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MONTHLY REVIEW
O f Credit and Business Conditions
FEDERAL
V o lu m e
RESERVE
32
BANK
FEBRUARY
OF
NEW
YORK
1950
No. 2
MONEY MARKET IN JANUARY
A heavy seasonal reduction in public holdings of currency
tions over the past several months, the thinness of the market,
following the Christmas holiday caused noticeable ease in
and the reluctance of other holders to supply bonds at rising
the reserve position of the banks during most of January.
prices, the Federal Reserve System sold moderate amounts of
The position of the banks was further eased during the first
bonds to the market, especially in the weeks ended January 11
part of the month by the Treasury’s large net disbursements.
and 18. Net sales of 100 million dollars of bonds were made by
In the second half of the month, Treasury transactions tended
the System during the month. Partly as a result of these sales,
to absorb moderate amounts of reserves as personal income
investors and traders assumed a more cautious attitude toward
tax collections rose. The banks also lost some reserves during
Government bonds, and prices reacted. Further impetus to the
the month through a decline of Federal Reserve "float” and
decline was provided by the market’s appraisal of the recom
an accumulation of funds by foreign central banks in their
mendations of the Congressional Subcommittee on Monetary,
deposit accounts with the Reserve Banks. However, these
Credit, and Fiscal Policies concerning the relationship between
losses and an increase in required reserves were not large
debt management and credit control policies. An additional
enough to tighten the market except sporadically.
factor making for uncertainty in the market was the Treasury’s
The net effect of the months transactions was to place at
announcement that it would issue 20-month, l lA per cent
the disposal of banks substantial reserves which they used
notes in exchange for the l l/4 per cent certificates maturing
mainly in the purchase of Treasury securities. A large part
February 1, which was interpreted by investors as possibly
of these additions to the portfolios of the banks came from
paving the way for higher short-term rates, which in turn
the Federal Reserve System. Total System holdings of Govern
might affect long-term bond prices. Toward the close of the
ment securities declined about one billion dollars in the four
month, quotations on the longest-term ineligible bonds were
weeks ended January 25. Member banks’ borrowings from
more than % of a point below the peak of early January,
the Reserve Banks and their excess reserves showed little
while shorter maturities showed smaller declines.
net change during this period. The experience of the New
York City banks was somewhat different from that of all mem
Some increase in yields developed in the market for short
term Treasury issues. The weekly issues of new Treasury bills
ber banks. While they also received considerable amounts
of reserve funds during January, as money market banks
they were subject to offsetting withdrawals of funds in con
nection with the Government security operations of out-of-
were taken at average discounts of 1.081, 1.076, 1.101, 1.103,
of Treasury certificates also rose somewhat after the terms
town banks and of nonbank investors. Thus, the New York
for refunding the February 1 certificate issue became known.
and 1.118 per cent, on bills dated January 5, 12, 19, and 26,
and February 2, respectively. Yields on the longer maturities
City banks were able to add only moderately to their Govern
ment security holdings, and not until the week ended January
25 were they in a position to make these moderate purchases.
CONTENTS
G overnm ent Security M arket
Money Market in January.................................... 13
Despite the easy reserve condition, there was a net decline
The President’s Budget Message...........................15
in Government bond prices during the month and yields on
The Dollar Position of Latin America................ .18
short-term Treasury securities rose slightly. Early in the month
bond prices were firm and in fact, on January 5, the longestterm ineligible bonds reached the highest quotations since
July 1946. In view of the general business and credit situa
tion, the rather marked advance in Government bond quota
Industrial Growth in Second
District States, 1939-47.......................................21
Department Store Trade.........................................23
MONTHLY REVIEW, FEBRUARY 1950
14
The System supplied Treasury bills and other securities from
its holdings to meet investment demands. Banks in need of
after Christmas. Thus, it appears that the marked postChristmas decreases in recent years indicate a return to the
funds tended to adjust their reserve positions through sales of
prewar seasonal pattern.
Treasury certificates and, to a lesser extent, of Treasury notes,
Treasury transactions provided the member banks with about
and the Reserve System’s open market purchases of certificates
amounted to about 140 million dollars in the four weeks ended
730 million dollars of reserve funds in the two weeks ended
January 11. Tax collections rose during the remainder of the
January 25, while its sales and redemptions of Treasury bills
month, but the net absorption of reserve funds by the Treasury
amounted to about 1,050 million dollars.
was moderate even in this period. The net excess of Treasury
funds flowing to the money market, therefore, was somewhat
larger than expected for a month such as January. Collec
M e m b e r B a n k R eserve P o s it io n s
tions of individual income taxes (other than withheld taxes)
The major factor in the money market’s ease during the past
were slow, owing in part to the postponement, until the end
month was the seasonal return flow of currency to the Federal
of the month, of the deadline for tax payments by farmers.
Reserve Banks, amounting to over 850 million dollars in the
In addition, Treasury disbursements were augmented early in
four weeks ended January 25.
However, the return flow,
the month by the redemption for cash of 323 million dollars
measured from the pre-Christmas peak, was about 80 million
of 1 J4 per cent certificates of indebtedness maturing January
dollars less than in the corresponding weeks a year ago. As
1 which the holders did not exchange for the new lVs per
illustrated in the chart, which shows the weekly changes in
cent issue. Treasury expenditures were also increased by the
currency in circulation during recent years, cumulated from
initial payments of veterans’ dividends on their national
June 30 of each year, there has been a considerable change in
service life insurance, although the cashing of the dividend
the seasonal pattern of currency use since the war years. The
checks during January was less in the aggregate than had
recent post-Christmas decline in currency held by the public
been anticipated.
more than canceled the expansion of the preceding summer
and fall, as it had done in other postwar years (including
1 9 4 7 . 4 8 , not shown on the chart because its trend so closely
Other money market factors— changes in Federal Reserve
"float,” required reserves, and foreign account transactions—
paralleled that of 1948-49). In part, this has been due to a
tended on balance to absorb reserve funds or otherwise tighten
reserve positions. But as they fluctuated widely from week to
progressive reduction in the summer and fall expansion of
week, in some weeks even providing the banks with additional
currency in use. During the war years, however, there had
reserves, their impact on the money market was uneven.
been little or no seasonal contraction of the note circulation
Purchases of Government securities by nonbank investors,
either indirectly from the Federal Reserve System or (in the
Weekly Changes in the Volume of United States Currency in
Circulation, Cumulated by Fiscal Years
Billions
of dollars
Billions
of dollars
case of bills) on allotment from the Treasury, also resulted in
a loss of reserves to the member banks. In the aggregate,
however, the reserve losses originated by these various trans
actions were but a partial offset to the substantial gains of
reserves from the return flow of currency and from Treasury
operations.
Member banks, therefore, were in a position during most
of January to expand their earning assets rather sharply.
During the early days of the month, however, the banks per
mitted the funds they gained to accumulate in their deposit
accounts with the Reserve Banks, and excess reserves rose 600
million dollars during the week to 1,450 million on January
4. In subsequent weeks the banks’ purchases of Government
securities exceeded their current net gains of funds; excess
reserves were consequently drawn down to the more normal
level of 840 million dollars on January 25.
The bulk of the securities acquired by the banks were
Treasury bills, some of which were acquired through an
excess of allotments of new issues over redemptions of issues
maturing on January 5 and 12, and the rest through the mar
ket. Chicago banks in particular made large purchases of the
new issue dated January 5. Such purchases were in prepara
FEDERAL RESERVE BANK OF NEW YORK
tion for the customary large demands for Treasury bills by
depositors of the Chicago banks just prior to the assessment
of the Cook County, Illinois personal property tax (on
April 1 ), from which Treasury securities are exempt. The
ultimate source of these bills was the Federal Reserve System.
As the total volume of outstanding issues was practically
unchanged during this period, the acquisition of bills by
banks and nonbank investors through bids for new issues or
market purchases resulted in the drop in System holdings of
over one billion dollars, previously mentioned.
