERAL RESERVE BANK OF NEW YORK
The nationalized banks remain separate legal entities and
continue to be subject to the ordinary commercial legislation.
Their directors and managers are to continue to maintain
professional secrecy. The status of their personnel remains
unchanged.
Any incorporated investment bank (banque d’affaires) with
resources exceeding 500 million francs is placed by the new
law under the supervision of a government commissioner
designated by the Ministers of National Economy and Finance.
At least two banks, the Banque de Paris et des Pays-Bas and
the Banque de l’Union Parisienne, are in this category. Each
commissioner is assisted by a committee appointed by the
Ministers o f National Economy, Finance, and Labor, and con
sisting of a representative of industrial and trade associations,
a labor union representative, and a representative of the official
credit institutions. The commissioner is to be present at all
meetings of directors and at the general assemblies of share
holders; he can examine any of the banks’ documents; he can
veto any decision "contrary to the national interest” which is
taken by the board of directors or the general assembly of
shareholders; and he can propose any measures which appear
to him to be in the "general interest” and, in particular, any
which correspond to the "requests or decisions” of the National
Council of Credit (see below). The bank can appeal against
the veto of the government commissioner to the National
Council of Credit.
Apart from the above measures, the new law contains provi
sions regarding the general control of banking and credit. N o
general banking legislation or State supervision of banking or
credit existed in France before the war. Three categories of
banks are provided for: deposit banks, investment banks, and
medium and long term credit banks. Every bank must declare
itself in one of these categories to the Banking Control Com
mission (see below) within three months of the promulgation
o f the law; and unless an extension of time is granted, it must
conform within a year to the regulations applicable to its
category. Deposit banks are defined as banks receiving deposits
at sight or for a maximum term of two years. They may not
participate in enterprises other than banks and financial insti
tutions to an extent exceeding 10 per cent of the capital of the
enterprises, and in general they will not be allowed to invest
their deposits in real estate. The investment banks are those
whose principal activity consists in holding and administering
participations in enterprises. They may accept deposits of one
year or less only from their staff, from persons associated in
the ownership, or from enterprises in which they hold or
originally held 15 per cent of the -capital. The long and
medium term credit banks are State-controlled banks operating
under special legislation and under a State-appointed chairman,
general manager, or governor.
The nationalization law entrusts supervision o f the credit
system to two organs— the National Council of Credit and the
Banking Control Commission. One of the government minis
1?
ters is to be Chairman of the National Council of Credit;
but the Chairman can delegate his powers to the Governor
of the Bank of France, who is Vice Chairman ex officio.
In addition to the Chairman and the Vice Chairman, the
Council consists of 38 members: ten representing various
economic associations and appointed by the Minister of
National Economy; seven representing the Ministries of
National Economy, Industrial Production, Public Works and
Transport, Agriculture, Reconstruction and Municipal Plan
ning, and Colonies; seven appointed by the Minister of Finance
by reason of their financial or banking ability; and seven repre
senting the official financial institutions. The National Council
of Credit has a wide range of functions, mainly of a consulta
tive nature, in such matters as development of banking, con
centration of banks, further nationalization of banks, protection
of deposits, distribution of bank credit, control of capital
issues, financing of reconstruction and foreign trade, etc. It
will meet once a month, and will submit an annual report to
the Ministers of National Economy and Finance.
The second credit control organ is the Banking Control
Commission, with five members: the Governor o f the Bank of
France (Chairman ex officio), the President of the Financial
Section of the State Council,* the Director of the Treasury,
the director in charge of credit questions at the Ministry of
National Economy, and a bank employees’ union repre
sentative. It exercises "all the powers of investigation, control,
and discipline” defined by the laws of June 13 and 14, 1941,
regarding the "regulation and organization of the banking
profession.” (This legislation, enacted under the Vichy admin
istration as part of the "corporative” organization of economic
life, provided for a close control of banking.)
