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M ONTHLY

R E V IE W

O f Credit and Business Conditions

FEDERAL
V o lu m e 35

RESERVE

BANK

FEBRUARY

OF

NEW

YORK

1953

No. 2

MONEY MARKET IN JANUARY
The money market eased moderately in January, reflecting
the relaxation of seasonal pressures that culminated in Decem­
ber, but the turn toward ease was much less pronounced than
in January of last year. During December, the market had
relied heavily upon temporary assistance from the Reserve
Banks through member bank borrowing, and through sales
of securities to the Federal Reserve Bank of New York by
Government security dealers under repurchase agreements.
There was thus a continuing inducement to use funds that
became available in the market during the past month to
retire credit obtained from the Reserve Banks. Consequently,
the general degree of underlying restraint upon bank reserve
positions in January was about the same as that which had
been maintained for some months past, despite the seasonal
return flow of currency to the banks and the beginning of
seasonal repayment of bank loans. The market reflected this
situation by continuing a level of short-term interest rates as
high as, or higher than, those in effect before the peak of
December tightness had been reached.
In this setting, the board of directors of this bank voted
on January 15 to advance the discount rate to 2 per cent, from
the 1% per cent rate that had become effective on August 21,
1950. The Board of Governors of the Federal Reserve System
approved this action, and that of seven other Federal Reserve
Banks, effective January 16. Within a week the same action
was taken by the four other Federal Reserve Banks and
approved by the Board of Governors.
Rates charged on the purchase of Federal funds in the New
York money market adjusted upward immediately upon an­
nouncement of the change in the discount rate, and remained
at levels only nominally lower than the new discount rate over
most of the remainder of the month. There was also a small
advance in bankers’ acceptance rates, but other money market
interest rates apparently had already adjusted to the new dis­
count rate and were largely unaffected. Yields on short-term
Treasury securities had receded from their high December
levels to a range near 2 per cent by early January, and over the
remainder of the month, on balance, the yields of most of these
securities moved somewhat lower.
Prices of most United States Government bonds and notes
were steady to irregularly lower during January, the largest




losses being registered on certain bank-eligible intermediate
issues. Trading in the intermediate to longer-term issues was
thin and spotty due to investor uncertainty growing out of the
proximity of the first financing operation of the new Treasury
administration. Plans for the refunding of 8.9 billion dollars
of certificates maturing February 15 were made known on
January 27 when the Treasury announced that subscription
books would open on February 2 to holders of the maturing
certificates on an exchange offering consisting of the option of
a one-year certificate of indebtedness or a five- six-year security.
The terms of the offering, announced on Friday, January 30,
provided for a one-year, 2V4 per cent certificate to mature
February 15, 1954 and a five-year ten-month, 2 V2 per cent fully
marketable bond to mature December 15, 1958.
Loans of the weekly reporting member banks, which had
begun a seasonal contraction in the week ended December 31,
continued to decline throughout the first three statement weeks
in January. By January 21, loans outstanding at these institu­
tions were down 514 million dollars from the all-time high
reached in the week ended December 24. The loan decline
was centered in business loans and in loans for purchasing or
carrying Government securities. Consumer loans continued the
steady growth that has characterized this type of lending since
the lifting of controls on consumer credit last May.
M em ber Ba n k R eserves

The return flow of currency that had been withdrawn from
the banks for Christmas shopping requirements, as expected,
provided member banks with a large volume of reserves dur-

CONTENTS
Money Market in January....................................

17

Recent Changes in Foreign Gold
and Dollar H oldings............................................. 20
Review of Capital Markets in 1952.....................

23

Cash Borrowing of the U. S. Treasury:
Nonmarketable Issu es........................................

27

Selected Economic Indicators................................ 31
Department Store T r a d e ........................................

32

18

MONTHLY REVIEW, FEBRUARY 1953

ing the month of January. In the first two weeks of the new
year, as shown in the accompanying table, member banks
gained 540 million dollars in reserves from this source. How­
ever, over the same period, the Federal Reserve System with­
drew more than 490 million dollars of reserve balances through
the resale of short-term Government securities that had been
acquired during the period of increasing pressure on bank
reserves and on the money market, including securities taken
from dealers under their repurchase agreements with the Fed­
eral Reserve Bank of New York. A further reduction in
Federal Reserve credit resulted from a small decline in float.
Other factors tending to reduce bank reserves in the two weeks
ended January 14, including a loss through gold and foreign
account operations and an increase in Treasury deposits with
the Federal Reserve Banks, were offset by a decline in required
reserves. On balance, the negative "free reserve” position of
member banks ( excess reserves less member bank indebtedness
to the Federal Reserve Banks) in this period was practically
unchanged. The table tends to obscure the stability of reserve
positions in this period. Since the last reporting date in 1952
fell on the 31st of December, when member banks all but
eliminated their borrowing in order to "window-dress” their
year-end statements and when reserves for the banking system
as a whole were deficient by a large sum, the statement week
ended January 7 shows sharp increases in discounts and
advances and in excess reserves which are not related to any
real change in the borrowing or reserve position of the banks.
Member banks gained reserves in the third week of January
from a continued return flow of currency, a moderate increase
in float, and smaller gains from the other operating factors,
which more than offset a further reduction in System security
holdings. Borrowing from the Reserve Banks by the end of
that week had been reduced to the lowest level (excepting
December 31, 1952) for any statement date since mid-October
last year. On a few days, Federal funds were traded in New
York at rates well below the discount rate. The continuing
degree of tightness in bank reserves even during this period
W eekly Changes in Factors Tending to Increase or Decrease
Member Bank Reserves, January 1953

(In millions of dollars; ( + ) denotes increase,
(— ) decrease in excess reserves)____________________ _
Four
weeks
ended
January January January January January
28
28
14
21
7
Statement weeks ended

Factor

Operating transactions

+
+

234
2
271
70
113

+167
- 84
+269
-1 2 8
- 21

+101
+124
+197
+ 28
+ 18

-4 0 8
-2 7 7
+ 95
- 42
+ 11

+
+

374
239
832
212
121

Total........................... +

78

+204

+466

-6 2 0

+

128

306
Government securities.............. Discounts and advances.......... +1,180

-1 8 6
-2 6 0

-1 7 1
-2 1 4

- 64
+445

727
+1,151

Treasury operations*................
Federal Reserve float...............
Currency in circulation............
Gold and foreign account........
Other deposits, etc...................

Direct Federal Reserve credit trans­
actions

Total........................... +

874

-4 4 6

-3 8 5

+381

+

424

+
Effect of change in required reserves. +

952
133

-2 4 2
+ 44

+ 81
+ 17

-2 3 9
+ 141

+
+

552
335

Excess reserves............................... +1,085

-1 9 8

+ 98

-

+

887

Note: Because of rounding, figures do not necessarily add to totals.
♦ Includes changes in Treasury currency and cash.




98

of relative "ease”, however, is indicated by the fact that excess
reserves did not exceed borrowing from the Federal Reserve
Banks on any day in that week (or throughout the month).
During the remainder of the month, a contraction in float,
together with sales and redemptions of System-held short-term
securities and losses of funds due to Treasury operations and
other factors, more than offset gains from currency returns
and caused renewed pressures on bank reserves and an increase
in member bank borrowings from the Reserve Banks.
The central reserve New York City banks acquired reserves
during January from a sizable inflow of funds, probably result­
ing largely from the sale of short-term Government securities
to out-of-town investors from the portfolios of New York
City banks and dealers. Other funds were supplied, on balance,
by currency returns and by Treasury outlays in the New York
market in excess of withdrawals from Treasury deposits at
New York banks. The effect of these factors was to enable
the New York banks to reduce their borrowings substantially,
and occasionally to create large excess reserve balances, thus
permitting individual banks temporarily to become active sup­
pliers of Federal funds.
T h e G o v e r n m e n t Secu r ity M ar k e t

Activity in the Government security market during January
was centered in the short-term issues. Early in the month,
liquidation of Treasury bills and other short-term investments,
primarily by banks in the money market centers, tended to
create a somewhat heavy tone in the market. Dealers were try­
ing to reduce further their large positions in these issues, and
rates moved higher over most of the first half of January.
But as the month progressed, demand for these issues by non­
bank corporations and out-of-town banks appeared in the
market in sufficient volume to absorb, at gradually declining
rates, the further liquidation by New York City and other
commercial banks as well as by dealers. The investment de­
mand at this period enabled Government security dealers to
complete the marketing of the securities they had placed under
repurchase agreements with the Federal Reserve Bank of New
York late in 1952 and to effect other reductions in their
positions. The somewhat tighter money market conditions
toward the close of the month had only slight effect on yields
of Treasury bills and certificates of indebtedness, and yields in
this area of the market closed the month below their end-ofDecember levels. Treasury bills issued during the month were
allotted at average rates ranging downward from 2.191 per
cent on the issue dated January 2 to 1.986, 2.124, 2.097, and
1.961 per cent on the issues dated January 8, 15, 22, and 29,
respectively.
The certificate of indebtedness maturing February 15 was
in demand during January as a result of persistent rumors that
the Treasury planned a combination offering including an
intermediate bond as well as a certificate of indebtedness for
refunding the issue. At the time of the Treasury’s preliminary
refunding announcement on January 27, the February certifi­
cate bore a "rights” premium of approximately % 4, and this

FEDERAL RESERVE BANK OF NEW YORK
premium was increased slightly in trading prior to the open­
ing of the Treasury subscription books. Since the market had
anticipated an intermediate security in the Treasury offering
and had already adjusted to the possibility, there was little
further price adjustment in the intermediate area following the
Treasury’s announcement.
Short-term Treasury bonds, along with the other short-term
securities, traded actively in January, the largest part of the
selling originating with several large commercial banks ap­
parently seeking to raise funds to reduce borrowings. By
contrast with the broad market in short-term bonds, trading
in the intermediate bonds and notes and in the longer bonds
was generally inactive and, where trading existed, was pre­
dominantly professional in nature. Tax selling, which had
stimulated trading in the last quarter of 1952, was no longer
a factor in January. Investors and dealers tended to adopt
a ’ wait and see” attitude because of the proximity of the
February refunding, and were generally reluctant to extend
commitments prior to the Treasury announcement.
Against this background of inactivity and uncertainty, price
changes for the month as a whole on the intermediate to longer
maturities were mixed. The nearer-term intermediate bonds
and notes were generally somewhat higher in price for the
month, while most issues in the 5-to-10 year range were off
from Va to % of a point. Prices of the longer-term issues
were steady to fractionally lower for the month. The sharpest
changes in bond prices occurred in early trading on January 16,
following the raising of the discount rates, when dealers, for
precautionary reasons, marked bond prices as much as Va of
a point lower. However, since the market to a considerable
extent had anticipated and discounted the System’s action, very
little business was transacted at these prices, and by the end
of the day price quotations had recovered nearly all the
original markdown.
M e m b e r B a n k C r e d it