15
Table I
U. S. Budget and Cash Receipts and Expenditures
Fiscal Years 1949-51
(In billions o f d o lla rs)
Budget receipts.................................
Trust account receipts....................
Less: noncash receipts...............
Cash receipts........................
Budget expenditures*.....................
Trust account expenditures and in
vestments .......................................
Less: noncash expenditures#. . .
Actual
1949
E stim a ted
1950
38.2
5 .7
2 .4
3 7 .8
6 .7
2 .8
Projected
1951ft
37.3
8.2##
2 .5
Change
1950 to
1951
-0 .5
+ 1.5
-0 .3
41.6
41.7
43.1##
+ 1 .4
40.1 **
4 3.3
4 2.4
-0 .9
6 .2
5.3
7 .1
3 .6
8.4##
5.1
+ 1 .4
+ 1.4
4 6.5
45.8##
-0 .7
Payments for the Treasury bills taken by nonbank investors
Cash expenditures'}*.............
40.6
and out-of-town banks frequently were made by drawing
Excess of cash receipts. . . .
1 .0
on their balances with New York City banks; consequently
Excess of cash payments ..
4 .9
2 .7
-2 .1
these security transactions tended to cause drains on the reserves
of the New York City banks. Thus, although the New York
money market had the benefit not only of net currency receipts
and net Treasury disbursements, but also of moderate transfers
of funds from other parts of the country, the New York City
banks lost, through the Government security operations of
nonbank investors and out-of-town banks, and through their
own net purchases of new bill issues, more funds than they
gained.
In seeking to adjust their reserve positions, the New York
* Includes net expenditures of wholly-owned Government corporations and
credit agencies.
# 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.
f Includes adjustments for the clearing account.
** 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.
f t Does not reflect the possible effects of the President’s Special Tax Message
proposals.
## Includes proposed changes of nearly 1.5 billion dollars in the social security
insurance programs.
N ote: Because of rounding, figures may not add to totals shown.
Source: The Budget of the United States Government for the Fiscal Year Ending June
SO, 1951, and Bureau of the Budget, Receipts from and Payments to the Public
January 1950.
City banks made net sales of Treasury securities other than
bills (mostly certificates). But as most of these issues were
of wartime excise taxes, as well as the President’s more recent
also taken by nonbank investors and out-of-town banks and
request for changes in the tax structure, add to the uncertainties.
paid for with New York funds, little relief was afforded to
their reserve positions. In the two weeks ended January 18,
the City banks consequently drew down their excess reserves
by 375 million dollars.
(Their excess reserves had increased
about 200 million dollars to the unusually high level of 390
million in the week ended January 4.)
It was not until the
New York market had eased somewhat in the week ended
January 25 and heavy tax payments had interfered, temporarily
at least, with the Government security operations of the outof-town banks that the New York City banks were able to
add appreciably to their holdings of Government securities.
And at the end of the month the New York banks sustained a
substantial outflow of funds to other parts of the country and
were forced to sell substantial amounts of securities and to
borrow from the Reserve Bank in an effort to restore their
reserves to the required levels. As a result the month ended
with a relatively tight money market.
Receipts of 37.3 billion dollars, which the budget for the
fiscal year 1951 anticipates, with proposed expenditures of
42.4 billion, would result in a budget deficit of 5.1 billion
dollars, compared with 5.5 billion in 1949-50. On the basis
of cash receipts and expenditures, however, the deficit would
be 2.7 billion dollars compared with 4.9 billion this year,
largely because the greater part of the insurance dividends to
veterans are expected to be paid before the close of the current
fiscal year.
The estimate of receipts is based on existing tax legislation
and on the assumption that national income and employment
will continue at about the same, or even slightly higher, levels
in the next fiscal year. If the economic situation should change
materially, receipts would be correspondingly affected. Con
gressional acceptance of the Presidents special tax program—
in part or in whole— would likewise affect the revenue esti
mates. In his Special Tax Message, the President called for
reductions in certain excise taxes, but he also requested
TH E P R ESID E N T’S BU D G ET MESSAGE
In view of the difficulty of determining the economic outlook
for the next eighteen months, the budget which President
Truman submitted to Congress on January 9 must be regarded
as a very tentative estimate of the Governments fiscal activities
in the twelve months beginning July 1, 1950. Congressional
demands for greater economy and the repeal or reduction
measures to reduce existing “loopholes” which would at least
compensate for the loss of revenue from such reductions. He
proposed, moreover, increases in corporation, estate, and gift
taxes1 which would add about 1 billion dollars to the Govern1 If these proposals are accepted in full by Congress, not all of the
estimated annual gains will be obtained in fiscal 1951 because of the
lag in collections, whereas the loss from reduced excises would occur
with the effective d^te,
MONTHLY REVIEW, FEBRUARY 1950
16
merit’s annual revenue. On the other 'hand, the bulk of the
expenditures anticipated in the budget are subject to Con
gressional approval in the form of appropriations or delega
public assistance and health programs ( + 4 0 0 million), slum
clearance, low-rent housing and proposed loans to middleincome housing cooperatives (-f-2 0 0 million), proposed aid
tions of borrowing authority, while some 2.6 billion, net, will
to States for elementary and secondary education ( + 3 0 0
require authorizing legislation as well as appropriations.
million), and further development of atomic energy and water
Aside from the authorizations which he requested for a con
power ( + 3 5 0 million).
tinuation of several expiring programs, mainly the European
The national defense program alone is estimated to require
Recovery Program and other existing foreign aid and mutual
13.5 billion dollars in fiscal 1951 and is expected to be main
defense assistance, the President submitted proposals for new
tained at this level for several years to come. The increase
foreign and domestic programs involving some 950 million
in this program over the current year’s level is substantially
dollars of expenditures. Among these proposals, some of which
less than previously anticipated, as a result of progress toward
were unsuccessfully submitted last year, additional international
unification and actions recently taken to improve efficiency and
aid would require 160 million dollars, increased public assist
reduce costs, and arises mainly from the higher costs of our
ance to the aged, 200 million, and aid to education, 290 million.
increasingly complex aircraft. Modernization and additional
At the same time, the President requested an increase in postal
procurement of military equipment and some increase in
rates which would provide a 395 million offset to the postal
stockpiling are also expected, but these increases are offset by
service deficit of 555 million under present schedules.
decreases in other defense expenditures.
A budgetary deficit in fiscal 1951 would be the third
International affairs and finance will require some 4.7 billion
consecutive deficit; only twice in the past nineteen years has
dollars, nearly 1.3 billion less than in the current fiscal year.
there been a surplus.
The European Recovery Program, at nearly 3.3 billion dollars,
appears to be about 800 million less than in the current year;
T he Budget A ccounts
the actual cut, however, is closer to 1.4 billion dollars, since
The President’s estimates indicate budgetary receipts in fiscal
the 1951 estimate includes aid to Western Germany, which
1951 to be some 457 million dollars lower than in the current
in previous years was treated as Army-administered aid to
fiscal year. Tax collections from corporations alone are expected
occupied areas. In fiscal 1951, Army-administered aid will be
to decline 657 million dollars, reflecting the reduction in
limited almost wholly to Japan and the Ryukyu Islands and
corporate profits during the calendar year 1949. Slightly higher
is expected to require less than 300 million dollars. Aid to
receipts are anticipated from taxes on the income of indi
the Philippines will decline some 130 million dollars as that
viduals, indicating slightly greater incomes than in the current
program approaches completion, while the Greek-Turkish
fiscal year. These taxes alone, at 18.9 billion dollars, provide
military aid program, scheduled for completion in the present
nearly half of estimated total budget receipts, while corporate
income taxes amounting to 10.5 billion provide over a quarter
fiscal year, calls for no expenditure under the new budget.
On the other hand, the Mutual Defense Assistance Program
of the total. Excise taxes (under the existing legislation) and
is scheduled to require some 645 million dollars, whereas in
the current year— with the program just getting under way—
customs are expected to provide about the same revenue as
in the current year, 7.6 billion and 0.4 billion, respectively.
