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MONTHLY REVIEW
O f Credit and Business Conditions
F E D E R A L
V o lu m e
34
R E S E R V E
B A N K
FEBRUARY
The sharp reversal in United States gold movements last
year can be seen in Table I. As recently as the first quarter
of 1951 gold sales to foreign countries by the United States
amounted to 880 million dollars— the largest outflow for any
quarter since September 1949. During the entire period from
October 1949 through June 1951 this country sold gold to an
amount of 2,818 million dollars. But as the result of the new
gold influx, the United States in the second half of 1951 reac
quired 36 per cent of the gold that it had sold to foreign
countries during the earlier period.1
During the three months ended September 1951 the gold
acquired by the United States came mainly from the United
Kingdom. Actually, the purchases from the United Kingdom
amounted to 320 million dollars, but these purchases, together
with others from the Union of South Africa and Latin Amer
ica, were partially offset by United States sales to Western
Europe, Egypt, and other areas, with the result that net United
1 For an account of the changes in foreign gold and dollar assets in
recent years, see the Monthly Review, July 1950, pages 79-82
("The Rise in Foreign Gold and Dollar Assets” ) , and January
1951, pages 7-10 ("G old Movements and Monetary Reserves” ).
These articles also contain statistical data for earlier periods
comparable to those given in Table II of the present article; and
the term "foreign gold and dollar assets” is used here as defined
in these articles.
2 Data regarding United States gold movements by countries are pub
lished at quarterly intervals in the Bulletin of the Treasury
Department and in the Federal Reserve Bulletin.
N E W
Y O R K
1952
R E V E R S A L IN F O R E IG N H O L D IN G S
The gold outflow from the United States which followed
the general currency readjustments of September 1949 came
to an end in mid-1951. From July through December 1951
the United States instead received from foreign countries a
net amount of 1,005 million dollars’ worth of gold— 290 mil
lion in the third quarter and 715 million in the last. During
January 1952 the United States gold stock rose by 236 million
dollars.
O F
No. 2
O F G O LD A N D D O LLA R S
States acquisitions amounted only to 290 million.2 Details by
countries of the 715 million of United States gold acquisitions
in the final quarter of 1951 have not yet been published; how
ever, according to the British Chancellor of the Exchequer,
the United Kingdom suffered a particularly severe loss of gold
and dollars during this period. The reversal in United States
gold movements thus appears, from currently available data,
to mark a setback primarily in the international financial posi
tion of the United Kingdom and the overseas sterling area.
The recent international gold movements can be better
understood against the background of the changes in the
monetary gold stocks of foreign central banks and governments
and the dollar balances and certain other dollar assets held in
the United States on both official and private foreign account.
Table II shows the foreign gold and dollar assets in September
1949, 1950, and 1951; June 1951 data are also given, as mark
ing their recent high point. The accompanying chart shows
the quarterly movements in gold and dollar assets for the
most important areas since the end of 1945.
In June 1951, foreign gold and dollar assets stood at 19.8
billion dollars, 5.2 billion, or 35 per cent, higher than in
September 1949, and 3.3 billion, or 20 per cent, more than
CONTENTS
Reversal in Foreign Holdings of
Gold and D ollars.................................................
13
Money Market in January..................................
17
Review of Security Markets in 1951..................
19
The Nature and Significance of the
Government’s Cash Budget ..........................
23
Department Store T rade....................................
28
MONTHLY REVIEW, FEBRUARY 1952
14
Table I
United States Net Gold Purchases from Foreign Countries*
(In millions of dollars; negative figures indicate net sales
by the United States)
Period
Amount
1949— October-D ecem ber.....................................
-
151
1Q50 — January-M arch..........................................
-
202
32
732
764
April-June....................................................
July-Septem ber..........................................
October-D ecem ber.....................................
T otal 1950.......................................
1951— January-M arch..........................................
April-June....................................................
July-Septem ber..........................................
October-D ecem ber.....................................
Total 1951.......................................
- 1 ,7 3 0
-
880
57
290
715
68
* Including transactions with the Bank for International Settlements.
Source: Federal Reserve Bank of New York.
in June 1950 at the time of the outbreak of hostilities in
Korea. However, they were 0.9 billion dollars, or 4 per cent,
less than the 20.7 billion dollars at which they stood at the
end of 1945, before the serious depletion of the early postwar
years.
During the three months ended September 1951, these gold
and dollar assets declined by 0.3 billion dollars, or 2 per cent.
This decline, however, like the previous rise, was very unevenly
distributed, as is apparent from Table II and the chart. The
largest increase, both absolute and relative, had been in the
sterling area— from 2.4 billion dollars in September 1949 to
5.0 billion in June 1951, or 105 per cent. This was followed
during July-September 1951 by a decline for the area of 0.6
billion dollars, or 11 per cent. Comparable data for the last
quarter are not yet available, but gold and official dollar hold
ings of the United Kingdom alone3 stood in December 1951
at 2,335 million dollars, as against 3,269 million in September
and 3,867 million in June 1951— the loss during the last three
months of 1951 being the highest ever recorded for one
quarter.
Republic) by 145 million; there was little change for Italy,
the Netherlands (including its dependencies), Sweden, or
Switzerland, but a loss of 56 million for France and its
dependencies.
Canadas gold and United States dollar assets declined very
slightly during the third quarter of 1951; at the end of the
period, however, they were still 0.6 billion above the level
of September 1949. Latin America lost 0.2 billion in the
third quarter, but its holdings were still 0.6 billion above
September 1949. Asiatic nonsterling countries showed an
increase of less than 0.2 billion in the quarter; for the two
years there was a gain of 0.5 billion, with Indonesia, Japan, and
the Philippines reporting the most significant increases. Egypt
experienced a considerable increase.
These widely divergent recent changes in gold and dollar
assets reflect, of course, important changes in the various
countries’ balances of international payments. The balanceof-payments changes reflect in turn both the underlying con
ditions that have shaped the world economy as a whole since
Korea, and various special factors that have operated in indi
vidual countries and areas.
The United States economy responded more quickly to
Korean developments than did those of most foreign coun
tries. More particularly, in the first nine months following
the outbreak of hostilities in Korea, the volume of United
Foreign Gold Reserves and Dollar Assets
3
Billions
of dollars
B ill ion
o f dollars
Gold and dollar assets of foreign countries outside the
sterling area increased during the third quarter of 1951 by
0.2 billion dollars. Of these holdings, those in the hands of
countries (other than the United Kingdom) participating
in the European Recovery Program rose by 265 million.
Belgian holdings (including those of the Belgian Congo)
increased by 63 million, and those of Germany (Federal
3 I.e., the central reserves of the sterling area, as made public by the
British Chancellor of the Exchequer. These official British figures
differ in two respects from those given in Table II: first, they
cover only the central reserves of the sterling area held by the
United Kingdom as the area’s banker, while those of Table II in
addition comprise gold and dollar assets held by some sterling
area countries individually; secondly, British official figures include
official British holdings of Canadian dollars and exclude
private United States dollar holdings, while the data compiled in
Table II include private dollar holdings.
1946
1947
1948
1949
1950
1951
* E xcluding gold holdings, but including dollar assets, o f the U S S R .
national institutions are excluded,
t E xcept the United K ingdom and Switzerland.
# Including the United Kingdom but excluding Eire and Iceland.
% E xcluding sterling, French-franc, and Dutch-guilder areas.
Inter
FEDERAL RESERVE BANK OF NEW YORK
States imports (partly for strategic stockpiling) rose sharply;
and since commodity prices increased very considerably, in
some cases to all-time highs, the import expansion caused a
great rise in the dollar earnings of the overseas sterling area,
Latin America, and other primary-producing countries. Im
ports of finished manufactures, supplied mainly by Western
Europe, also went up.
This upward trend in United States imports came to an end
in the second quarter of 1951. Imports declined 18 per cent
in value and 20 per cent in volume from the first quarter to
the third, although they recovered somewhat toward the end
of the year. At the same time, United States exports, which
had risen sharply up to April 1951, fell off somewhat during
the summer but remained much higher in value than at the
beginning of the year ( even without taking account of
Government-financed shipments under the Mutual Defense
Assistance Program). Third-quarter exports were 10 per cent
15
higher in value than in the first three months of 1951, and this
level was probably maintained during the final quarter. This
high level of exports, of course, reflected a sustained demand
from abroad. The net result of these various import and
export trends was that the United States export surplus, which
had disappeared in the third quarter of 1950, greatly increased
in the second quarter of 1951, and by the latter part of 1951
was running as high as in mid-1949 when the so-called dollar
shortage appeared particularly critical.
In most foreign countries, the post-Korean inflationary
upswing occurred later than in the United States, but with the
exception of Canada and some Continental Western European
countries, it continued through 1951. Although world primary
commodity prices began to fall in April 1951, wholesale prices
generally in most foreign countries either remained stationary
in the latter part of the year or continued to rise. In the
primary-producing countries, where high prices for exports
Table II
Foreign Gold Reserves and Dollars Assets
(In m illions o f d olla rs)
September 1951p
September 1950
June 1951
September 1949
Gold
Dollar
assets
T otal
Gold
Dollar
assets
Total
Gold
Dollar
assets
Total
Gold
Dollar
assets
C anada......................................................
691
1,243
1,934
652
1,329
1,981
554
1,591
2,145
460
827
1,287
Sterling area*...........................................
3,739
1,777
670
2,447
769
545
935
736
148
538
Area and country
E R P countries other than United
K ingdom :
Belgium-Luxembourg (and Belgian
C o n g o )..............................................
France (and dependencies)...............
Germany (Federal R epublic)...........
Ita ly.......................................................
Netherlands (and Netherlands West
Indies)...............................................
Sweden..................................................
Switzerland..........................................
Other E R P countries!.......................
