Full text of Economic Policy Review (Federal Reserve Bank of New York) : February 1954, Vol. 36, No. 2

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MONTHLY REVIEW
Of Credit and Business Conditions

F E D E R A L

V o lum e 36

R E S E R V E

B A N K

FEBRUARY

O F

N E W

Y O R K

1954

No. 2

MONEY MARKET IN JANUARY
The money market was easy throughout the month of Janu­

Government securities were, in turn, reflected in other markets.

ary and very easy during most of the latter part of the month.
Seasonal factors, particularly the post-holiday return flow of

The rate on prime, 4 to 6 months’ commercial paper was

currency, provided the banks with a large volume of funds, and

reduced early in January from 2Va per cent to 2Vs per cent,
and again in the final week of the month to a flat 2 per cent.

Treasury operations and a temporary rise in float added sub­

The rate on finance company paper was also reduced twice

stantially to these funds immediately before and after the
January 15 tax payment date. The Federal Reserve System

and closed January at a range of l^A~2Vs per cent, depending
upon maturity. The New York City bank rates on loans to

absorbed part of these reserves through sales of securities held
under repurchase agreements, the retirement of maturing

brokers and dealers for carrying Government securities eased
to l% -2 per cent— the lowest quotation for this type of credit

Treasury bills, and sales of securities in the open market, but

since October 1952; however, dealers were at times able to

the banks were left with large amounts of reserves in excess of
their immediate requirements at all times, and with very large

get funds outside the City at considerably lower rates. While

excess reserves some of the time. On January 7, the Federal
Reserve Bank of New York restored its rate on repurchase
agreements with nonbank dealers to 2 per cent, after having
reduced it to 1 % per cent beginning on December 8 to aid

end of the first calendar week in January and again at the end

the money market in meeting the usual heavy year-end adjust­
ments without strain.
The ease in the money market, along with the further sharp
decline in bank loans that occurred in January and the wide­
spread belief that demands for credit might be somewhat
lower in 1954 than in 1953, kept the Government security
market firm throughout January. The demand for securities,
particularly in the short-term sector of the market, was strong.
The supply of securities, on the other hand, continued to be
light, and prices were bid up rapidly. The average rate of dis­
count on the new issue of Treasury bills dropped to 0.998
per cent for the issue dated January 28, and in the latter part
of the month short-term bills were on occasion traded in the
market at rates as low as Va of 1 per cent. Prices of most

the rate on Federal funds approached the "ceiling” around the
of the month, January quotations on these funds were low
for the most part, and even at Vs of 1 per cent demand was
often negligible.
On January 27, the Treasury announced plans for the largest
refunding program in its history, if voluntary exchange offers
are combined with refundings of near-by maturities. Its books
are to be open February 1 through February 3, offering
a choice of V/s per cent, one-year certificates of indebtedness
and 2 Vi per cent, seven-year and nine-month bonds maturing
in November 1961 in exchange to holders of the maturing
8.1 billion dollars of 2 Va per cent, February 15 certificates of
indebtedness and the 4.7 billion dollars of 1% per cent, March
15 notes. The Treasury also announced that on February 15

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

17

January 27, although they eased somewhat on January 28 and

International Gold and Dollar
Movements in 1953 ..........................................

21

29. The December 2^>s of 1967-72, the "Victorys”, closed on

Review of Capital Markets in 1953..................

26

Selected Economic Indicators..........................

31

Department Store Trade....................................

31

intermediate and long-term Government securities rose Vi to
2 or more points from the beginning of the month through

January 29 at a bid price of 98 even, a price nearly halfway
back toward its record high of 106 1% 2 (reached on April 6,
1946) from its record low of 8 9 2% 2 reached on June 2, 1953.
The ease in the money market and the decline of yields on




18

MONTHLY REVIEW, FEBRUARY 1954

it would call for redemption in June the 1.5 billion of 2Va per
cent bonds of 1952-55 and the 681 million dollars of partially
tax-exempt 2Va per cent bonds of 1954-56, and that holders
of these called bonds and the 5.8 billion dollars of 2 per cent
bonds maturing in June 1954 could exchange them from
February 1 through February 3 for the new 2 V2 per cent bonds
of November 1961 (with interest adjustments as of February
15). The total amount of securities that could be involved
in the refunding operation, therefore, might be nearly 21 bil­
lion dollars.

reduction in "other deposits” with the Federal Reserve Banks
put a moderate amount of funds, net, into the market. Float
and gold and foreign account operations were the only regular
operating factors to absorb reserves on balance during the
month. The daily average amount of float outstanding declined
seasonally from 1,018 million dollars in December to 860 mil­
lion in January. But because bad flying weather delayed inter­
district check collections, there were several days after the
middle of the month when float increased very sharply, con­
tributing temporarily to the ease of bank reserve positions.

