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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.