712
568
731f
4 ,4 7 0 f
4,156
5 ,0 2 5 f
252
189
313
357
276
842
881
357
528
335
129
1,451
849
160
99
509
263
495
228
1,960
1,112
905
825
502
539
653
568
252
193
257
502
287
335
128
1,446
900
165
89
511
323
500
217
1,957
1,223
—
869f
—
2,985
945f
3 ,9 3 0 f
Total
252
164
271
286
304
822
814
286
556
258
166
191
148
280
254
87
1,529
676
284
110
600
272
538
197
2,129
948
179
70
1,485
647
194
62
509
234
373
132
1,994
881
658
543
—
—
T ota l.....................................
4,341
2,327
6,668
4,237
2,166
6,403
3,999
2,291
6,290
3,953
1,784
5,737
Other Continental E urop e**...............
461
86
547
461
90
551
482
97
579
499
102
601
Latin America : f t ....................................
Argentina..............................................
Brazil.....................................................
Venezuela.............................................
Other Latin A m erica.........................
276
317
373
1,028
312
140
76
961
588
457
449
1,989
288
317
373
1,038
344
212
76
1,008
632
529
449
2,046
216
317
373
863
269
187
102
960
485
504
475
1,823
164
317
373
726
222
145
99
819
386
462
472
1,545
T ota l.....................................
1,994
1,489
3,483
2,016
1,640
3,656
1,769
1,518
3,287
1,580
1,285
2,865
Asia: f t
Philippines...........................................
Other A sia ............................................
6
718
369
987
375
1,705
5
717
404
809
409
1,526
3
677
318
715
321
1,392
1
703
348
521
349
1,224
1,573
T ota l.....................................
724
1,356
2,080
722
1,213
1,935
680
1,033
1,713
704
869
All other....................................................
179
138
317
148
120
268
100
94
194
55
85
140
Grand tota l.........................
12,129
7,370
19,499
12,392
7,427
19,819
10,569
7,569
18,138
9,028
5,622
14,650
N ote: The table covers reported gold reserves of central banks and governments (excluding the USSR) and official and private dollar assets held in the United States
by foreigners (including the USSR). Gold and dollar holdings of the International Monetary Fund, the International Bank for Reconstruction and Development,
and the Bank for International Settlements are excluded. Gold figures are partly estimated. See definition of “ foreign gold and dollar assets” in previous articles
referred to in footnote 1 on the first page of this Review,
p Preliminary.
* Including the United Kingdom but excluding Eire and Iceland, which are included under “ E R P countries” ,
t Including certain dollar assets held in specific trust accounts previously not covered.
t The data for this group of countries include gold to be distributed, as restitution by Germany, by the Tripartite Commission to European countries (including some
non-ERP countries).
** Including the dollar assets, but not the gold reserves, of the USSR,
f t Excluding sterling, French-franc, and Dutch-guilder areas.
Source: Federal Reserve Bank of New York.
16
MONTHLY REVIEW, FEBRUARY 1952
aggravated existing inflationary tendencies, imports tended to
increase greatly; this was especially true of Latin America and
the overseas sterling area. In the latter part of 1951, almost
every sterling area country was in deficit in its external pay
ments with every major area of the world; over and above
its deficits with the United States and other countries of the
Western Hemisphere for which payment has to be effected
in dollars, the sterling area incurred a deficit with Continental
Western Europe.
The sterling areas gold and dollar position was influenced,
in addition, by the United States* suspension of tin purchases
and by the slowing down in strategic stockpiling of rubber, by
the accumulation of strategic stocks of raw materials in the
United Kingdom, by the loss of Iranian oil, and by the pay
ment of 176 million dollars representing the first instalment
of interest and principal on the United States and Canadian
loans received in 1946. The areas dollar drain since mid
summer of 1951 was also partly attributed to an acceleration
of import payments and a slowing down in the repatriation of
export proceeds.
Another special factor which exerted an unfavorable influ
ence on the balances of payments of some industrial countries
of Western Europe was the deterioration in their terms of
trade. In the early months of last year, import costs rose
markedly under the impact of the world commodity price
advance, and, since prices of manufactured exports lagged
behind import prices, the deterioration in the terms of trade
was not entirely made good by the year end. However, in
many countries increases in wages and other costs were a more
powerful inflationary force than increased import costs. The
terms of trade appear to have worsened to practically the same
extent in France, Germany, Italy, Switzerland, and the United
Kingdom, and to a somewhat smaller extent in the Nether
lands— countries that for the most part are very dependent
on foreign trade. Yet, as is apparent from Table II, some of
these countries lost gold and dollar assets while others gained.
In the latter countries, the deterioration in the terms of trade
was therefore offset by heavier exports. Another special fac
tor that weighed heavily on some Western European countries
was the necessity of greatly increased coal imports from the
United States, to make up the coal deficit that suddenly
reappeared last year.
Capital movements affected the gold and dollar position of
some countries. Reference has already been made to the specu
lative movements of funds in the sterling area. In France, a
sudden decline of confidence in monetary stability led in the
fall of 1951 to speculation in gold, foreign exchange, and com
modities, reminiscent of the early postwar years. Uruguay and
Mexico apparently also experienced a reversal of the inflow
of short-term private capital that had taken place in late
1950 and early 1951.
In Canada, the inflow of American funds for direct invest
ment and for the purchase of new security issues appears to
have been large enough last year to offset the greatly increased
deficit in that country’s trade with the United States. The
Canadian dollar, after being unpegged in October 1950, fluctu
ated around 95 U. S. cents up to early last December when it
went up to 98 cents and Canadian exchange controls were
abolished. Recently the Canadian dollar has been quoted at
or near par.
For most of the countries and areas that have recently lost
gold and dollar assets, their increased dollar gap is merely a
part of an over-all balance-of-payments deficit. Under these
circumstances, a general domestic retrenchment appears in
dicated, and those countries of Western Europe that are ex
periencing over-all external deficits have, along with other
measures, had recourse to monetary restraints. France has
strengthened its existing monetary controls; and the United
Kingdom, whose stabilization policy in postwar years had
relied far less on monetary instruments than on the antiinflationary effect of a budgetary surplus and direct controls,
has since last November put into effect new monetary mea
sures described by the Chancellor of the Exchequer as a "clear
change in emphasis”. This return to monetary measures has
been confined, however, to Western Europe and Canada; in
most primary-producing countries, including most of the over
seas sterling area countries, effective monetary and credit
controls have not yet been applied despite continued infla
tionary pressure.
The fundamental upward trend in world production is con
tinuing unabated. Up to early 1951 the rise in output was
accompanied by a substantial improvement in the international
payments position, in which nearly all countries shared. This
gradual restoration of external balance was interrupted, but
only temporarily, by the harvest failures in Western Europe
in 1946 and 1947, the severe winter of 1947, the minor
recession in the United States in 1949, and the abnormal
short-term capital movements that preceded the 1949 currency
devaluations.
Whether the current reversal in the international payments
position is merely a temporary relapse, comparable with the
earlier interruptions, cannot now be ascertained. It appears to
be associated with inflationary pressures originating in
an upsurge in general demand, for which thus far the Western
defense effort has in itself been only partly responsible. The
stepping up of defense programs abroad and of United States
aid to those programs will, however, have an important influ
ence on foreign gold and dollar holdings over the year ahead.
17
FEDERAL RESERVE BANK OF NEW YORK
M O N E Y M A R K E T IN J A N U A R Y
January was a month of general ease in the money market,
a sharp reversal from the extreme tightness in December.
All of the operating factors affecting member bank reserves
(with the exception of Federal Reserve float, which for the
month as a whole underwent a seasonal contraction)
contributed to the easing in the market. A record postChristmas return flow of currency from circulation contri
buted the largest share of the funds made available to the bank
ing system during the month. Funds received from the inflow
of gold, from a decline in foreign balances, and from net
Treasury outlays were also substantial. Sales and redemp
tions of short-term Government securities for System Open
Market Account absorbed some of the reserves arising else
where, but, on balance, bank reserves remained in easy supply
through most of the month. In the last week, ended January
30, the excess reserves of the banks, which had been unusually
large on January 23, were reduced substantially, primarily as
the result of accelerated Treasury receipts, along with the
usual month-end contraction of float and continuing System
sales of securities.
The abundant supply of bank reserves was reflected in the
New York money market, and on several days New York
City banks carried unusually large excess reserve balances.
Rates on Federal funds seldom rose above 1 per cent, and
frequently the quoted rates were largely nominal as very little
borrowing demand appeared in the market. Yields on short
term and intermediate Government securities also reflected
the ease in money market conditions, recording steady declines
over the greater part of the month.
M em ber Ba n k R eserves
Funds acquired by the banking system from several different
sources had, by the end of the statement week ended January
2, enabled the banking system to repay almost all its borrow
ing from the Federal Reserve Banks and to establish what have
come to be considered normal excess reserve positions. Early
in that week (prior to the year end), security purchases were
made for System Account and sales contract agreements were
negotiated with dealers by the Federal Reserve Bank of New
York to relieve the severe stringency that had developed in the
money market in late December. Additional funds were pro
vided by the post-Christmas return flow of currency and by
substantial net Treasury outlays, partly occasioned by heavy
redemptions of Savings notes. Bank reserves were also derived,
in effect, from two important nonrecurrent sources: Treasury
disbursement of the first payment on the Anglo-American
financial agreement of 1946, 138 million dollars, and also of
the quarterly instalment on the annual tax paid by the Fed
eral Reserve Banks on their note circulation, 75 million dollars.
Since both of these items appear as credits to Treasury balances,
the following table understates the actual magnitude of the
funds supplied through Treasury operations in the week ended
January 2.
The table presents a statistical summary of the factors influ
encing bank reserves during the five statement weeks ended in
January, and shows the steady growth of excess reserves over
most of this period. Most important in this growth was the
return of currency to the banks, a source of bank reserves
which, over the first four statement weeks, amounted to more
than 1 billion dollars. While a sizable reduction in the volume
of circulating currency is a normal occurrence in January,
the return flow this year was the largest on record, exceeding
by some 170 million dollars the volume in 1951.