A small decline in miscellaneous receipts, arising mainly from
the virtual disappearance of surplus property sales, is antici
expenditures of only 160 million are anticipated. Technical
assistance to underdeveloped areas, within the framework of
the proposed Point IV program, is expected to cost only 25
pated. Receipts arising out of the President’s renewed proposals
million in fiscal 1951. Other foreign recovery and relief items,
to enlarge the old-age insurance program and to provide medical
mainly proposed additional aid to Korea and refugee assist
care insurance would be immediately appropriated to the
ance programs, would require some 180 million compared
respective trust funds and thus would not influence the budget
with 250 million in the curent year.
receipts.
Veterans’ services and benefits are estimated to require some
Budget expenditures in fiscal 1951 as estimated would be
6.1 billion dollars, which is about 800 million less than in
858 million lower than in the current fiscal year. Anticipated
the current year. Readjustment benefits, mainly for education
reductions in international aid
( — 1.3 billion), veterans’
and training, constitute some 44 per cent of the anticipated
benefits and charges against the Government for their insur
outlays for veterans. This program, at 2.7 billion dollars, is
ance
the farm price-support program
considerably larger than had been expected— the increase
( — 600 million), the Post Office deficit ( — 400 million),
representing mainly a rise in precollege trade and vocational
and interest charges ( — 100 million) together would reduce
schooling— and the President raises the question whether the
( — 800
million),
Partly offsetting
program still conforms to its original sound objectives of
increases are, however, estimated for some items— mainly for
enabling veterans to resume ''interrupted” education or train
national defense
ing or to "restore!” skills lost during military service. Compen
expenditures by some 3.1 billion dollars.
(-{-400
million), current and proposed
17
FEDERAL RESERVE BANK OF NEW YORK
sation and pension payments and hospital and medical care
under the permanent veterans’ laws will amount to some 2.8
billion, about the same as in the current year.
Interest on the public debt is estimated at over 5.6 billion
dollars in fiscal 1951. It is slightly higher in the current fiscal
year because of the inclusion of a 200 million dollar adjustment
to take account of the fact that interest payments are now
reported when due rather than when actually disbursed. Apart
from this nonrecurring item, interest will continue its gradual
rise in fiscal 1951.
The four items discussed above— national defense, foreign
aid, veterans’ aid, and interest— constitute over 70 per cent of
the budgeted expenditures for fiscal 1951, a slightly smaller
proportion than this year. Other Government activities in
fiscal 1951 under the Presidents program would require 12.5
billion, some 900 million dollars more than now anticipated
for the current year. In the fiscal year 1949, these expenditures
amounted to less than 10 billion dollars. Were it not for the
Table II
Change in the Public Debt, Fiscal Years 1949-51
(In billion s o f d o lla rs)
Actual
1949
Excess of cash*
(receipts —, payments + ) ..........
Change in Treasury cash balance. . .
Repayments to the public#...........
Noncash borrow ingf.......................
Change in the public d e b t j...............
Public debt at end of year**............
Treasury’s balance at end of y e a r. . .
Estimated
1950
Projected
1951
-
1.1
1.5
+
-
4 .8
0 .1
+
2 .7
##
4-
2 .5
2 .9
+
+
4 .8
0 .9
+
+
2 .7
2 .7
+ 0 .4
252.8
3 .5
+
5 .7
258.4
3 .4
+ 5 .5
263.8
3 .5
* Includes receipts from seigniorage on silver amounting to about 35 million
dollars annually.
# Mainly cash retirement of Treasury marketable debt, net market sales and
purchases by Government agencies and trust funds, and net sales and redemp
tions of Savings bonds and notes. Also included are a small amount of sales and
redemptions of obligations o f Government corporations and net changes in a
few minor debt items.
t 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.
t 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.
## Increase of 48 million dollars.
N ote: Because of rounding, figures may not add to totals shown.
Source: Same as for Table I.
600 million dollar decline in farm price-support activities of
the Commodity Credit Corporation, which is expected as a
ments, as they will be in the current fiscal year, the trust
result of acreage allotments and marketing quotas on the 1950
funds obtain the required cash by redeeming some of the
crops (a decline which may not materialize if crop yields are
securities previously accumulated in their reserves.
high), and the anticipated 395 million reduction in the postal
On the cash basis, some 43.1 billion dollars are expected
service deficit, the net increase to be expected in "other” ex
to be collected from the public in fiscal 1951. The increase
penditures would amount to 1.9 billion dollars.
of about 1.4 billion over cash receipts in fiscal 1950 results
This is
accounted for in part by the new programs, mainly for addi
almost entirely from the proposed new or higher social
tional social welfare, health services, education, and housing
security taxes. Under existing legislation, the trust funds are
development, which would require some 725 million dollars,
expected to receive some 500 million dollars more than in
and in part by relatively small increases in nearly all of the
existing Governmental functions, which together would add
offset by the expected decline in budget cash receipts center
over 1.1 billion dollars to Government expenditures.
ing in corporation taxes.
the current fiscal year but this increase would be more than
The larger trust receipts to be
expected under existing legislation consist mainly of in
T h e C a s h P o s it io n
creased receipts by the unemployment trust fund and a full
In analyzing the economic impact of Federal financial
year’s collection of old-age insurance taxes at the new rate
operations on the private economy, a better over-all view can
of \Vi per cent each on employers and employees2. The
higher receipts from the unemployment tax system arise
be obtained by considering total Federal cash transactions
with the public, including those involving the various Federal
trust funds. The cash operations differ from the budget trans
actions in two important ways. In the first place, the budget
apparently from a lowering of the merit rating status of
employers in several of the States3 and also from an antici
pated enlargement of the payroll base.
figures include a large amount of noncash expenditures and
Exclusive of the proposed higher old-age benefits and
a small amount of noncash receipts from Government agencies.
medical insurance expense, cash outlays by the Government
The noncash expenditures consist mainly of transfers and
would amount to 44.3 billion dollars in fiscal 1951— some
interest payments to trust accounts and of net accrued inter
2.2 billion less than in the current year. The reduction in
est on Savings bonds. On the other hand, the trust accounts,
cash disbursements arises for the most part from a drop in
in addition to their noncash receipts from the Treasury,
dividend payments to veterans by the National Service Life
receive cash payments from the public in the form of pay
Insurance Fund. By the end of June 1950, some 2.2 billion
roll taxes collected for old-age insurance, deposits from State
dollars are expected to have been disbursed, leaving only
unemployment trust funds and the Railroad Retirement
Board, insurance premiums from veterans, and several minor
items. These funds are partly disbursed as cash benefits and
refunds and partly invested in Government securities. How
ever, if the cash receipts are inadequate to cover disburse-
2 The increase from 1 per cent each on the first $3,000 of a worker’s
compensation occurred on January 1, 1950.
3 All States now vary the employers’ contribution rates ( which
normally would be 2.7 per cent of wages subject to tax) according to
their experience with unemployment or according to other factors
bearing a direct relation to unemployment risk.
MONTHLY REVIEW, FEBRUARY 1950
18
600 million to be paid in fiscal 1951. Also, claims for unem
ployment insurance in fiscal 1951 are expected to decline,
indicating an anticipated stabilization of employment.
Including the proposed new social security benefits, Federal
in view of the lowering of short-term rates on new marketable
issues last summer. Because of the large "windfall” net sales
of Savings notes, the Treasury was able to build up its balance
by 1.2 billion dollars through December. The new estimates
cash outlays contemplated for fiscal 1951 total 45.8 billion
for fiscal 1950 indicate that this increase will be more than
dollars, an amount which exceeds the anticipated cash receipts
used up and that additional borrowings from the public of
by 2.7 billion. This would compare with a 1950 cash deficit
1.7 billion dollars will be required through June. The balance
now estimated at 4.9 billion.
in the General Fund would then amount to 3.4 billion and the
public debt would stand at 258.4 billion dollars.
