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M ONTHLY REVIEW O f Credit and Business Conditions FEDERAL V o lu m e RESERVE 31 BANK FEBRUARY OF NEW YORK 1 949 N o .2 MONEY MARKET IN JANUARY Demand for Treasury bonds broadened during the past mediate and long unrestricted bonds. Some savings banks also month, and price advances were general throughout the list, disposed of shorter-term restricted bonds in order to buy the although quotations turned irregular in the last few days of long issues. the month. Commercial banks widened their operations in The supply of Treasury bonds from market sources remained Government bonds to include the longer-term eligible issues. light even at rising prices, and the Federal Reserve System met In the market for restricted bonds, the demand from savings part of the demand. The Systems net sales of bonds in the banks continued, but this market also tended to spread out, four weeks ended January 26 amounted to 736 million dollars, with other nonbank investors taking a somewhat more active of which almost half was disposed of in the last week. All but part in the buying. Insurance companies, however, remained 67 million of the bonds sold by the System during this period generally inactive as either buyers or sellers. had maturities of more than five years. Since November 1948, While prices of all maturities of Treasury bonds rose, gains when its bond holdings reached a peak, the Reserve System were most substantial among the longer-term bank-eligible has sold a net total of 959 million dollars of Government bonds issues. Commercial banks, which had previously confined their of all maturities, or almost one tenth of the increase (10.5 operations to bonds of intermediate maturities, reached out for billion dollars) in its holdings during the year following the longer-term, higher-yield issues, including the 2V4’s of 1956- start of support purchases in November 1947. 59 and the 2 Vis of September 1967-72. In part, the funds for As shown in the following chart, Federal Reserve net these purchases represented the proceeds of sales of short-term purchases of bonds since October 1947 have consisted pri Treasury obligations and, in part, they became available as a marily of securities maturing in more than five years. Since during this period a substantial amount of these holdings result of the post-Christmas return of currency from circula tion and various other money market transactions. This lengthening of maturities of bank portfolios apparently re flected growing confidence in the stability of the Government bond market as well as the uncertainty surrounding the busi ness outlook. Many of the banks entering the long-term bond market for the first time in many months had experienced, or were anticipating, a decline in commercial loans and were rearranging their portfolios to counteract either an actual or a prospective decline in income. passed into the shorter maturity class, actual purchases of the Reserve System in the over-five-year category were larger than the net change in its holdings would indicate. By the same token, the Systems purchases of bonds maturing in five years or less, which represent a small fraction of its total holdings, have been smaller than the net gain in the Systems holdings. System purchases of the longer maturing bonds, as shown in the chart, were concentrated in two periods between which While a more diverse group of nonbank investors than in the preceding two months manifested interest in the long-term CONTENTS ineligible issues, the savings banks continued to be the backbone Money Market in January........................ 13 of the market in ineligibles. Increases, actual or prospective, in the dividend rates of many New York savings banks, along with seasonal and other factors, attracted deposits to those institutions. During the past month, therefore, the savings banks were able to make sizable net additions to their holdings of Government bonds, as well as to continue to acquire long term restricted issues with the proceeds of the sale of inter Gold Inflows and Their Effect on Member Bank Reserves........................................ 15 The President’s Budget Message . . . . 17 Latin American Export Credit Information 20 Department Store T rade............................ 23 14 MONTHLY REVIEW, FEBRUARY 1949 Bond Holdings of the Federal Reserve System by Maturity (Weekly, October 29, 1947-January 26, 1949*) flecting the effects on member bank reserves of net Treasury disbursements and a heavy return flow of currency from circu lation. The ease in the money market was especially marked early in January, as indicated by the rate on immediately available Federal funds, which fell to VsAA per cent. Reserve positions tightened noticeably in the last week of the month, when final tax payments on 1948 income grew heavy. Sub stantial Federal Reserve sales of Treasury bonds absorbed re serves throughout the month. The first and third weeks of the month were the periods of greatest ease. Although Treasury calls upon War Loan deposits amounted to 689 million dollars in the earlier week, Govern ment expenditures were 333 million dollars larger than re ceipts. These funds together with a 174 million dollar reduc tion in the public’s need for currency furnished the banks with substantial additions to their reserves, since, in the aggre gate, offsetting transactions were not very large. The banks used these net gains of funds to reduce their borrowings from the Federal Reserve Banks and to add to their holdings of Government securities, particularly Treasury bills, part of their purchases coming from the Reserve System. In the third week its holdings remained rather stable. Between November 1947 and the middle of February 1948, the System’s holdings rose (ended January 19) the same influences were generally opera tive, although the magnitudes were smaller. 4.5 billion dollars, and in the second period, between early During the second week of January (ended January 12) the July and the middle of November 1948, the increase was 4.2 commercial banks in the aggregate gained a moderate amount billion. The commercial banks supplied a substantial amount of reserves. However, the gains were unevenly distributed of the bonds bought by the System in the first period and cur and, in fact, the larger city banks were pressed for reserve funds as a result of the Government security operations of the tailed their liquidation sharply thereafter. A large part of the proceeds were used to acquire short-term Treasury obligations, chiefly from the Reserve System, or were absorbed by increases in reserve requirements. The bulk of the System’s purchases of longer bonds, how ever, came from nonbank investors. In part, the selling of these smaller country banks. For the banks as a whole, the reservelifting effects of a large decrease in outstanding currency were approximately counterbalanced by the drain on reserves caused by a sizable decline in Federal Reserve "float,” while the loss of bank reserves resulting from the Treasury’s retirement of nonbank holders reflected a lack of confidence in the main 100 million dollars of a maturing issue of bills held by the tenance of the long-term interest rate and, as a result, Reserve Banks was more than offset by a considerable reduc a considerable portion of the proceeds of selling found its way tion in required reserves and by other transactions bolstering into short-term and nonmarketable Government securities. A sizable part of the funds obtained by selling long Government reserve positions. Because of the uneven distribution of the funds gained, however, the larger city banks in general and the securities, however, was reinvested in new corporate securities, New York City banks in particular found their reserve posi satisfying that part of the demand for capital which was in tions under pressure. Early in the week, the New York metro excess of the public’s current savings. The fact that many politan banks made substantial purchases of the new Treasury institutional investors have not been active sellers in the bill issue on tender, investing a large part of their substantial Government bond market since early November may be in excess reserves carried over from the previous week. Thus, dicative of either a reduction in business demands for capital they were not in a favorable position to meet subsequent large (seasonal and otherwise) or a tighter screening of demands transfers of funds to other parts of the country as well as con and the filling of such needs as remain out of current income siderable purchases of Treasury bonds by nonbank investors and funds accumulated from prior sales of long-term Govern and by correspondent banks with funds kept on deposit in New ment bonds. York. A large portion of these bond purchases was supplied M e m b e r B a n k R eserve P o s it io n s from the Reserve System’s portfolio, and the resultant drain Member bank reserve positions were, for the most part, easy on the reserve positions of the New York banks compelled during the first three statement weeks of the past month, re those institutions to increase their borrowings from the Re FEDERAL RESERVE BANK OF NEW YORK serve Bank and to dispose of sizable amounts of short-term 15 Analysis of Increases in United States Gold Stock, 1946-48 (In millions of dollars) Government securities. Monetary gold stock Country banks drew down their balances with correspondent Selected factors of change banks in other large cities also, in order to purchase eligible long-term Government bonds. These demands were satisfied, partly out of the holdings of the Reserve System and partly by sales of nonbank investors who, in turn, acquired restricted Reduction in gold ear Decrease marked for in Stabil foreign ization Fund accounts* End of year Increase . Net imports issues from the System. Thus, a considerable portion of the 1946........................... 