After large net outlays during the first statement week,
Treasury operations exerted a slight easing effect in the money
market until the final week of the month. Lagging income
tax check collections caused Treasury receipts to fall some
what below expected levels, so that Treasury balances were
rebuilt only gradually and Treasury transactions, on balance,
were a source of funds for the market over the month rather
than a drain on market funds as had been anticipated. The
increase of reserves brought about by gold receipts and the
reduction of foreign-owned balances with the Federal Reserve
Banks over the five statement weeks ended January 30 was
463 million dollars— the largest addition to monetary reserves
Weekly Changes in Factors Tending to Increase or Decrease
Member Bank Reserves, January 1952
(In millions of dollars; ( + ) denotes increase,
(— ) decrease in excess reserves)
Statement weeks ended
Jan.
2
Jan.
9
Jan.
16
Jan.
23
Jan.
30
Five
weeks
ended
Jan.
30
Operating factors
Treasury operations*............
Federal Reserve float...........
Currency in circulation........
Gold and foreign a ccou n t...
Other deposits, e tc................
+ 297
-2 1 5
+ 26 0
+ 16 3
+ 186
- 65
-1 5 7
+ 34 3
+ 69
- 69
- 77
+21 4
+ 274
+ 44
+ 57
+ 13 9
-1 0 8
+18 4
+ 90
+ 17
-2 2 7
-2 9 9
5
+ 97
-1 0 3
+
67
565
+ 1 ,0 5 6
+
463
+
88
Factor
T o t a l........................
+ 69 2
+ 119
+51 5
+32 0
-5 3 7
+ 1 ,1 0 9
Direct Federal Reserve credit
Government securities..........
Discounts and advances.. . .
+ 15 5
-6 9 1
-2 0 6
+ 92
-3 3 3
- 63
-1 2 6
- 22
-2 0 8
+ 98
-
T o ta l........................
-5 3 6
-1 1 4
-3 9 6
-1 4 8
-1 1 0
- 1 ,3 0 4
Total reserves.............................
Effect of change in required
+ 15 6
+
+119
+172
-6 4 7
-
195
-1 2 2
+ 123
+
+
1
+ 99
+
103
+ 34
+ 12 8
+121
+ 173
-5 4 8
-
92
Excess reserves..........................
5
2
N ote: Because of rounding, figures do not necessarily add to totals.
* Includes changes in Treasury currency and cash.
718
586
18
MONTHLY REVIEW, FEBRUARY 1952
from these sources for any one month since June 1940.
Federal Reserve operations in the open market drew down
bank reserves by 718 million dollars and more than offset
System security purchases in December, but these operations
did not tighten money conditions over most of the month.
The reduction in System holdings of Government securities
during January brought the level of these holdings back very
close to the volume held in April 1951. For the first time
since 1942, the System portfolio at the end of January included
no Treasury bill holdings. The expansion of currency circu
lation and the customary growth of bank loans over the last
half of 1951 necessitated some additions to member bank
reserves, through borrowing from the Federal Reserve Banks
and System purchases of Government securities. It was to be
expected that these developments would be followed by a sea
sonal contraction of the type that has occurred over the past
month.
In the final statement week in January, some of the factors
that had created ease in the availability of bank reserves
earlier in the month reversed themselves, and this, combined
with continuing open market sales for Federal Reserve System
Account, resulted in a sharp decline in excess reserves late in
the month. The expansion of Treasury balances out of en
larged tax receipts was an important factor in this reversal. In
this week, the reduction in System holdings of Government
securities was partially offset by an increase in discounts and
advances.
As money conditions eased throughout the country during
the preceding weeks, balances tended to flow back to the New
York money market, contributing to the decided ease in that
market which was indicated by rates on Federal funds of Va
of 1 per cent or lower on many days. Treasury calls on its
"X ” balances, of which New York City banks hold a dis
proportionately large share, acted as a tightening force, but
this was more than offset by funds gained from such factors as
cash redemptions of Savings notes, cash redemptions of bills,
and net disbursements on nondebt transactions, so that, on
balance, the Treasury supplied funds to the New York money
market in January. Federal Reserve open market operations
were the only significant drain on New York funds until the
last week in the month when an outflow of banking funds
contributed to a reduction of reserves available to the New
York banks.
T h e G o v e r n m e n t Se c u r it y M a r k e t
The most significant developments in the Government
security market in January occurred in the short-term sector.
As a result of a large amount of cash held over the year end
for statement purposes, the general monetary ease, the accrual
of tax reserves, sales of new corporate issues and other factors,
corporations and others purchased a substantial amount of
Treasury bills and a lesser amount of certificates and other
short-term Treasury securities. As a result, short-term yields
settled steadily over most of the month. Late in December
when market rates for Treasury bills were around the peak, a
few corporations purchased Treasury bills for delivery after
the first of the year and redeemed Savings notes to raise
the funds. Later in the month when Treasury bill rates moved
to relatively low levels, several corporations sold bills and pur
chased Savings notes.
Issue rates on new bills declined from 1.883 per cent aver
age discount for the issue dated January 3, to 1.589 per cent
for the January 31 issue. During the fourth statement week,
the short bills sold at a yield around 1.00 per cent, compared
with about 1.75 per cent at the end of December. Certificate
yields also eased, with the longest maturity, the 1% per cent
certificate maturing December 1, 1952, down 15 basis-points
by January 30 from the yield on the December 31 closing bid
price. Intermediate securities as well were affected as the
increased buying interest in the short-term market extended
into the notes and intermediate bonds. Prices in this sector
increased from Va to Vs of a point over the month for the
taxable issues, while partially tax-exempt securities held
approximately steady.
Most prices and yields in the longer-term market registered
little net change for the month. The restricted bonds of 196772 and two bonds which become eligible for bank purchase
this year, the 2 Va per cent bonds of June and December 195962, registered gains of about Vi a point. The rest of the list,
both bank-eligible and restricted, showed moderate gains for
the month as a whole on a limited volume of trading. Selling
of restricted bonds by mutual savings banks (primarily located
outside New York State) and others for tax purposes created
decided heaviness in the bond market during the first two state
ment weeks, forcing most of the taxable issues to new lows,
but this was reversed after January 11 when the selling dimin
ished and a moderate volume of buying interest by public
funds and pension trusts developed. Offerings by savings
banks were not as large as had been expected, which might
indicate, as reported by some observers, a growing conviction
that contemplated action by New York State banking author
ities to raise permissible interest rates on deposits would make
it unnecessary for the savings banks to establish further losses
for tax purposes. After the market recovered from the earlier
decline, it tended to stabilize over the last two weeks.
FEDERAL RESERVE BANK OF NEW YORK
M ember
Ba n k
C r e d it
After a larger-than-usual seasonal expansion in December,
commercial, industrial, and agricultural loans of weekly report
ing member banks in the principal cities recorded a seasonal
decline through the four statement weeks ended January 23.
The expansion in this category of loans through the four
statement weeks ended December 26 was 727 million dollars,
approximately equal to that for the similar period in 1950 and
substantially greater than for any other postwar year. How
ever, the contraction of 306 million dollars reported through
January 23 contrasts with a contraseasonal increase in January
1951. Statistics on commercial bank lending reported by bor
rower and purpose of loan indicate that the larger part of the
December increase was for nondefense uses, and this cate
gory accounted for most of the January contraction despite
a substantial increase in defense and defense-supporting
loans during the statement week of January 16.
Commercial, industrial, and agricultural loans of weekly
reporting New York City banks rose by 360 million dollars
in the December period, nearly one half of the total reported
increase for the entire country. However, answers received
from a number of New York City commercial banks ques
tioned recently as part of an informal System-wide loan survey
indicate that the recent loan expansion arose largely from nor
mal requirements and was not the result of new or peculiar cir
cumstances. With respect to borrowing for inventory pur
poses, the consensus was that such borrowing had been
moderate, although the liquidation of the considerable backlog
19
remaining from past months has been slightly sluggish in
some instances. A part, but a relatively insignificant part, of
the increase of inventory loans to defense industries has been
traceable to a piling up of stocks caused by bottlenecks in
particular materials and components and changes in specifica
tions. Despite somewhat sticky inventories, however, there
was general agreement among the New York City banks that
most loans are currently being repaid on schedule and that no
material amount of refinancing has been necessary. Data
available for the weekly reporting member banks in New
York City through January 30 indicate a net decline of busi
ness loans by 142 million dollars through the five statement
weeks ended on that date.
The outlook for bank credit derived from the recent survey
is for a small seasonal decline in most categories of nondefense
loans, mostly in the second quarter of the year, with defensebased loans continuing to increase at least through most of
1952. While not many loans have been made thus far to
finance tax payments, and while many larger concerns have
accumulated Savings notes, tax anticipation bills, and other
liquid assets to cover first-quarter 1952 taxes, some of the
banks believe that the accelerated corporate tax program may
make necessary rather extensive short-term borrowing for
tax payments by smaller concerns during the first and second
quarters of 1952. This conclusion is reinforced by the fact,
reported by a majority of the bank officials interviewed, that
the working capital positions of many business enterprises
have become less liquid in recent months.
R E V IE W OF S E C U R IT Y M A R K E T S IN 1951
The corporate security market in 1951 was called upon to
absorb the largest volume of new capital security flotations on
record (exclusive of investment company issues). These
extraordinarily heavy corporate demands on the capital market
reflected not only the need for funds to meet huge expenditures
for expansion of defense and other facilities and for inventory
accumulation, but also the substantial reduction of "internal”
funds available to corporations from current operations, as
higher corporate tax rates, lower profit margins, and sustained
dividend payments combined to reduce undistributed profits
substantially. State and local government financing of capital
outlays was also large, and the volume of residential construc
tion during 1951 remained high. The continued large demand
for mortgage money, of course, had an important though
indirect impact on funds available to the new issue market.
Satisfaction of the huge demand for funds was limited during
the year by monetary measures designed to restrict the flow
of bank credit into the capital market, and to direct the flow
of investable funds into essential uses. These measures included
the Voluntary Credit Restraint Program, an increase in margin
requirements on stock collateral loans, real estate credit
restrictions, and the "unpegging” of Government security
prices following the accord reached between the Treasury
and the System in early March.