T h e P u b l ic D e b t
Since cash disbursements would exceed receipts from the
public by 2.7 billion dollars under the President’s programs,
and a small amount of funds will be required to restore the
cash balance to the desired minimum level of 3.5 billion
dollars, it is apparent that the Treasury would find it necessary
to borrow somewhat over 2.7 billion from the public in fiscal
1951. A further rise in the public debt, of about the same
amount, would occur as a result of the net noncash expendi
tures. Thus, by the end of June 1951 the public debt would
amount to 263.8 billion dollars (see Table II).
TH E D O LL A R PO SITION OF L A T IN A M E R IC A
Two distinct phases in Latin America’s dollar position
have been noticeable since the war. Up to early 1948, the area
suffered an increasingly severe balance-of-payments deficit
with the United States. Since that time, however, a majority
of the Latin American countries have brought their financial
relations with the United States into closer balance by tighten
ing their trade and exchange controls, and more recently (in
some cases) by depreciating their currencies. Consequently,
Latin America’s balance of payments with the United States,
particularly its trade balance with us, as well as its gold and
T h e C u r r e n t F is c a l Y e a r
dollar holdings, have shown a gradual improvement. This
Cash receipts in the current fiscal year are now estimated
statistical improvement for the area as a whole, however, con
to provide less than 42 billion dollars to cover anticipated
ceals the strains imposed on some countries by the use of direct
cash requirements of 46.5 billion. A cash deficit of 4.9 billion
dollars by the end of June 1950 is thus expected. In January
controls, tends to hide the underlying factors making for con
1949, cash receipts of over 45 billion and expenditures of 44
countries have shown widely differing degrees of improve
billion had been anticipated for the current fiscal year, exclusive
ment (while in a few countries there has been actual deteri
of the proposed changes in the Social Security program. The
oration).
change from an anticipated small cash surplus to a five billion
dollar deficit reflects both the change in the business situation
since the latter part of 1948, which lowered receipts and
tinuing disequilibrium, and obscures the fact that individual
R educed D r a in
on
G old
and
D o l l a r R eserves
increased demands for unemployment compensation, and a
As Table I indicates, gross Latin American gold and dollar
holdings declined by 781 million dollars, or 20 per cent,
rise in various expenditures. Substantial increases in estimates
have been made for veterans’ education and training benefits
(mainly in technical and precollege schooling), price-support
between the end of 1946 (their postwar peak) and September
1949. It is noteworthy, nevertheless, that at the latter date
activities by the Commodity Credit Corporation, and mortgage
they were still more than 2Vz times the December 1939 total.
Among the major individual countries the experience of
purchases by the Federal National Mortgage Association.
Argentina was outstanding. By September 1949, that country
Partly offsetting declines are anticipated in national defense
had lost two thirds of its December 1946 holdings, a decline
and international aid expenditures.
that more than accounted for the aggregate loss of gold and
During the first half of the fiscal year, July-December 1949,
dollars by the whole of Latin America, and reduced Argentina’s
cash receipts (at about 19.4 billion) were some 1.9 billion
holdings to three fourths of their 1939 level. In contrast to
below expenditures, which would indicate a cash deficit of
the losses suffered in 1947, most Latin American countries
around 3.0 billion in the period through June. As usual,
during 1948 and 1949 were able to reduce and in some cases
receipts will be larger in the second half of the year, when
to reverse the drain on their gold and dollar holdings.1 This
final payments and adjustments in income taxes are made, but
improvement was made possible by a striking reduction in
expenditures this year will rise even more, as some 2.2 billion
Latin America’s deficit in trade and other current transactions
dollars in premium refunds are paid to veterans. So far this
with the United States, which was halved between 1947 and
year, the Treasury has borrowed about 3.1 billion dollars from
the public. The bulk of this has come from net sales of Savings
notes, which continue to be relatively attractive investments
1 Total Latin American gold holdings, excluding Mexico, actually
increased by more than 100 million dollars during the first nine
months of 1949.
19
FEDERAL RESERVE BANK OF NEW YORK
Table I
Gross Gold and Dollar Holdings of Certain Latin American Countries
(In m illions o f d olla rs)
ported by 15 United States banks rose to more than 114
million dollars in July. Substantial redactions did not take
place until November and December, when over 22 million
Change in holdings during
Country
Holdings
Decem
ber 31,
1946
1947
1948
,185
37
528
116
203
379
332
65
301
544
-6 2 7
+
5
- 69
- 25
- 74
+135
- 93
3
+
4
- 28
-2 0 1
1
- 18
3,690
-7 7 5
-
Argentina.
B olivia. . . .
Brazil........
C h ile ..... .
Colombia. .
C u b a.........
M e x ico... .
Peru...........
Venezuela
O th e r*.. . .
Total Latin America.
January
Septem
ber 1949
-
+
51e
-7 9 8
+ 3
+ 21
-
-lie
-1 7
n.a.
+ 112
1
99
66
— 15
- 77e
+ 27
+40
n.a.
+ 14
+ 183
11
+93t
—781J
+ 6
11
+152
-
+ 30
- 1
+ 2
+ 8
+ 8e
- 6
Total
period
+
Holdings
Septem
ber 30,
1949
387
40
462
101
126e
491
1841
79
484
555
2 ,909§
dollars were repaid.
Further sizable cuts in the Brazilian
"backlog” are expected in the early months of this year.
Changes in the T rade Balance
The striking reduction in Latin America’s current-account
deficit with the United States since 1947 reflects a sharp
contraction in the area’s trade deficit with this country, from
1,708 million dollars in 1947 to an estimated 475 million in
1949
(see Table III).
Venezuela and Mexico more than
accounted for the total trade deficit remaining in 1949, all
* Includes Uruguay's gold holdings which totaled 200 million dollars at the end
f f i W
! 175 million in December 1947, 164 million in December
the other major countries except Argentina and Peru having
t & t i r n U " io1X
regained their prewar status by again achieving a favorable
;ind a t Pr
bM e ^ s gold holdings during 1949 are not
t
balance in their United States trade.
Kmirce?\nternational Monetary Fund, Infanatienal M nancid Statistics, December 1949; and Federal Reserve Bulletin, December 1949, p. 1517.
the United States was due to a cut in imports of nearly 30 per
I n c l u d e d change in M exico’s dollar balances, but not in her gold holdings.
§ Includes M exico’s dollar balances, but not her gold holdings.
e Estimated.
The improvement in Latin America’s trade balance with
cent between 1947 and 1948, and to the maintenance of a
1948 and further reduced in 1949, and by the opening up of
new sources for 'financing that deficit.
As to these new sources, "offshore” purchases by the Eco
nomic Cooperation Administration2 and the Latin American
export surplus with Western Germany3 became increasingly
important during 1948 and 1949. Moreover, in 1949 trans
high level of exports. Nearly half of the import cut was
accounted for by the drop in Argentine imports from the
United States, while reductions in Brazilian, Cuban, and
Mexican purchases of United States goods were responsible
for most of the rest. The import reductions were achieved
in most cases with the help of stringent, selective import con-
actions of Latin American countries with the Bretton Woods
institutions provided 105 million dollars.
At various times a number of Latin American countries
Table II
International Transactions of Latin America with the United States
(N e t balances in m illions o f d o lla rs ; ( + )= e x c e s s o f receip ts fro m the
U nited S ta te s; ( — )r= e x ce ss o f p aym ents to th e U nited S tates)
"financed” in one other way their current-account deficit (the
deficit on merchandise and service transactions) with the
United States, namely, by delaying the transfer into dollars
of the local-currency proceeds of
imported merchandise
First half
Item
Goods and services:
Merchandise trade................................
Transportation......................................
1947
1948
1948
1949
"Financing” of this type is not fully revealed by the balance-ofpayments statistics (Table II). The two most striking in
Miscellaneous services.........................
Investment incom e..............................
- 1 ,5 7 4
—
103
81
+
13
— 395
stances occurred in Argentina and Brazil. Argentina’s com
Total goods and services.........................