The initial market reaction to the announcements was favor­

With funds readily available in the money market and the

able. The premiums on the "rights” were generally well main­
tained, and the amount of switching in the market occasioned

demand for Government securities strong, dealers took back

by the announcements was limited, particularly with respect to
the June issues, since the effective yield to maturity on these se­

within the first two statement weeks of the month all of the
584 million dollars of securities which they had placed earlier
with the Federal Reserve Bank of New York under repurchase

curities compared favorably with market yields for other short­
term issues. Prices of most intermediate and long-term bonds

agreements. In the final two weeks of the month the System

were marked down on January 28 and 29, some of them as
much as V2 a point or more, since the supply of Treasury bonds

dollars, by allowing some of its Treasury bill holdings to
mature without replacement and by sales of bills in the market.

could be increased substantially if holders of a large part of the
maturing or called issues chose to accept the new November

Despite these reductions in the amount of Federal Reserve
credit outstanding, member banks still retained enough of

1961 bonds, and since the Treasury indicated that a long-term
bond may be offered investors at a later date.

their reserve gains to retire all but a negligible amount of

Open Market Account reduced its security holdings 657 million

On January 20, the Commodity Credit Corporation offered

their December borrowings from the Reserve Banks and to
build up their excess reserves to relatively high levels. Average

its third issue of Certificates of Interest. The new issue, in the
amount of 350 million dollars, was dated February 2, will

free reserves ( excess reserves less borrowings at Federal Reserve
Banks) in January were at the highest levels since December

mature August 2, and was sold at par to yield 2 Vs per cent.

1950.

Subscriptions under $50,000 were allotted in full, others on a
16 per cent basis.
M e m b e r B a n k R e ser ve Po s it io n s

Table I
Weekly Changes in Factors Tending to Increase or Decrease
Member Bank Reserves, January 1954
(In millions of dollars; ( + ) denotes increase,
(— ) decrease in excess reserves)

The unusually large post-holiday return flow of currency and
heavy net Treasury disbursements in the early and middle part
of the month kept bank reserve positions flush throughout
January. Nearly 1 billion dollars of currency was returned to
the banking system in the four weeks ended January 27, and
while the net amount of funds which the Treasury put into

Statement weeks ended
Factor

Four
weeks
ended
Jan.
27

Jan.
6

Jan.
13

Jan.
20

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

+159
- 10
+299
+ 34
+ 83

+131
-2 0 9
+307
— 59
- 44

+ 74 +223 +201 +
+ 33 +158 +

and expenditures were concentrated in different parts of the

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

+566

+124

+687

-

353 +1,024

month (see Table I). In the first three weeks of the month

Direct Federal Reserve credit transactions

Government securities
Direct market purchases or sales..
Special certificates of indebtedness.
Held under repurchase agreements.
Loans, discounts, and advances........

-2 7 7
+323

-

-5 1 8
+ 70

-

66
14

-

87

+

380 323
41 +

T otal...................................

-4 4 8

-

80

-

41

-

662 -1 ,2 3 1

processed, the Treasury took more than 550 million net out

Effect of change in required reserves.......

+118
- 68

+ 44
+145

+646 -1 ,0 1 5 - 11 +
47 +

207
113

of the market. These receipts enabled it to retire all the

Excess reserves .......................................

+ 50

+189

+635

968 -

94

special certificates of indebtedness sold to this Bank.

Daily average level of member bank:
Borrowings from Reserve Banks. . . .
Excess reserves...................................

96
808

131
762

70
1,343

the market over these four weeks was moderate, its receipts

it spent roughly 700 million more than it received, including
323 million dollars borrowed from the Federal Reserve Bank
of New York on special certificates of indebtedness. In the
final statement week of the month, as income tax checks were

The record contraction which took place in bank loans dur­
ing January also reduced bank deposits and required reserves
and helped further to ease reserve positions. In addition, a




Operating transactions

Jan.
27

-

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

244
255
183
50
10

76
1,123

+
+
+

120
251
990
42
207

657
584
10

93
1,009

19

FEDERAL RESERVE BANK OF NEW YORK
Cu r r e n c y

in

C ir c u l a t io n

The substantial decline of currency in circulation in January
underscored one of the persisting developments affecting bank
reserves and the money market in 1953— the slackening de­
mand for currency. In the last six months of 1952, currency
in circulation had increased 1,407 million dollars; and 832
million of this total was returned to the banking system in