Of these measures, the withdrawal of Federal Reserve sup
port of Treasury bond prices had the most pronounced effect
on the security markets. The reaction to this step began
immediately, and most of the adjustments in yields occurred
in the bond market during the second quarter of the year. The
cost of long-term borrowing rose between
and 2/ 5 of one
per cent within a short period. The market for new issue
flotations became congested, and even though a record volume
of sales eventually occurred there was an additional poten
tial of new offerings which was not fulfilled. Institutional
lenders, which had made advance commitments in excess of the
funds that were to become available to them, found they could
20
MONTHLY REVIEW, FEBRUARY 1952
Table I
Net Purchases ( + ) or Sales (— ) of Long-Term Government
Bonds by Selected Holders.
(In m illions o f dolla rs)
Federal
Reserve
System*
Treasury
investment
accounts*
Life
insurance
com paniesf
Mutual
savings
banksf
1950
I ......................................
I I ....................................
I l l ...................................
I V ....................................
-4 6 8
-7 6 1
-7 3 0
+ 833
+ 31
4
+ 70
+198
+
4
186
126
-1 ,1 2 1
+275
+194
- 15
-2 2 3
1951
I ......................................
I I ....................................
I l l ...................................
I V ....................................
+ 924
+ 696
+ 13
+ 18
+ 830
+
4
+ 14
+ 80
-1 ,1 2 3
704
188
75*
-4 6 1
-1 1 8
- 52
-1 2 9 *
Quarters
* Bonds callable in 10 years or more, adjusted to exclude the conversion of June and
December 2 ^ ’s of 1967-72 into nonmarketable bonds,
t Restricted bonds, adjusted to exclude the conversion of June and December 2 H ’8
of 1967-72 into nonmarketable bonds.
Partly estimated by the Federal Reserve Bank of New York.
Sources: Board of Governors of the Federal Reserve System and U. S. Treasury
Department.
t
dispose of long-term Government bonds only at a loss, and
then usually only if other nonbank purchasers could be found.
The accord also had longer run effects. Because investors
no longer felt assured of a ready market for their Gov
ernment securities at par or better, they began to gear
their new investments more closely to their cash receipts.
The rate of entering into new forward commitments was cut
back and some already outstanding securities — both Govern
ment and corporate — were successfully sold to other inves
tors after the unpegging, thus helping to bridge the gap which
some investing institutions found between their "regular” flow
of funds and the schedule for taking up their prior commit
ments. The accelerated growth of liquid savings beginning
in the early part of the year also provided many institutions
with unexpectedly large "regular” receipts.
Despite the large volume of funds raised by business cor
porations in the new issue market, signs of growing strain on
corporate current positions appeared during the year. The
ever-expanding needs for working funds resulting from rising
wage payments, heavy accumulation of inventories (a large
segment of which was involuntary last year), and from increas
ing credit sales (trade credit), to a considerable extent were
translated into needs for permanent working capital. In part,
however, these needs appear to have been financed over the
past year with funds accruing in income tax reserves prior to
payment. That the net increase in tax accruals has not been
fully provided for by increased holdings of cash and Govern
ment securities is readily seen from the latest Securities and
Exchange Commission report of the current assets and liabili
ties of all nonfinancial business corporations. In contrast with
an increase in their tax accruals of 6.3 billion dollars in the
year ended September 30, 1951 (latest data available), corpor
ations had increased their liquid assets by only 1.2 billion
dollars.
Bo n d M arket
Following the removal of Federal Reserve support of Treas
ury bond prices in the early spring of 1951, selling of such
issues by life insurance companies, savings banks, and others,
declined (see Table I). Such selling as did persist, furthermore,
was mainly absorbed by nonbank investors out of investment
funds rather than through an expansion of Federal Reserve
credit after the middle of May. It consequently became more
difficult in the spring and early summer for financial institu
tions to raise funds in the market to take up previously
arranged commitments to purchase business securities and
make real estate loans. Some institutions, therefore, began to
liquidate some of their corporate security holdings of long
standing, including issues previously purchased directly from
corporations. Thus, part of the pressure on Treasury bonds was
transmitted to the corporate bond market. In turn, yields on
"municipal” bonds moved upward in sympathy, even though at
the same time higher Federal income tax rates made the taxexemption privileges of these securities more valuable to
corporate and wealthy individual investors.
The readjustment of bond yields to freer market conditions
was largely completed by the middle of 1951. Yields on
Treasury and on the better grades of corporate and municipal
bonds subsequently fluctuated in a narrow range, declining
in the summer months and then advancing gradually in the
fall and early winter. In the latter half of December, the
Chart I
Yields on Long-Term Bonds and Stocks, 1946-51
Percent
I-
P e rc e n t
Taxable bonds*
oi----------- !_______ I_______ I_______ !_______ 1_______ lo
1946
1947
1948
1949
1950
1951
* Fifteen years and over.
Sources: U . S. Government bonds, Treasury Departm ent; high-grade noncallable preferred stocks and municipal bonds, Standard & P oor’s Corpora
tion ; Aaa corporate bonds. Baa corporate bonds, and 200 com m on stocks,
M o o d y’s Investors Service.
21
FEDERAL RESERVE BANK OF NEW YORK
effects of a seasonally tight money market position were
accentuated by the announcements of several large downtown,
New York City banks (followed by large banks in other big
cities) of an advance in their rates on prime commercial loans
from 234 to 3 per cent. The combination of developments led
to renewed speculation about an increase in the discount rates
of the Federal Reserve Banks and renewed expectation of an
increase in interest rates generally. The market for high-grade
bonds again became unsettled, and prices closed the year at
new low levels, with yields somewhat higher than those pre
vailing at midyear (see the accompanying chart).
A better tone developed in the high-grade corporate and
municipal markets in the first weeks of 1952 as the usual
January reinvestment demand appeared and investors regained
confidence; short-term interest rates turned downward after
the year-end strain on the money market ended. Some buoyancy
in the market for State and local government securities was
attributed to moderate purchases by savings banks, many of
which were made subject to Federal normal and surtax rates
on corporation incomes by the Revenue Act of 1951. In addi
tion, some of the savings banks were reported to have been
selling small amounts of Treasury bonds, some part of which
might have been to establish losses which would have the
effect of reducing their income— and more important, their
surplus— and thus minimize their taxes. (The Revenue Act
in effect provides that only those banks with a surplus-deposit
ratio in excess of 12 per cent are subject to tax on income
after dividends less a reasonable addition to bad debt reserves.)
Partly as a consequence of these sales, Treasury bonds did not
participate as fully as did other types of obligations in the
January recovery of prices.
Over the period starting just prior to the change in open
market policy and extending through the end of the year, the
increase in yields on long-term bonds (Treasury bonds and
better-grade municipal and corporate issues) varied among
classes of obligations; the lower the quality of bonds, the larger
the advance in yield. Thus, a tendency developed toward a
widening of the differential between the yields on lower and
higher-grade bonds to a spread historically more indicative of
the difference in risks than that which had obtained in a period
of easy money (or one of Government bond price support)
when the need for income made for less selective investment
policies on the part of investors.
The outstanding development of the year was the transition
of the bond market from a state of dependence upon releases of
Federal Reserve credit (to maintain prices and yields at
arbitrary levels through the creation of new money) to a state
of flexibility, responsive to the underlying demand for and
supply of investable funds.
St o c k M a r k e t
Stock prices continued to rise in 1951, prolonging the bull
market which had begun in the middle of 1949. Standard and
Poor’s broad index of the prices of 416 stock issues reached a
high point of 188.6 (1935-39=100) on September 12, 1951
— 70 per cent above the June 1949 low point and 20 per cent
below the 1929 peak. Prices fluctuated within a 10-point
range in the remaining months of the year, and the index
closed 1951 at 182.4, up 20 points over the year as a whole.
The upward movement of prices in 1951 seemed to have
lost some of the vigor displayed in the preceding 18 months,
and was much more irregular. In part, this weakening of the
force of the uptrend is a normal development in a bull market
with the passing of time. It may also be attributed to an increase
in the volume of new issues. In part, too, it may have been the
result of a lessened public and speculative interest in share
prices, stemming from a weakening of the inflationary ten
dencies in the economy. There may be some support for this
viewpoint in the fact that the volume of transactions on the
New York Stock Exchange fell 15 per cent during the year,
from an average of a little more than 2 million shares a day in
1950 to somewhat more than 1.7 million shares daily in 1951.
In addition, customer borrowings from Stock Exchange mem
ber firms to purchase or carry securities showed a small decline.
This decline, however, may also be attributed in part to the
increase in margin requirements early in the year.
Unsettlement in the bond market had little apparent effect
on common stock prices. In the period of the greatest decline
in bond prices during the second quarter of 1951, stock prices
moved irregularly upward. (Yields on preferred stocks, how
ever, rose directly in conformity with the rise in bond yields.)
The increase in bond yields did narrow somewhat the unusu
ally wide differential which has existed between stock and bond
yields since the prewar years, and a moderate reduction in stock
yields also helped to bring about this result. Thus, in the last six
months of 1951, Moody’s yield on corporate bonds rated Baa
or higher averaged 3.16 per cent, as compared with 5.89
per cent for Moody’s average yield on 200 common stocks.
In the second six months of 1950, yields had averaged 2.88
and 6.44 per cent, for bonds and stocks, respectively. The
improvement of the position of the bond market as an outlet
for investment funds relative to the stock market was, from
a yield standpoint, quite substantial.
Any impact of the more flexible open market policy on stock
prices was mainly indirect. By contributing to a diminution
of inflationary pressures in the economy (which had been a
most important stimulant to investment in stocks and to stock
prices), the change in monetary policy may have tended to
alter investors’ and speculators’ anticipations as to the future
of stock prices. Prices of public utility shares, which had been
MONTHLY REVIEW, FEBRUARY 1952
22
considered a poor inflation hedge and so had lagged behind
the general advance of stock prices through 1950, rose more
rapidly in 1951 and ended the year only slightly below peak
prices. (Favorable tax treatment under the excess profits tax,
repeal of the Federal excise tax on electricity, and the strong
rate of growth in electric and gas sales were also important
influences affecting utility stock prices.) To the extent, too,
that monetary policy contributed to the restraint on commodity
price increases, it exercised some dampening influence on
corporate profits. In this connection, however, other factors
undoubtedly were more significant in curtailing corporate
profits, including sharply higher Federal taxes on corporation
income, rising wages, price ceilings, lower profit margins on
defense contracts, and lagging sales in the consumer goods
industries.