-2 ,0 0 4
mercial and banking debt had risen to an estimated 160-180
million dollars when dollar transfers were suspended in May
1948. Subsequently, however, repayments, including over 20
Unilateral transfers:*
United States p rivate..........................
United States Governm ent................
+
+
24
9
+
+
27
10
+
+
13
6
+
+
12
5
+
33
+
37
+
19
+
17
million dollars allocated from export proceeds, reduced the
Long-term capital movement:
United States private..........................
United States Governm ent................
+
+
+
346
60
4
+
+
272
42
11
+149
+ 21
0
+228
+ 21
9
T o ta l............................................................
+
410
+
303
+ 17 0
+240
Gold and short-term capital:
Net sales of g o ld .................................
Net movement of United States short
term capital to or from Latin
+
809
+
179
+ 96
+ 28
+
344
—
33
-
6
-
83
—
193
—
95
-
22
-
98
T o t a l............................................................
+
960
+
51
+ 68
-1 5 3
Transfer of dollar funds to Latin Amer
ica by other foreign areas, and errors
and omissions........................................
+
601
+
655
+ 28 8
+ 280
and of the profits of American-owned business enterprises.
Argentine debt to 125-140 million. In the case of Brazil,
payment delays first became serious during the first half of
1948, but there was considerable improvement during the
remainder of the year. In 1949 dollar payment arrears again
increased, and the backlog of outstanding collections4 as re
Net movement of Latin American
short-term capital to United States
2 ECA offshore purchases in Latin America amounted to 143 million
dollars in 1948 and 312 million in the first eleven months of 1949.
3 The export surplus of Latin America with the German Bizone
totaled 102 million dollars in 1948, and 69 million in January-September 1949.
4 Export drafts (both sight and time) sent out for collection and
for which payment had not yet been received in the United States.
—
585
7
68
34
488
-3 3 6
- 22
+ 40
- 14
-2 1 3
-2 1 8
- 22
+ 42
- 18
-1 6 8
-1 ,0 4 6
-5 4 5
-3 8 4
—
+
—
* Donations, contributions, etc.
Source: Survey of Current Business, June and December 1949.
20
MONTHLY REVIEW, FEBRUARY 1950
Table III
Trade of Certain Latin American Countries with the United States
(In m illions o f d olla rs ; ( + )= :e x p o r t b a la n ce; ( — ) — im p ort b alance)
countries, notably Chile, Peru, and Mexico.5 Exports of
tropical food products were well maintained throughout the
economic readjustment in this country.
Country
Argentina:
Exports..........................
Im ports..........................
B alance..........................
B olivia:
E xp orts..........................
Im ports.........................
B alance............. ............
Brazil:
E xports............. ............
Im ports.........................
B alance............. ............
Chile:
E xp orts............. ............
Im ports.........................
B alance............. ............
Colom bia:
E xports............. ............
Im ports.........................
Balance............. ............
Cuba:
E xp orts............. ............
Im ports.........................
B alance............. ............
M exico:
E xp orts............. ............
Im ports.........................
Balance............. ............
Peru:
E xp orts............. ............
Im ports.........................
B alance............. ............
Uruguay:
E xp orts............. ............
Im ports.........................
B alance............. ............
Venezuela:
E xp orts............. ............
Im ports.........................
B alance.........................
T otal Latin American re
publics :t
E xports............. ............
Im ports.........................
B alance........................
1936-38
average
+
1947
-
+
49.3
29.4
19.9
-
-
445.7
643.2
197.5
513.8
497.6
+
16.2
-
122.3
125.4
3.1
-
-
0 .9
4 .9
4 .0
reflected in the estimates of Table III), and is believed to have
179.1
105.5
4- 7 3.6
as one third of the areas total exports to the United States.
4-
163
145
18
205.6
218.9
13.3
236.4
196.9
4- 39.5
4-
237
176
61
-
374.2
440.9
66.7
4-
417
371
46
-
242
466
224
the United States became as a result of the war the predominant
-
246.4
520.4
274.0
-
42
88
46
well into 1949 by virtue of Europe’s inability to resume
-
35.3
6 6.3
3 1.0
4-
57
35
22
forced by the changes in Latin American import demand
-
57.7
60.1
2 .4
-
274
538
264
imports of industrial equipment. In the absence of Germany
-
273.1
516.4
243.3
+
127.1
7 8.7
48.4
509.6
491.8
+
17.8
52.7
8 2.5
2 9.8
-
246.7
629.9
383.2
-
41.7
91.6
49.9
-
37.7
7 5.5
37.8
-
173.5
426.8
253.3
24.1
35.7
and the depletion of coffee stocks in Brazil in the face of
continuing high world demand. This price rise enabled Brazil
4-
+
2 3.0
40.9
17.9
-
492
413
79
4 8.3
3 5.9
12.4
10.3
8 .9
1 .4
90
133
43
and Colombia to achieve sizable export surpluses with the
+
12.8
180.1
380.0
199.9
51
38
13
29.5
24.1
5 .4
16.4
3 .6
1949*
a result of poor crop prospects in Brazil and Central America
154.5
680.0
125.5
81.8
7 9.3
2 .5
117.4
67.5
+
49.9
1948
Beginning in late
September 1949, coffee prices rose to unparalleled heights as
4-
11.6
United States during the last two months of 1949 (not fully
raised the value of Latin Americas coffee exports to as much
Causes of the Co ntinued D ollar Problem
Most of the causes of the continuing disequilibrium in
Latin America’s dollar position are legacies of the war. First,
source of Latin Americas imports, a role it continued to play
large-scale exports to the area. This development was rein
associated with industrialization and the consequent need for
from world markets, the United States has been the principal
source of such equipment in recent years.
633.9
484.6
149.3
2149.9
3857.8
-1 70 7 .9
2332.5
3161.7
- 829.2
2275
2750
475
Secondly, since the war, Latin America has found that, in
contrast to the situation in the thirties, its sizable export sur
* Estimated from first ten months.
t Including also Costa Rica, Dominican Republic, Ecuador, El Salvador, Guate
mala, Haiti, Honduras, Nicaragua, Panama, and Paraguay.
Source: United States Department of Commerce, Foreign Commerce Weekly,
various issues.
trols, directed particularly against less essential consumer
goods. In Argentina, imports of automobiles and cotton
goods were cut by as much as 95 per cent between 1947 and
1949, while petroleum imports were reduced by 44 per cent
and essential machinery by 60 per cent. In Brazil, automobile
and electrical-appliance imports declined 35 and 36 per cent,
respectively, while essential machinery imports from the United
pluses with Europe could not be converted into dollars. Argen
tina, Uruguay, Brazil, and Peru were particularly hard hit by
the inconvertibility of sterling.
The third wartime legacy is the price and income inflation
throughout Latin America, which started during the war as a
result of the area’s large export surpluses. In the absence of
adequate anti-inflationary fiscal and credit policies, the price
and cost structure of most Latin American countries has risen
much more than that of the United States. A huge monetary
overhang remains even after the record postwar imports, which
have satisfied some of the deferred wartime demand. The con
States were well maintained. In Mexico, the import of textiles
tinued high export level has tended to inflate the income and
and electrical appliances was virtually halved, while essential
price structure further, as have in some instances the govern
machinery imports fell only 12 per cent.
ment deficits associated with the financing of development
Latin America maintained the aggregate value of its exports
to the United States during 1948 and 1949 at
times the
1936-38 level. This reflected the postwar rise in world com
modity prices and the continued high national income in the
United States. The latter has been regarded as a precondition
for solving Latin America's dollar problem. Latin American
exports, on the whole, were curtailed relatively little by last
years inventory readjustment in the United States, although
the effects of the latter (and of consequent price changes)
were felt rather keenly by some of the mineral-producing
programs, and the expansion of commercial bank credit. It
is noteworthy, neverthelesss, that during 1948 and 1949 many
Latin American countries— particularly Brazil, Colombia, Cuba,
Ecuador, and Uruguay— achieved greater price stability than
during the immediate postwar years.