Total loans and investments of the weekly reporting mem­
ber banks began to decline in the week ended December 24,
although total loans continued to increase in that week. In
the four weeks between December 24, 1952 and January 21,
1953, total loans and investments of the reporting banks de­
creased by 1,078 million dollars. Of the total decrease, 634
million dollars resulted from the disposal of Government
security investments and 400 million dollars from a seasonal
decline in loans to business. In the latter category, the sharp­
est declines were in loans to wholesale and retail concerns,
commodity dealers, and food, liquor, and tobacco companies.
In the similar period in January 1952, the contraction in total
loans and investments at the weekly reporting banks amounted
to 1,295 million dollars, of which 306 million dollars was
in business loans and 356 million dollars was from the dis­
posal of Government securities. Most of the remainder resulted
from a decline in security loans.
Reporting banks in New York City accounted for 922 mil­
lion dollars, or 86 per cent, of the total reduction in bank
credit in the four statement weeks ended January 21, 1953,




19

Changes in Total Loans of All Commercial Banks
(1951 cumulated from D ecem ber 30, 1950; 1952 cumulated
from Decem ber 31, 1951)

and for 612 million dollars— nearly the entire amount— of the
reduction in Government security holdings in this period. This
compares with a decrease in the total of New York reporting
banks’ loans and investments of 713 million dollars for the
comparable period in 1952, and a decline in that period of
296 million dollars in Government security holdings.
The accompanying chart traces the growth in total loans of
all commercial banks over 1951 and 1952. Bank loans out­
standing increased by more in the year just ended than they
did in 1951, a difference of some 1,047 million dollars,
with the over-all growth concentrated in the last half of the
year. The general shape of the two curves may be explained,
quite largely, by reference to the pattern of Government and
business spending resulting from the Korean hostilities and
the rearmament program. These were dominating influences
in 1951, but in the last half of 1952 these factors played a
much less important role, and reasons for the rapid expansion
in bank lending in 1952, to the extent that it may have been
more than ‘ seasonal”, must be sought elsewhere. Statistics
available from banks that report their lending activities in
greater detail help provide the explanation. While the com­
position of bank lending to business in the last half of 1952
differed somewhat from that in the same period of the pre­
ceding year, the total change was nearly equal; the greatest
differences in composition were reduced borrowing by the
metal-working industries and heavier borrowing by sales
finance companies. The primary reason for the much faster
rate of increase in bank loans in the last six months of 1952
was the growth in consumer credit. For the last half of 1952,
‘ all other” loans of reporting banks, which are predominantly
consumer loans, increased by 822 million dollars; in 1951 the
increase was less than 85 million dollars. Moreover, reported
lending to sales finance companies (included in the business
loan category) rose 544 million dollars in the last half of
1952, compared with 30 million dollars in the same period
in 1951.

MONTHLY REVIEW, FEBRUARY 1953

20

RECENT CHANGES IN FOREIGN GOLD AND DOLLAR HOLDINGS
Gold and dollar holdings of foreign countries, which rose
for almost two years from September 1949 through June 1951,
declined thereafter until March 1952 but have since tended to
increase again. At the low point in September 1949 they
amounted to 14.6 billion dollars. They then rose to 19-8 bil­
lion in June 1951, declined to 18.5 billion in March of last
year, and reached 19.9 billion by the end of 1952.1
G o ld

and

D olla r M ovem ents

in

1952

Foreign accumulation of gold and dollar reserves during
the year took the form predominantly of dollars rather than
of gold. United States net gold sales totaled only 163 million
dollars during the nine months ended December 1952 (see
Table I), while foreign countries’ dollar holdings increased
1.1 billion dollars during the same period. During the sec­
ond quarter of 1952, the United States bought 106 million
dollars of foreign gold, although foreign countries were
already accumulating dollars. In the third quarter, the United
States sold, on balance, 1 million dollars of gold. In the last
quarter, net gold sales by this country reached 268 million.
The United States continued to sell gold in January 1953,
when (up to January 28) its monetary stock declined by
150 million dollars.
The recent acceleration in United States gold sales reflects
principally a more rapid conversion into gold of dollar bal­
ances acquired by foreign countries. Just as in earlier periods
— most recently during July 1951-June 1952— the foreign
monetary authorities sold gold whenever they needed to re­
plenish dollar balances that had fallen below customary levels,
so now they have been converting their dollar balances into
gold when the former have exceeded these levels. By stand­
ing thus ready to buy and sell gold freely at its fixed price in
transactions with the foreign monetary authorities for all
legitimate monetary purposes, the United States maintains
the international gold bullion standard.
While the bulk of the United States gold purchases during
July 1951-March 1952 came from the United Kingdom,
which holds the central monetary reserves of the sterling
area, the purchases during April-June 1952 originated mainly
in Latin America. Details by countries of the 268 million
dollars of United States net gold sales in the final quarter of
1952 have not yet been published; however, on the basis of
official data currently available, the reversal in the gold flow
appears to mark an improvement in the positions primarily
of the sterling area and of certain Western European
countries.
The gold position of individual foreign countries was, of
course, affected not only by gold purchases from the United
1
For an account of the changes in foreign gold and dollar hold­
ings in recent years, see the Monthly Review issues of July 1950,
January 1951, and February 1952. These articles also contain statis­
tical data for earlier periods, comparable to those given in Table II
of the present article. The term '‘foreign gold and dollar holdings”
is used in the present article (including Table II) in the sense defined
in the previous articles.




States but also by accruals from new gold production, by
transactions between foreign monetary authorities, and by
transfers to the International Monetary Fund. The latter
amounted to about 160 million dollars last year, and repre­
sented principally the payment of subscriptions by the Ger­
man Federal Republic (Western Germany) and by Japan,
and the discharge of repurchase obligations by certain Fund
members.
R eserve

P o s it io n s

of

Fo r e ig n

C o u n t r ie s

The combined gold and dollar holdings of selected foreign
countries and areas are shown in Table II for September 1952
and for three significant earlier dates— September 1949, June
1951, and March 1952. The accompanying chart shows the
quarterly movements in gold and dollar holdings for the most
important areas since the end of 1945. As is apparent from
both the table and the chart, the recent rise in foreign gold
and dollar holdings, like the previous decline, was very
unevenly distributed.
The over-all improvement during April-September is
accounted for principally by increases in the gold and dollar
holdings of Canada (223 million dollars) and Continental
Western European countries participating in the Organization
for European Economic Cooperation (765 million). The
strength of Canada’s international economic position was,
however, reflected not only in the increase in its gold and
United States dollar holdings but also in the rise of the
Canadian dollar rate, whose monthly average reached a high
of US$1.0424 in September; the rate stood at US$1.0310 at
the year end. Among the Continental countries the growth
of gold and dollar holdings was especially marked in Germany
(214 million), the Netherlands (191 million), and Belgium
(173 million). The 161 million dollar rise in France’s hold­
ings was largely attributable to that country’s drawings on
the 200 million advance made by the Export-Import Bank
to cover orders by the United States for military equipment
that ultimately will be transferred under the military aid pro­
grams. Gold and dollar holdings of the Bank for International
Settlements and the European Payments Union, which may be
considered as a part of total Western European reserves, also
went up markedly.
Table I

United States Net Gold Purchases from Foreign Countries
(Includes transactions with the Bank for International Settlements;
minus signs indicate net sales by the United States)
Period

Millions of dollars

1949— Y ea r...........................................................................
1950— Y ear...........................................................................
1951— Y ea r...........................................................................
1952— Y ea r...........................................................................

193
- 1 ,7 2 5
75
394

1951— First quarter............................................................
Second, quarter........................................................
Third quarter...........................................................
Fourth quarter........................................................

—

1952— First quarter............................................................
Second quarter........................................................
Third quarter...........................................................
Fourth quarter........................................................

-

876
56
291
716
557
106
1
268

FEDERAL RESERVE BANK OF NEW YORK
Foreign Gold and Dollar Holdings

* Excluding gold holdings, but including dollar holdings, of the USSR. Gold
and dollar holdings of the international institutions are excluded,
t Except the United Kingdom and Switzerland.
$ Including the United Kingdom but excluding Eire and Iceland.
ft Excluding sterling, French-franc, and Dutch-guilder areas.

Latin America and the sterling area did not participate in
the April-September gains. However, there was a considerable
slackening of the decline in Latin American holdings, which
showed a net reduction of only 32 million dollars during
April-September, as against 112 million dollars during the
preceding six months. Some Latin American countries
added to their gold and dollar holdings— 87 million dollars
in the case of Venezuela. Argentina lost 59 million, as
against 131 million during October 1951-March 1952, and
Brazil 11 million, as against 40 million; the increase in
Brazil’s outstanding liabilities to the United States, which had
begun in the latter part of 1951, slowed down toward the
year end.
The sterling area actually lost 12 million dollars of its
gold and dollar holdings during April-September, but in
October it started to replenish them at a rapid pace. Data for
the last quarter are not yet available, but gold and official dol­
lar holdings of the United Kingdom alone2 stood in Decem­
ber 1952 at 1,846 million dollars, or 161 million higher than
in September, despite the payment in December of 181 mil­
lion as the second instalment of interest and principal on the
postwar United States and Canadian loans. At the year end
these holdings were 421 million dollars higher than in Sep­
tember 1949, but still 2,021 million lower than in June 1951.
Gold and dollar holdings of the nonsterling-area countries
of Asia increased 103 million dollars during April-September,
but this improvement was mainly accounted for by the rise
in Japan’s holdings. The latter rose by 91 million dollars, on
top of the 190 million rise recorded during the preceding six
months. The gold and dollar holdings of Indonesia, Israel,
and the Philippines decreased. Egypt also drew down its
holdings.

21

T h e U n it ed State s Ex p o r t Su r plu s

and

Foreign A id

These widely divergent changes in gold and dollar hold­
ings reflect, of course, important changes in the various
countries’ balances of international payments. The latter in
turn reflect both the underlying conditions that shaped the
world economy throughout 1952, and various special factors
operating in individual countries and areas.
From the trends in the United States balance of payments,
it appears that, beginning with the second quarter of 1952,
substantial readjustments occurred in the pattern of trade and
payments between the United States and foreign countries as
a whole. United States merchandise imports generally re­
mained at a high level throughout the year, their small decline
(9 per cent from the first to the third quarter) being largely
accounted for by somewhat lower prices and by small sea­
sonal declines in physical volume. Defense outlays by this
country abroad increased noticeably; tourist expenditures like­
wise rose. On the other hand, United States merchandise
exports (excluding those effected under military aid) fell off
substantially, declining by 26 per cent from the first to the
third quarter. As a result, the United States export surplus
of goods and services (excluding goods and services provided
under military aid) fell from 1,052 million dollars in the first
quarter to only 150 million in the third.
While the marked decline in the United States export sur­
plus was the most significant factor in the improvement of
foreign gold and dollar holdings, a contributing cause was a
somewhat larger disbursement of United States economic aid,
principally as a result of the resumption of economic aid to
the United Kingdom. United States economic aid to foreign
countries increased from 387 million dollars in the first
quarter to 615 million dollars in the second but then declined
to 537 million in the third. United States capital outflow
also receded during the third quarter from the unusually high
level reached earlier in the year— particularly in the second
quarter, which had been featured by sizable security issues by
Canadian companies in the United States. The decline in the
United States export surplus and the increase in United
States foreign aid thus were the main forces determining the
movement in foreign gold and dollar holdings.
To some extent, the decline in the United States export
surplus can be ascribed to nonrecurrent factors and special
circumstances. Exports of metals and metal manufactures
temporarily dropped last summer because of the steel strike;
coal exports to Western Europe ceased almost completely
because of the disappearance of a coal shortage there; and
exports of agricultural products declined markedly— wheat
because of excellent harvests in Canada and Western Europe,
and cotton because of large carry-overs in other producing
countries. However, exports of all other major commodity
groups also declined.
I n t e r n a t i o n a l R eserves

and

D o m e s t ic R e t r e n c h m e n t

The general decline in imports from the United States

2
I.e., the central reserves of the sterling area, as made public by
during 1952 was apparent in nearly all countries, not merely
the British Chancellor of the Exchequer.