N
ew
Table II
New Security Issues
(In millions of dollars)
Corporate
Plant and
Working
equip
capital
ment
1948.................
1949.................
1950.................
1951.................
I ......................
I I ....................
I l l ..................
IV...................
Refund
ing
All
other
Total
Municipal
(new and
refund
ing)
4,221
3,724
2,966
5,067
1,708
882
1,041
1,575
307
401
1,271
380*
722
952
984
705
6,959
5,959
6,261
7,727*
2,990
2,995
3,694
3,270
1,167
1,422
970
1,508
293
564
290
428
119
147
61
53*
151
227
93
234
1,730
2,360
1,414
2,223*
555
1,007
770
938
Quarters, 1951
N ote: Because of rounding, figures d o not necessarily add to totals.
* Fourth quarter 1951, estimated b y the Federal Reserve Bank of New York.
Sources: Corporate securities, the Securities and Exchange Commission and the
Board of Governors of the Federal Reserve System; municipal securities,
Bond Buyer.
(Semiannual totals, 1948-51)
C o r p o r a t e I ssu es
Record-breaking capital outlays and a heavy accumulation
of inventories, coincident with a substantial reduction of
corporate net income after taxes and dividends, compelled
business corporations to rely heavily upon outside sources for
funds, as shown in Table II. Demands on the new security
issue market (exclusive of investment company issues) were
consequently the largest on record; new capital issues offered
in 1951 totaled 7.3 billion dollars, and were actually about
700 million dollars larger than the previous peak of offerings
in 1948, and 2.4 billion, or 50 per cent, above the 1950 total.
Reflecting the stimulating influence on capital outlays of the
defense program and of accelerated amortization of new
defense and defense-supporting facilities, as well as efforts of
management in less essential industries to complete expansion
plans before anticipated shortages of materials and govern
mental restrictions on their use set in, almost 80 per cent of
Period
Chart II
Corporate Security Issues for New Capital by Industry
The
Sources: Securities and Exchange Commission and Board of Governors of the
Federal Reserve System.
the increase in new capital security flotations was offered by
manufacturing corporations (see the accompanying chart).
Most of the remainder of the increase in the volume of new
offerings was accounted for by public utility corporations,
including those in the electric and gas and communications
fields. Flotations of refunding issues declined sharply inasmuch
as the rise in bond yields made interest savings through such
issues impractical.
One aspect of the effects of the change in Federal Reserve
policy was evidenced in the difficulties of merchandising new
bond issues during the second quarter of 1951. In this period,
many public bond offerings remained substantially unsold in
underwriters’ inventories, or considerable concessions involv
ing losses for investment bankers, had to be offered from
original offering prices in order to dispose of new issues. Some
projected offerings (registered with the SEC) were postponed
pending stabilization of the bond market, or were abandoned
altogether. There is no way of knowing, of course, how many
contemplated issues never reached the market because of
obstacles to financing. Offerings through competitive bidding
were reduced sharply in this period, partly because of the
hesitancy of underwriters, to make firm bids. Many issuers
in need of funds apparently sought out the life insurance
companies, for the volume of privately placed issues suddenly
rose from over 520 million dollars in the first quarter of the
year to 1,220 million in the second quarter. Part of this rise
undoubtedly reflected commitments arranged at earlier periods.
FEDERAL RESERVE BANK OF NEW YORK
Over the year as a whole, however, the volume of public
offerings rose more sharply than private placements of new
securities. The major increase in public offerings resulted from
the substantial rise in new stock issues. New common and
preferred stock sales (exclusive of investment company issues)
aggregated close to 2 billion dollars (practically all of which
were for new capital purposes), the highest since 1929, and
600 million dollars larger than the figure reported for 1950.
The increase reflected a 40 per cent gain in offerings of new
common shares which reached a total of 1.1 billion dollars,
likewise the highest since 1929. (The figure for the latter
year, however, was 2.3 billion dollars.) The substantial gain
in common stock financing reflected, of course, the favorable
market for outstanding issues prevailing during most of the
year.
Flotations of new preferred stock issues (800 million
dollars) were one-third larger than the total for 1950, and it
became difficult to sell such issues during the period of
advancing interest rates for reasons comparable to those which
made the sale of new bond issues difficult. The volume of
flotations was maintained largely because of the substantial
amounts of convertible preferred issues that were offered. The
latter found a ready market in view of the favorable trend of
common stock prices.
M u n ic i p a l F i n a n c i n g
The volume of long-term financing in the security markets
by State and local governments declined in 1951. Total
security issues for new capital amounted to 3.2 billion dollars,
400 million lower than in 1950, reflecting principally the
23
completion of the bulk of "municipal” aid programs to veterans.
Bonus bond issues declined by 600 million dollars, more than
accounting for the drop in all "municipal” issues. Issues
offered to finance additions and improvements to State and
local government facilities, schools, and institutional and public
buildings were approximately 200 million dollars larger than
in 1950, reflecting record expenditures (6 billion) for con
struction. Low cost public housing authority bonds of local
housing authorities, secured by annual contributions of the
Public Housing Administration (in effect assuring full pay
ment of interest and principal of such securities) and issued
for the first time in 1951, amounted to 330 million dollars.
The higher tax rates on corporation and personal incomes
imposed by the Revenue Act of 1951 tended to increase the
value of the tax-exemption feature and thus improve the
market for new municipal issues. This same Act by making
mutual savings banks and other mutual financial institutions
subject (within certain limits) to corporate normal and surtax
rates of the Federal Government effective January 1, 1952,
also promised to widen the demand for tax-exempt issues.
On the supply side, a public which has become increasingly
tax conscious has correspondingly become increasingly dis
criminating in approving proposed new bond issues at election
time. In the last two years, voters have tended to approve only
the most essential projects. In the November 1951 elections,
for example, aside from two proposed issues of 500 million
dollars each, of which only a small portion of one issue is
expected to reach the market in 1952, voters approved less
than 300 million dollars of proposed new bond issues, as
against 700 million in November 1950.
T H E N A T U R E A N D S IG N IF IC A N C E O F T H E G O V E R N M E N T ’S CASH B U D G E T
Each month the table on Business Indicators includes data
relating to the cash flows of funds to and from the Treasury.
At this time of year when interest in the Government’s spend
ing and taxing program is particularly high because of the
publication of the President’s Budget, an explanation of the
difference between the ''budget” approach and the "cash”
approach to recording Treasury fiscal matters should be es
pecially appropriate.
The use of the cash approach in the Business Indicators
table does not mean that the more widely publicized budget
approach is not significant. As a measure of the relation of
Government receipts to expenditures including current provi
sions to meet liabilities for future payments to the public, the
conventional budgetary position of the Treasury serves an im
portant function. But, if the over-all magnitude of the direct
immediate inflationary or deflationary potential in Govern
ment spending (exclusive of funds borrowed from or repaid
to the public) is desired, the transactions between the Govern
ment and some of its agencies and trust funds must be “washed
out”, the accrual of future liabilities with the public to make
Cash and Budgetary Position of the U. S. Government, 1946-51
(Figures are for fiscal years ended June 30;
( + ) denotes surplus, (— ) deficit)
MONTHLY REVIEW, FEBRUARY 1952
24
disbursements must be deducted, and the various accounts
consolidated. Then, and only then, is it possible to assess
the current direct effects of the spending activities of the Fed
eral Government upon the economy. It should be recognized,
of course, that other aspects of Federal financial operations,
such as loan guaranties and a rapid expansion in new obliga
tional authority, also influence economic activity.
In recent years, the difference between the cash position and
the budgetary position has varied from as much as 6 billion
dollars in fiscal 1947 to only 500 million dollars in fiscal 1948,
as shown in the accompanying chart. In fiscal 1951 the differ
ence exceeded 4.0 billion dollars, and in the next two years it
is not expected to be less than that amount.
In the following discussion causes of these differences will
be analyzed. As a first part of the analysis a description of the
origin and content of the budget accounts is necessary. Follow
ing this, the elements needed to effect a transformation from
the budgetary viewpoint of Governmental operations to the
cash basis will be examined.
T h e Budget A cc o u n ts
Under the Budget and Accounting Act of 1921, as amended,
the President is required to present, for Congressional approval
or revision, estimates of the costs of the Government’s exist
ing programs and of any changes proposed by the Chief Execu
tive for the current and coming fiscal year as well as a record of
the past year’s results. The cost estimates cover both the
required appropriations or other spending authority to imple
ment the programs and the expenditures expected in the given
years from these and prior appropriations. Unless specific Con
gressional directives have been issued, the President determines,
through the Bureau of the Budget, the activities to be included
in the budget proper, which has been variously referred to as
the administrative, the conventional, or the traditional budget.
Congress, in fact, rarely infringes on this authority except to
specify whether general receipts are to be used in covering a
given appropriation.
For some time now, the budget proper has been designed
mainly to relate the general receipts of the Government, that
is, the funds owned directly by the Government, to the expen
ditures (including capital outlays) authorized from these funds
by Congress, regardless of whether they represent intraGovernmental payments, accrued liabilities for future pay
ments, or immediate cash payments to the public. The general
receipts arise mainly from income taxes on individuals and
corporations, excise taxes, taxes on carriers and their employees,
and customs duties. The expenditures cover defense and
related security programs, veterans’ aid, interest, various price
support operations, and other special programs, as well as the
usual administrative, legislative, and judicial activities of the
Government.