Table II
Dollar and Percentage Year-to-Year Changes in the Amount of Currency
Outstanding for Selected Months, 1948-47 and 1953-54
(Dollar amounts in millions)
Dollar change from
year ago

the first four statement weeks of January 1953. From June to
December 1953, however, the increase totaled 644 million
dollars, or much less than half the increase a year earlier, while

+

The shift in the demand for currency over recent months,
as Table II illustrates, has been strikingly similar to the change
that followed World War II, when the wartime rate of increase
began to slacken in the summer of 1946. The amount of cur­
rency outstanding, however, did not actually begin to contract
on a year-to-year basis until July 1947. Between that time and
the fall of 1950, when currency began to rise again in response
to the Korean war demands, over 1 billion dollars (on a sea­
sonally adjusted basis) of currency had been returned to the
banking system. It is still too early to judge whether or not
another contraction of comparable significance is developing,
but recent developments suggest that possibility.

1953

1946

+ 1,146
+ 783
+ 681
+ 551
+ 650
+ 437

990 million was returned in the first four weeks of January
this year.

Percentage change
from year ago

End of month

1947

345

+1,142
+ 955
+ 856
+ 754
+ 571
+ 336p
+

1954

290p

1946

1953

+ 4 .2
+ 2 .8
+ 2 .4
+ 2 .0
+ 2 .3
+ 1.5

+ 3.9
+ 3 .3
+ 2 .9
+ 2 .5
+ 1.9
+ 1.1P

1947

+ 1 .2

1954

+ 1.0 p

p Preliminary.

and municipal funds continued to buy moderate amounts of
securities, while several organizations which had recently floated
new security issues sought temporary investments for the pro­
ceeds. On the supply side, insurance companies and savings
banks sold minor amounts of Government obligations as they
continued to make room in their portfolios for higher-yielding
mortgages or corporate securities. Dealers disposed of the 584
million dollars of securities which they had previously placed
under repurchase agreements with the Federal Reserve Bank of
New York and apparently also sold off part of the other hold­
ings of short-term issues which they had previously retained.
The System Open Market Account, either indirectly through
the redemption of maturing January Treasury bills or directly
through open market sales, provided the market with an addi­

M arket

for

G o v e r n m e n t Se c u r it ie s

tional 657 million dollars of bills. Nevertheless, part of the

Prices of Government securities were generally firm through­
out January, and a bullish attitude permeated all sectors of

potential demand for Government securities in January went

the market. This strength was for the most part a reflection
of three factors. The first of these was the large volume of

While the volume of outright purchases or sales was light,
a fairly substantial amount of switching occurred in the market

reserves which flowed into the money market and which
brought the commercial banks into the security markets actively

and a large part of these transactions involved the March 22
tax anticipation certificates. The six-month holding period to

seeking short-term outlets for the funds. The effect of this
influx was particularly marked in the middle of the month
when the Treasury’s operations and the rise in float expanded
bank reserves very sharply. The second was the fact that the
customary seasonal reinvestment demand of the banks was

qualify for capital gains tax treatment was completed in
January for those who had bought these certificates on issu­
ance or shortly thereafter. A number of investors consequently
wished to record sales of these certificates in order to take their
profit. Some of these investors bought them back again almost
immediately; others traded them for various short-term issues
including the 1 Ys per cent, March 15 notes and their implied
‘ rights”.

enlarged this year by unusually heavy repayments of loans. The
third was a subjective influence, difficult to assess in impor­
tance, but undoubtedly of some significance— the widely held
belief that the country was likely to experience some further
recession in 1954 and that the demands for credit, therefore,
would be reduced.
Despite the bullish outlook for prices of Government securi­

unsatisfied and prices rose rapidly.

The strong demand for short-term Government securities
in January was reflected in bill yields. The average rate of
discount on the new issue of Treasury bills dated December 31
was 1.574 per cent. The usual large demand for the first issue

ties, however, the actual volume of trading during the month

of bills in January from Chicago banks for residents of Cook

of January was relatively light, since there was practically no

County, Illinois, who use them to avoid the personal property

floating supply of securities in the market and there con­

tax levied as of April 1, was primarily instrumental in pushing

tinued to be a dearth of offers at current prices. On the demand

the rate on the January 7 issue (for which bidding occurred

side of the market, commercial banks sought bills as well as

on January 4 ) down to 1.314 per cent. The rate on the follow­

intermediate and longer-term obligations. Pension and State

ing issue rose slightly to 1.336 per cent as the elimination of




20

MONTHLY REVIEW, FEBRUARY 1954
Table III

the special 1 % per cent rate on repurchase agreements tem­
porarily depressed prices of short-term obligations after it was
announced in the market on January 7. The flood of reserves
reaching the money market in the middle of January carried
the average discount on the next two issues to 1.208 per cent

W e e k ly

C h a n g e s in P r i n c i p a l A s s e t s a n d L i a b i l i t i e s
W e e k ly R e p o rt in g M e m b e r B a n k s

issue, the lowest level in more than four and a half years.