MONTHLY REVIEW, FEBRUARY 1953

22

those that tightened their exchange controls and trade re­
strictions early in the year. Furthermore, the decline con­
tinued to the end of 1952 despite the fact that foreign direct
controls over dollar imports were not tightened after the
midyear. The fall in imports from the United States thus
appeared to be the outcome to a substantial extent of a reduc­
tion in demand for this country’s export products and, to a
lesser degree, of an improvement in the export supplies of
third countries, which in turn reflected basically the abatement
of inflationary pressures in some of the major countries and areas.
Most of the recent improvement in foreign gold and dol­
lar holdings took place in countries which pursued policies
dealing effectively with the task of containing inflation and
which thus re-established a reasonable internal economic bal­
ance. In most of the countries and areas that had lost gold
and dollar reserves prior to mid-1952, the increased dollar
gap had been a part of an enlarged balance-of-payments deficit
with all major countries and areas. In this situation, general
domestic retrenchment was clearly indicated, and those coun­
tries that were determined to maintain tight controls over
their budgets, bank credits to business, and wages were able

to improve over-all external balance and strengthen their
gold and foreign exchange reserves, including their dollar
holdings.
In most industrial countries, the effects on international
payments of the slackening of domestic demand and of the
resultant reduction in imports were reinforced by the fall in
primary commodity prices, which resulted in improved terms
of trade. In the primary-producing countries, the fall in com­
modity prices brought about some decline in exchange earn­
ings. However, the price declines were from the highest
levels ever recorded and a large volume of exports (though
somewhat smaller than in 1951) was maintained as a result
of the great industrial activity in the United States and West­
ern Europe. In fact, the return to more competitive price con­
ditions seems on the whole to have contributed to the estab­
lishment of a better balance in the economies of the Western
world.
The improvement in the international payments position
of certain countries and areas was achieved in part at the
cost of new direct restrictions on trade and payments, some
of them discriminatory in character. As a result, except in a

Table II
Foreign Gold and Dollar Holdings
(In millions of dollars)
September 1952p
Area and country
Gold

United Kingdom and rest of sterling area*...............
Other OEEC countries:
Belgium-Luxembourg (and Belgian Congo). . . .
France (and dependencies)....................................
Germany (Federal Republic)................................
Netherlands (and Netherlands West Indies).. .

Dollar
holdings

March 1952

Total

Gold

Dollar
holdings

June 1951

Total

Gold

Dollar
holdings

September 1949

Total

Gold

Dollar
holdings

Total

892

1,545

2,437

874

1,340

2,214

652

1,329

1,981

460

827

1,287

1,980

1,165

3,145

2,116

1,041

3,157

4,156

869

5,025

1,777

670

2,447

1,034
1 ,029f
604
640
734
280
2,010
1,082

661
568|
28
346
364
214
1,432
767

861
868f
390
638
543
276
1,977
1,095

653
568f
—
252
335
129
1,451
849

189
313
357
276
160
99
509
263

842
8811
357
528
495
228
1,960
1,112

258
179
70
1,485
647

166
191
148
280
194
62
509
234

935
736f
148
538
373
132
1,994
881

797
578t
118
348
350
202
1,404
719

237
451
486
292
384
78
606
363

200
300
362
292
179
62
545
328

769
545f
—

Total..............................................................

4,516

2,897

7,413

4,380

2,268

6,648

4,237

2,166

6,403

3,953

1,784

5,737

Other Continental Europe#...........................................

462

83

545

462

85

547

461

90

551

499

102

601

268
317
373
852

130
89
154
1,151

398
406
527
2,003

268
317
373
988

189
100
67
1,064

457
417
440
2,052

288
317
373
1,038

34.4
212
76
1,008

632
529
449
2,046

164
317
373
726

222
145
99
819

386
462
472
1,545

1,810

1,524

3,334

1,946

1,420

3,366

2,016

1,640

3,656

1,580

1,285

2,865

87
773
320
393

367
895
329
773

279
122
7
377

141
682
332
321

420
804
339
698

229
122
5
360

136
343
404
330

365
465
409
690

176
206
1
321

27
161
348
333

203
367
349
654

791

1,573

2,364

785

1,476

2,281

716

1,213

1,929

704

869

1,573

178

134

312

178

166

344

148

120

268

55

S5

140

10,629

8,921

19,550

10,741

7,796

18,537

12,386

7,427

19,813

Latin America :§

Total...............................................................
Asia:§

280
122*
"g*
380
Total.............. ................................................

Grand total..................................................

9,028

5,622 J 14,650
i

Note
Preliminary.
Excluding Eire and Iceland, which are included under “ Other OEEC countries’ ',
For France, only the gold reserves of the Bank of France are included.
Including gold and dollar holdings of Austria, Denmark, Eire, Greece, Iceland, Norway, Portugal and dependencies, the Free Territory of Trieste, and Turkey,
certain unreported gold reserves, and gold to be distributed by the Tripartite Gold Commission.
# Including the dollar holdings, but not the gold reserves, of the USSR.
§ Excluding sterling, Freneh-franc, and Dutch-guilder areas.
* September data not available; March figure is carried forward.

p
*
f
J




23

FEDERAL RESERVE BANK OF NEW YORK

few places, little was contributed to the general improvement
in balances of payments by larger exports. The new restric­
tions imposed in various countries and areas inevitably struck
at the exports of others. Moreover, in some instances, they
apparently had the effect of reinforcing the protection of
certain industries that were relatively uneconomic or inefficient.
Nevertheless, the recent improvement in the international
payments position of most Western European countries
seems to have been of a sturdier character than the earlier
recovery of October 1949-June 1951. In the first place, the rise
in gold and dollar holdings was not at the cost of a gen­
eral depletion in raw material stocks. In addition, the Western
European economies have been operating at close to all-time
record levels, despite the subsidence of the inflation-nurtured
boom in much of Europe and in the primary-producing coun­
tries. Furthermore, the ability of the Western European coun­
tries to cope with the problem of transferring resources to
dollar-earning or dollar-saving tasks was enhanced by their
increased reliance upon controls over the availability and cost of
credit and upon the price mechanism. Finally, the stretchingout of Western European rearmament programs, whether
because of balance-of-payments difficulties, budgetary deficits,
or bottlenecks in engineering industries, has reduced the pres­
sure on certain raw materials and on engineering capacity, and
thus should make it somewhat easier for these countries to
export metal manufactures to foreign markets.
The countries that at the turn of the year had failed to
improve materially their international payments position were
mostly those primary-producing countries which had not suc­
ceeded in bringing their inflationary pressures under control.
The recent slowing-down in the rate of gold and dollar loss by
the Latin American republics indicated that tightened import
restrictions, and in a few countries also some adjustments made
in the domestic economies, were tending to improve their ex­
ternal imbalance. The independent nonsterling-area countries
of Africa and Asia appeared to be the main group of countries
whose balances of payments did not improve; but even these
countries reduced their deficits with the United States, al­
though their deficits with other countries apparently in­
creased at the same time.

C o n c l u s io n

At the turn of the year, the substantial improvement in
most balances of payments appeared to be basically the out­
come of the high level of business activity in the United States
and of a definite slackening of demand for United States goods
abroad, which in turn reflected the abatement of inflationary
pressures in the major countries and areas. In this economic
environment, many countries appeared to be making greater
strides toward stabilizing their economies, domestically and
externally, than at any time since the war. More particularly,
the sterling area, which accounts for more than one fourth of
all world trade, appeared to be on its way to a more nearly
self-sustaining pattern in its international accounts.
As various countries achieved reasonable monetary stability,
the international payments problem ceased to be materially
aggravated by inflationary upswings in import demand and by
what had previously seemed to be an intractable urge to
divert exportable products to domestic use. W ith greater reli­
ance on the functioning of the price mechanism, many foreign
economies also found that shifts in labor and other resources
were occurring in such a way as to effect a better balance in
their international accounts. Further progress toward viabil­
ity would seem to lie along the same path, with a sustained
growth of production and productivity the real objective.
At the year end, therefore, free multilateral trading and
general currency convertibility were not yet in sight, although
1952—the first year after the five-year "transition period”
around which the entire edifice of the International Monetary
Fund had been built—was originally supposed to mark the
achievement of these objectives. Nevertheless, recent develop­
ments have given rise to new hope that many countries, even
while meeting heavy defense requirements, will succeed in the
triple task of stabilizing their currencies; re-establishing effi­
cient, flexible, and self-supporting economies; and rebuilding
their monetary reserves. These developments have also
strengthened the conviction that, if the recent improvement
in the international payments position is to be sustained, effec­
tive policies will need to be devised, in the United States as
well as abroad, to develop an integrated pattern of world
trade.