Information on nonbudget transactions in which the Treas
ury acts as trustee, fiscal agent, or banker, however, as well as a
consolidated statement of the receipts from and payments to
the public are included in supplementary sections in the budget
document. In reporting the current transactions of the Govern
ment as they affect the general fund or the public debt, the
Treasury in its Daily Statement adheres to the concepts and
accounts used in the budget document for segregation of activ
ities between budget and trust accounts.1 The Treasury’s
reports, in turn, provide a basis for the budget estimates of
receipts and expenditures.
In f l u e n c e
of the
T r u s t Fu n d s
The difference between the Treasury’s budget and cash
operations became important after the adoption of the Social
Security system in 1936. With the establishment of the old
age and unemployment insurance funds under this system, a
marked increase occurred in the importance of the Government-administered trust funds, which were set apart as early
as the 1932 Budget from the other receipts and expenditures
of the Government. These accounts were set up to preserve
an accounting segregation of funds held by the Government
as trustee or banker for the benefit of individuals or classes of
individuals as specified in the trusts. Currently, the most
important funds are those through which the Government
provides financial protection covering death, retirement, and
unemployment.
The trust funds produce a difference between the budgetary
and cash position of the Federal Government in two ways. On
the one hand, these funds receive interest on the Government
securities held in their reserves— reserves which are being
accumulated to cover the expected excess of payments over
receipts at a later date— and they also receive direct contribu
tions or "transfers” from the Government to cover certain of
their costs as well as indirect contributions arising from pay
roll deductions for Government employees’ retirement pen
sions. All of these payments are included in budget expendi
tures but do not initially involve any direct payments to the
public from the budget accounts. On the other hand, the funds
receive cash contributions directly from the public and make
cash payments to the public. Normally, the trust funds receive
more cash than they disburse to the public and they are able
to invest this excess cash, as well as the contributions and inter
est obtained from the Government, in Treasury securities.
1 At times, however, a considerable lead or lag has developed in
incorporating a Budget Bureau change in the assignment of
activities. In the fiscal years, 1944-47, for example, the net trans
actions in the checking accounts of the several wholly owned
Government corporations were included in budget activities by
the Budget Bureau but were shown separately in the Daily
Statement.
FEDERAL RESERVE BANK OF NEW YORK
25
R econ cilia tion o f F ederal B u d ge ta ry and Cash T ra n sa ction s, F isca l 19S1
(In m illions o f d olla rs)
Budget receipts, n e t* ................................................................................
Noncash, n e t....................................................................................
Noncash paym ents................................................................................
6.
48,143
10.
Trust account receipts..................................
7,796
255
11.
Noncash.......................................................
2,244
47,887
12.
CASH T R U S T R E C E IP T S ( 1 0 - 11).
44,633
13.
5,552
3,945
3,527
14.
N oncash.............................................................................
138
2,242
15.
CASH T R U S T OU TG O ( 1 3 - 1 4 ) ...........................
3,807
Other intra-Governmental paym ents.
1,165
118
16.
CASH T R U S T SURPLU S ( 1 2 - 1 5 ) .......................
1.745
Cash payments of previous accruals.
689
9.
CASH B U D G E T SU R P L U S.....................................
6,092
16.
CASH T R U S T SU R P LU S.........................................
1.745
17.
Exchange Stabilization Fund, receipts......................
13
18.
Clearing account, net paym ents..................................
214
T O T A L CASH SURPLUS ( 9 + 1 6 + 1 7 - 18)........
7,635
41,795
7.
8.
3,510
CASH B U D G E T SURPLUS ( 3 - 7 ) .
6,092
S U M M A R Y OF CASH POSITION
N ote: Because of rounding, the detail figures may not add to the totals shown.
* After deducting refunds and appropriations to the Old Age and Survivors Insurance Fund.
# Includes seigniorage profits of 43 million dollars. Seigniorage profits are excluded by the Budget Bureau from their analysis of receipts from and payments to the public,
f Includes the Deposit Fund Accounts as well as the trust funds. Does not cover any investment or borrowing transactions.
Source: The United States Treasury Department.
Thus, the payment to the public of these budget expenditures
is deferred, and at the same time the excess cash currently
received from the public by these nonbudget accounts is made
available to the Government. There is no withdrawal of cash
from the Treasury until there is an excess of cash payments to
the public. When that occurs, the current payments of inter
est and transfers, which initially accumulate in their checking
accounts with the Treasury, are drawn upon and, if necessary,
the securities held by the funds are also redeemed to cover the
excess cash payment, as happened in fiscal 1950 when the
National Service Life Insurance Fund paid an unusually large
special dividend. If the Treasury had no cash available at that
time from other operations, it would have to borrow to cover
these payments.
The combined noncash payments to the trust funds included
in budget expenditures during fiscal 1951— which may be
regarded as a normal year in this respect— amounted to approxi
mately 2.2 billion dollars, as shown in the accompanying table.
At the same time, the trust funds and related accounts received
1.7 billion dollars more cash than they disbursed. Thus, the
trust funds (including the Deposit Fund Accounts) accounted
for about 4.0 billion of the 4.1 billion difference between the
budget surplus and the cash surplus during the fiscal year.
The excess of receipts from all sources by the trust funds is
generally used to purchase directly from the Treasury special
issues of securities, bearing a rate commensurate with their
statutory requirements. At times, however, the trust funds
have invested some of their excess cash and returned it to the
public by purchasing Government securities in the market.
At other times, by redeeming the special issues in their port
folios and then using the money to buy Treasury securities in
the market, they have, in effect, returned to the public funds
that the Treasury had obtained from other operations. While
such market transactions in Treasury issues return funds to, or
withdraw them from, the public, they more accurately reflect
changes in the holdings of Government debt by the public
rather than the impact of current Government operations, and
accordingly, they are included in the accounts for cash bor
rowing from the public rather than those for cash expenditures
and receipts.
D ef e r r e d P a y m e n t s
to
the
Pu b l ic
Another source of difference between the conventional
budgetary approach and the cash basis is accrued or deferred
direct payments to the public by the Government. These pay
ments took on a new significance after the introduction of the
Savings bond program in the middle thirties. Series E and F
Savings bonds provide for a single cash payment of interest
upon redemption but require semiannual interest accruals by
the Government equal to the semiannual increase in redemp
tion value during the life of the bonds. As the interest accrues
on the individual bonds (and the redemption value rises), the
Government sets up its obligation to pay by including interest
in its budgeted expenditures. The actual payment of cash to
the public does not occur until the securities are redeemed.
At that time, the payment of interest materializes as a cash
transaction and must be added to the other current cash
expenditures but does not affect budget expenditures.
Other accruals of Federal payments usually have been made
only for special expenditures. In recent years they cover the
MONTHLY REVIEW, FEBRUARY 1952
26
delayed refunds of excess profits taxes and the postponed pay
ments both for the accumulated World War II leave due
military personnel under the Armed Forces Leave Act of 1946
and for part of the United States subscriptions to the Interna
tional Monetary Fund and Bank. All of these budget expendi
tures were initially covered by the issuance of Government
obligations but did not affect cash outlays until the securities
were redeemed.
During the 1951 fiscal year, the accruals on Savings bonds
were the only deferred items of notable importance. About 1.2
billion dollars of these accruals were included in budget ex
penditures for the year. To arrive at the cash picture these
expenditures must be deducted. On the other hand, the interest
payment part of Savings bonds actually redeemed during the
year— about 500 million dollars— must be added. To arrive at
a fully reconciled view of the effect of deferral items on the
budget, nearly 200 million dollars of Armed Forces Leave bond
redemptions for cash must also be counted. The net effect of
deferred payment items, therefore, was to reduce cash expendi
tures below budget expenditures by nearly
500 m illion dollars.
O th e r In t r a -G o v e r n m e n t a l T r a n s a c tio n s
The difference between the budget operations and the cash
transactions arising from other intra-Governmental transac
tions widened in the early thirties when the handling o f some
Government activities through corporations and other busi
ness-type agencies grew to be a com m on practice.
These
agencies were given authority to cover their expenditures by
borrowing, rather than from
receipts.
As
the
Government
the appropriation o f general
purchased
capital
stock
or
absorbed losses and in turn received repayments, and also as
these groups invested funds in Treasury issues and obtained
interest on these investments, the spread between the bud
getary and the cash viewpoint of Governmental transactions
expanded.
There are now in operation about
75 corporations
chartered by Congress and wholly owned by the Government,
B u sin ess In d ica tors
1951
1950
Percentage change
Item
Unit
December
November
October
December
Latest month Latest month
from previous from year
month
earlier
U N IT E D STATE S
Production and trade
Industrial p roduction*......................................................................
Electric power ou tp u t*.. .................................................................
Ton-miles of railway freight*..........................................................
Manufacturers’ inventories*............................................................
Manufacturers’ new orders, to ta l...................................................
Manufacturers’ new orders, durable g ood s..................................
Retail s a les *ft....................................................................................
Residential construction contracts*..............................................
Nonresidential construction contracts*............................................
Prices, wages, and employment
Basic com m odity p rice s f..................................................................
Wholesale p ricesf...............................................................................
Consumers’ p rice s f............................................................................
Personal income* (annual rate)......................................................
Composite index of wages and salaries*.......................................
Nonagricultural em ploym ent*.........................................................
Manufacturing em ploym ent*............................ .............................
Average hours worked per week, m anufacturingf.....................
U nemploy m ent....................................................................................
Banking and finance
Total investments of all commercial banks.................................
Total loans of all commercial banks..............................................
Total demand deposits adjusted.....................................................
Currency outside the Treasury and Federal Reserve B an k s*. .
Bank debits* (U. S. outside New Y ork C ity ).............................
Velocity of demand deposits* (U. S. outside New York C it y ). .
Consumer instalment credit outstandingf...................................
United States Government finance (other than borrowing)
Cash incom e.........................................................................................
Cash ou tg o..................... .. ...................................................................
National defense expenditures........................................................