In contrast to their action after the First World War, the
majority of Latin American countries maintained their ex5 Between March and June, copper prices declined from 2 3 Vi cents
to 16 cents per pound, zinc from 17.5 cents to 9.55 cents per pound,
and lead from 18.90 cents to 12.00 cents per pound, but the price of
tin remained unaffected.
FEDERAL RESERVE BANK OF NEW YORK
change rates, until the latter half of 1949, at the level that had
prevailed at the end of the recent war. There can be little doubt
that, during this period, some of these exchange rates were
overvalued in terms of the traditional purchasing-power-parity
concept, but maintenance of the prewar rates probably did not
seriously affect the level of most Latin American exports to
the United States during the period. On the other hand, the
21
The continuing price and income inflation, combined with
the maintenance of relatively overvalued exchange rates, in
creasingly impaired the effectiveness of direct controls in some
instances, and resulted in some flight of capital. While some
Latin American currencies were depreciated as early as 1948—
openly in the case of Mexico and Colombia, but more often
through the modification of the various multiple-exchange-rate
relative cheapness and availability of United States products
systems as in Chile, Peru, Ecuador, and Costa Rica— most
was an important continuing cause of the excess demand for
major adjustments in Latin American exchange rates did not
dollars, which was brought into balance with the current
occur until after the sterling devaluation in the fall of 1949.6
supply of dollars by ever-tighter direct exchange and import
Whether these latest devaluations will help the Latin American
controls.
economies concerned in achieving a closer balance in their
payments relations with the United States will depend very
largely on the nature and scope of the internal measures,
M ethods
of
R e d u c in g
the
D o l l a r D e f ic it
The techniques used by Latin American countries to reduce
their dollar deficits have reflected throughout the period the
predominance of one or the other of the foregoing basic
fiscal and monetary, which those countries adopt.
6 The following Latin American countries have carried out open or
indirect devaluations since September 1949: Argentina, Uruguay,
Chile, Peru, Paraguay, Bolivia, and Ecuador.
causes of the dollar problem. After the war, when the very
great backlog of demand for consumer goods in Latin America
had to be met largely by imports from the United States,
Latin American countries found that they also had to buy in
the United States the equipment for their industrializa
tion.
When it proved impossible to maintain the 1947
import volume from the United States without depleting
their dollar reserves, some of the countries resorted to direct
discriminatory import controls. In the main these took the
form of more stringent quotas on the less essential consumer
goods, while imports of productive equipment and raw
materials were favored. In the case of Brazil, problems of
coordinating import and exchange controls at first interfered
with the effectiveness of the program, but in the second half
of 1949 foreign-exchange budgeting began to be rigidly en
forced. Chile employed the exchange-budget device somewhat
earlier and combined it with the multiple exchange rate
technique in limiting less essential imports from the United
States. In Mexico, where exchange control was eschewed,
restrictive quotas on less essential United States imports, and
import prohibitions in some cases, were combined with de
IN D U STR IAL G R O W T H IN SECOND
D IST R IC T STATES, 1939-47
M a n u f a c t u r i n g A c t iv it y
in
N ew Y ork
Manufacturing growth in the State of New York since 1939
has been nearly, but not quite, commensurate with the tre
mendous over-all expansion of manufactures in the United
States, despite the mushroom-like growth of many less heavily
industrialized areas during the war and postwar years. This
conclusion is indicated by the first postwar Census of Manu
factures, which covered the year 1947. New York continued
to rank first among the States in 1947 in terms of all the
measures of industrial activity: number of establishments,
number of production workers, total wages and salaries paid,
and value added by manufacture.1 Its output accounted for
over one eighth of all manufacturing production in the
country (in terms of value added by manufacture), and sur
passed that of Pennsylvania, the second largest industrial State,
by nearly 40 per cent.
Nevertheless, New York led the other States by a somewhat
valuation of the currency. Peru during 1949 carried through a
gradual but very substantial depreciation of its currency, com
lesser margin in 1947 than in 1939, because its rate of growth
bining it with the elimination of the multiple exchange rate
during the inter-Census period did not quite keep pace with
system and the easing of exchange control; under this program,
that of the country as a whole. Value added by manufacture
the reestablishment of the free exchange market serves as an
in New York increased 192 per cent (from 3.3 to 9.7 billion
important mechanism for reducing the demand for dollar
dollars) between 1939 and 1947, while in the United States it
imports.
jumped 204 per cent during the same period. Production
After it became clear following the British convertibility
crisis of August 1947 that sterling inconvertibility would be
a continuing problem, some Latin American countries made
increasing use of direct controls and bilateral trade and payment
agreements in their efforts to shift the import demand from
North American to European suppliers.
1 Value added by manufacture is the amount by which the value
of shipments exceeds the cost of materials and supplies. It is particu
larly significant as an indicator of the net contribution of a given
industry or area to the total national product. It is not a measure of
the change in physical output because it is affected by the price level.
Caution should be exercised even when it is used as a comparative
measure, because of variations in the price structure of different in
dustries and regions.
MONTHLY REVIEW, FEBRUARY 1950
22
worker employment in New York rose 50 per cent, compared
with 53 per cent in the United States. Similarly, the aggregate
The Relative Importance of Industries, New York and
All Other States Combined, 1947
wages of production workers rose 231 per cent in the State,
(A s a percentage of total value added by manufacture*)
and 236 per cent in the nation.
That New York’s percentage gains were almost as large as
in the rest of the country is, in fact, surprising. It was, of
course, easier for the States whose output in the base year
(1939) was relatively low to score impressive percentage
gains.
Moreover, the composition of New Yorks output
gives its economy more stability, in periods of both expansion
and contraction, than is the case in many other industrial
States. The production of nondurable goods comprised 61
per cent of all manufacturing in New York State during 1947,
compared with only 48 per cent in the rest of the United
States. Thus, although the increase in durable goods output
(233 per cent) during the inter-Census period was the same
in New York as in the nation, the larger share of New York’s
total production devoted to nondurable goods was reflected in
a somewhat lower over-all percentage increase for the State.
0
The Census Bureau collects data for 453 separate manufac
10
20
30
40
50
Percentage of total value added by m anufacture
turing industries, which are grouped into twenty major industry
groups, half of which produce nondurable goods. These ten
industry groups, which in 1939 had accounted for 66 per cent2
* Value of shipments less cost of materials and supplies.
S ource: Computed from data of the U . S. Census Bureau by the Federal
Reserve Bank of New York.
of New York’s manufacturing activity, grew more slowly than
durable goods during the inter-Census period and dropped in
manufacturing became a substantially more important factor in
importance to 61 per cent of the total.
New York’s economy. All durable goods industries except
The concentration of manufacturing in a few major fields
remains the characteristic trait of New York’s economy. The
primary metals maintained or improved their 1939 share in
the total manufacturing activity of the State.
three largest industry groups (apparel and related products,
The largest and fastest growing of all the durable goods
printing and publishing, and food and kindred products),
industry groups in New York was nonelectrical machinery.
together accounted in 1947 for nearly 43 per cent of total value
added by manufacture, and for 37 per cent of all production
workers in the State. In all other States combined, the share
Value added by manufacture in this industry in 1947 totaled
678.7 million dollars, or 7 per cent of all manufacturing done
in the State. No other durable goods industry group accounted
of these three industries in total manufacturing was less than
half as large as in New York.
for more than 5 per cent of the State total. Fabricated metals,
electrical machinery, instruments and related products, and
Apparel and related products was the only leading nondur
able goods industry group whose relative importance in the
State increased materially during the inter-Census period. All
other nondurable goods groups were responsible for a lesser
share of the industrial activity of the State in 1947 than in
1939 (except leather and leather products, whose share im
proved only slightly). The greatest relative losses, none of
which was very extensive, were sustained by the food and
kindred products, printing and publishing, chemical, and tex
tile industry groups.