REVIEW OF CAPITAL MARKETS IN 1952

The capital markets1 were called upon to provide a record
aggregate volume of long-term funds and equity capital in
1952. The estimated net volume of satisfied demand from the
three major users of long-term capital, business corporations,
real estate mortgagors, and State and local governments, rose
from 18 billion dollars in 1951 to roughly 19 billion in the
year just completed. In addition, the Federal Government
1 The capital markets are defined broadly for the purposes of this
article as encompassing the markets for private securities (including
direct placements) as well as the governmental security markets and
the real estate mortgage market. Because developments in the Federal
Government market are regularly discussed in each issue of this Review,
and because in recent years the Treasury has raised most of its funds
in the short-term market, only incidental attention will be given to the
Government security market in this article. The principal interest here
will be in corporate and State and municipal financing.




borrowed 3 ^ billion dollars net from the public through
short and long-term offerings combined, in contrast to net
retirement of 1 billion of its publicly held debt in 1951.
Thus, the total volume of funds required by these four claim­
ants during the year amounted to 22Vi billion dollars, about
534 billion larger than a year previous.
Private demand accounted for roughly three quarters of
this total, with State and local governments sharing about
equally with the Federal Government in the remainder.
Despite the large financing demands and a market not only
freed from artificial support but subject to the mild restraint
of a flexible Federal Reserve credit policy, interest rates rose
only moderately, for net savings also increased and provided
a larger supply of capital funds. The volume of additional

MONTHLY REVIEW, FEBRUARY 1953

24

bank credit (including the net change in Federal Reserve hold­
ings of Government securities) supplied directly or indirectly
to these markets was practically unchanged in 1951, and the
proportion consequently lower.
D em and

for

Fu n d s

On the basis of preliminary estimates, (net) new security
issues of corporations and State and local governments aggre­
gated approximately 9.7 billion dollars in 1952, compared with
8.1 billion in the preceding year. With the Treasury’s net cash
borrowing (both short and long term) included, the total
volume of net new security issues amounted to about 13.1
billion dollars and 6.8 billion in 1952 and 1951, respectively.
The net increase in mortgage debt in each of these years
brought aggregate net demands on the market to approxi­
mately 22.5 and 16.6 billion dollars. Refunding issues of cor­
porations and State and local governments superimposed on
these totals were small, about a billion dollars each year. They
bulked much larger in Federal finance because of the heavy
floating debt which requires constant refinancing. Government
issues offered in effect for the purpose of meeting cash redemp­
tions of nonmarketable securities and of maturing marketable
issues amounted to 7.1 billion dollars in 1952, and 4.5 billion
in the preceding year.
Real estate financing was the only sector of the capital mar­
kets in which effective private demand for long-term funds
was less than in 1951. But, as preliminary estimates show, the
decline in the growth of mortgage indebtedness was very small,
from an expansion of close to 10 billion dollars in 1951 to
Demand for and Sources of Investment Funds, 1950-1952*
B illio n s
o f d o ll a r s

B illio n s
o f do l l a r s

* The demand for investment funds includes the net increase in urban and farm
mortgage debt, in long-term debt of States and local governments, and
in the publicly held debt of the United States Government, and the gross
flotations of corporate debt and equity security issues less total retire­
ments including retirements out of corporate cash balances. Supply
includes the net increase in the holdings of corporate and governmental
securities and mortgages by the various groups of investors. Bank
credit represents the net change in commercial banks’ holdings of these
types of assets together with the net change in Federal Reserve System
holdings of United States Government securities. Other financial institu­
tions cover the mutual savings banks, savings and loan associations, and
fire, marine, and casualty insurance companies.
Source: Estimated or derived by the Federal Reserve Bank of New York
from data from a wide variety of sources.




about 9V2 billion in 1952. A reduced volume of commercial
building and a continued low level of apartment house build­
ing (which began in 1951 following the expiration in 1950
of the Federal Housing Administration’s authority to insure
mortgages under the terms of Section 608 of the National
Housing Act) were responsible for the modest drop in demand
for net new urban mortgage money. The increase in net debt
on one-four family homes, in the neighborhood of 7 billion
dollars, was practically the same in 1952 as in 1951, even after
taking into account the rising regular amortization payments
on outstanding mortgages and the usual volume of pre­
payments.
C o r p o r a t e Fi n a n c e

Record corporate capital outlays and a sharp drop in some
other sources of financing, principally net tax accruals, com­
bined to bring about a new all-time high volume of corporate
security flotations. Gross cash offerings of new corporate securties in the market (exclusive of investment company issues)
totaled 9.4 billion dollars, about 2 billion larger than in 1951.
Virtually all of the increase came in ’new money” issues for
financing added plant and equipment, and larger working capi­
tal needs. Such issues reached an estimated total of 8.3 billion
dollars. Refunding issues floated by corporations to retire out­
standing securities and issues offered to repay other debt (such
as long-term bank loans), although somewhat larger in 1952
than in 1951, remained small relative to new money issues,
about 13 per cent in each year. Rising interest rates on new
long-term financing and generally tight market conditions were
probably responsible in large part for the relatively small
volume of refunding and refinancing. Corporate flotations for
"other” purposes, including purchase of existing assets from
others, continued small. Allowing for estimated cash sales to
officers, employees, and customers, not always publicly an­
nounced, and for retirements of outstanding securities (either
in the open market or by call or at maturity) out of general
corporate cash balances, the volume of net new corporate secur­
ity issues appears to have been about 7.5 billion dollars, as
compared with 6.1 billion in 1951.
Of the gross cash offerings by corporations in the market,
about four fifths, or 7.5 billion dollars, were debt issues (5.7
billion in 1951). Direct placements of corporate securities,
primarily debt instruments, with institutional investors came
to 3.7 billion dollars during the year (up 300 million from
1951 direct placements), accounting for 40 per cent of total
new corporate security offerings as compared with nearly 45
per cent in the preceding year. Thus, a somewhat larger vol­
ume and wider industrial diversity of new corporate bond
issues were available in the public market, chiefly through
investment bankers, to investors not ordinarily in a position to
make direct placements.
In contrast to the increase in new corporate debt offerings
of about one third over 1951, equity security offerings in 1952
declined about 100 million dollars from the previous years
total of about 2 billion dollars. Sales of new preferred stock
issues fell 300 million, while offerings of common shares rose

FEDERAL RESERVE BANK OF NEW YORK

200 million to 1.4 billion dollars in 1952. Apparently, the
preference for debt over equity issues reflected in large part
the needs of the major investors in this field (life insur­
ance companies, pension funds, savings banks, and other
institutions ).
It also seems probable that heavy Federal corporate income
and excess profits tax rates, higher money (dividend) and
underwriting costs of shares relative to bonds, and the fact
that dividends are not deductible from income for corporate
tax purposes also continued to discourage corporations from
covering more than a moderate fraction of their external capi­
tal needs through stock flotations. Even though the full pro­
ceeds of the sales of new shares are permitted by law to become
part of the excess-profits-tax credit base of corporate issuers
in contrast to only three fourths of new debt issues, this advan­
tage has proved only a minor offset to the deterrents to new
common share issues. To some extent, the relatively modest
volume of direct equity financing was augmented in 1952 by
somewhat more frequent offerings of convertible bonds. For
the most part, corporations still relied heavily upon retaining
a substantial portion of their after-tax profits in order to main­
tain a sound debt-equity capital structure.
Reflecting the influence of the defense plant expansion pro­
gram, security issues of manufacturing enterprises to raise new
money accounted for 40 per cent of corporate offerings both
in 1951 and 1952, whereas in 1950 before this program got
fully under way security issues of manufacturing corporations
represented less than 20 per cent of total corporate new money
financing. Principal issuers have been concerns in the ma­
chinery, steel, petroleum, and chemical industries. Electric and
gas utility corporations, somewhat less directly affected by the
defense program, also offered large amounts of capital issues
(about 30 per cent of the total in both 1951 and 1952) to
finance needed additions to capacity.
But the record volume of corporate security financing was
responsive to other influences in addition to the heavy volume
of capital outlays. Perhaps most important was the fact that
corporations, in the aggregate, were no longer able to apply
tax accruals against current needs for funds. Net tax accruals
had been an important source of funds in 1951, but were just
about offset by actual tax payments in 1952.
Other special factors were also at work tending to encourage
new corporate security flotations, particularly of debt instru­
ments, beyond the needs of the moment. Among them were:
the tax advantages to be gained through building up excessprofits-tax credits (which encouraged borrowing in advance
of actual requirements); the desire to overcome possible work­
ing capital strain arising from the concentration of corporate
income tax payments in the first half of each year under the
Mills plan; and, in a few instances toward the end of the year,
borrowing in advance of needs as a precaution against a fur­
ther rise in interest rates and a possible relative scarcity of
funds resulting from an anticipated program for funding some
of the floating debt of the Federal Government into long­
term issues.



St a t e

25

and

M u n ic i p a l F i n a n c i n g

In 1952, urgent State and local government needs for new
schools, hospitals, highways, and other public works, the avail­
ability of building materials formerly reserved for defense and
essential civilian use, and the suspension early in the year of
the Voluntary Credit Restraint Program as applied to munici­
pal financing contributed to a record-breaking volume of flota­
tions of municipal securities amounting to 4.4 billion dollars.
Of this total, only 300 million dollars was for refunding pur­
poses; in 1951, the total was 3.3 billion dollars, of which 100
million dollars were refunding issues. Sinking fund and trust
account retirements and cash retirements of maturing issues,
however, reduced the market impact of this large volume of
new offerings.
Expansion of State and municipal financing more than kept
pace with the increase in State and local government expendi­
tures for capital improvements, so that a larger portion of
public construction outlays in 1952 was paid for with bor­
rowed funds than in preceding years. In part, this merely
reflected a large volume of the type of capital projects which
are increasingly being financed with revenue bonds; offerings
of revenue bond issues, consequently, doubled. Accompanying
this expansion, highway (turnpike) financing rose markedly
during 1952, and in the first six months was larger than for the
entire year 1951.
Among other purposes for which State and local govern­
ments floated new securities during the year, bond offerings
for the construction and modernization of schools and for vet­
erans’ bonus payments showed the greatest increases. The
flotation of housing issues rose only moderately because of the
suspension during part of the year of "Public Housing
Administration-guaranteed” housing securities. The changed
composition of new bond financing and the considerable
number of large projects (particularly those involving high­
way construction, as well as a few large bonus issues) were
indicated by a considerable rise in the average size of new
State and municipal issues during the year. While the aggre­
gate volume of new offerings increased about a third over
1951, the number of issues offered—5,200—was slightly
smaller than in 1951.
So u r c e s

of

Fu n d s

A larger part of the supply of funds originated from current
liquid savings in 1952 than in the previous year. Higher in­
terest rates, including higher rates paid on savings deposits,
apparently attracted an increased volume of liquid savings. A
wide range of other factors also contributed to the general
growth of individual savings during the year. (However, not
all components of savings rose, and some reduction in the rate
of expansion in net savings may have occurred in the fourth
quarter as consumer debt rose sharply.)
Savings routed through financial institutions rose markedly
during the year, especially those at commercial and mutual sav­
ings banks where the increase in time deposits nearly doubled.
The expansion at the savings and loan associations, although
relatively less sharp, was also substantial, and the year-to-year