1935-39 = 100
1935-39 *■ 100
1935-39 «■ 100
billions
billions
billions
billions
billions
of
of
of
of
of
$
$
$
$
$
1 9 23 -25 = 100
1 9 23 -25 = 100
Aug. 1 9 3 9 = 100
218p
342
—
2 1 . 4p
4 1 . 9p
2 1 .7 p
10 .2 p
1 2 .3p
—
—
219
338
197p
2 2 .3
4 1 .7
2 2 .7
11.1
1 2 .5
243p
331p
218
335
201
2 2 .5
4 1 .4
2 3 .9
11.6
12.6
265
258
218
316
205
2 1 .0
3 3 .3
2 2 .9
11.7
1 2 .6
297
360
328.1
1 7 7 .8 p
189.1
—
— .
4 6 ,434p
15,769p
4 1 . 2p
1,674
3 2 7 .5
1 78.3
188.6
2 5 6 .7p
230 p
4 6 ,4 5 5
15,771
4 0 .5
1,8 2 8
331.1
178.1
187.4
2 5 7 .5
229
4 6 , 382r
15,731r
4 0 . 5r
1,616
3 5 8 .9
175.3
178.8
2 4 4 .4r
216
4 5 , 605r
15,692r
4 1 .4
2,2 2 9
millions of $
7 5 ,0 7 0 p
58,300p
9 8 , 120p
2 8 ,8 5 0
8 0 .9
9 6 .7
13,488p
74,590p
57,270p
9 6 , 290p
2 8 ,5 2 6
8 8 .3
9 9 .1
13,261
7 3,730p
5 6 ,7 50p
9 4 ,960p
2 8,387
8 8 .1
9 8 .6
13,196
74,430
52,250
9 2 ,2 7 0
27,531
7 7 .1
9 8 .6
13,459r
millions of $
millions of $
millions of $
5 , 602p
5 , 582p
3 ,4 4 0
4 ,2 9 3
5 ,6 4 2
3 ,4 3 0
2 ,8 5 5r
5,801r
3 ,4 5 9
233
94 p
167p
184.1
7 ,2 7 7 .3 p
2 ,6 0 0 .1
4 8 .2
3 .9
114.4
232
118
162
1 83.0
7 ,2 5 5 .3
2 , 5 8 1 .lr
4 8 .0
3 .9
114.4
1 9 2 6 = 100
193 5 -3 9 = 100
billions of $
1939 = 100
thousands
thousands
hours
thousands
millions of $
millions of $
millions of $
millions of $
billions of $
19 3 5 -3 9 = 100
+
#
I
-
2
4
#
- 4
- 8
- 2
- 8
+28
#
#
#
#
#
#
#
#
+
8
+
3
+
2
+ 26
— 5
13
3
- 14
+
2
-
+
+
+
+
+
9
1
6
9
7
2
#
+ 2
-
8
-
+
1
2
2
1
8
2
2
+
1
+ 12
+
6
_j_ 5
+
5
2
4 ,4 8 8
4 ,0 0 4
1,679
+30
- 1
+ 25
221
161
198
175.4
7 ,2 3 8 .5 r
2 ,6 0 6 .9 r
4 3 .5
3 .2
114.8
+ 1
- 20
+ 3
+
+
+
+
#
25
#
+ 39
+ 105
SEC O N D F E D E R A L R E S E R V E D IS T R IC T
Electric power output* (New York and New Jersey)...................
Residential construction contracts*..................................................
Nonresidential construction contracts*............................................
Consumers’ pricesf (New York C it y )...............................................
Nonagricultural em ploym ent*.............................................................
Manufacturing em ploym ent*..............................................................
Bank debits* (New York C ity )..........................................................
Bank debits* (Second District excluding N. Y . C. and A lb a n y ). .
Velocity of demand deposits* (New York C it y )............................
1935 -39 =
1923 -25 =
1 9 23 -25 =
1 9 35 -39 =
100
100
100
100
thousands
thousands
billions of $
billions of $
1 935 -39 = 100
235
—
—
184.0
—
2 , 6 3 2 . Ip
4 4 .2
3 .4
117.0
#
#
+
1
- 8
-1 4
+ .2
p Preliminary.
r Revised.
* Adjusted for seasonal variation.
t Seasonal variations believed to be minor; no adjustment made.
$ Change of less than 0.5 per cent.
f t Series revised from 1940 to date.
Source: A description of these series and their sources is available from the Domestic Research Division, Federal Reserve Bank of New York, on request.
+
r»
- 41
— 5
+
o
+
1
+
1
+
2
+
6
+
2
27
FEDERAL RESERVE BANK OF NEW YORK
as well as several mixed-ownership corporations which main
tain accounts with the Treasury. The net changes in the
accounts of the mixed-ownership corporations are grouped
together with a score of miscellaneous small funds and some
temporarily unassigned receipts and payments, in a comprehen
sive group in the nonbudget accounts called the Deposit Fund
Accounts (prior to July 1951 known as Special Deposits).
Currently, these intra-Governmental transfers are not large.
Receipts by the Treasury from Governmental enterprises
amounted to only 255 million dollars in fiscal 1951 and pay
ments to these ventures to less than 118 million dollars.
Small as the effect of Governmental corporation operations
is upon the receipt and expenditure sides of Treasury bud
get accounts, it is obviously of even less importance to the net
budgetary position. The small size of the net difference in
fiscal 1951 was partly a result of accounting procedures. These
procedures, although simplified in recent years, give rise to
some exactly offsetting entries on Treasury receipt and
expenditure accounts and to other entries which tend to offset
one another. An example of the first type of entry is the pay
ment of interest to the Treasury by wholly owned Govern
ment corporations which is counted both as a budget expendi
ture and as a budget receipt. An example of the second type
is interest payments on Government debt held by mixedownership corporations which, in effect, use the funds in part
to repay the Government’s share of their capital stock and
paid-in surplus and to pay dividends to the Government, thus
adding to budget receipts.
T h e C l e a r in g A c c o u n t
Under current accounting procedures, a further adjustment
must be made to estimate the cash transactions, inasmuch as
a large part of the expenditures in the cash portions of the
budget and trust accounts are based on the amount of checks
issued (or, in the case of interest, on checks or coupons pay
able) rather than on the amount paid. For any given
period, therefore, cash expenditures may be overstated when
there is a net increase in the amount of uncashed items (checks
or coupons), or understated when there is a net decrease in the
volume of uncashed items. The adjustment for items issued
and uncashed, along with adjustments for other minor dis
crepancies arising mainly from lags in the delivery of mailed
reports, is reported by the Treasury in a Clearing Account and
the changes in this account must be included in arriving at the
operating transactions affecting the Treasury’s cash funds and
its relations with the public.
Su m m a r y
of
D if f e r e n c e s
Thus, there are several reasons for the difference between the
conventional budget and the cash approach. As the table on
page 25 indicates, cash expenditures of budget accounts are
generally lower than total expenditures, mainly because the non
cash payments to trust accounts and the accrual of interest on
Savings bonds generally exceed the addition of certain cash dis
bursements for prior accruals, while budget receipts are almost
entirely cash. Accordingly, the net budget picture almost always
looks better on a cash basis than on the conventional basis.
At the same time, the trust accounts which are accumulating
reserves generally obtain more cash income than they disburse
in benefits, pensions, and dividends. Thus, when the Treas
ury runs a budget surplus, the cash surplus is almost always
larger — as in fiscal 1951 — and when the Government runs a
deficit, the cash deficit almost invariably is the smaller. Some
times, as in fiscal 1949, and possibly in the current fiscal year,
the budget may show a deficit while cash operations may pro
duce a surplus.
A v a i l a b il i t y
of
D ata
In recognition of the growing discrepancy between the bud
get and the cash flow, data on the cash income and outgo of
the Treasury were published in 1939 in the first issue of the
Treasury Bulletin. At that time and until September 1947, the
major sources of cash income and outgo were presented. The
data were published on both a monthly and annual basis back
to 1934. Beginning in September 1947, however, the presenta
tion was changed and summary statements of the major non
cash receipts and expenditures in both the budget and trust
accounts were given. This change enabled analysts to set up
their own classification of regular cash operations.
Since the original series was published, several refinements
have been made in the method of presenting the cash flow.
Changes of this kind have limited the comparability of some
of the data. Comparable data on a fiscal year basis are available
back to 1929 from estimates by the Budget Bureau, but com
parable monthly figures on cash income and outgo can be
obtained only from January 1943. The monthly series and
annual data back to 1943 on both a calendar and fiscal year
basis can be found in the current issues of the Treasury Bulletin.
The fiscal year figures back to 1929 are available in the Statis
tical Abstract of the United States, 1950. Beginning with the
Budget for 1944, estimates of the Government’s transactions
with the public in both budget and trust accounts have also
been included in the budget document, and a detailed state
ment of the reconciliation between these estimates and the
regular budget accounts has been published by the Bureau of
the Budget, beginning with the Budget for 1948. Except for the
exclusion of certain minor or infrequent classes of receipts
which do not arise from transactions with the public but which
do add to the cash available, the data presented in the Budget
on transactions with the public are identical with the data on
Treasury cash income and outgo published in the Treasury
Bulletin.
MONTHLY REVIEW, FEBRUARY 1952
28
D E P A R T M E N T STO RE T R A D E
As the new year began, a considerable amount of the excess
inventories that the stores had carried during the greater
part of 1951 had been worked off. Although Christmas season
sales, which had been expected to complete the liquidation of
excess stocks in many of the major durable and nondurable
lines, did not reach preseason expectations, the sharply curtailed
forward buying of the stores earlier in the year brought about
substantial reductions in stocks by the end of 1951.
On December 31, the dollar volume of inventories at Second
District department stores (on a seasonally adjusted basis) was
almost 15 per cent below the record level of July 1951; it was,
however, still 2 per cent above that of December 31, 1950
when inventories were in a sharply rising trend. A comparison
of stocks-sales ratios is perhaps a better measure of the stores’
current inventory position. Since both stocks and sales are
valued at current market prices, a comparison of these ratios
tends to "cancel out” the effect of price changes and thus
provides a clearer picture of the stores* inventory position
relative to year-ago levels. The ratio of total stocks to sales at
the end of December was about 6 per cent higher than it was
a year earlier— 1.6, compared with 1.5 on December 31, 1950.