Expansion of durable goods industries between 1939 and
1947 accounted for less than 42 per cent of total industrial
growth in New York, compared with 54 per cent in the other
States combined. During this period, however, durable goods
transportation equipment followed in order of importance.
Each of these had value added by manufacture in excess of
400 million dollars.
There were few substantial shifts in the geographic con
centration of manufacturing activity within the State, even
though rates of growth were far from uniform. The most
rapidly expanding areas were Elmira and Syracuse. The five
boroughs of New York City expanded industrially somewhat
more rapidly than the State as a whole. In 1947 they accounted
for 57.0 per cent of all the manufacturing in the State, in
terms of value added by manufacture, compared with 55.8
per cent in 1939. However, in terms of production worker
employment, the City’s contribution of approximately 50 per
cent to the total was unchanged. This would suggest that
New York City’s greater than average increase in value added
2 Except where designated otherwise, manufacturing values and by manufacture was the result of its lead in the apparel in
growth are given in terms of value added by manufacture.
dustry. The change in value added by manufacture in that
FEDERAL RESERVE BANK OF NEW YORK
industry was doubtless greater relative to the expansion in
physical output than it was in other industries in New York
State.
As a result of spectacular industrial expansion in Nassau
and Suffolk Counties, industrial growth was more rapid in
the New York metropolitan area3 than in the city itself.
23
D E P A R T M E N T STORE T R A D E
Post-Christmas department store sales in the Second Dis
trict were somewhat slower than usual. According to a pre
liminary estimate, seasonally adjusted sales during January
declined about 4 per cent from the substantial December
dollar volume. Daily average sales were about 6 per cent
less than in January of the preceding two years and possibly
slightly less than in January 1947. Rough adjustment for
I n d u s t r ia l G r o w t h
in
N e w J e rse y
New Jersey was permanently affected even less than the
price changes suggests that unit sales in January 1950 fell
slightly behind those of a year ago.
Empire State by the wartime industrial boom. In 1947, 5.6 per
R e c e n t I n v e n t o r y P o l ic y
cent of all manufacturing in the United States was carried out
in New Jersey, compared with 6.2 per cent in 1939. Yet,
although New Jersey lost in relation to the country as a whole,
it maintained its position as the sixth largest manufacturing
State. Value added by manufacture in New Jersey increased
from 1.5 billion dollars in 1939 to 4.2 billion dollars in 1947.
This absolute growth was larger than that of all except six of
the other States.
Reflecting the more optimistic attitude which has accom
panied the recovery in business activity since late summer,
the District’s department stores replenished their thinned out
inventories during the last four months of 1949. Between
Easter and the opening of the fall season, the stores had
allowed their inventories to run down to an exceptionally
low level in relation to current sales. During the period from
April 1 to August 31, new orders had been kept 16 per cent
The same over-all tendency as in New York— for durable
below those of the corresponding 1948 period. During the
goods manufacturing to gain on the heavily entrenched non
latter part of August, however, in an effort to bring stocks
durable goods industries— was apparent in New Jersey. The
up to a more adequate working level, stores began to place
State’s leading industry, chemical manufacturing, lost com
orders at an accelerated rate. By September, coincident with
paratively the most ground.
a halt in the decline of apparel and housefurnishings prices,
The only nondurable goods
industries which improved their relative positions were paper
and paper products and rubber products, whose proportionate
gains, however, were small.
Durable goods manufacturing accounted in 1947 for nearly
the stores were ordering a larger dollar amount than in the
same month a year before. Taking the last four months of
Outstanding Orders and Stocks of Second District
Department Stores*
(Actual end-of-m onth data, 1946-49)
45 per cent of New Jersey’s manufacturing activity, a fivepoint gain over 1939- The chief contributors to this growth
were the machinery industries, both electrical and nonelectrical.
M a n u f a c t u r in g
in
Co n n e c t ic u t
Connecticut was displaced as the tenth largest industrial
State by Wisconsin, which had a very substantial growth in
Millions
of dollars
Millions
of dollars
250
200
150
125
too
the metals and machinery industries. Manufacturing activity
expanded somewhat more rapidly in Fairfield County (the
75
only Connecticut county located in the Second Federal Reserve
50
District) than in the State as a whole, so that in 1947 Fair
field County’s output represented 30 per cent of the value
added by manufacture in Connecticut compared with 27 per
25
cent in 1939. Fairfield County’s economy is heavily dominated
by durable goods manufacturing, as is that of the State as a
whole. The leading industries of Fairfield County in 1947 were
nonelectrical and electrical machinery, primary and fabricated
metals, and textile mill products. Together these five groups
10
1946
1947
1948
1949
accounted for three fifths of the county’s industry.
3 The five boroughs of New York City plus Nassau, Rockland,
Suffolk, and Westchester Counties.
* F or a representative group of stores whose 1949 sales were more than half
of the estimated Second District total. Plotted on ratio scale to show propor
tionate changes.
MONTHLY REVIEW, FEBRUARY 1950
24
Outstanding Orders as a Percentage of Stocks
Second District Department Stores*
Average during year
Year
Department and Apparel Store Sales and Stocks, Second Federal Reserve
District, Percentage Change from the Preceding Year
Net sales
On December 31
Locality
1940................................................................
1946................................................................
1947................................................................
1948................................................................
1949................................................................
22
63
57
29
33
32
117
56
48
38
Dec. 1949
* For the same group of stores as in the chart.
the year as a whole, new orders were expanded 13 per cent
above the amounts ordered in the same months of 1948. The
increase in the physical volume of goods ordered must have
been even greater, considering the price declines which had
occurred earlier in 1949-
Department stores, Second District___
-
New York C ity ......................................
Northern New Jersey...........................
Newark................................................
Westchester C o u n ty .............................
Fairfield C ou n ty ....................................
B ridgeport..........................................
Lower Hudson River V alley...............
Poughkeepsie......................................
Upper Hudson River V alley...............
-
Schenectady........................................
Central New York S tate.....................
Mohawk River V alley.....................
The more liberal commitment policy of the stores led to a
Northern New York State..................
Southern New York State...................
Binghamton........................................
continuous rise in the dollar amount of inventory during the
Western New Y ork State....................
September-December period, after allowing for purely sea
Niagara Falls......................................
R ochester............................................
sonal factors, and to a sharp narrowing of the year-to-year
Apparel stores (chiefly New Y ork C ity).
3
Stocks on
Jan.through
hand
Dec. 1949 Dec. 31, 1949
-
7
-
4
3
1
0
- 2
- 2
+ 3
+ 1
- 3
- 5
- 5
- 1
- 1
+ 3
- 2
-1 1
- 4
- 4
- 4
- 3
- 4
+ 1
- 3
+
—
-
8
6
6
3
8
8
4
4
5
7
5
6
8
7
5
7
8
9
7
5
4
4
8
-
3
1
0
+ 9
-1 1
-1 3
-1 2
-1 4
-1 6
-2 5
- 3
- 5
-1 2
-1 1
- 1
-1 4
-1 4
-1 6
-1 3
- 4
- 7
+ 1
+ 1
-
-
9
-1 1
5
4
difference. On August 31, 1949 the dollar volume of stocks
was 16 per cent less than on the corresponding date one year
previous; by the end of the year, although December sales
through the end of 1949 the more liberal inventory policy
were fully up to merchants’ expectations, the gap was 4
which they had initiated just before the fall selling season
per cent.
got underway.
As the accompanying chart shows, another consequence of
the more active buying policy, despite a fair-sized year-end
seasonal drop in outstanding orders, was a moderate year-toIndexes of Business
year gain on December 31 in the stores’ forward buying posi
tions. There was also an increase in outstanding orders rela
1948
tive to stocks actually on hand. As noted in the table, out
standing orders at the end of 1949 were 33 per cent as large
as stocks, in contrast to 29 per cent at the end of the previ
ous year. During 1949 as a whole, however, end-of-month
outstanding orders were smaller relative to stocks than in
1948 (38 as against 48 per cent).