In addition to the supplementary Bank of France law which
is to be passed by February 28, provision has been made for
certain other legislation: ( 1 ) A bill dealing with the invest
ment banks has to be placed before the Constituent Assembly
by February 2, 1946, as a result of a resolution adopted in the
course of the debates, after a compromise had been reached
excluding the investment banks from the nationalization; (2 )
the "fundamental rules” for the operation o f the commercial
banks are to be determined by two decrees, one for the
nationalized banks, the other for the "free sector,” to be pro
mulgated before March 2, 1946; (3 ) regulations relating to
export credits and guarantees and to the organization and dis
tribution of long term credits for the modernization of the
nation’s industrial, commercial, and agricultural equipment
are to be promulgated by the government before June 2, 1946.
* The supreme administrative tribunal.
DEVALUATION OF THE FRENCH FRANC
In the last week of 1945 the French Government adopted
a series of far-reaching financial measures. A new parity for
the French franc was fixed; the Bank of France gold reserve
was revalued and part of it transferred to the Exchange
18
MONTHLY REVIEW, FEBRUARY 1946
Stabilization Fund; and the government was authorized to
requisition gold and foreign assets held by French citizens and
corporations. Simultaneously with the devaluation law, the
French Constituent Assembly ratified the Bretton Woods Agree
ments and the Franco-American agreement under which the
Export-Import Bank granted France a credit of 550 million
dollars.
In a notice published in the Journal Officiel of December
26, 1945, the Minister of Finance established the parity of the
franc at 119.10669 francs to 1 U. S. dollar and 480 francs to 1
pound sterling. Accordingly, the French Exchange Stabiliza
tion Fund has fixed new buying and selling rates for the foreign
currencies it handles. The official buying rate fixed for the
dollar is 118.90 francs to the dollar (equivalent to $0.008410
per franc) and the official selling rate 119-30 francs ($0.008382
per franc). The previous dollar buying rate had been 49.53
francs ($0.0202 per franc) and the selling rate 49.72 francs
($0.0201 per franc), so that the new rates represent a devalua
tion of approximately 58 per cent.
New parities were also fixed on December 26 for the
currencies of French overseas territories, most of which had been
at par with the metropolitan franc: (1 ) In Algeria, Tunisia,
Morocco, the French Antilles, and French Guiana the local
franc currencies will continue at par with the metropolitan
franc; (2 ) in other French African territories and dependen
cies, Madagascar, Reunion, Saint-Pierre and Miquelon, the local
franc (called franc C.F.A., i.e., the French African colonial
franc) is now equal to F.fr. 1.70 (equivalent to about $0.0140);
(3 ) in the French Pacific colonies, the franc C.F.P. (French
Pacific colonial franc) is equal to F.fr. 2.40 (about $0.0200);
(4 ) the new parity of the Indo-Chinese piaster is F.fr. 17.00
(about $0.1400); (5 ) the French rupee has been fixed at
F.fr. 36.00 (about $0.3020); and (6 ) the Syria-Lebanon pound
has been fixed at F.fr. 54.35 (about $0.4560). The rates
referred to in items (3 ), ( 5) , and ( 6) are virtually the same as
formerly prevailed relative to the U. S. dollar; the new rates
under (2 ) and (4 ) represent a devaluation of about 31 per
cent.
The gold reserve of the Bank of France was revalued as a
result of a convention concluded between the bank and the
government on December 24, 1945, approved by a law of
December 26, 1945, on the basis of 134,027.90 francs per
kilogram of fine gold (equivalent to 0.0074611 fine grams per
franc). The previous rate of valuation, established on Febru
ary 29, 1940, had been 47,605.45 francs per kilogram fine
(0.021006 fine grams per franc). The reduction in the value
of the franc, as indicated by this revaluation o f the gold
reserve, is therefore 72 per cent. The difference between this
figure and the above-mentioned 58 per cent devaluation of the
exchange rate is due to two circumstances: (1 ) the divergence
which existed early in 1940 between the rate of gold valuation
and the official exchange rate; (2 ) the further depreciation
which took place in the franc exchange rate during the first
half of 1940. The gold revaluation increment, amounting to
118 billion francs, has been allocated as follows: ( 1 ) 5 3 billion
to the Exchange Stabilization Fund; (2 ) 10 billion to the re
adjustment of the exchange clearing balances with Argentina,
Belgium, Denmark, Sweden, Switzerland, and Czechoslovakia;
(3 ) 40 billion to the cancellation of negotiable Treasury
bonds which the Bank of France had received in exchange for
gold transferred to the Exchange Stabilization Fund under
agreements of February 29, 1940 and September 20, 1945;
and (4 ) the residue to the credit of the Treasury’s account
with the Bank of France.