20,529 464 312 368 funds withdrawn from the larger correspondent banks ( includ 1947........................... 22,754 2,225f 1,866 1,057 1948........................... 24,243 1,489 1,701 ing the New York City institutions) did not return to the money market. System holdings of Treasury securities fell 454 million dol lars in the week ended January 12, reflecting considerable sales - 195J -159# Total 521 63 2,986 n.a. n.a. n.a. Not yet available. * Excludes gold held for international account. # Increase in Stabilization Fund. f Includes transfer of 687.5 million dollars gold subscription to the International Monetary Fund. I Increase in earmarkings. of bonds in the market and to an even larger extent substan tial redemptions of Federal Reserve holdings of the maturing severely depleted. Various measures that have been taken since Treasury bill issue, resulting from the fact that commercial bank subscriptions for the new issue were considerably in ex Program, lessened the strain on foreign gold reserves. Europe’s cess of their holdings of the maturing issue. dollar payments for imports from the United States were thus In the last report week of the month (ended January 26) 1947, in particular the adoption of the European Recovery reduced very substantially, while offshore purchases under the the money market tightened perceptibly. Treasury receipts program also resulted in some increase in the dollar receipts of rose substantially as the result of remittances by many taxpayers certain Western Hemisphere countries. Exports of goods and of the final payments on their 1948 incomes. The return of services to this country, meanwhile, rose considerably. As a currency from circulation continued to add to reserves, but a result, gold sales to this country began to decline toward sharp decline in Federal Reserve "float” and purchases of the level of current world gold production Soviet Russia). Treasury bonds by banks and others from the Reserve System (which were particularly large in this week) continued to absorb reserves. Member banks borrowed heavily from, and (outside of Even though gold sales to this country last year were con siderably smaller than in 1947, they constituted a problem of sold substantial amounts of short-term Government obliga some magnitude for the Federal Reserve System since they tions to, the System. The latter s sales of bonds, however, ex tended to increase member bank reserves by a like amount. Every such addition to reserves in the past year, when average ceeded its purchases of short-dated securities by a small margin, bringing the decline in total System security holdings in the reserve requirements varied between roughly 20 and 25 per four weeks ended January 26 to 1.3 billion dollars. cent, became the base for a potential four to fivefold increase GOLD IN FLO W S A N D T H E IR EFFECT some detail the process by which gold imports— the most im in credit to the public. It is appropriate, therefore, to review in ON M EM B ER B A N K RESERVES The postwar inflow of gold1 to this country continued dur ing 1948, but was on a substantially lower level than in 1947. portant source of additions to the gold stock— result in added bank reserves, and what steps can be and have been taken to offset, such a growth in the credit base. one-tenth smaller than in 1947. However, as the accompany Some of the gold imported into this country is purchased by the Treasury immediately; most, however, is placed under ear ing table indicates, the total amount of gold earmarked here for foreign account during 1948 exceeded the amount released mark. When imported gold is earmarked, it is physically set aside in the vaults of the Federal Reserve Bank of New York Net imports, valued at 1.7 billion dollars, were only about from earmark, whereas in 1947 the total amount released was ( which acts as the agent for the whole Federal Reserve System in excess of earmarkings. Actual purchases of foreign-owned in international banking transactions) and does not enter into gold by the Treasury in 1948, therefore, were about 1.4 billion the gold stock of the United States. It becomes available for dollars smaller than in 1947. purchase by the Treasury only when the foreign country in The postwar movement of gold to the United States was at its peak in 1947, when foreign countries drew heavily on their volved decides to release the gold from earmark in order to acquire dollars. gold reserves to help finance their huge volume of imports. The general account balances of the Treasury with the Re The gold reserves of many countries were, consequently, serve Banks tend to decline as the Treasury makes payments 1 Consisting of net imports, adjusted for net changes in the total of gold earmarked for foreign accounts at this bank. for the gold so purchased. At the same time, there is a rise in the dollar balances owned by the sellers of gold at the Federal 16 MONTHLY REVIEW, FEBRUARY 1949 Reserve Bank of New York. Normally there is at least a short chases under the present gold bullion standard. One of these interval between the time when the dollar accounts of foreign authorities are credited with the proceeds of their gold sales and the date when the proceeds are used for the payment of methods, which was resorted to under quite different circum stances in 1936-38, is the sterilization of gold: if the Treasury’s net receipts are sufficient to cover the cost of the gold pur American goods and services. Ultimately, however, the foreign chased, it can refrain from issuing gold certificates. The balances at the Federal Reserve Bank are drawn down and Treasury can instead transfer funds to the Federal Reserve member bank deposits and reserves are correspondingly in Banks from its commercial bank accounts in order to rebuild creased. These increased reserves provide the base for poten its balance with the Reserve Banks. tial credit expansion. To examine the procedure in more detail, the purchase of The effect on bank reserves of the gold purchase by the Government is completely neutralized by the sterilization gold by the Treasury involves two additional steps not men operation. As already noted, after the Treasury pays for the tioned above. First, when the Treasury purchases gold, Treas gold it has purchased, the sellers in all probability transfer the ury cash holdings2 increase by the amount of the purchase, proceeds to commercial banks (from their accounts in the while total Treasury funds (including bank balances) remain Federal Reserve Bank of New York). If the Treasury now unchanged. Gold simply replaces balances with the Reserve withdraws from the commercial banks an amount sufficient Banks on the books of the Treasury. The second step is the to replenish its Federal Reserve balances, the commercial Treasury’s issuance of gold certificates to the Federal Reserve System. Upon their issuance, Treasury cash is reduced by an banks are left with no greater reserves than they had prior to amount equal to the gold certificates issued (since the gold is the gold purchase by the Government. This method of off setting gold inflows is particularly effective if the Treasury no longer considered as cash but as a 100 per cent backing for receipts used to pay for the gold are obtained from the public the gold certificates) and balances with the System are restored. (from sources such as individual income taxes and sales of This process of transferring gold into and out of the General Series E Savings bonds); then deposit growth is arrested at the Fund of the Treasury has no effect on member bank reserve same time. balances. Member bank reserves are affected only at the time Sterilizing gold with funds obtained from the public, there when the proceeds of the gold sales are paid out by foreign fore, involves: monetary authorities. Federal Reserve Banks; (2 ) no change in member bank re (1 ) no change in Treasury balances at the ishing its balances with the Reserve Banks through issuance serves; (3 ) no increase in gold certificates facilitating mone tary expansion; and (4 ) no increase in the publicly-held to them of gold certificates in the amount of the gold pur money supply. When the Treasury has completed the operation by replen chased, there is of course no net drain on Treasury deposits Actually, in recent years the Treasury and the System have with the Federal Reserve System. In the meantime, member adopted