1 per cent, ranging down to lA of 1 per cent. On January 29,
bid rates on outstanding issues ranged from 0.90 per cent for
the short bills to 1.02 per cent for the longer ones. Few bills
actually changed hands at these low rates in view of the limited
supply in the market, and potential investors had to seek other
types of securities. Yields on certificates and short bonds
declined under this pressure during the month, although not
so sharply nor so far as the yields on bills.
Prices of most intermediate and long-term bonds rose fairly
steadily during January; over the month as a whole, increases
varied from ^

to 2 or more points prior to the easing of

prices following the Treasury’s refunding announcement. The
one notable exception was the 2 % s of September 1961. The
price advance of this issue was somewhat restrained by
the market’s expectation that the Treasury’s February-March
refunding offer would include a bond with a maturity in this
area. In the latter part of the month immediately prior to the
refunding announcements, bond prices were generally at the
highest levels since the summer of 1952, and many issues had
risen 8 points or more above their lows of last June.

M e m b e r B a n k C r ed it

Earning assets of the weekly reporting member banks con­
tracted sharply in the four weeks ended January 20, as is indi­
cated by Table III. Investments increased 329 million dollars,
but almost all types of loans were reduced on balance, the net
contraction in loans amounting to 1,387 million dollars. In
the comparable four weeks last year total loans of the weekly
reporting banks were down only 513 million dollars. The

the

Four
weeks

Statement weeks ended
Item

Jan. 13, Jan. 20,
1954
1954

ended
Jan. 20,
1954

Dec. 30,
1953

Jan. 6,
1954

Total loans and investments... .

+406

-4 8 3

-4 4 3

-5 3 8

-1 ,0 5 8

Loans, net*..............................

+313

-5 7 4

-4 1 6

-7 1 0

-1 ,3 8 7

+ 19
+273
+ 20
- 24

-4 3 8
-1 3 5
2
+ 34

- 96
-2 1 2
+ 11
- 82

-1 6 0
-2 7 7
6
-2 3 8

— 675
— 351
+
23
_ 310

for the January 21 issue and 0.998 per cent for the January 28
Market quotations on short bill issues went even lower and for
several days in the latter part of the month they were below

of

(In millions of dollars)

Assets

Commercial, industrial, and
agricultural loans............
Security loans......................
Real estate loans.................

Loans to banks..................

All other loans (largely
consumer).........................

+ 24

-

18

-

37

-

-

59

Total investments...................

+ 93

+ 91

-

27

+172

4-

329

U. S. Government securities.
Treasury bills..................
Other U. S. Government
securities.......................
Other securities...................

+104
+ 80

+ 61
+ 25

+ 9
- 13

+ 117
+ 154

+
+

291
246

+ 24
- 11

+ 36
+ 30

+ 22
- 36

- 37
+ 55

+

45
38

Loans net and other securities.. . .

+302

-5 4 4

-4 5 2

-6 5 5

- 1 ,349

+538

-9 4 5

+772

+ 46

+

411

+100
3

7
- 280

- 22
—569

+ 35
+184

+
—

106
668

+444
+ 33

+ 175
- 32

-1 8 3
7

+ 117
~ 7

4_
~~

553
13

28

Liabilities

Demand deposits adjusted. . .
Time deposits except
Government.........................
U. S. Government deposits. . .
Interbank demand deposits
Domestic..............................