The transfer of 53 billion francs of the gold revaluation
increment from the Bank of France to the Stabilization Fund
was made in the form of 400 metric tons of fine gold, reducing
the banks gold reserve from about 1,540 million dollars to
about 1,090 million dollars. This was the second transfer of
gold within three months, as on September 20, 1945, 210
metric tons of fine gold (equivalent to 236 million dollars) had
already been ceded to the Stabilization Fund. Prior to that
date, the Bank of France gold reserve had remained unchanged
at 1,777 million dollars practically throughout the war, the
last transfer to the Fund having been effected in March 1940.
The recent transfers of gold to the Fund have been necessary
in order to replenish foreign exchange holdings which had
been reduced by heavy purchases of imports for reconstruction.
E M PLO Y M E N T TRENDS IN TH E
SECOND D IS T R IC T
In the Second District the transition from war to peace
time production was well under way in January 1946. Muni
tions industries had made the necessary reductions in their
working forces and physical reconversion was nearly completed.
Layoffs of war workers had not caused widespread unemploy
ment, nor had the reduction in factory payrolls after V-J
Day discouraged consumer spending or weakened business
confidence. While during the earlier war years the increase
in factory employment and payrolls in the District fell short
of the national rate, the gap between the trend in the country
and in the District was narrowed once the peak in war pro
duction had been passed ( Chart I ). Consumers’ goods indus
tries, which predominate in the District, did not enlarge their
working forces or lengthen the work week during the war to
the same extent as munitions industries. Hence the impact
of the termination of war orders was less severe here than
in the country as a whole.
Employment in manufacturing for some time had been
showing a gradual downward trend in all the industrial areas
of the District, even before war contract cancellations assumed
major proportions after the victory in Europe. This was due
chiefly to shortages of labor and materials, as well as a tapering
off in some parts of the war production program, and did not
result in unemployment. After the end of the war with Japan,
large layoffs accelerated the decline in factory employment. In
FEDERAL RESERVE BANK OF NEW YORK
CHART I
Factory Employment and Payrolls in the United States
and in New York State, 1939-45*
(1939 monthly average=100 per cent)
PER CENT
* Plotted on ratio scale to show proportionate changes.
S ource: U . S. Bureau of Labor Statistics and N. Y . State Department
of Labor.
Newark, Paterson, and Utica the entire wartime gain was
eradicated ( Chart II). Layoffs during the first ten months of
the year affected over a fourth of those engaged in manu
facturing in Bridgeport and an even higher percentage in the
Buffalo area, but factory employment in both cities is still at
least 25 per cent above the 1939 level. Three other large
industrial areas in Upstate New York— Rochester, AlbanySchenectady-Troy, and Syracuse— reacted less strongly to the
end of the war, although they had filled large war orders during
the past four years; in all three areas the number of manu
facturing wage earners remained over 30 per cent higher than
in 1939. In several cities, such as New York, Jersey City, and
Binghamton, where only a few larger new war plants were
located, the shrinkage in factory jobs during 1945 amounted
to less than 15 per cent, but gains over 1939 were either small
or entirely lacking toward the end of the year.
Factory employment in New York State as a whole fell by
almost 20 per cent between January and October 1945 to 113
per cent of the 1939 average and then took a slight upward
turn. In the New Jersey portion of the District, where war
industries employed a larger proportion of industrial workers
and where employment during the war increased more rapidly,
the decline was probably greater. That the number of factory
jobs in the District did not drop to the prewar figure is attrib
utable in large measure to the continued high level of employ
ment in industries that were largely engaged in war production.
At the end of the year employment in the metals and machinery
group was 50 per cent above the prewar average. Manu
facturers of metals, machinery, electrical equipment, locomo
tives, chemicals, optical goods, scientific instruments, and many
other durable goods anticipate a very wide market for some
19
time and therefore have retained the larger part of their
wartime labor force while reconverting. Nonwar industries
have not yet achieved any large expansion, however, beyond
the relatively high level at which they operated in recent
years. Producers of textiles, apparel, shoes, manufactured
foods, paints and varnishes, and construction materials— still
handicapped by interruptions in the flow of materials and by
lack of experienced labor— are operating far below the level
which would be warranted by the urgent consumer demand.