another procedure which, though its aims are much bank deposits and reserves have been increased by the amount of the Government gold purchases (as foreign holders spend broader, also achieves the sterilization of gold. This procedure consists of the retirement of Government securities held by the proceeds of gold sales in the market), and thus a potential the Federal Reserve System. To the extent that Treasury net basis for increasing bank credit has been provided. cash receipts are available for this purpose, maturing Govern The effects of an increase in the monetary gold stock on bank reserves are no different today, when the Treasury alone ment securities are redeemed out of Treasury balances trans may buy gold, than under the system that existed prior to are obtained from tax collections and security sales mainly to 1933, when the commercial banks were the major buyers and sellers of gold. Under the former procedure, a commercial bank paid for gold purchases by crediting the accounts of foreign sellers, with a resultant increase in the money supply. ferred from deposits with commercial banks; these deposits nonbank investors. Thus, the reserves that are created by the Treasury’s gold purchases are absorbed and cannot serve as a basis for credit expansion. While the bank’s required reserves also rose, this deficiency In 1948, one factor alone— the retirement of Government was normally made good through the sale of the gold to the securities held by the Federal Reserve Banks— reduced bank Reserve System. Most of the proceeds of the sale, however, reserves by three and a half times the increase in the United became available as excess reserves for a multiple expansion States monetary gold stock during the year. Thus debt and of bank credit and the money supply. monetary policy is not only sterilizing the Treasury’s gold pur There are, however, alternative possibilities open to the chases but is also offsetting in substantial part the various Treasury for avoiding the inflationary effects of gold pur other factors which have tended to expand bank reserves, such as Federal Reserve support purchases of Government bonds 2 Treasury cash includes free gold, Federal Reserve notes, and Treas and the decline in currency in circulation. ury currency in the General Fund of the Treasury. FEDERAL RESERVE BANK OF NEW YORK THE PRESIDENT’S BUDGET MESSAGE In view of the uncertainties in the domestic economic out look as well as in the international political situation, the budget which President Truman submitted to Congress on January 10 must be regarded as a more than usually tentative estimate of the Government’s fiscal activities in the twelve months beginning July 1, 1949. The budget presented anticipates for the fiscal year ending June 30, 1950 receipts of 41.0 billion dollars and expenditures of 41.9 billion dollars, leaving a deficit of nearly 900 million. Estimates of receipts are based on existing tax legislation and on the assumption that the current high levels of income and employment will continue. A continuation of the current level of economic activity has been assumed consistently in recent years by the Treasury in estimating receipts. Mainly as a result of this assumption, substantial increases in the original official estimates have usually been made both at the beginning and at the middle of recent fiscal years (even when there has been no change in existing legislation). For example, in the budget message submitted in January 1947, receipts from taxes on corporations in the fiscal year ended June 1948 17 The bulk of the expenditures anticipated in the budget are subject to Congressional approval in the form of appropria tions, while some 6.2 billion dollars, representing proposed new Governmental activities, will require authorizing legisla tion as well as appropriations. Of the expenditures calling for new legislation, an allowance of 4.3 billion dollars to continue the European Recovery Program constitutes the major portion. An additional 355 million is provided for other foreign assist ance programs* which currently include aid to Greece, Turkey, China, and Korea. Proposed new programs for national de fense include 600 million for universal military training, as well as 385 million for adjustments in military pay and to pro vide for certain military public works, including the construc tion of needed family housing and research and development facilities. The remaining proposed expenditures cover mainly added Federal aid for education and for slum clearance and other low-cost housing programs, and the cost of a stand-by anti-inflation program— all of which had been recommended in the President’s earlier messages to Congress. A proposed increase in postal rates providing some 250 million in revenue would partly offset these increases in expenditures. were estimated at 8.3 billion dollars. Successive increases in An additional request for funds to provide military supplies this original estimate raised it to 9-5 billion in the message for countries important to the security of the North Atlantic submitted in January 1948. Actual receipts amounted to 10.2 area may be made later, the President indicated. Also, if 1949 billion. While during a period of rising prices and increasing agricultural production should equal the 1948 crops, larger income, such as we have experienced in the past decade, use of the level of activity current at the time of forecasting results in an underestimation of receipts, in a period of falling activity expenditures for price supports than are now estimated may become necessary in fiscal 1950. the reverse would be true, i.e., Government receipts would tend to be overestimated. of high prosperity is essential for sound public policy, the Presi Table I U. S. Budget and Cash Receipts and Expenditures Fiscal Years 1948-50 (In billions of dollars) recommendations with respect to the desired tax program. In Budget receipts......................... Trust account receipts............ Less: noncash receipts. . . . Actual 1948 Estimated 1949 42.2 6 .5 3 .4 39.6 6 .0 2 .6 Projected 1950 4 1.0 8 .8 * 2 .6 Change 1949 to 1950 + 1 .4 + 2.8 t Cash receipts.................... 4 5.4 4 2.9 47.2 + 4 .3 33.8 4 0.2# 41.9 + 1 .7 6 .8 6 .0 Cash expenditures##. . . . 36.5 40.1 45.7 + 5 .6 Excess of cash receipts. . 8.8 2.8 1.5 -1 .3 5 .6 8 .8* 4 .9 dent recommended new tax legislation to raise revenues by 4 billion dollars, without, however, making any detailed the State of the Union speech made several days earlier, the Budget expenditures!............. Trust account expenditures and investments................... Less: noncash expenditures**. 4.6 Declaring that a surplus in the budget accounts in a period + 2.8 -0 .7 President had suggested that added revenue should come prin cipally from corporations and that consideration should also be given to raising personal income tax rates in the middle and upper bracket levels and to revising estate and gift taxes. He later defined the middle bracket as covering incomes of $6,000 to $25,000 or $30,000 per annum. Even if such a tax program were adopted by July 1949, however, the revenue from these additional taxes in the fiscal year 1950 would be considerably less than 4 billion dollars, reflecting the normal lag in collec tions. (Unofficial estimates place the additional revenue in fiscal 1950 at 2 billion dollars.) * Includes proposed changes in the social security programs. t Decrease of less than 50 million dollars. j Includes net expenditures of wholly-owned Government corporations and credit agencies. # Expenditures made from the Foreign Econom ic Cooperation Trust Fund (representing 3.0 billion dollars of the 1948 budget surplus) are included in the budget outgo for fiscal 1949. ** Net of noncash expenditures and investments and of net market sales and re demptions of obligations of Government corporations less cash redemptions of noncash issues. The net of market transactions in obligations of Government corporations is included with cash repayments of the public debt. ## Includes adjustments for the clearing account. Note: Because of rounding, figures may not add to totals shown. Source: The Budget o f the United States Government fo r the Fiscal Year E n ding J un e SO, 1 9 5 0 , and Bureau of the Budget, Receipts from and P a ym en ts to the P ublic , Special Study N o. 1 , January 1949. In addition to the above changes in direct taxes, the Presi dent called for new payroll taxes to provide some 2.2 billion dollars for proposed broadening of the social security program. Payments of additional benefits under the enlarged program would absorb nearly 1.7 billion of these receipts. Such re ceipts and expenditures involve the Government trust accounts and thus are not included in the budget figures. The net addi tional receipts of 500 million that the proposed program is 18 MONTHLY REVIEW, FEBRUARY 1949 estimated to yield are, however, included in the estimated cash surplus for fiscal 1950, discussed below. outlay for defense. In addition, the civilian components may require 760 million, or 30 per cent more than in the current fiscal year, mainly for drill and training pay and maintenance. T h e Budget A c co u n ts The President expects budget receipts during fiscal 1950 to Stockpiling of strategic and critical materials is scheduled for a 50 per cent rise, making the total proposed outlay for this item exceed those of the current fiscal year by 1.4 billion dollars. 