26

MONTHLY REVIEW, FEBRUARY 1953

growth of the net assets of the life insurance companies was,
as usual, more gradual. In addition, judging from SEC reports
for the first nine months of the year, direct investment of
savings by individuals rose substantially during the year, prin­
cipally in corporate and municipal securities.
The gain in the volume of savings was roughly equal to
the increase in the effective demand for capital funds. Although
the expansion in the aggregate volume of bank credit was
greater in 1952 than in 1951, a substantial part of this
growth came from heavy consumer borrowing, so that about
the same volume of additional bank credit (including the
growth of Federal Reserve holdings of Government securities)
as in 1951 was used to support a considerably larger volume of
over-all capital demand.
In view of the restraints on commercial bank credit, and
the limited availability of Federal Reserve credit through Gov­
ernment security operations, savings institutions were generally
compelled to gauge their investing and lending programs more
closely to the increase in their total assets and the funds aris­
ing from repayments. In readjusting their investment opera­
tions, the life insurance companies (and to a lesser extent the
savings banks) expanded their net purchases of corporate
securities and reduced their net purchases of Governmentinsured and guaranteed mortgages. They again made net sales
of Government securities, but these were much reduced from
1951 and were on balance largely offset by purchases of State
and local government funds, and other nonbank investors. The
savings and loan associations acquired an unusually large pro­
portion of the new mortgages arising during the year. The
increased supply of municipal debt instruments was absorbed
principally by individuals and personal trusts, and a consider­
able upward adjustment of yields was necessary to take new
issues off the market.
The volume of commercial bank credit made available to
the capital market in the form of real estate loans and of net
purchases of corporate and State and municipal bonds was
about unchanged from the 1951 volume, but commercial bank
holdings of Government securities, principally in the form of
bonds maturing in over five years, rose moderately as com­
pared with moderate net sales in 1951. In the aggregate, how­
ever, the volume of additional credit supplied to these markets
by the banking system, including the sharply reduced volume
of Federal Reserve System net purchases of Government securi­
ties, was practically unchanged in 1952 from the previous year.
M a r k e t C o n d it io n s

and

F i n a n c i n g C osts

The marketing of new corporate securities and mortgages
was reasonably successful, in view of the huge supply pressing
on the markets. One measure of the degree of that success
may be the relatively small increases in interest rates needed
to clear the markets. Of course, the inevitable periods of
temporary market congestion occurred, reflecting the uneven
flow of nonbank investors’ funds and of offerings of new
issues, as well as shifting judgments of investment values by
issuers, investment bankers, and investors.
There was more persistent difficulty, however, in placing



new State and municipal issues, mainly because of the large
supply and the narrowness of the market. Expectations of a
growing volume of offerings in 1953 and future years, and
of a reduction in Federal income tax rates (scheduled under
present law for mid-195 3 and 1954) which would reduce the
value of the tax-exemption privileges of such bonds, led in­
vestors to adopt a cautious attitude toward municipal issues.
Periods of congestion in this market were more protracted
than in the corporate new issue market, with dealer accumula­
tions of security inventories more sizable and price concessions
to clear the market of overhanging supplies much wider. How­
ever, dealers’ unsold inventories of new and seasoned issues
at the year end, though high, were no higher than at the end
of the previous year and were minor in relation to the total
volume of marketings.
The mortgage market remained strong, although at times
reports of a slowing-up of sales of buildings, particularly small
homes, were reported in varying sections of the country. Yield
differentials were an important factor in determining the form
of financing used in extending credit to small home purchasers,
with investors favoring higher-yielding conventional loans over
Federal Housing Administration and Veterans Administration
mortgages (on which rates had not been changed). The more
restrictive credit terms of Regulation X apparently tended to
exercise some restraints on mortgage financing. Its suspension
in September, however, was not followed by any widespread
changes in the terms of new mortgage loans.
Considering the pressure of demand in free markets, the
advances in interest rates for long-term funds were moderate
indeed. Although fluctuating somewhat through the year,
market yields on outstanding long-term issues were about the
same toward the end of the year as at the beginning—not only
for Government securities but for such bonds as those included
in the Moody Baa and Aaa corporate series as well. Market
yields in the intermediate and short range rose only Ys to 3/s
of 1 per cent over the levels prevailing near the end of 1951.
Most yields showed marked increases in the final days of
December 1952. In general, the yields on new issues of all
maturities increased over the year, but only for Treasury bills
and State and municipal securities did the increases go much
beyond Vs or lA of 1 per cent.
In the urban mortgage field, those institutions which were
late in raising their rates on new conventional loans after the
removal of Federal support of the Government bond market
in the spring of 1951 increased their posted rates by as much
as Vi per cent, and many banks in surburban areas also raised
their posted rates. More important was the continued shift
away from low-yielding 4 per cent VA and 4J4 per cent FHA
mortgage loans to conventional mortgage financing with yields
ranging from AVz to 5^2 and occasionally to 6 per cent. Where
Government-insured or guaranteed mortgages were purchased
in the secondary market, lenders (at least in some areas) fre­
quently were able to obtain discounts from par, bringing the
effective yield to maturity in some cases, for example, to
per cent and less frequently to AVi per cent on VA mortgages.

FEDERAL RESERVE BANK OF NEW YORK

27

CASH BORROWING OF THE U. S. TREASURY: NONMARKETABLE ISSUES

In borrowing the money necessary to finance the operations
of the Federal Government, the Treasury has resorted to a
variety of debt instruments. Currently, more than 100 differ­
ent interest-bearing Federal debt issues are held by the public.
They differ with respect to interest rates, maturities, tax ex­
emption, redeemability, and freedom of purchase. Most of
these issues can be bought and sold freely in the market by
investors, but a substantial portion cannot be sold by investors
although they may, on demand or on short notice, be redeemed
for cash or in one case converted into an intermediate-term
marketable issue. The negotiable issues are known as market­
able issues and the nonnegotiable securities as nonmarketable
issues. This article will be confined to the nonmarketable
public issues.1 An analysis of marketable issues, and of second­
ary market transactions in these issues by Government invest­
ment accounts, will be undertaken in a subsequent issue of
this Review.
Ch a n g in g R o le

of

N on m arketables

For various reasons, increasing emphasis has been placed on
nonmarketable issues over the past two decades. Prior to the
middle thirties there were no such securities, but by the time
of our entry into World War II, they had grown to constitute
14 per cent of the gross direct and guaranteed debt. Shortly
after the close of the Victory Loan Drive, when the debt stood
at a peak of over 279 billion dollars (on February 28, 1946),
nonmarketable public issues represented over a fifth of the
total Federal debt. By the beginning of 1953, the Federal
Government had reduced its total public issues by some 31
billion dollars from the peak of its borrowings (despite a rise
of nearly 9 billion dollars in net new public borrowings since
the spring of 1949). On the other hand, nonmarketable public
issues had shown an almost uninterrupted rise to a peak of
almost 81 billion in May 1951 and by the beginning of 1953
were only slightly lower at nearly 78 billion dollars, or almost
30 per cent of the total Federal debt and almost 35 per cent
of the public issues.
Currently, there are three important types of nonmarketable
public issues—Savings bonds, Savings notes, and Investment
Series bonds. These several types were introduced at different
times, and their terms have been changed from time to time
in line with changes either in investors’ needs, or in competi­
tive borrowing conditions, or in general fiscal and credit policy.
Other nonmarketable public issues are generally small.2

Sa v in g s B o n d s

The Treasury has made offerings of Savings bonds in order
to encourage individual thrift and enlarge the ownership of
debt by small investors. To cover the Treasury’s requirements
for more funds than could be raised from small investors alone,
individuals of larger means and institutional investors have
also been invited to subscribe to certain Savings bond issues,
and on occasion special sales to commercial banks and other
investors have been made. Individuals, however, are by far the
largest holders of Savings bonds, accounting for 85 per cent
of the present investment of almost 58 billion dollars (re­
demption value). Institutional investors, with their staffs of
market-wise portfolio and loan managers, find small need for
these securities and ordinarily are narrowly limited by the
Treasury in the amounts they may purchase.
To encourage purchases of Savings bonds, the Treasury has
endeavored to make them attractive by: (1) setting the yield
at maturity higher than rates on marketable issues of compar­
able maturity (at least at the time when the yields were fixed),
(2) making the bonds redeemable at any time prior to
maturity after a short specified investment period, and (3)
protecting the bonds against a general drop in security prices
through the provision of a fixed redemption schedule. To
encourage retention, the yield is scaled upward according to
the length of time the bonds are held.
Currently, there are four series of Savings bonds on sale,
the E, H, J, and K bonds. These several series may be differ­
entiated in three ways: first, according to whether the bonds
are discount or current income bonds, i.e., whether the interest
is accrued over the life of the bond or paid semiannually;
second, according to the rate of interest, maturity, and restric­
tions on purchases; and third, according to the length of the
period before the bonds become redeemable. Under the first
distinction, the Series E and J bonds can be grouped together,
both being discount bonds sold at a price below maturity
value. Interest is accrued, on a rising scale, every six months
to produce the redemption values of these securities at any
given period in their life and is not paid to investors until
the bonds are redeemed.3 Thus, when the bonds are re­

2 These issues include Savings stamps, which are ultimately con­
verted into Savings bonds; depositary bonds, which are sold only to
banks acting as depositaries for the Treasury in order to provide
these banks with an income which will cover the expense of handling
certain Government transactions; and certain other minor noninterestbearing or matured obligations. As defined in the calculation of cash
borrowing in the Treasury Bulletin, the Treasury also raises some cash
or at times pays out cash to the public through the purchase or redemp­
tion of special issues by the Postal Savings System to cover the normal
1
In addition to the interest-bearing public issues, the Treasury has deposits or withdrawals of funds by depositors and at times to cover
outstanding a substantial volume of ''special issues” sold only to the
the sale or purchase of Treasury issues in the market.
various Government trust funds and agencies and a large amount of
3 While the interest on E and J bonds is not paid until the bonds
nonmarketable noninterest-bearing special notes issued to the Inter­
are redeemed, it is credited semiannually by the Treasury and is ac­
national Monetary Fund as part of our subscription to that agency, as
cumulated into the redemption value of these bonds. In other wrords,
well as a small amount of matured public issues and other debt bearing
the liability for the interest is considered to be a current budget ex­
no interest. In the calculation of Treasury cash borrowing in the
penditure of the Government, but the Treasury, in effect, postpones
Treasury Bulletin, most of the transactions leading to the issuance or
the cash payment and borrows the interest as the redemption value of
redemption of the special issues are not considered part of the
the bonds increases. The interest is ultimately paid in cash (along
Treasury’s cash debt operations. For an analysis of the relationship of
with the initial purchase price) when the bonds are redeemed and at
these debt transactions to the cash transactions, see the article^ on
that time the interest is included in the calculations in the Treasury
"The Nature and Significance of the Treasury’s Cash Transactions” in
Bulletin of regular cash operating outlays of the Government (and not
the February 1952 issue of this Review.
in the estimate of the Government’s cash debt transactions).