The current wave of strikes will further delay the expansion of
peacetime industries.
As war industries dismissed workers, nonmanufacturing
industries added to their staffs under the stimulus of high
consumer incomes and deferred demand. Transportation, re
tail trade, and service establishments hired large numbers of
men and women in an effort to restore prewar facilities and
services. Construction firms also took up some of the slack
in employment, but the expected big rise in building will
apparently not come until the spring. Wholesalers are rebuild
ing their sales organizations, and importers and exporters
are reestablishing their contacts abroad. This expansion of
nonmanufacturing activities is cushioning the temporary de
cline in job opportunities in manufacturing.
At the close of the year a little over 6 per cent of the
civilian labor force in the District was unemployed. In a
period of change-over such as the present a large number of
persons must necessarily shift to new occupations and it
C H A R T II
Changes in Factory Employment in Selected Second District
Cities, 1939-45
BUFFALO-NIAGARA FALLS
ALBANY-SCHENECTADY TROY
BRIDGEPORT
ROCHESTER
KINGSTON- NEWBURGH POUGHKEEPSIE
NEW YORK CITY
UT IC A- HERKIMERROME +
BINGHAMTON-ENDICOTTJOHNSON CITY
YONKERS
JERSEY CITY
PER CENT -10
t N o change from 1939 to D ecem ber 1945.
* Latest data for Bridgeport, Yonkers, and the four N ew Jersey cities are
for O ctober 1945.
S ource: U . S. Bureau of Labor Statistics and N. Y . State Department
of Labor.
20
MONTHLY REVIEW, FEBRUARY 1946
becomes difficult to match job openings and applicants.
Therefore, the average period of unemployment between jobs
is likely to be fairly long, although unfilled jobs may still be
numerous. Unemployment among former war workers (as
measured by unemployment insurance claims) has risen stead
ily from the end of the war in Europe until January, when it
approached 325,000; of these about 85,000 were in New York
City, 40,000 in Buffalo, and roughly 20,000 in Newark. The
number of veterans receiving readjustment allowances in the
Second District jumped from 4,500 in May to more than
150,000 in January. This relatively high figure— over 20 per
cent o f the United States total— reflects the influx of veterans
looking for work in New York City. It is interesting to note
that in the middle of January 76,000 former servicemen and
women were being paid readjustment allowances in New York
City, but less than 5,000 in Buffalo, where the employment
situation was more discouraging.
Indexes o f B u sin ess
1944
1945
Index
Industrial production*, 1935-39 = 100.........
( Board of Governors, Federal Reserve
System)
Electric power output*, 1935-39 = 100........
(Federal Reserve Bank of New York)
Ton-m iles of railway freight*, 1935-39 = 100
( Federal Reserve Bank of New York)
Sales of all retail stores*, 1935-39 = 1 0 0 . ...
(Department of Commerce)
Factory employment
United States, 1939 = 100..........................
(Bureau of Labor Statistics)
New York State, 1935-39 =» 100...............
( New York State Dept, of Labor )
Factory payrolls
United States, 1939 =* 100...........................
(Bureau of Labor Statistics)
New Y ork State, 1935-39 = 100................
(New York State Dept, of Labor)
Incom e payments*, 1935-39 = 100...............
( Department of Commerce)
W age rates, 1926 = 100....................................
(Federal Reserve Bank of New York)
Consumers’ prices, 1935-39 = 100.................
(Bureau of Labor Statistics)
Velocity of demand deposits*, 1935-39 = 100
(Federal Reserve Bank of New York)
New York C it y .............................................
Outside New Y ork C it y ..............................
* Adjusted for seasonal variation.
Dec.
Oct.
N ov.
Dec.
232
162r
168
164p
191p
202
180
187
215
167
181p
188
202
216p
163
121r
122
121p
145
116
117
118p
D ep artm ent and A pparel Store Sales and S to ck s, Second F ederal R e se rv e
D istrict, P e rce n ta g e C hange from the P re ce d in g Y e a r
Net sales
337
213
213p
284
217
220
239
231
235p
169
167
168p
127
129
129p
87
84
84
68
^ P relim inary.