525 million dollars in fiscal 1950. All other military programs Receipts from individual taxes (at 19-8 billion) are set nearly and projects, requiring some 5.1 billion, show a combined rise 500 million higher than in the current fiscal year. Payments of about 500 million over fiscal 1949. in the current fiscal year will be somewhat lower than would International affairs and finance, the second largest class of be expected with the current levels of income, since many tax expenditures, are expected to show a decline of about 500 payers can apply overpayments, which were made prior to the enactment of the Revenue Act of 1948, against final payments million dollars, to 6.7 billion in fiscal 1950. The decline is based largely on a reduction (700 million) in foreign relief due in March 1949. No such tax credits will be available in fiscal 1950. Also, salaries and wages of the armed forces will grams, mostly post-UNRRA) which is partly offset by in be subject to withholding for the whole fiscal year compared creased spending for reconstruction and military aid (mainly with only half of the current fiscal year. Corporate taxes, at Export-Import Bank loans and proposed aid other than the 12.3 billion, are expected to be some 550 million higher in European Recovery Program). As pointed out previously, no (relief in occupied areas, assistance to China, and other pro fiscal 1950 than in the current fiscal year, since aggregate cor allowance has been made in this estimate to cover possible porate profits in the combined calendar years 1948 and 1949, expenditures for a new program of providing military supplies on which collections in fiscal 1950 are based, are expected to to strategic countries. exceed those in the combined calendar years 1947 and 1948. Slightly more is expected to be obtained from excise taxes and net employment taxes (collections less offsetting appropria tions to trust funds). Miscellaneous receipts will be down, as receipts from sales of surplus property are expected to dwindle. The decline in miscellaneous receipts may, however, be more than offset by smaller tax refunds; the treatment of refunds as a deduction from receipts, rather than as an item of expenditures, is an innovation in the budget this year. Budget expenditures in fiscal 1950 as estimated are nearly 1.7 billion higher than in the current fiscal year, a sizable in crease for national defense and smaller increases in several other activities being only partly offset by declines in other items, mainly in veterans’ benefits and foreign aid. The large increase of 2.5 billion for national defense brings total spend ing for this purpose up to 14.3 billion dollars. This sum is, however, within the limit set by Dr. Nourse, Chairman of the Council of Economic Advisers, as compatible with an economic policy free from strict regimentation. The objective towards which the budget recommendations in this field are pointed is "to build a foundation of military strength which can be sustained for a period of years without excessive strain on our Veterans’ benefits and services may require about 1.3 billion less than in the current fiscal year, but even so spending for this purpose will amount to 5.5 billion dollars. The anticipated drop reflects mainly the virtual exhaustion of unemployment and self-employment allowance claims and an expected sharp decline in educational training programs. Veterans are, how ever, scheduled to receive about 2 billion dollars as an initial dividend on their national service life insurance. This expendi ture will be made from a trust account, and thus will not affect the budget deficit, but it will raise the Government cash outgo. Interest payments are due to show a small rise to a total of nearly 5.5 billion dollars. The increase will reflect largely the higher rates at which interest is accrued on Savings bonds as these approach maturity, and interest on a growing volume of special issues.1 The Government’s interest payments have been little affected by the increases in rates on short-term Govern ment marketable issues that were initiated in July 1947 as a part of the Federal Reserve program of credit control. Those increases have been largely offset by a reduction in the volume of Treasury marketable debt and by the refunding of matur ing bonds into short-term issues bearing lower rates. productive resources, and which will permit rapid expansion The four items discussed above— defense, foreign aid, veter should the need arise.” Aside from the proposed 985 million ans’ aid, and interest— reflecting largely the aftermath of war dollars to be spent for universal military training and for ad constitute over three quarters of the expenditures budgeted justments in military pay and additional public works, as for fiscal 1950. Other budgeted expenditures call for slightly mentioned above, the largest dollar increase in defense spend over 9.9 billion dollars and thus may be nearly 850 million ing is expected for aircraft procurement, which may rise about higher than in the current year, mainly because of new pro 500 million dollars to a total of 1.7 billion. Only a small in grams requiring 600 million dollars. However, among the crease in the number of military personnel is expected; their existing programs, expenditures by the Commodity Credit pay and maintenance, at 5 billion, are scheduled to be only slightly higher than this year, but will still constitute the largest 1 Special issues are held by Government trust funds. They bear rela tively high coupon rates which are, in part, fixed by statute. 19 FEDERAL RESERVE BANK OF NEW YORK Corporation for price support and by the Reconstruction Fi nance Corporation for purchases of mortgages are scheduled dollars more if the President’s proposals were enacted. These proposals involve extending the old-age insurance coverage to decline while other existing programs are slated for a com bined rise of over 750 million dollars; the latter increases relate mainly to the development of natural resources, the promo to 25 million additional workers, raising the maximum tax base (possibly from $3,000 to $4,800 annual salary), making a scheduled increase in the tax rate from 1 to 1 Vi per cent effec tion of public health, and additional public assistance. tive July 1, 1949 instead of six months later, and adding a new tax for disability insurance. Another 500 million would be T h e C a s h P o s it io n raised by a new tax for medical insurance and by extending In recent years, the budget figures have included large unemployment insurance to cover workers in small establish amounts of noncash expenditures and a small amount of non ments, Federal employees, and certain other types of workers. cash receipts from Government agencies. Noncash expendi In addition to 39.1 billion in cash payments to the public in tures are for the most part accruals of funds to be paid to the fiscal 1950 from the budget accounts, an additional 6.6 billion public in cash at a later date and consist mainly of transfers and interest payments to trust accounts and net accrued interest on will be disbursed from trust accounts. The total outgo of 45.7 Savings bonds. On the other hand, in addition to their non payments in the current fiscal year. Apart from the increases cash receipts from the Treasury, the trust accounts receive pay in budget accounts already discussed, the higher estimate re ments from the public in the form of payroll taxes collected flects mainly the anticipated payment of 2 billion dollars, as for old-age insurance, deposits from State unemployment trust already mentioned, to World War II veterans of dividends funds and the Railroad Retirement Board, cash premiums from accumulated during the past several years, and proposed addi veterans, and several minor items. These funds are partly tional social security benefits of 1.7 billion dollars. billion dollars is some 5.6 billion higher than estimated cash invested in Government securities and partly disbursed as cash benefits and refunds. A better over-all view of the im T h e P u b l ic D e b t pact of current Treasury operations on the private economy is Without the suggested increase in direct taxes, and not obtained when the budget figures are adjusted to a cash basis counting on any net sales of Savings bonds, repayments of debt and the receipts from and payments to the public which flow held by the public amounting to 2.0 billion are expected to be through the trust accounts are also taken into account. On this basis, some 47.2 billion dollars are expected to be made in fiscal 1950. This reduction will be more than offset collected from the public in fiscal 1950— about 4.3 billion more than in fiscal 1949- One third of this increase is expected from the budget receipts, reflecting mainly higher levels of and guaranteed public debt at the end of June 1950 would amount to 251.9 billion, or 350 