MONTHLY REVIEW, FEBRUARY 1953

deemed before maturity, a penalty is involved since lower
yields are paid than would be paid at maturity, the effec­
tive yield depending on the length of time held. Series H and
K bonds, in contrast, are current income bonds sold at par and
the interest is payable semiannually. Interest payments on the
H bonds are graduated upward, whereas payments on the K
bonds are made at a constant given rate, but if the K bonds
are redeemed before maturity an investor receives less than
par, which, in effect, refunds part of the interest and thus his
effective yield is reduced for the shorter investment period.
In terms of the second standard of comparison, the Series E
and H bonds are companion bonds. They are designed pri­
marily for the small saver and draw approximately 3 per cent
if held to maturity—nine years and eight months; purchases
of each type are limited to $20,000 (maturity value) annually
and may be made only by natural persons.4 The J and K bonds,
in contrast, pay approximately 2.76 per cent if held twelve
years to maturity, but combined annual purchases of up to
$200,000 (issue price) may be made by all investors except
commercial banks.
On the third basis of comparison, according to the required
investment period before the bonds are redeemable for cash,
the Series E bonds are unique. They may be redeemed as early
as two months after issue date without notice and, since the
issue date is the first of the month in which purchased, this
period actually can be as short as a month and a day. How­
ever, no interest is payable until six months after issue date.
Series H, J, and K bonds are not redeemable until six months
after issue date, and a notice of redemption must be given
one month before the end of the waiting period. Like E bonds,
the H, J, and K bonds do not provide any interest until six
months after issue date.
Savings bonds have undergone several major changes to
meet changing conditions and to reflect changing concepts
since they were first offered for sale in March 1935. Originally,
only one series was sold to investors; now four series are sold
concurrently to meet the needs of investors both for small or
large purchases and for current or accrued income. In the
same way, purchase limits have been changed several times to
meet the changing requirements of both the Treasury and
investors. For example, until March 1948 investors could buy
no more than $3,750 (issue price) of E bonds in any one year,
then the annual limit was raised to $7,500 and now it stands
at $15,000, while another $20,000 of the companion H bond
may also be purchased. Other important changes have also
been introduced to meet the redemption problem on maturing
issues and to restore the competitive attractiveness of Savings
bonds, especially for the large investor, in the recent period of
rising market yields from other securities. The last such move,
made in the spring of 1952, increased to four (from three)

the issues on sale and raised the interest rates on both new
issues and on E bonds held beyond maturity. An earlier change
had extended the life of the maturing Series E bonds for
another ten-year investment period and had provided for
higher yields in the early years of the reinvestment period.
Altogether, Savings bonds now represent over a fifth of the
total Federal debt and more than a quarter of the public issues.
At the beginning of 1953 there were thirteen annual issues of
E bonds (including two issues for 1952, one for the old type
of E bonds and the other for E bonds sold after April) and
twelve annual issues each of F and G bonds (the predecessors
of the current J and K bonds). The amounts of these issues
which were outstanding totaled roughly 35 billion, 4 billion,
and 18 billion dollars, respectively. There was also one issue
each of the new H, J, and K bonds outstanding in the com­
bined amount of nearly 550 million dollars. Since these securi­
ties were sold on a continuous basis and were dated as of the
first of the month in which sold, there are over 400 different
monthly issues.
Sa v in g s N o t e s

Savings notes are used mainly for the investment of short­
term corporate funds being accumulated for tax reserves and
other purposes. The notes currently on sale, Series A, provide
an annual yield, if held to maturity (three years) of 1.88 per
cent; they may be used without notice for payment of taxes
two months after issue date at purchase price plus accrued
interest, and they are redeemable for cash four months after
issue. The annual yield is graduated upward from 1.44 per
cent for an investment of less than six months and is accrued
monthly. Commercial banks receive interest only if the notes
are presented in payment of taxes.
Over the years, the terms of the Savings notes have been
changed, like those of the Savings bonds, to meet changing
conditions and concepts. Introduced in August 1941 as Treas­
ury Tax notes to provide a regular investment medium for tax
reserves being accumulated to pay the greatly increased defense
income tax liabilities, the notes were revised within a short
time to make them acceptable for the payment of estate and
gift taxes as well as income taxes and to provide an instrument
for the investment of other short-term funds. Few short-term
Government issues were available in 1941 and they were sell­
ing at low yields. When the requirements for tax reserves
changed, a change was made in the number of issues. Origi­
nally, there were two series to cover reserves for both small
and large tax payments, but in 1943, with the beginning of
the collection of individual income taxes through withholding
at the source, the need for the small tax payment series dis­
appeared. The series for large tax reserves and other short­
term investments was continued, and the securities were
renamed Treasury Savings notes. Similarly, to meet changing
4
An investor, thus, may purchase up to $35,000 (issue price) of
competitive market conditions, the rate on Savings notes was
Series E and H bonds in any one year— $15,000 of E bonds and
$20,000 of H bonds. If the bonds are purchased in co-ownership
changed twice in recent years. The first change, made in
additional holdings are permitted, as the annual limit per person may
September 1948, raised the yield from 1.07 per cent
be apportioned among the purchases.




FEDERAL RESERVE RANK OF NEW YORK

(Series C) to 1.40 per cent (Series D) annually if held
three years to maturity; and the second, in May 1951, increased
it further to 1.88 per cent. At the beginning of 1953, there
were outstanding twro annual interest-bearing issues of Series D
notes and two issues of the latest Series A notes, amounting to
nearly 360 million dollars and over 5.4 billion, respectively.5
Altogether, Savings notes represent less than 3 per cent of the
Federal debt.
In v e s t m e n t B o n d s

The third important type of nonmarketable security—the
Investment Series bonds—represents a postwar innovation
adopted by the Treasury mainly to reduce or hold down the
volume of long-term marketable debt. The first series was
sold in the fall of 1947 as part of a policy of dampening the
upward movement of Government bond prices, while the sec­
ond was first offered in March 1951 at the time of the “accord”
with the Federal Reserve System, and was reopened in May
1952 for subscription as part of a deficit-financing program.
The first series, which was offered to institutional investors in
a single sale, was a new type of long-term current income
bond, redeemable after six months on short notice but not
negotiable. This issue, designated Investment Series A, was
adapted from the Series G Savings bonds but had larger pur­
chase limits, and commercial banks were permitted to buy
restricted amounts. It was sold to yield 2.5 per cent, if held to
maturity on October 1, 1965; a penalty for cashing before
maturity was imposed through a below-par redemption sched­
ule. At the beginning of 1953, investors held 950 million of
this series, or only 20 million less than originally purchased.
The second series of Investment bonds—Series B-1975-80,
paying an annual return of 2.75 per cent in current income—
was issued by the Treasury on April 1, 1951. In this case, the
bonds were not sold for cash but were offered in exchange for
the two longest bank-restricted marketable bonds. Unlike the
other nonmarketable issues, the Series B bonds may not be
redeemed for cash; but to cover unforeseen requirements of
investors, the Treasury added a novel feature permitting in­
vestors at their initiative to exchange the new bonds, without
any penalty against interest already received, for a five-year
marketable note yielding 1.5 per cent, which could in turn be
sold in the market at whatever the prevailing prices for such
securities might be. Almost 13.6 billion of the bonds were
issued through this exchange (including nearly 5.6 billion to
the Federal Reserve Banks and the Treasury investment
accounts) out of a potential maximum of 19.7 billion dollars.
Finally, in May 1952, the Treasury reopened subscriptions
to the Series B Investment bonds but for a combined cash and
exchange subscription as part of a program to raise new non­
bank money to cover the current rearmament deficit. In this
offering, the Treasury required a minimum 25 per cent cash
subscription, or one dollar of cash for every three dollars

29

of exchangeable bonds, and the four longest marketable bankrestricted bonds were eligible for the exchange. Payments
could be made in four instalments. The combined cash and
exchange subscriptions to the second offer amounted to less
than 1.8 billion dollars as many investors shunned a non­
marketable issue at a 2 % per cent rate of interest at that time,
despite the fact that the issues eligible for the exchange were
quoted at below-par prices in the market. Apparently, many
investors did not favor a nonmarketable issue as such and found
the conversion privilege inadequate. Only 450 million dol­
lars in cash subscriptions was obtained, and of this, 132 mil­
lion dollars represented subscriptions by Government invest­
ment accounts. The exchange subscriptions amounted to
slightly over 1.3 billion out of a potential of 14.8 billion
dollars.
At the beginning of 1953, slightly over 100 million dollars
of the Investment Series B bonds had been converted into
marketable five-year notes by private investors; the Federal
Reserve Banks had, however, by conversions from time to
time, gradually converted the entire 2.7 billion dollars of
their holdings. Together, the two series of nonmarketable
bonds amounted to nearly 13.5 billion dollars at the beginning
of 1953 and represented 5 per cent of the total Federal debt.
Private investments in these issues alone amount to 10 billion
dollars; they are held largely by those institutional investors
that could so plan their long-term portfolios as to allow the
investment of part of their funds in these nonmarketable issues
in return for a relatively high yield on Treasury obligations
at the time of issue.
H o w N o n m a r k e t a b l e s A re So l d

and

R edeem ed

Savings bonds were first issued in over-the-counter sales for
cash at the post offices, but within a short time provision was
made for mail order sales through the Treasury of the United
States and the Federal Reserve Banks and their branches.
When plans for the defense issues were developed, private
banking institutions offered their services for the program,
and it was decided to designate generally all organizations
meeting certain qualification standards as sales agencies with
authority to issue Series E bonds. Currently, there are around
46,000 qualified issuing agencies, including post offices, com­
panies operating payroll savings plans, building and savings
and loan associations, credit unions, and others, as well as
commercial banks. These agencies sell the bonds without any
direct reimbursement except for postage and registry fees. In
contrast, Series J, K, and H bonds, like their prototype F and
G bonds, as well as Savings notes and Investment bonds, are
issued only at the Federal Reserve Banks and their branches
and at the Treasury Department in Washington. Regardless
of the issuer, commercial banks and trust companies which
have qualified as special depositaries are permitted to credit
the proceeds of their sales of Savings bonds and notes to the
5
Savings notes are now dated as of the fifteenth of the month in
Tax and Loan Accounts which the Treasury maintains with
which purchased. Prior to May 1951 they were dated as of the first
of the month. The change was made to bring the monthly interest
them. Similarly, payments for the Investment bonds, when
period in line with the tax payment dates on the fifteenth of the
issued for cash, were creditable to the Tax and Loan Accounts.
month.