The stocks-sales ratios of some important merchandise
departments, however, were very much higher than the cor
responding 1950 figures (see accompanying table). The ratios
of stocks to sales of mens clothing and of major household
appliances were markedly greater than a year ago— approxi
mately a half and two thirds again as large, respectively. Large
stocks of the latter merchandise, however, may not be a cause
of much concern to retailers since defense requirements are
expected to make further inroads into the quantities of materi
als available for the production of consumer durables this year.
The forward buying position of the stores at the end of
1951 indicates a continuation of the policy of keeping inven
tories geared to current consumer demand as closely as possi
ble. The value of orders outstanding, which has been con
sistently lower than year-ago levels since last July, was, on
December 31, 41 per cent below the corresponding 1950 vol
ume. Moreover, the dollar volume of commitments for addi
tional merchandise outstanding at the end of 1951 was only
Ratios of Stocks to Sales at Second District Department Stores
Total Store for July-December and Selected Departments
for December, 1950 and 1951
Total store
(1 9 4 7 -4 9 a v e ra g e = 1 0 0 p er ce n t)
1951
1950
Department
1951
1950
July..........
August. . .
September
O ctob er...
N ovem ber
D ecem b er
4 .4
3 .9
3 .4
2 .9
2 .7
1 .6
3 .0
2 .9
2 .7
3 .0
2 .8
1 .5
W omens' coats and suits. . . .
W om en’s dresses.......................
M en’s clothing..........................
Furniture and bedding...........
Dom estic floor coverings. . . .
M ajor household appliances..
1.9
1.3
3 .4
4 .0
4 .1
4 .8
1 .6
1 .3
2 .2
3 .6
3 .8
3 .0
1950
1951
Item
Dec.
N ov.
Oct.
Dec.
Sales (average daily), unadjusted.................
Sales (average daily), seasonally a d ju sted ..
179
103
131
104
108
103
185
106
Stocks, unadjusted............................................
Stocks, seasonally adjusted............................
106
115
132
115
130
115
104
113
25 per cent of the value of end-of-year inventories, consider
ably less than the 42 per cent on December 31, 1950.
Consumer demand for department store merchandise in this
District declined somewhat more than seasonally during
January. According to incomplete information, the index of
department store sales, after adjustment for seasonal variation,
was 101 in January— a drop of two percentage points from
the level of the preceding month. On a year-to-year basis,
sales during January were estimated to have been 16 per cent
less than during January 1951. A substantial year-to-year
decrease was expected, however, as the anticipatory buying of
last winter, motivated by military reverses in Korea and fears
of shortages, raised the sales volume to an all-time high
(seasonally adjusted) during January 1951.
Those items which were in heaviest demand a year earlier
showed the largest year-to-year decreases. Sales of linens,
domestics, major household appliances, and television sets were
reported to have been only about half of their January 1951
volume.
Department and Apparel Store Sales and Stocks, Second Federal Reserve
District, Percentage Change from the Preceding Year
N et isales
Locality
Dec. 1951
Department stores, Second D istrict----New Y ork C ity ......................................
Nassau C o u n ty......................................
Northern New Jersey...........................
Westchester C ounty.............................
Fairfield C ou n ty....................................
B ridgeport..........................................
Lower Hudson River V alley...............
Poughkeepsie......................................
Upper Hudson River V alley...............
Schenectady........................................
Central New York S tate.....................
M ohawk River V alley.....................
Selected departments, December
M onth
Indexes of Department Store Sales and Stocks
Second Federal Reserve District
Northern New Y ork State..................
Southern New York State...................
Bingham ton........................................
Western New York State....................
Niagara Falls......................................
R ochester.............................................
Apparel stores (chiefly New Y ork C ity ).
-
3
+
+
+
+
+
+
+
-
5
3
5
6
6
1
1
5
4
4
8
1
3
3
1
6
4
1
3
1
0
2
+ 1
+ 2
-
4
Stocks on
J a n .th ro u g h
hand
Dec. 1951 Dec. 31, 1951
+
5
+ 4
+ 13
+ 5
+ 4
+ 13
+ 5
+ 6
1
0
+ 6
+ 5
+ 6
+ 6
+ 2
+ 3
+ 8
+ 4
+ 6
+ 5
+ 7
+ 6
+ 5
+ 6
+ 6
0
+
2
+ 2
+ 11
1
2
+ 6
1
0
4
0
3
8
1
0
9
0
+ 2
+ 3
+ 1
1
+ 3
+ 2
+ 3
+ 4
+ 1
+
2
N A T IO N A L S U M M A R Y OF BUSINESS C O N D IT IO N S
(Summarized by the Board of Governors of the Federal Reserve System, January 30, 1952)
Over-all stability in economic activity continued in Decem
ber and January. Prices of some basic commodities have weak
ened in recent weeks, while prices of finished goods have
generally been maintained. Bank loans to business expanded
considerably in December and showed some decline in early
January. Easing in money market conditions in January was
reflected in reduction of Federal Reserve holdings of Govern
ment securities to the lowest level since early July 1951.
The decline in nondurable goods production in December
largely reflected moderate cuts in cotton textiles, paperboard,
and newsprint consumption and a more than seasonal decline
in manufactured foods. Operations at chemical and rubber
plants continued at the high November levels and petroleum
refining activity increased slightly further.
Coal production decreased in December after a marked rise
in October and November. Crude petroleum output was stable
at rates slightly below the peak reached last autumn.
I n d u s t r ia l P r o d u c tio n
The Boards index of industrial production in December
was 218 per cent of the 1935-39 average, about the same as in
the preceding four months and in December the year before.
The index averaged 220 for the year 1951, up 10 per cent from
1950. Durable goods output expanded further in December
and topped the previous postwar high reached in April. There
were offsetting declines, however, in nondurable goods and
minerals.
Activity in producers’ equipment and munitions industries
generally increased in December. Gains were particularly
marked for machine tool, electrical power equipment, and
aircraft industries. Output of steel and nonferrous metals held
close to the high November rates. In January, a rise in steel
capacity to 108.6 million tons per year was announced; output
was scheduled close to the level of the preceding month but
somewhat below the new rated capacity. Curtailed production
of building materials in December reflected large inventories
and the reduced level of residential construction. Output of
household durable goods continued at a level moderately above
the summer low and close to the 1947-49 average rate. Auto
assemblies were considerably reduced in late December and
early January, partly because of model changeovers.
IN D U STR IAL
PRODUCTION
Em p l o y m e n t
Seasonally adjusted employment in nonagricultural estab
lishments continued unchanged in December. The average
work week at factories in mid-December, however, rose to 41.2
hours, more than half an hour above the level in other recent
months. Average factory hourly earnings showed a slight
further gain, and average weekly earnings advanced consider
ably to $67.36. Unemployment at 1.7 million was down about
150,000 from November to a level 550,000 below a year ago.
C o n s t r u c t io n
Value of new construction work put in place showed no
change in December, after allowance for seasonal influences.
The total for the year rose to 30 billion dollars, as building
costs were at new record levels and the construction of indus
trial and military facilities increased sharply. The number of
housing units started declined seasonally in December to
62,000, bringing the 1951 total to 1,090,000 as compared with
the record 1,396,000 in 1950 and with 1,025,000 in 1949.
D i s t r ib u t io n
In the first three weeks of January, seasonally adjusted
dollar sales at department stores were close to the high Decem
CONSTRUCTION CONTRACTS AWARDED
400
Federal Reserve indexes.
M onthly figures; latest shown are for December.
F. W . D odge Corporation data for 37 Eastern States,
latest shown are for December.
M onthly figu res;
ber level, although about one-sixth below the record January
1951 rate. Sales of apparel and other nondurable goods have
been maintained in recent months. Sales by automotive and
building materials and hardware stores continued to decline
in December. Value of department store stocks was reduced
less than seasonally in December, according to preliminary
estimates.
C o m m o d ity P ric es
Prices of hides declined sharply, and there were moderate
decreases in textiles, chemicals, and grains from the early part
of December to the latter part of January. Foreign prices of
metals, which had been far above domestic levels, also de
creased, while the domestic price for tin was advanced. Prices
of most foods and other finished goods have continued to
change little. Manufacturers’ ceilings and selling prices on
new models of some leading makes of autos were raised about
5 per cent in the latter part of January.
The consumers’ price index advanced slightly further from
mid-November to mid-December, reflecting mainly higher
food prices, offset in part by declines in apparel and housefurnishings.
M oney
and
B a n k C r ed it
B ank credit, particularly business loans, expanded more
sharply than usual in December and then contracted somewhat
early in January. Metal and metal-product manufacturers have
been particularly important borrowers in recent weeks.
The December credit expansion contributed to a substantial
rise in the private money supply— the amount of currency and
bank deposits held by businesses and individuals. The money
supply has not experienced its usual decline in January mainly
because of a large transfer of bank balances from Treasury to
private accounts.
Member bank reserve positions tightened sharply in the last
half of December and eased considerably early in January.
Federal Reserve holdings of Government securities have de
clined sharply in January and are now below the level of a
month ago and at about the level of April 1951, following
the Treasury-Federal Reserve accord.
S e c u rity M a r k e ts
Common stock prices rose further in the first three weeks
of January, reaching their highest level since April 1930.
Accompanying an easing in money market conditions, yields
on short and medium-term U. S. Government securities de
clined during the first three weeks of January. Yields on long
term Governments showed little change, while yields on highgrade corporate bonds declined substantially, returning to their
November levels.
MEMBER BANKS IN LEADING CITIES
W H O LE SA LE COMMODITY PRICES
PER CENT
PER CENT
220
220
BILLIONS OF DOLLARS
BILLIONS OF DOLLARS
/ irS 1 200
1I
1/
FARM
’RODUCTS
_
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1* / IMAlOLADLITIE*SV
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160
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* SBAAM
SED ONREDUCED
PLE.
1944
1945
Bureau of L abor Statistics indexes.
week ended January 22.
1950
1951
W eekly figures; latest shown are for
*CHAN3E IN SERIES.
W ednesday figures; latest shown are for January 16.
@FedFRASER