The combination at the year’s end— smaller stocks but
greater outstanding orders than at the end of 1948— suggests
the possibility of a further planned rise in stocks, in the
anticipation that 1950 spring sales will come close to or exceed
those of 1949, and perhaps partly because of the firm course
of prices in recent months. In any event, the recent commit
ment positions clearly indicate that the stores maintained
Indexes of Department Store Sales and Stocks
Second Federal Reserve District
(1 9 3 5 -3 9 a v e r a g e s 100 per cen t)
1948
1949
Item
Dec.
Oct.
Nov.
Dec.
Sales (average daily), unadjusted.................
Sales (average daily), seasonally ad ju sted ..
416r
247
243
219
293
226
401
239
Stocks, unadjusted............................................
Stocks, seasonally adjusted.............................
216r
237r
244
216
255
221
207
227
r Revised.
1949
Index
Industrial production*, 1935-39= 100.........
(Board of Governors, Federal Reserve
System)
Electric power output*, 1935-39 = 100........
(Federal Reserve Bank o f New York)
Ton-miles of railway freight*, 1935-39 = 100
(Federal Reserve Bank of New York)
Sales of all retail stores*t, 1935-39 = 100___
(Department of Commerce)
Factory employment
United States, 1939 = 100..........................
(Bureau of Labor Statistics)
New York State, 1935-39 = 100................
(N Y S Div. of Placement and Unemp. Ins.)
Factory payrolls
United States, 1939 = 100..........................
(Bureau o f Labor Statistics)
New Y ork State, 1935-39 = 100................
(N Y S Div. o f Placement and Unemp. Ins.)
Personal income*, 1935-39 = 100..................
(Department o f Commerce)
Composite index of wages and salaries*!,
1939 = 100......................................................
(Federal Reserve Bank o f New York)
Consumers’ prices, 1935-39 = 100.................
(Bureau of Labor Statistics)
Velocity of demand deposits*, 1935-39 = 100
(Federal Reserve Bank o f New York)
New York C ity .............................................
Outside New York C it y ..............................
*
t
e
t
Dec.
Oct.
Nov.
Dec.
192
166
173
178p
258r
256
256
267p
186
134
154p
341
330
329
325p
154
139
137
140p
124
117p
115p
115p
361
321
314
330e
298
278p
269p
275p
316
305
306p
198
202p
202p
171
169
169
95
87
106
89
99
86
168
96
83
Adjusted for seasonal variation.
p Preliminary.
r Revised,
Revised beginning January 1943.
Estimated by the Board of Governors of the Federal Reserve System.
A monthly release showing the 15 component indexes of hourly and weekly
earnings in nonagricultural industries com puted by this bank will be sent upon
request. Tabulations of the monthly indexes, 1938 to date, m ay also be pro
cured from the Research Department, Domestic Research Division. This series
has been recently revised back to September 1946.
N A T IO N A L S U M M A R Y OF BUSINESS CO NDITIONS
(Summarized by the Board of Governors of the Federal Reserve System, January 28, 1950)
output increased further in December and the
in most of the preceding postwar years and in January average
first half of January. Construction activity showed a less
than seasonal decline and contract awards were in very large
weekly production of paperboard was back to the high pre
holiday levels. Output of manufactured foods declined some
what in December as activity in the canning industry showed
I
N D U S T R IA L
volume for this time of the year. Commodity price changes
a further decline which was offset only in part by a slight
were generally small.
gain in meatpacking.
Output of chemicals and petroleum
products advanced moderately, and coke production rose
I n d u s t r ia l P r o d u c t io n
sharply.
Industrial production, as measured by the Boards seasonally
Output of coal declined one fourth in December as a shorter
adjusted index, increased 5 points in December to 178 per
work week was reintroduced, and crude petroleum production
cent of the 1935-39 average, the highest level since April 1949.
Activity in durable goods industries showed a substantial
somewhat. In early January, production of coal declined further
rise, while nondurable goods production was little changed
by about one tenth.
from the high November rate, and output of minerals declined
7 per cent.
was cut 3 per cent. Metal mining, on the other hand, increased
Em p l o y m e n t
Employment in nonagricultural establishments increased
Steel ingot production increased sharply in December to
somewhat further in December after allowance for seasonal
95 per cent of capacity. In the first four weeks of January
changes, reflecting largely advances in durable manufacturing
operations were scheduled at 94 per cent of the new rated
industries as a result of settlement of the steel labor dispute.
capacity, which, as announced in mid-January, is 3 V2 per cent
Employment in most other industries showed little change.
larger than last year’s. Reflecting in part more adequate steel
supplies, activity in the machinery and transportation equip
C o n s t r u c t io n
With
Value of construction contracts awarded in December,
completion of model changeovers, assembly of automobiles
according to the F. W . Dodge Corporation, was more than
in mid-January was at about last autumns record rate but
one-third greater than a year ago. Awards for manufacturing
subsequently it was curtailed by a labor dispute. There were
building rose sharply to year-ago levels. The number of new
further increases in output of nonferrous metals and building
housing units started in December, as estimated by the Bureau
materials in December. Lumber production was at the highest
of Labor Statistics, declined seasonally to 79,000 units, com
rate for this month in many years.
pared with 93,000 units in November and 53,000 in December
ment industries advanced moderately in December.
Cotton consumption and paper production in December
showed smaller declines than had occurred in the same month
PERSONAL INCOME
INDUSTRIAL PRODUCTION
Federal Reserve
December.
index.
M onthly
figures;
latest
1948; the total for the year was 1,019,000 units, about 10
per cent more than the total in 1948.
figure
shown
is
for
Department of Commerce estimates. M onthly figu res; latest shown are for
November. Total includes “ other labor incom e” , such as employer contribu
tions to private pension funds, not shown separately. Employee contributions
for social insurance are included in wage and salary disbursements but not in
total.
D istribution
higher while prices of some manufactured products, such as
Department store sales, according to the Boards seasonally
batteries and wool blankets, were reduced. A moderate reduc
adjusted index, were 293 per cent of the 1935-39 average in
December, as compared with 276 in November and an average
tion in retail food prices in December contributed to an 0.7
of 285 for the year 1949. Sales in the first half of January,
especially of apparel, showed more than the usual seasonal
decline.
Total shipments of railroad revenue freight were maintained
in December and early January after allowance for seasonal
influences.
Substantial gains in loadings of ore and steel
products were offset by a considerable reduction in coal ship
ments from the temporary high level of November.
Commodity Prices
Wholesale commodity prices generally continued to show
little change from mid-December to the third week of January.
While prices of some foods and feedstuffs declined somewhat,
per cent decline in the consumers’ price index.
Ba n k Credit
Holdings of U. S. Government securities increased by 880
million dollars during December and the first three weeks of
January at banks in leading cities. Loans to businesses and con
sumers and loans on real estate continued to expand somewhat.
Net Treasury expenditures and a seasonal inflow of currency
from circulation supplied reserves to banks in the first three
weeks of January. Excess reserves were at a high level in the
early days of January but subsequently declined somewhat
as the Federal Reserve reduced its holdings of U. S. Govern
ment securities.
Security M arkets
prices of hogs and pork products rose. On January 17 it was
The extended rise in common stock prices was interrupted
announced that Federal support purchases of pork would be
in January. Bond prices showed little change. The Treasury’s
made during the first quarter if hog prices did not rise season
announcement on January 13 that a new IV4 per cent 20-
ally.
Reflecting earlier and continuing sharp increases in
month note would be offered in exchange for certificates
prices in foreign markets, spot prices of foreign apparel wool
maturing February 1, 1950, was followed by some increase
in this country advanced. Fuel prices were also somewhat
in yields on short-term Treasury securities.
DEPARTMENT STORE SALES AND STOCKS
Federal Reserve indexes. M onthly figures; latest figure for sales is Decem
b er; latest for stocks is November.
WHOLESALE COMMODITY PRICES
Bureau of Labor Statistics’ indexes.
week ended January 17.
W eekly figures; latest shown are for
@FedFRASER