MONTHLY REVIEW, FEBRUARY 1953

30

As a matter of fact, the bulk of the sales of the nonmarketable
public issues have been handled through the special depositary
banks since they first became qualified Series E selling agencies.
Funds from E bond sales received by other agents are sent
directly to the Federal Reserve Banks for immediate col­
lection. The funds paid through the Treasury’s Tax and Loan
Accounts, on the other hand, are left on deposit until they are
needed to cover expenditures; at such time, they are trans­
ferred into the Treasury accounts at the Federal Reserve
Banks.6
Redemptions of Series E bonds are likewise made for the
most part by qualified banking institutions, numbering over
16,500, which receive a small reimbursement for the service.
The redeemed bonds are sent to the Federal Reserve Banks
where the Treasury’s general account is charged and the
reserve account of the paying bank or its correspondent bank
is credited. Other types of Savings bonds, as well as Savings
notes and Investment Series A bonds, can be redeemed for
cash only at the Federal Reserve Banks and their branches or
at the Treasury Department, where a check is issued to the
registered holder. Savings notes redeemed for taxes, on the
other hand, are presented to the Director of Internal Revenue
for credit against tax liabilities. The taxes must equal or
exceed the combined value of par and accrued interest to the
tax date.
R e c e n t Ch an g es

in

In v e s t o r A c c e p t a n c e

Sa v in g s B o n d s

of

Since the end of the war, it is interesting to note, the
behavior of the smaller denomination E bonds has been in
marked contrast with that of the larger E, F, and G bonds.
Generally speaking, over the postwar period sales of the lower
denomination E bonds (maturity value of 25 and 50 dollars)
were less than redemptions, and the Treasury paid out money
to these investors, although net redemptions in the early post­
war years were less than had been commonly anticipated. By
contrast, until the fiscal year 1951, sales of the higher denomi­
nation E bonds (100, 200, 500, and 1,000 dollar maturity
value) and of the F and G bonds (including the special
sales) exceeded redemptions and accounted for most of the
increase in that period in the outstanding volume of publicly
held nonmarketable securities (exclusive of the net interest
accruals). In the past two fiscal years, however, sales of the
larger bonds declined and redemptions increased, so that on
balance the large investors (along with the investors in the
lower denomination E bonds) withdrew cash from the Treas­
ury. This shift apparently reflected in part (at least after the
Korean war-inspired consumer buying spree had subsided in
the spring of 1951) the desire for other investments.
It should be noted, however, that in fiscal 1952, for the
first time since the end of the war, sales and redemptions (at
issue price) of the lower denominations were almost in bal­
ance. The marked improvement in the lower denomination
bonds reflects several factors, including the general increase
in savings as well as an expansion of payroll saving plans
and the adoption of the automatic extension plan for matured
Savings bonds.
It is too early to make any judgment on the final outcome
of the revision in Savings bond terms which became effective
last May, but some improvement in sales is apparent, even
though redemptions have exceeded sales. As compared with
sales in the preceding year, Savings bond sales from May to
December 1952 increased over 300 million dollars, a rise of
13 per cent. Redemptions (at issue price) exceeded sales by
235 million dollars but the net redemptions were nearly 500
million less than in the preceding year.

When the period of war financing ended with the Victory
Loan, a total of 48.6 billion dollars was invested in Series E,
F, and G Savings bonds. By the outbreak of the Korean con­
flict in mid-1950, investors had added almost 9 billion dollars
to the value of their holdings, but nearly half of this increase
reflected the net accumulation of accrued interest on out­
standing bonds. In the past two and a half years, despite
renewed emphasis on participation in the payroll savings plan
and a substantial rise in savings, there has been only a small
increase in these issues. After June 1950, sales declined while
redemptions rose, but the ensuing net redemptions of these
issues (measured in terms of issue price) were somewhat
Fl u c t u a t i o n s i n Sa v in g s N o te s
less than the 1.7 billion dollar increase in value arising from
the excess of accrued interest over interest paid on redemp­
By the end of World War II, corporations and other in­
tions.7
vestors held over 10 billion dollars of Savings notes. In the
following three years through the end of fiscal 1948, investors
6 A description of the impact of debt and other Treasury operations
on the money market and of the Treasury’s management of its cash
reduced
their holdings by nearly 6 billion dollars as funds
balance is given in the article on "The Treasury and the Money
were withdrawn to cover the postwar industrial expansion,
Market” in the November 1952 issue of this Review.
7 The interest accrued on Savings bonds has risen steadily as a
and later for investment elsewhere as the rise in market rates
result mainly of the growing volume of outstanding issues which
made
the notes relatively less attractive. In fiscal 1949 and
receive the higher yields payable after several years of holding. In
especially in fiscal 1950, however, investments in Savings
each of the past three fiscal years the interest provision for these bonds
has exceeded 1 billion dollars. The interest paid in cash on redeemed
notes increased sharply as the rate on Series D notes, which
securities has also risen, from less than 100 million dollars in the war
had been set in the fall of 1948 to bring these securities in
years to a current high of more than 450 million dollars. On balance,
therefore, interest accruals have added to the outstanding value of
line with the then-prevailing market rates, became consider­
Savings bonds. Total interest costs (both paid out and accrued) of
ably more attractive to investors than rates on comparable
the public nonmarketable debt in fiscal 1952 represented about 37 per
cent of the total debt service, and in dollar amount at initial purchase
marketable
securities, which had fallen with the onset of the
price these issues were about 29 per cent of the total outstanding
inventory recession of 1949.
interest-bearing Government debt.




31

FEDERAL RESERVE BANK OF NEW YORK

debt service charges. Since the end of World War II, these
issues have increased by over 20 billion dollars, but only about
4 billion dollars, or only about a fifth, of this rise has come
from net cash sales to the public. Prior to the outbreak of the
Korean conflict the net cash sales had amounted to nearly
8 billion, but net redemptions in the past two and a half years
have drawn down this total. This experience has apparently
suggested, first with respect to Savings notes and later to
Savings bonds, that in periods of strong competitive demands
for funds some improvements in interest yield and in selling
techniques are needed if redemptions of nonmarketable
issues are to be minimized and new sales encouraged. This
experience also indicates that some demand exists for Savings
bonds and notes among individuals, pension funds, and cor­
C o n c l u s io n
porations for a part of their investment needs, as long as the
Public issues of nonmarketable Treasury securities now yields on these issues are moderately attractive. On the other
represent almost 30 per cent of the total Government debt hand, there is little evidence of any significant demand by
and currently account for about 40 per cent of the budgetary institutional investors for nonmarketable issues.
By the end of June 1950, investors held nearly 8.5 billion
dollars of Savings notes. W ith the firming of market rates
after the middle of 1950, Savings notes again appeared less
attractive as an investment medium, despite the issuance of a
new higher-rate note from May 1951 and the substantial rise
in the accruals of corporate tax liabilities. Redemptions for
both cash and taxes exceeded sales in most months and at
the beginning of 1953 around 5.8 billion dollars of these
securities were outstanding. By far the largest investments
in Savings notes have been made by nonfinancial corporations.
Freedom from the risk of price fluctuations and the relative
ease of purchase and redemption have probably had some
influence in making Savings notes attractive to many corpo­
rate investors.

SELECTED ECONOMIC INDICATORS
United States and Second Federal Reserve D istrict
Percentage change
1952
Item

1951

Unit
December

November

October

December

Latest month Latest month
from previous from year
month
earlier

UNITED STATES
Production and trade
Industrial production*......................................................................
Electric power output*.....................................................................
Ton-miles of railway freight*..........................................................
Manufacturers’ sales*........................................................................
Manufacturers’ inventories*............................................................
Manufacturers’ new orders, total*JJ............................................
Manufacturers’ new orders, durable goods*JJ............................
Retail sales*.........................................................................................
Residential construction contracts*...............................................
Nonresidential construction contracts*........................................
Prices, wages, and employment
Basic commodity pricesf**..............................................................
Wholesale pricesf...............................................................................
Consumers’ pricesf.................................. ..........................................
Personal income (annual rate)*.................... .................................
Composite index of wages and salaries*.......................................
Nonagricultural employment*........................................................
Manufacturing employment*..........................................................
Average hours worked per week, manufacturingf.....................
Unemployment....................................................................................
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 Banks*..
Bank debits (U. S. outside New York City)*.............................
Velocity of demand deposits (U. S. outside New York City)*.
Consumer instalment credit outstandingf...................................
United States Government finance (other than borrowing)
Cash income........................................................................................
Cash outgo...........................................................................................
National defense expenditures........................................................

235p
150
—
—
—
—
—
1 4 .4p
178p
219 p

234
148
llOp
23.5 p
43.5 p
23.0 p
11 .4p
14.0
178r
207r

1947-49= 100
1947-49= 100
1935-39= 100
billions of $
1939 = 100
thousands
thousands
hours
thousands

90.4
109.6p
190.7
—
—
47,754p
16,571;p
4 1 .8p
1,398

91.4
110.7
191.1
2 7 6 .Ip
242p
47,630
16,489
41.2
1,418

92.5
111.1
190.9
276.1
241
4 7 ,402r
16,319r
41.4
1,284

109.7
113.5
189.1
263.4
231
4 6 ,608r
15,811r
41.2
1,674

+
-

7 8 ,190p
63,470p
99,410p
29,667
86,392
118.8
15,889

77,030p
62,410p
9 8 ,620p
29,437
95,248
115.6
1 5 ,573r

74,863
57,746
98,234
28,568
80,940
113.4
13,510r

+
+
+
+
+

3,418
6,514
4,248

134
161
155
186.0
7,597.1
2,76 7 .3
55,560
4,263
135.1

millions of $
millions of $
millions of S
millions of $
millions of $
1947-49= 100
millions of $
millions of $
millions of $
millions of $

77,310p
6 4 ,290p
1 01,120p
29,896
93,046
116.1
1 6 ,506p
6,341p
7 ,389p
4 , 538p

4,997
5,558
3,760

230r
147
100
24.7
4 3.4
2 4.4
11.8
1 4 .2r
185
227

218r
140
106
21.0
43.0
22.2
10.9
13.1
145
180

100
100
100
$
$
$
$
$
100
100

1935-39 1947-49=
1947-49 =
billions of
billions of
billions of
billions of
billions of
1947-49=
1947-49=

#
+ 1
+10
- 5
#
- 6
- 3
+ 3
#
+ 6

+ 8
+ 8
+ 5
+ 5
+ 2
- 2
- 4
+10
+23
+22

-

#
#
1
1

-1 8
- 3
+ 1
+ 6
+ 5
+ 2
+ 5
+ 1
-1 6

1
1
2
1
8
2
4

+ 3
+11
+ 3
+ 5
+15
+ 2
+22

5,642
5,621
3,440

+2 7
+33
+ 21

+12
+ 31
+32

126
90
114
184.0
7,465.1
2 ,695.1
44,215
3,360
122.3

#
- 2
+20
- 1
#
+ 1
+13
+ 4
- 2

+ 7
+65
+57
+ 1
+ 3
+ 4
+23
+21
+10

1
1
#
#

SECOND FEDERAL RESERVE DISTRICT
Electric power output (New York and New Jersey)*...................
Residential construction contracts*...................................................
Nonresidential construction contracts*............................................
Consumers’ prices (New York C ity)f...............................................
Nonagricultural employment*ff........................................................
Manufacturing employment*ff..........................................................
Bank debits (New York City)*..........................................................
Bank debits (Second District excluding N. Y . C. and Albany)*.
Velocity of demand deposits (New York City)*............................
Note: Latest data available as of noon, January 30.
p Preliminary.
* Adjusted for seasonal variation.
t Seasonal variations believed to be minor; no adjustment made.
# Change of less than 0.5 per cent.

1947-49= 100
1947-49 = 100
1947-49= 100
1935-39 = 100
thousands
thousands
millions of $
millions of &
1947-49 = 100

r
**
tt
ft

135
—
—

185.4
—

2,797.4p
54,291
4,054
135.1

135
157p
186p
186.9
7,613.8p
2 ,768.4
48,114
3,886
138.5

Revised.
Revised series. Back data available from the U. S. Bureau of Labor Statistics,
Series revised 1948 to date.
Series revised 1947 to date to include revision of New Jersey data.

Source: A description of these series and their sources is available from the Domestic Research_Division, Federal Reserve Bank of New York, on request.