million higher than the esti mated level at the end of June of this year. by an estimated rise in noncash borrowing. Thus, the direct income and lower tax refunds, while an additional 2.9 billion Because of withdrawals to cover part of the cash retirement dollars are anticipated from trust accounts. The latter rise is of debt, by the end of June 1950 the Treasury’s cash balance based largely on the proposed new or higher social security in the General Fund is expected to be down to 3.5 billion, from taxes. The old-age account alone would receive 1.7 billion 4.2 billion dollars at the beginning of January this year. Table II Change in the Public Debt, Fiscal Years 1948-50 (In billions of dollars) Actual 1948 Estimated 1949 T h e C u r r e n t Fis c a l Y e a r Projected 1950 1949. Budget receipts are now placed at 39.6 billion and ex penditures at 40.2 billion dollars, compared with 37.9 billion and 39.4 billion, respectively, in the previous estimates (Au Excess of cash receipts*........................... Change in Treasury cash balance.......... + 8 .9 - 2.8 1.6 0 .9 - Repayments to the public#................. Noncash borrow ingf............................. + 7 .3 1.4 + 3 .8 3.1 + 2.0 2 .4 gust 1948). The higher estimate of receipts reflects the con 0.6 + 0 .4 251.9 3 .5 past six months, while the increase in expenditures was caused Change in the public d e b t j..................... Public debt at end of year**.................. Treasury’s balance at end of y ea r......... - 5 .9 252.3 4 .9 - 251.6 4 .0 1 .5 0 .5 The President’s budget message contained an upward re vision of estimates for the current fiscal year, ending June 30, tinued rise in both personal and corporate income during the mainly by a rise in Commodity Credit Corporation expendi * Includes receipts from seigniorage on silver amounting to about 37 million dollars a n n u ally. # Mainly cash retirement of Treasury marketable debt, net market sales and purchases by Government agencies and trust funds, and net sales and redemp tions (purchase price) of Savings bonds. Also included are a small amount of sales and redemptions of obligations of Government corporations and net changes in a few minor debt items. f Increases in special issues, noncash securities issued in payment for budget expenditures, and accrued discount on Savings bonds less redemptions of noncash issues and interest paid on Savings bonds redeemed. % Gross direct public debt and both guaranteed and nonguaranteed obligations of Government corporations and credit agencies held by the public. ** Gross direct public debt and guaranteed obligations only. Note: Because of rounding, figures may not add to totals shown. Source: Same as for Table I. tures for the support of agricultural prices. The net cash income in the second half (January-June) of the fiscal year should amount to 2.3 billion, compared with only 500 million collected during the first half. Receipts are normally greater in the second half of the fiscal year, and it can reasonably be expected that the estimated net cash receipts for the full fiscal year will be realized. MONTHLY REVIEW, FEBRUARY 1949 20 LATIN AMERICAN EXPORT CREDIT INFORMATION Shortly after the war, when American exports to Latin down are exclusively collections paid, not collections outstand ing. While the use of detailed data relating to collections outstanding would make the report slightly more complete, that more comprehensive information on Latin American their compilation would involve a considerably heavier burden upon the reporting banks. In practice, it has been found that, credit conditions would be welcome to both the export trade for a study of trends, little is lost by centering attention upon and the banks. Although the data available through banks and an analysis of collections paid rather than of collections out standing. In each category of promptness the report shows America were expanding rapidly, it was felt by some observers trade channels were already plentiful and seemed destined to remain the primary source of information, broadening Ameri the percentage of the total number of collections paid by each can interests in the export field made an addition to the exist country, not the percentage of their dollar value. If the classifi ing information seem desirable. It was thought by many, more cation were made on the basis of dollar value, there would be a danger that a few large collections, whether prompt or not, might unduly color the picture in one direction or another. over, that the course of economic events after World War II might resemble that which had followed World War I and that similar problems would have to be faced by the export trade. In addition to the classification with respect to promptness, The outstanding feature of the earlier period had been the the report shows, for each country: (1 ) the total number of very sharp price decline that took place in the middle of 1920 collections paid during the month; (2 ) the total dollar value and which, in the export field, gave rise to heavy losses through cancellations of orders, rejections of shipments, bankruptcies, of collections outstanding at the end of the month; and (3 ) the total dollar value of unused confirmed letters of credit and similar circumstances arising out of the financial condition outstanding. All of these data are useful in interpreting the of individual customers. With these ideas in mind, the Federal trend of collection conditions and the general export credit situation. Reserve Bank of New York, after exhaustive discussions with banks and exporters, inaugurated in May 1947, its statistical series, "Export Credit Information on Latin American Coun The classification of collections paid into various categories of promptness is made on the basis of a schedule indicating tries,” which since has been released to the press each month. the period within which a collection must be paid in order to This monthly survey is made possible by the cooperation of be considered prompt; this schedule likewise appears in the report. According to the schedule, a collection on a distant twelve New York City banks doing a large foreign business, who voluntarily compile the necessary data. Although the experience following World War II has been country such as Argentina is considered prompt if paid within by no means free from problems, their nature has in fact weeks is allowed. This schedule was prepared after detailed consultation with the reporting banks, and represents general proved to be quite different. Up to the present time, at least, two months, whereas for nearby Cuba a maximum of three there has been no general fall of prices, and consequently there agreement as to what was to be considered prompt at the have been no serious problems of cancellations, rejections, and other factors reflecting the condition of individual export ac time it was made up in the spring of 1947. Some changes probably would have to be introduced from time to time if an attempt were made to adapt the schedule to continually counts. In contrast, the exporting community has been beset by difficulties arising out of exchange shortages in numerous countries, which have caused payment delays even though individual customers usually were able to make prompt pay varying shipping and other conditions. Such changes, however, would hamper the comparability of recent data with earlier ones and thus destroy, at least for some time, the possibility of analyzing trends. Such trend analysis, rather than reliance ment in local currency. The export credit survey, although originally designed to deal with problems of the post-World upon isolated figures, is perhaps the most valuable use to which War I type, appears to have proved its value in the face of the series can be put. the new difficulties, as is attested by the 4,500-odd copies of Because the schedule inevitably introduces an element of the report now being mailed out monthly by this bank in arbitrariness into the data relating to each individual country, response to requests received from exporters, banks, trade asso comparisons between countries as to promptness are inadvis ciations, Federal Government offices, and many others.1 able except in a very general sense. The fact, for instance, that one country shows 80 per cent of its collections in the prompt Contents of the Series category and another country only 70 per cent may reflect, not The report classifies collections upon individual countries a real difference in promptness, but the effects of a slightly into the following categories: (1 ) prompt; (2 ) up to 30 days tighter schedule in the case of the seemingly slower country. Larger differences, of course, are almost certainly significant. slow; (3 ) 31 to 60 days slow; (4 ) 61 to 90 days slow; and (5 ) over 90 days slow. The collections included in this break 1 A copy of the monthly press release is available upon request to the Federal Reserve Bank of New York, Research Department, Financial Statistics Division. I n t e r p r e t a t io n of th e D ata For the proper interpretation of the series it is important to bear in mind the fact stressed earlier, that the