82
73
Locality
Dec. 1945
224p
99
84
r Revised.
D E P A R T M E N T STO RE TR A D E
Although supplies are still exceedingly thin, consumer
purchases of merchandise which had been unavailable during
the war years are gradually becoming a factor of some import
ance in increasing total department store sales. The pent-up
demand and ready market for these types of merchandise are
expected to contribute substantially to the volume of retail
trade in coming months.
During January department store sales in this District are
estimated to have exceeded those of a year earlier by more
than 20 per cent. After adjustment for seasonal variation, the
sales index was unchanged from the November-December
level, and only 5 per cent below the all-time high reached last
March. The availability of "white goods” was an important
factor in the exceptionally large dollar sales volume last month.
In the five prewar years, 1935 through 1939, sales of linens,
towels, sheets, pillow cases, and blankets accounted for 13 per
cent of total department store sales during January. Because
of the acute shortage of such merchandise last year, "white
sales” accounted for only IV 2 per cent of the months total
dollar volume. Trade sources indicate that sales in this depart
ment last month were substantially greater than in January 1945,
and accounted for almost the same percentage of total sales
as before the war. Among the other departments housewares,
floor coverings, and major household appliances continued to
show substantially greater-than-average sales gains during
January. The increases reported for sales o f men’s clothing
and furnishings have been smaller in recent months because
of the limited supply of merchandise. Hosiery and lingerie
sales continue below the year earlier level, reflecting the acute
stock shortages.
The dollar volume of department store stocks at the close
of December was 5 per cent greater than a year earlier, but in
terms of physical volume stocks were lower. During the first
six months of 1945 the seasonally adjusted stock index
increased about 25 per cent, but the trend was reversed in
July and at the close of the year virtually the entire increase
had been canceled.
Department stores, Second D istrict----New Y ork C ity ......................................
Northern New Jersey...........................
N ewark.................................................
Westchester and Fairfield Counties. .
B ridgeport...........................................
Lower Hudson River V alley...............
Poughkeepsie......................................
Upper Hudson River V alley...............
+14
+16
+12
+13
+ 9
+ 6
+ 11
Stocks on
Jan. through
hand
Dec. 1945 Dec. 31, 1945
Niagara Falls......................................
R ochester............................................
+ 12
+19
+ 6
+13
+ 9
+ 7
+15
+23
+15
+17
+11
+12
+ 8
+10
+18
+13
+14
+13
+14
+ 8
+ 4
+14
+14
+15
+23
+ 8
+11
+ 5
+ 4
+14
+17
+13
+15
+ 9
+ 9
+ 8
+ 8
+12
—
—
—
+
+
—
—
Apparel stores (chiefly New Y ork C it y ).
+13
+21
+ 6
Schenectady........................................
Central New York S tate.....................
M ohawk River V alley......................
Northern New Y ork State..................
Southern New Y ork State...................
Bingham ton........................................
Western New Y ork State....................
+10
+ 5
+ 5
+10
+11
+ 9
+11
+ 3
+ 2
+10
+18
+ 2
— 5
— 5
— 3
— 5
—
1
4
2
3
8
9
2
Indexes o f D epartm ent S tore Sales and S to ck s
Second F ederal R e se rv e D is tr ic t
(1 9 3 5 -3 9 a v e ra g e = l(X > p er ce n t)
1944
1945
Item
Dec.
Oct.
N ov.
D ec.
Sales (average daily), unadjusted.................
Sales (average daily), seasonally a d ju sted ..
269r
157r
196r
172
235
182r
307
181
Stocks, unadjusted............................................
Stocks, seasonally adjusted ............................
129
142r
175
155
173
152
136
150
r Revised.
FEDERAL RESERVE BANK OF NEW YORK
MONTHLY REVIEW, FEBRUARY 1946
General Business and Financial Conditions
(Summarized by the Board of Governors of the Federal Reserve System)
declined slightly in December and, with new strikes occurring within
I the past twooutput
weeks, a large decrease is indicated in January. The value of retail trade in
NDUSTRIAL
December and the early part of January was maintained at record levels, after allowing
for seasonal changes.