32

MONTHLY REVIEW, FEBRUARY 1953

DEPARTMENT STORE TRADE

Final figures for the year 1952 show that the dollar volume
of department stores sales in the Second District as a whole fell
short of the 1951 total by 5 per cent. Sales in many localities
within the District actually exceeded those of the previous
year by as much as 5 per cent, but the District total was ad­
versely affected by smaller sales in New York City and Newark,
which showed reductions of 8 and 4 per cent, respectively.
This bank’s index of average monthly sales in New York City
was 93 for the year (the average sales for the three years
1947-49 equaling 100), the lowest annual average since 1946,
while the index for Newark was 95, the lowest it has been,
on an annual basis, since 1945. Sales of reporting stores out­
side of the ‘'New York and Northeastern New Jersey Metro­
politan area”, however, were actually 1 per cent ahead of the
1951 level, the same increase as that estimated for the United
States as a whole.
Dollar sales of Buffalo department stores reached an alltime high at 108 per cent of the 1947-49 average, while the
index of sales in Bridgeport was 118 on the 1947-49 base. In
Syracuse and Rochester, however, consumer buying in depart­
ment stores fell slightly below the 1951 record dollar volume.
The forward buying position of District department stores
at the end of 1952 appeared to be fairly moderate, judging
from the amount of orders outstanding at the end of the year.
The value of orders for additional merchandise outstanding on
the 31st of December was only 10 per cent above the relatively
low level of orders at the end of 1951 and, after seasonal
adjustment, was well below the amounts outstanding at the end
of each of the six preceding months. The downward trend of
department store stocks ceased in the early part of the year,
and inventories were maintained at a remarkably constant level
(after seasonal adjustment) throughout the remainder of 1952.
This level appeared somewhat high in comparison with prewar
relationships of sales and stocks, but an improved balance of
inventories was apparently achieved and retailers were report­
edly guarding against the accumulation of excess stocks, al­
though also expecting favorable sales in early 1953.
Specialty stores in New York City fared better than the
City’s department stores in 1952, on the basis of year-to-year
changes. City apparel stores equaled their 1951 sales as a 7 per
cent increase in December sales offset the drop of 1 per cent
reported for the first eleven months of the year. The gross
number of transactions (sales checks written) in these stores




Indexes of Department Store Sales and Stocks
Second Federal Reserve District
( 1 9 4 7 - 4 9 a v e r a g e = :1 0 0 p e r c e n t)

1952

1951

Item
Dec.

Nov.

Oct.

Dec.

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

175
101

123
98

110
105

177r
102r

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

102
111

128
111

124
110

105r
114r

r Revised.
Department and Apparel Store Sales and Stocks, Second Federal Reserve
District, Percentage Change from the Preceding Year
Net sales
Locality
Dec. 1952
Department stores, Second District___
New York City*....................................
Nassau County......................................
Northern New Jersey...........................
Westchester County..............................
Fairfield County....................................
Bridgeport...........................................
Lower Hudson River Valley...............
Poughkeepsie......................................
Upper Hudson River Valley...............
Schenectady........................................
Central New York State.....................
Mohawk River Valley......................
Northern New York State..................
Southern New York State...................
Binghamton........................................
Western New York State....................
Niagara Falls......................................
Rochester.............................................
Apparel stores (chiefly New York City).

Stocks on
Jan.through
hand
Dec. 1952 Dec. 31, 1952

+ 3

— 5

-

-

-

-

1 (+ 3 )
n.a.
+ 6
+ 5
+ 9
+ 8
+ 8
+11
+1 3
+ 6
+ 8
+ 5
+ 4
+ 7
+ 7
+ 3
+ 10
+ 6
+ 5
+ 9
+ 10
+ 12
+ 14
+ 7
+ 7

+
+
+
+
+
+
+
+
+
+
+
+
+
+
-

8 (-6 )
n.a.
3
4
2
2
1
3
4
0
1
1
1
0
1
2
4
2
2
2
1
2
5
2
0

3

6 (-2 )
n.a.
- 1
- 2
+11
+ 6
—
+
+
+
+
+
+

2
3
1
2
5
3
2
1
!

+
-

4
9
5
2
6
—

+ 6
-

3

n.a. Not available.
* The year-to-year comparisons given in parentheses exclude the 1951 data of a
Brooklyn department store that closed early in 1952.

showed an increase of 2 per cent, possibly indicating a slight
increase in the physical volume of sales, while the dollar totals
remained unchanged. New York City furniture stores sold
6 per cent more in dollar terms than they did in 1951, whereas
sales of the same types of merchandise in City department
stores were well below those of the preceding year.
The earliest indication of the trend of retail sales in the
Second District at the beginning of 1953 is provided by data
for the first 3 Vi weeks of the month. Department stores sales
reports for this period showed an estimated drop of 3 per cent
from sales for the comparable period in 1952.

NATIONAL SUMMARY OF BUSINESS CONDITIONS
(Summarized by

the Board of Governors of the Federal Reserve System, February 2, 1953)

Industrial production advanced somewhat further in Decem­
ber and January to new highs for the postwar period. Construc­
tion contract awards rose considerably in December, and retail
sales were substantially larger than a year ago. Wholesale prices
changed little after mid-December. Around mid-January dis­
count rates at Federal Reserve Banks were raised from 1% to
2 per cent.

C o n s tr u c tio n

Value of construction contracts awarded in December in­
creased substantially as awards for manufacturing and public
utility facilities rose sharply. Reflecting mainly higher con­
struction costs, the value of both awards and total construction
activity for the year 1952 was about 5 per cent larger than in
1951. The number of housing units started in December, at
76,000, was down less than seasonally from November. For
I n d u s t r ia l P r o d u c t io n
The Boards index of industrial production rose 1 point fur­ the year starts totaled 1,131,000, as compared with 1,091,000
ther in December to 235 per cent of the 1935-39 average. in 1951 and the record 1,396,000 in 1950.
This compares with 219 for the year 1952 as a whole and
Em p l o y m e n t
with 218 in December 1951. A small further rise is indicated
Employment in nonagricultural establishments continued to
for January.
expand in December and was about 1.2 million larger than a
In December, activity increased further in machinery and year ago. Average weekly hours worked at factories increased
transportation equipment industries. In addition, there were as usual in mid-December and at 41.8 were about one-half
gains in production of steel, nonferrous metals, and lumber and hour above the level of other recent months and the highest
other building materials. Steel ingot output continued to rise since World War II. Average hourly and weekly earnings rose
in January, to a scheduled rate close to the newly reported to new peaks. Unemployment at 1.4 million in December
annual capacity of 117.5 million tons. Output of passenger remained close to the postwar low.
autos increased considerably in January, to an annual rate of
D i s t r ib u t io n
about 5.5 million units, and production of autos and other
Reflecting
record
Christmas
sales, retail trade expanded in
major consumer durables is currently about two-fifths above a
December,
with
apparel
and
general
merchandise stores report­
year ago.
ing
much
greater
than
seasonal
increases.
retail sales
Output of textiles, paper, and leather products showed tem­ in December were up about 10 per cent fromTotal
a
year
ago with
porary, seasonal declines in December but continued substan­ most of the gain reflecting larger real takings by consumers,
tially above year-ago levels. Activity in the chemical and as prices were only moderately higher. During the first three
petroleum products industries was maintained at advanced weeks
of January, department store sales declined more than
rates. Meat production in December and January continued seasonally,
while sales of new automobiles apparently con­
well above a year ago.
tinued substantially larger than a year ago.
Iron ore mining declined more than seasonally in December
C o m m o d it y P r ic e s
from the exceptionally high autumn levels. W ith stocks large,
The average level of wholesale prices changed little from
output of coal and crude oil was reduced in December, and
in January bituminous coal production decreased somewhat mid-December through January. Hog prices rose substantially,
but after mid-January steer prices dropped sharply as marketfurther.
INDUSTRIAL

PRODUCTION

c o n s t r u g t io n

c o n t r a c t s a w a rd ed

MILLIONS OF DOLLARS

MILLIONS OF DOLLARS

1800
1600
1400

1200
1000
800
600
PRIVATE 1 »
NONRESIDENTIAL l\

400

200
0

y v
•
1948

Federal Reserve indexes. Monthly figures, latest shown are for December.




> 1, ^ V

1949

1950

1951

1952

1948

V

i
i
1949

1950

1

400

, w
1 ""
1951

1952

F. W . Dodge Corporation data for 37 Eastern States. Monthly figures, latest
shown are for December.

ings expanded, and beef prices declined further. Prices of hides
and leather also decreased. Lead and zinc prices were reduced,
but ceiling prices of aluminum and some other metal products
were raised. Prices of most manufactured foods and other
finished goods continued unchanged.
The consumer price index declined slightly in December as
reductions in prices of meats and some other foods were
largely offset by a further rise in rents.
B a n k C r ed it

Member bank borrowings continued to average more than a
billion dollars and to exceed excess reserves.
Around mid-January, discount rates at the Federal Reserve
Banks were raised from 1% to 2 per cent. Thereafter, rates on
bankers’ acceptances also rose. Interest rates charged by com­
mercial banks on short-term business loans averaged 3.51 per
cent in the first half of December, or slightly higher than in
the first half of September. Rates rose slightly at banks in
New York City and other northern and eastern cities but
remained unchanged in the South and West.

Loans and investments at banks in leading cities contracted
in late December and early January. Loans to food processors,
commodity dealers, and trade concerns declined seasonally.
Bank holdings of Government securities were also reduced.
During the first three weeks of January, the post-holiday re­
turn flow of currency, some bank loan contraction, and sales of
short-term Government securities by dealers and banks to non­
bank buyers brought about some easing of the money market.
The effect of these developments on bank reserves was largely
offset, however, by repayment of Federal Reserve repurchase
credits which had been extended to dealers in December.

During the second week of January, common stock prices
declined from the high levels reached during the preceding
week and then remained about unchanged in the third week.
High-grade corporate bond yields rose in the third week, fol­
lowing little change earlier in the month. Yields on Treasury
bills rose substantially in the first half of January and then
declined sharply in the following week. Yields on long-term
Governments fluctuated within a narrow range throughout the
period.

EMPLOYMENT IN NONAGRICULTURAL ESTABLISH M EN TS

P R IC E S AND TRADE

S e c u rity M a r k e ts

SEASONALLY ADJUSTED_________________________ MILLIONS OF PERSONS

MILLIONS OF PERSONS

.__ --- '

COVERS'IMENT

1

1

!

1

'„

SERVICE

TRAtJSPORTATION
AND UTILITIES

------------- 1

1948

1949

I960

1951

1952

1948

“j

1949

f I n an c e

1950

1951

1952

Bureau of Labor Statistics data adjusted for seasonal variation by Federal
Reserve. Proprietors, self-employed persons, and domestic servants are
not included. Midmonth figures, latest shown are for December.




1948

1949

1950

1951

1952

1948

1949

1950

1951

1952

Seasonally adjusted series except for prices. Wholesale prices, Bureau of
Labor Statistics indexes. Consumer prices, total retail sales, and dis­
posable personal income, Federal Reserve indexes based on Bureau of
Labor Statistics and Department of Commerce data. Department store
trade, Federal Reserve indexes.