report FEDERAL RESERVE BANK OF NEW YORK endeavors, not to supplant, but to supplement the information available to exporters from their banks and other sources. The collection picture must be viewed always against the broader background of trade conditions and regulations in each coun try. For instance, the slowing up of collections in a country where no exchange shortage is known to exist may be taken to 21 Export Collections on Latin American Countries (As reported by twelve New York City banks) Millions of dollars 1 6 0 -------- Thousands 14 0 - 35 indicate a tighter financial condition of individual accounts, 120 - 30 but where exchange shortages and controls prevail, slowness more likely reflects the exchange situation as a whole. Further 100 25 80 - 20 more, in countries where priorities are granted to imports on the basis of essentiality, the average collection experience is 60 not necessarily indicative of what exporters of high or low priority goods may expect. T o ta l Number o f C o lle c tio n s P a id During M onth 40 SCALS-------------- > - ^ - 10 20 In addition to relating the data of the report to other eco - 0 nomic and financial facts, it is necessary to relate the various o f ife m s 5 0 D e g re e of Promptness in Collection s P a id Per cent o f number parts of the report to one another. For example, the decline in - 15 m - 1 DAYS fr - rr x 60 DAYS t w o 90 DAYS prrrrrt OVEI JLOW uZ iJ SLOW SLOW u iiiJ 9 0 DAYS PROMPT 100 the proportion of collections paid promptly and the increase in the slower categories, that have on the whole marked the past year, point to deteriorating conditions; and so does the increase in the amount of collections outstanding (see the accompanying chart and Table I). The sudden increase in the proportion paid over 90 days slow, however, that has occurred in a few countries in recent months, indicates that the efforts in those countries to pay long overdue collections are proving successful and that conditions to that extent are improving. new warning signals provided by the reports should contribute This indication can be verified by observing the trend in the to a more cautious attitude on the part of exporters and hence number of collections paid and in the dollar value of collec to a reduction in the aggregate volume of credit available to tions outstanding. A rise in the former and a fall in the the importing countries. The better protection against delays latter, for instance, would be indicative of a general improve and perhaps losses that exporters have thus obtained is, of ment in the situation. course, the primary motive for issuing the reports. It would Since the inauguration of the monthly reports in May 1947, the trend of promptness has been downward for most coun tries. Under such conditions it is almost inevitable that the be unfortunate, however, if, over a period of time comprising both upswings and downswings, the net effect of the reports should prove to be a reduction in the total volume of credit. Table I Number of Collections Paid Promptly as a Percentage of Total Number of Collections Paid by Individual Latin American Countries, as Reported by Twelve New York City Banks, January to December 1948 (Collections classified according to the schedule of promptness for each country) 1948 Country Prom pt payments Argentina........................................... Months Months Weeks Months 7 Weeks 2 Months 3 Weeks 1 M onth 6 Weeks 6 Weeks 1 M onth M onth 1 1 M onth 6 Weeks 1 M onth 2 }A Months 2 Months 1 M onth 2 Months 6 Weeks Weeks 5 Weeks 5 Weeks Chile.................................................... Colom bia............................................ Dominican R epublic....................... Guatemala......................................... H aiti.................................................... Honduras........................................... Nicaragua.......................................... Panama.............................................. Paraguay............................................ Peru..................................................... Salvador............................................. Uruguay............................................. Venezuela.......................................... British Guiana.................................. Dutch Guiana................................... French Guiana.................................. All countries............................. 2 2 6 2 6 Jan. Feb. M arch April M ay June July August Sept. Oct. N ov. Dec. 40.7 55.5 30.2 42.9 53.9 3 3.6 78.4 7 7.8 5 4.5 55.6 83.2 63.6 73.7 78.1 87.9 53.1 6 5.9 6 1.5 40.4 6 5.8 63.7 47.9 - 46.0 6 2.0 25.6 51.6 5 2.5 36.7 8 1.5 7 0.5 61.7 3 1.6 66.9 11.3 25.9 61.4 7 .1 18.9 14.5 5 .4 78.6 78.9 53.0 77.3 81.6 50.9 79.6 23.3 58.0 3 .7 36.8 24.6 51.6 3 .7 40.2 14.1 18.2 75.9 3 0.2 54.9 7 .7 61.7 10 0.0 82.5 9 .0 58.4 58.1 58.6 72.3 83.9 37.1 — 23.9 4 6.3 4 .8 48.9 14.6 2 4.3 77.9 60.1 4 2.0 58.4 69.3 4 4.3 7 2.6 7 2.8 84.1 49.7 39.9 4 5.6 58.7 20.9 45.9 4 .7 3 1.2 58.3 4 7 .9 69.3 76.9 60.2 - 30.9 57.2 7 .2 6 .3 31.5 9 .5 84.6 80.2 50.2 75.7 7 9.5 52.7 80.7 71.4 83.7 9 .1 59.2 57.7 63.5 68.7 80.5 63.8 - 3 4.2 63.7 75.8 53.9 77.9 67.8 84.1 26.9 50.2 65.9 51.3 65.8 65.6 76.3 - 36.7 72.6 19.4 27.6 46.5 6 .3 78.6 79.8 58.3 61.4 78.7 4 8.3 77.6 83.1 59.0 6 0.8 59.2 58.9 53.5 50.7 6 8.2 86.6 6.8 50.9 10 .2 37.1 8 .5 76.9 77.7 53.1 68.0 85.3 48.9 79.6 78.3 87.7 1 1 .6 48.3 57.2 60.2 7 2.4 69.9 4 4.8 8 1.0 2.6 17.2 10.5 6 .1 79.9 7 6.7 53.9 6 6.3 9 0.5 54.5 8 0.3 89.1 12.8 18.7 7 7.8 72.4 63.4 5 9.8 68.6 10 0.0 81.6 7 8.0 - 58.8 64.3 87.4 43.0 67.9 71.5 85.4 31.3 52.3 55.0 58.4 62.9 91.7 87.7 — 4 7.6 4 9.7 4 9 .0 88.2 51.8 7 8.4 78.7 86.8 86.0 23.5 55.0 59.7 73.3 6 8.5 84.9 6 9.8 26.6 55.5 52.1 6 1.4 68.0 66.1 11.2 2 7.2 75.1 60.6 4 5.0 67.1 6 6.4 45.6 75.9 68.6 8 5.4 18.1 3 4.5 65.2 51.6 69.1 11.1 32.9 79.7 70.0 54.1 6 6 .1 80.4 49.7 75.6 71.1 85.7 3 4.0 2 5.7 54.1 6 3.0 62.2 78.4 73.1 7 9.2 — 100.0 77.9 - 66.0 52.5 54.7 54.3 — MONTHLY REVIEW, FEBRUARY 1949 22 Table II Collections Outstanding on Latin American Countries, as Reported by Twelve New York City Banks, January to December 1948 (End-of-month data in millions of dollars) 1948 Country Argentina......................... B oliv ia .............................. B razil................................ January February March April M ay June July August Septem ber October 12.3 13.2 13.2 12 .1 1.1 12.9 16.4 1.3 14.3 13.9 7 5.0 7 .6 79.9 6 .7 11.5 13.8 1.7 57.7 5 .3 1.6 1.2 53.4 4 .7 11.0 1.2 10 .0 1.0 0.6 48.7 4 .4 7 .5 0 .9 3 .0 0 .5 14.9 1 .3 51.7 4 .9 8 .4 0 .7 3 .6 2 .3 2.0 0.8 0 .9 1.1 C olom bia ......................... Costa Iliea....................... C uba ................................. Dominican Republic. . . E cuador............................ Guatemala....................... H aiti................................. Honduras......................... M ex ico............................. N icaragua........................ Panam a............................ Paraguay......................... P eru .................................. Salvador........................... U ruguay........................... Venezuela......................... British G uiana............... Dutch Guiana................. French Guiana............... All countries........... 52.2 9 .5 7 .8 2 .3 4 .7 0 .5 1 .4 0.6 0.2 0 .7 4 .4 0 .4 1.2 0 .4 2 .7 0.6 1.4 7 .4 * 0.2 1.2 59.1 8 .8 8 .1 2 .2 4.1 0.6 1.6 0.6 0 .1 0 .7 4 .1 1.2 67.2 9.1 9 .0 2 .2 4 .1 0 .7 1.8 0 .5 0 .3 0 .7 4 .0 0 .8 10 .6 2.2 1.2 2.0 3 .3 3.8 0.6 1.6 0.6 0 .2 0.8 0.6 3 .8 O.S 0 .9 0 .4 1.5 1.0 1.1 2 .7 0 .5 1.7 7 .2 2 .5 2.6 2.8 0.6 1.6 0 .7 0 .1 0.2 0 .1 0.2 1.6 8 .1 0 .1 0.2 0 .7 1.9 8.9 - * 134.8 142.5 - - * 112 .1 119.2 129.7 0 .5 0 .1 0.2 3 .8 0 .5 1.9 0 .9 0.6 1.8 0 .7 3 .8 0 .9 0 .9 8 .5 5.6 11.7 1.5 3.9 0 .9 0 .3 0 .5 3 .6 0 .9 0.8 0.2 0.6 1.0 0 .6 0.6 66.6 1.8 57.2 4 .4 5 .6 1 .4 3 .6 0 .7 1.0 3 .0 0 .6 0.6 2.2 1.1 0.2 1.9 0 .7 0 .3 3 .1 0.8 2 .0 8 .6 0.6 1.0 10 .0 0 .1 0.2 0 .7 3 .4 0.6 0 .7 2.9 0 .7 0 .5 3 .3 2.8 0.8 0.8 1.0 0.6 1.0 0 .9 0 .9 0 .3 3 .1 2.6 0.8 0.8 0.8 1.8 2.8 0 .9 1.6 1.5 0.8 1.8 9 .5 * 8 .6 * 9 .3 * 0 .1 0 .1 0.2 0 .1 0 .2 0 .1 132.3 119.1 113.8 * 0 .4 2 .7 — 1.8 0 .7 0 .3 0 .7 2 .9 0 .7 0 .9 0 .3 3 .2 0.2 0 .4 15.3 1.2 0 .3 9 .5 * 15.0 52.8 4 .6 7 .7 0.2 0 .9 0 .5 2 .5 0 .9 0 .4 3 .0 0 .9 1.7 9 .4 * 3 .7 N ovem ber D ecem b er 0 .2 * * - - - - 10 2 .6 110.4 108.3 113.3 * Less than $50,000. N ote: Because of rounding, figures do not necessarily add to totals. Perhaps it is not an unreasonable expectation that in the long during 1948. Prompt collections declined from 59-0 per cent run the more detailed information provided by the survey will of the total paid during January to 54.3 per cent paid during enable exporters to take advantage of opportunities for sound December, while the percentage of collections paid over 90 credit extension that will, on the average, increase rather than days slow more than doubled. At the same time the total num reduce the total volume of export credit. ber of collections paid declined to the lowest level since this series of reports began in May 1947. Collections outstanding E x p e r ie n c e d u r i n g 1948 showed little net change in value for the year, the rise in the The accompanying chart showing the dollar amount of col lections outstanding, the total number of collections paid, and first few months being offset by a decline of about 40 million dollars from May to September. About 31 million dollars of the percentages paid with various degrees of promptness this decline is accounted for by a decline in Brazilian collec reflects the collection experience of the twelve reporting banks tions outstanding. Table III Confirmed Letters of Credit Outstanding for Latin American Countries as Reported by Twelve New York City Banks, January to December 1948 (End-of-month data in millions of dollars) 1948 Country January February March April M ay June July August S eptem ber October Argentina......................... B oliv ia .............................. B razil................................ C h i l e ................................ C olom bia ......................... Costa R ica....................... C uba......................... Dominican R epublic. . . E cu a d or........................... Guatem ala....................... 118.6 117.1 6 .9 21.7 2 .4 15.8 0 .5 15.4 114.3 5.9 18.0 2 .5 18.0 0 .3 12.7 114.6 4 .9 19.1 99.7 5.1 8 4.0 5 .0 19.2 7 .6 16.3 0 .4 6 1.4 4 .6 17.0 14.8 16.0 58.6 0.6 16.1 0 .4 64.9 5.1 16.0 9 .9 16.5 0 .5 6 .4 0.8 2.2 0 .7 70.9 4 .6 18.4 8 .3 15.7 0 .3 6 .3 1.7 1.7 1.6 0 .7 1.8 0.8 0 .3 27.6 0 .3 27.6 1.7 0 .4 25.7 0.8 0 .7 0 .4 0 .3 29.2 0 .7 0 .3 Honduras......................... M ex ico............................. N icaragua........................ Panam a............................ Paraguay......................... 0.6 0.2 0.2 2.0 1.1 1.6 2.0 0 .7 2.0 1.2 1.8 2 .0 0 .1 0 .1 2 .4 1.4 7 .4 19.7 6 .0 24.8 3 .6 16.6 0 .4 11.5 1.3 2 .1 0.6 0.2 0.2 2.8 15.8 0.2 0 .2 0 .2 2 6.6 26.1 0 .1 2 .0 0.8 2 .6 1.0 0 .1 2 .5 0 .9 20 .1 6 .0 16.4 0 .4 9 .9 0 .5 0 .1 1.2 Salvador........................... U ruguay........................... Venezuela......................... British G uiana............... Dutch Guiana................. French Guiana................ 1.3 5 .4 18.8 2 .7 0 .7 2 .3 1.4 5 .3 19.1 _ 23.7 0 .1 0 .1 0 .1 0 .1 - - All countries........... 245.3 243.2 235.3 240.3 226.1 P e ru .................. 2 .2 _ 2 .2 1.2 6 .8 _ * Less than $50,000. N ote: Because of rounding, figures do not necessarily add to totals. 1.3 2 .3 4 .8 6 .7 20.6 — 0.2 10 .1 0 .3 24.8 0 .1 1.3 1.7 2 .9 1.3 7 .7 0 .3 0 .3 21.4 10 .1 2 0.3 14.5 16.8 1 1 .0 2.8 2.0 0.8 11.7 0 .4 0.2 0 .2 37.1 0.8 2.6 1.6 0.8 0 .4 0 .3 36.7 * 2 .3 6.8 6 .7 22 .0 2 2 .0 2 2 .8 0.6 0.6 201.7 0 .1 1.3 3 .4 1.3 7 .9 1.1 2 .3 4 .0 1 .3 0 .3 — — 0 .3 — 209.4 186.3 190.4 20 .1 8 .4 58.6 18.5 14.1 15.5 0 .7 3 8.8 * 1.7 1.3 2 .9 1.4 5 .0 0 .1 1.0 20.7 — 0 .4 — 21.8 — 0 .8 8.6 N ovem ber D ecem b er 0 .1 2 .1 1.0 2.6 1.6 — 0 .7 — — — 207.0 1.2 4 .4 1 .3 4 .8 — 54.3 7 .5 19.4 12.0 14.7 0 .9 8 .8 2.8 1.2 0 .9 0 .5 0 .4 33.2 0 .1 2.0 1 .3 4 .2 1.1 5 .5 19.5 — 0 .7 — 212 .8 191.2 FEDERAL RESERVE BANK OF NEW YORK The declining trend in prompt payments in most countries of Latin America is also shown in Table I. Outstanding excep tions to the trend during 1948 were Chile and Uruguay, where the proportion of collections paid promptly increased by about 44 and 56 per cent, respectively, from January to December. Throughout the year Cuba and Panama showed a 23 the three months ended August 1946 were about 15 per cent greater than sales. It was recognized, too, that a substantial proportion of the merchandise in stock was of inferior quality (frequently described in trade circles as "ersatz” ). Store managers, conscious of the 1920-21 deflation of retail values, became somewhat afraid of a possible decline in prices. During high degree of promptness in the payment of draft collections, the last four months of 1946, the reporting group of large Cuba paying better than 75 per cent of its collections promptly stores in this District accordingly cut back their outstanding in every month of the year, and Panama better than 80 per orders to a level 85 million dollars below the peak value of cent. The monthly collections outstanding (shown in the chart) partly attributable to seasonal factors, it represented mainly a and the confirmed letters of credit outstanding are broken change in policy. The fact that over-all economic activity con 175 million. While this sharp reversal of forward buying was down by countries in Tables II and III. tinued to expand during a period when the stores reduced their D E P A R TM E N T STORE T R A D E commitments sharply indicates that they had had more goods on order than suppliers were geared to produce. Consequently, January sales at Second District department stores were except in isolated apparel and related soft goods lines, no about the same as December’s, after allowance for the usual great shock was felt when the stores switched into more con seasonal changes. Compared with January 1948, sales in the servative positions. first month this year were only slightly better on a daily Outstanding orders fluctuated around a declining trend in average basis, according to preliminary information. For the the subsequent two years. Although adequate data for a entire year 1948, sales averaged 5 per cent greater than in satisfactory adjustment for seasonal variation are not available, 1947, the smallest year-to-year increase since 1943. there is reason to believe that the changes in the value of out Second District department stores as a whole held at the end of 1948 only 2 per cent more merchandise in stock (dollar were much sharper than would be accounted for by seasonal volume) than at the close of 1947. As the table shows, how factors alone. Retail thinking has alternated between optimism standing orders shown in the chart for 1947 and for 1948 ever, there were wide differences among areas in the Second and pessimism depending on whether expanding or contract District. This small change in stocks, following a period of ing forces appeared to be gaining in relative importance and relatively slow sales, indicates that merchants are maintaining the stores have adjusted their order backlogs in conformity with these swings in outlook. close control. R ecent Changes in Fo r w a r d B u y in g In 1948, the larger department stores in the Second District Outstanding Orders and Sales of a Representative Group of Second District Department Stores* (Monthly, 1940-48) cut their order backlogs on the books of suppliers almost in half, continuing a trend which had begun in the fall of 1946. As the accompanying chart shows, not since 1942 have out standing orders in dollar terms been so small as they were at the end of 1948. In view of the great rise in prices over this six-year interval, the physical volume of goods on order must have been greater at the end of 1942, in all likelihood, than at the corresponding time in 1948. During the war years, when merchandise was increasingly difficult to obtain and delivery schedules increasingly un certain, the stores had pushed commitments further and further into the future and duplicated orders with any source of supply which offered a possibility of delivery. Sales mounted rapidly during the first postwar year, inducing stores to extend their forward positions still further in an effort to obtain adequate stocks from a very tight market. The pyramiding of orders ended rather abruptly in August 1946. Although seasonally adjusted sales reached a peak in that month, an increased stock-sales ratio indicated that stocks also had suddenly become relatively very large, owing to rapidly improving deliveries. Merchandise receipts during * F or a group of stores whose 1947 sales equaled more than half o f the Second District total. Sales are seasonally adjusted monthly totals, orders are actual end-of-month data. 24 MONTHLY REVIEW, FEBRUARY 1949 Department and Apparel Store Sales and Stocks, Second Federal Reserve District, Percentage Change from the Preceding Year Indexes of Business Net sales 1947 1948 Index Locality Dec. 1948 Department stores, Second D istrict----N ew Y ork C it y ...................................... Northern New Jersey............................ N ew ark................................................ Westchester C ounty.............................. Fairfield C ou n ty.................................... B ridgeport........................................... Lower Hudson River V alley............... Poughkeepsie...................................... Upper Hudson River V alley............... A lb a n y ................................................. Schenectady........................................ Central New York S tate..................... Mohawk River V alley...................... U tica................................................. Syracuse............................................... Northern New Y ork State.................. Southern New York State................... Bingham ton........................................ Elm ira.................................................. Western New Y ork State.................... B uffalo................................................. Niagara Falls...................................... R ochester............................................ Apparel stores (chiefly New York C ity ). + 2 0 + 3 0 + 6 0 - 2 + 1 + 3 + 7 + 5 +10 + 1 + 2 + 1 + 1 Stocks on Jan. through hand Dec. 1948 Dec. 31, 1948 Industrial production*, 1935-39 = 1 0 0 ......... + 5 + 2 + + + + + + + + + + + + + + + + + + + 3 5 3 3 1 1 6 9 8 7 +10 + + + + 1 1 2 8 12 11 6 6 5 3 9 5 0 6 6 9 9 3 3 + + + + 9 + 2 + 6 - 1 - 6 + 5 + 5 + 15 + 3 - 4 - 7 +18 3 - 1 0 + + + + + + 3 4 9 - 2 5 6 4 +10 + 8 +11 + 6 6 Oct. N ov. Dec. 192 195 195 192p 237 257r 255 257p 204 208 191p 329r 338 334 342p 162 163 162 159p 133 127 125 124p 366 382 378p 304 294 301 303 314 316 p 183 194 195p 167 174 172 171 87 81 109 93 101 94 93 86 (Board o f Governors, Federal Reserve System ) Electric power output*, 1935-39 = 100........ (Federal Reserve B ank o f N ew York) Ton-miles of railway freight*, 1935-39 = 100 (Federal Reserve B ank o f N e w York) Sales of all retail stores*, 1935-39 = 100........ (Department o f Commerce) Factory employment United States, 1939 = 100...................... (Bureau o f Labor Statistics) New York State, 1935-39 = 100................ (N . Y . S . D iv . o f Place, and U nem p. In s .) Factory payrolls United States, 1939 = 1 0 0 .......................... (Bureau o f Labor Statistics) New York State, 1935-39 = 100................ 298p (N . Y . S . D iv. o f Place, and Unem p. In s.) Personal income*, 1935-39 = 100.................. (Department o f Commerce) Composite index of wages and salaries*?, 1939 = 100..........................................k........... Indexes of Department Store Sales and Stocks Second Federal Reserve District (1935-39 averages 100 per cent) Dec. (Federal Reserve B ank o f N ew York) Consumers’ prices, 1935-39 = 1 0 0 ................. (Bureau o f Labor Statistics) 1948 1947 Velocity of demand deposits*, 1935-39 = 100 (Federal Reserve B a nk o f N e w York) Item Dec. Oct. N ov. Dec. Sales (average daily), unadjusted................. Sales (average daily), seasonally a d ju sted .. 408 242r 280 250 298 229 414 245 Stocks, unadjusted............................................ Stocks, seasonally adjusted*.......................... 211 267 236 278 242 215 236 r Revised. 232 * Seasonal adjustment factors for 1946-48 revised; available upon request from Research Department, Domestic Research Division. New York C ity ............................................. Outside New Y ork C it y .............................. * Adjusted for seasonal variation. X p Preliminary. r Revised. A monthly release showing the 15 com ponent indexes of hourly and weekly earnings in nonagricultural industries computed b y this bank will be sent upon request. Tabulations of the monthly indexes, 1938 to date, may also be pro cured from the Research Department, Domestic Research Division. FEDERAL RESERVE BANK OF NEW YORK MONTHLY REVIEW, FEBRUARY 1949 INDUSTRIAL PRODUCTION National Summary of Business Conditions (Summarized by the Board of Governors of the Federal Reserve System, January 27, 1949) ou at factories and mines declined somewhat in December. Department store sales in Decem ber and the early part of January were above the reduced November rate, after allowance for seasonal variation. Wholesale prices of farm products and foods showed further marked declines and retail prices of foods and some other goods were also reduced. \UTPUT In d u s t r i a l Pr o d u c t i o n Federal Reserve indexes. Monthly figures; latest shown are for December. DEPARTMENT STORE SALES AND STOCKS The Board’s seasonally adjusted index of industrial production declined 3 points in December to a rate of 192 per cent of the 1935-39 average, owing primarily to reduced output of nondurable goods. Output for the year 1948 was also 192, as compared with 187 in 1947. Activity in durable goods industries was maintained in December at about the level of the previous month. Iron and steel production, after allowance for mill closings on Christmas continued close to the advanced November rate, and in the first three weeks of January rose to new record levels. Activity in most machinery and transportation equipment industries was also maintained at about the November rate, although output in some lines— mainly those producing household equip ment— was curtailed further. Assembly of new automobiles in December was below the November rate, mainly because of model change-over activity at the end of the month. Passenger car production for the year was 3.9 million vehicles as compared with 3.6 in 1947 and 3.8 in 1941; the number of trucks produced in 1948 was at a record total of about 1.4 million. Output in the nonferrous metals, lumber, and stone, clay, and glass groups showed little change in December. Output of nondurable goods in December, according to preliminary figures, was at a rate about 2 per cent lower than in the preceding month. Cotton consumption declined further in December, and for the entire year 1948 was at the lowest rate since 1940. Paperboard production was curtailed sharply at the end of December, and for the month was 6 per cent below the rate in December 1947. Activity in the petroleum refining industry increased further in December. Output in most other nondurable industries declined somewhat or showed little change. Minerals production declined 3 per cent in December, mainly because of a considerable reduc tion in coal output. Production of crude petroleum was maintained at the November rate. In the early part of January coal production continued at a reduced level, about 12 per cent below the rate at the beginning of 1948, and crude petroleum output was curtailed somewhat. Co n s t r u c t io n Federal Reserve indexes. Monthly figures; latest figure for sales is December; latest for stocks is November. WHOLESALE PRICES Value of construction contracts awarded, as reported by the F. W . Dodge Corporation, rose contraseasonally in December, reflecting chiefly large awards for public works projects. Awards for most types of private construction were unchanged from November. The number of new nonfarm housing units started, according to the Bureau of Labor Statistics, declined further to 56,000 units as compared with 65,000 in November 1948 and 59,000 in December 1947; the total for the year was 927,000 units, almost 10 per cent more than the 849,000 started in 1947. D is t r ib u t io n Department store sales increased by more than the usual seasonal amount from November to December, and the Board’s adjusted index was estimated to be 307 per cent of the 1935-39 average as compared with 287 in November and an average of 302 for die year. Inventories at depart ment stores were at a high level at the year-end, while outstanding orders were the lowest in six years. In the first half of January value of sales was 7 per cent larger than in the corresponding period last year, reflecting partly the effect of more extensive promotional sales. Shipments of railroad revenue freight showed the usual large seasonal decline in December and were 8 per cent smaller than in the corresponding period a year ago, mainly because of reduced loadings of coal and manufactured goods. In the early part of January rail shipments of manu factured goods declined somewhat further. C o m m o d i t y P r ic e s Bureau of Labor Statistics* indexes. Weekly figures; latest shown are for week ended January 18. LOANS AT MEMBER BANKS IN LEADING CITIES The average level of wholesale commodity prices continued to decline in December and the first three weeks of January, reflecting chiefly further marked decreases in prices of farm products and foods. Prices of alcohol, fuel-oil, scrap metals, and some other industrial commodities also declined in this period, while additional advances were announced for metal products, including some new models of automobiles. In retail markets, prices of foods decreased somewhat further in December and January and special sales of apparel and household goods at reduced prices were widespread. Resale prices of passenger automobiles dropped further. Ba n k * REVISED SERIES, tJULY 3, 19 Excludes loans to banks. Wednesday figures; latest shown are for January 19. C r e d it A substantial post-Christmas return of currency from circulation and an excess of Treasury expenditures over receipts supplied reserve funds to member banks during the first three weeks of January. Banks used these funds to increase their holdings of Government securities. Federal Reserve System holdings of Government securities were reduced by over one billion dollars in the first three weeks of January. Bond holdings declined further as market demand for Treasury bonds continued active. Business loans at member banks in leading cities declined substantially over the year-end but increased somewhat in mid-January. Loans to brokers and dealers in securities were reduced con siderably. Increases in bank holdings of Government securities reflected primarily large purchases of Treasury bills. S e c u r it y M arkets Prices of United States Government and high-grade corporate bonds continued to rise slightly in the first three weeks of January.
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