In d u s t r i a l P r o d u c t i o n
Index of Physical Volume of Industrial Produc
tion, Adjusted for Seasonal Variation
(1935-39 averages 100 per cent)
Indexes of Value of Department Store Sales and
Stocks, Adjusted for Seasonal Variation
(1935-39 average=100 per cent)
The Board’s seasonally adjusted index of industrial production decreased from 168
per cent of the 1935-39 average in November to 164 in December. The decline was due
mainly to the stoppage of work at leading automobile plants and to holiday influences on
activity in the steel, textile, paper, and mining industries.
Output of most types of producers’ equipment and of many consumer durable goods
showed further gains in December and increases also occurred in output of construction
materials. These gains, however, were more than offset by suspension of operations at
automobile plants and total durable goods output declined by three per cent, reflecting
decreases not only in output of automobiles and parts but also of such other metal products
as diesel locomotives and refrigerators.
Steel production declined slightly in December owing to most plants being shut down
for two days in observance of the Christmas holiday. In the first three weeks of the month
steel production was above the November rate and output was resumed at a high level
during the first three weeks of January. In the following week, however, steel output
dropped to five per cent of capacity as negotiations for a new wage contract collapsed.
Output of nondurable goods in December was maintained at about the level of the
preceding month. Meat production continued at a high level in December and the early
part of January. Activity at most meat-packing plants was suspended in the latter part of
January owing to an industrial dispute. Production of cigarettes declined considerably,
reflecting an accumulation of stocks resulting from increased output for civilian use since the
end of the war. Output of tires for civilians increased substantially in November and
December and rationing was eliminated on January 1. Cotton consumption declined in
December, reflecting holiday influences.
Coal production in December was about 10 per cent below the November level because
of reduced operations at mines around the Christmas holiday. A high rate of output was
maintained in both bituminous and anthracite coal mines in the early part of January.
Output of crude petroleum and of metals was generally maintained in December.
Awards for private construction, especially contracts for manufacturing and commercial
buildings and those for residential building for sale or rent, continued to advance sharply
in November and the early part of December.
Em
ploym ent
Employment in most lines of activity continued to rise in December, after allowing for
seasonal changes. Gains in employment in trade, transportation, construction, and most
durable and nondurable goods industries were offset in part by the loss in employment
due to the automobile strike.
D
is t r ib u t io n
Sales at department stores were about 10 per cent larger in December than a year ago,
and in the first three weeks of January sales continued to show about the same increase above
the relatively high level in the corresponding period of 1945. Most other types of stores
in recent months have shown even larger increases in sales than department stores, and the
total value of retail trade has been running 12 to 15 per cent above year-ago levels.
C o m m o d i t y P r ic e s
Indexes of the Cost of Living as Compiled by Bu
reau of Labor Statistics. Last Month in Each
Calendar Quarter through September 19401,
Monthly Thereafter (1935-39 averages
100 per cent)
Prices of most farm products and foods were maintained at advanced levels in December
and the early part of January. Ceiling prices were reestablished for citrus fruits; egg prices
also declined, reflecting seasonal increases in supplies.
Price ceilings for furniture, printing machinery, furnaces, and various other manufac
tured products were advanced and there were indications that the general level of steel prices
would be raised.
Se c u r i t y M
arkets
Prices of Treasury bonds have risen sharply in recent weeks with the result that yields
are now at the lowest levels on record. Stock market prices rose sharply in January to the
highest levels for a number of stocks since 1930. Effective January 21, the Board of
Governors of the Federal Reserve System raised margin requirements for listed stocks to
100 per cent.
Ba n k
Member Bank Reserves and Related Items
(Latest figures are for January 16)
C r e d it
Return flow of currency of almost 700 million dollars, following the Christmas rise,
together with a reduction of Treasury deposits at Federal Reserve Banks early in January,
provided member banks with substantial amounts of reserve funds. At the same time, bank
loans made for purchasing and carrying Government securities during the Victory Loan drive
were reduced. Member banks continued to increase their holdings of Government securities,
while the Federal Reserve Banks reduced their portfolio. Bank deposits have shown little
change since the sharp decline in demand deposits adjusted and the increase in U. S.
Government deposits during the Victory Loan drive.
@FedFRASER