* Figures for various loan items are shown gross (i.e., before deduction of valuation
reserves); they therefore may not add to the total, which is shown net.

part of the increase in the investment portfolios of the weekly
reporting banks during these four weeks occurred in Treasury
bills, but, as noted earlier, the banks also purchased small
amounts of other securities.
For the year 1953 as a whole, total loans and investments
of all commercial banks increased by about one half the in­
crease of 1952. The total 1953 rise was 4.8 billion dollars,
compared with 9.0 billion in 1952. Investments this past year
were up about 0.7 billion against an increase of 2.6 billion in
the preceding year, while loans rose approximately 4.1 billion
in 1953 compared with 6.4 billion for 1952. The decline in
the demand for business loans apparently accounted for most
of the difference in the loan changes in these two years, as
the small declines in the demand for other types of loans in

largest declines this past month again occurred in commercial,

1953 were largely offset by an increase in the agricultural

industrial, and agricultural loans, which were off 675 million

credits extended by commercial banks.

dollars for the four weeks. An unknown but perhaps sub­

The reduced rate of increase in earning assets also meant

stantial part of this decline represented repayments of funds

a reduction in the rate of expansion in bank deposits. Demand

borrowed during 1953 to avoid or to reduce excess profits tax

deposits adjusted, on the basis of the preliminary figures now

liabilities on 1953 corporate income. Security loans also de­

available, apparently increased 1.8 billion dollars in 1953,

clined markedly (351 million dollars), as dealers apparently

compared with a rise of 3.3 billion in 1952. This was the

reduced their inventories in an attempt to fill part of the strong

smallest yearly increase since 1949. Since the demand for cur­

demand for securities that persisted throughout the month.

rency also rose more slowly last year, the total increase in the

The ease in the money market reduced the demand for Federal

money supply in 1953 was less than half that in 1952. The

funds and, as a result, loans to banks dropped off 310 million

increase in time deposits, on the other hand, was the same

net. Consumer loans showed a small net decline. The largest

in 1953 as in 1952— 4.4 billion dollars.




21

FEDERAL RESERVE BANK OF NEW YORK

INTERNATIONAL GOLD AND DOLLAR MOVEMENTS IN 1953
The growth in gold and dollar holdings of foreign countries
that began in April 1952 continued through 1953. At the year
end, such holdings stood at 22.4 billion dollars, or about 2.4
billion higher than in December 1952; they were accordingly
some 52 per cent larger than at the time of the currency devalu­
ations in September 1949, and 21 per cent above the March
1952 level when they reached their post-Korea low.1 The
speed and extent of the improvement varied from country to
country, but with a few exceptions all major countries shared
in it.

T h e In t e r n a t i o n a l F l o w

Table I
United States Net Gold Sales to Foreign Countries
(Includes transactions with the Bank for International Settlements;
minus signs indicate net purchases by the United States)
Period
1950—Year................................................................. .............
1951—Year...............................................................................
1952—Year...............................................................................
1952— First quarter.................................................................
Second quarter............................ ................................
Third quarter...............................................................
Fourth quarter.............................................................
1953—First quarter.................................................................
Second quarter.............................................................
Third quarter...............................................................
Fourth quarter......... ...................................................

of

G old

and

Millions of dollars
-

1,725
75
394
1,168
557
106
1
268
599
128
307
134

D ollars

Two thirds of the 2.4 billion increase in foreign gold
and dollar holdings last year was in the form of gold. The
United States sold, on balance, 1,168 million dollars’ worth
of gold to foreign countries in 1953, in contrast to purchases of
394 million in 1952. Somewhat over half of the sales in 1953,
however, took place during the first quarter, as may be seen
from Table I; gold sales slowed down considerably during the
remainder of the year, although foreign countries continued
to accumulate dollars. The United States also sold gold in
January 1954; its monetary gold stock declined by about 75
million dollars through January 29.
The great bulk of the United States gold sales was made
to the United Kingdom, which holds the central monetary
reserves of the sterling area, and to certain other countries of
Western Europe. During the first nine months of 1953
(on the basis of official data currently available) the United
Kingdom bought 480 million dollars’ worth of gold from
the United States, West Germany bought 80 million, the
Netherlands 65 million, Switzerland 60 million, Belgium 52
million, Portugal 45 million, and Sweden 20 million. Among
non-European countries, Argentina bought 85 million dollars’
worth of gold, Mexico 28 million, and Uruguay 15 million.
The 1953 gold outflow from the United States thus reflected
primarily the improvement in the gold and dollar holdings
of the sterling area and of certain Continental European
countries.

States but also by accruals from new gold production. During
1953 as in 1952, somewhat over one third of the newly mined
gold outside the United States and the USSR— or about 250275 million dollars— went into the recorded reserves of foreign
central banks and governments, as against only one fifth in
1951. The remainder either was consumed in industry, the
arts, and the professions, disappeared into private hoards, or
was otherwise unaccounted for. In addition, the USSR was
reported, toward the end of 1953, to have sold gold on Western
European markets or directly to certain Western European
banks; some of this gold may have been reflected in the
recorded official reserves of foreign countries. The gold posi­
tion of individual foreign countries was also influenced by
transfers of gold to and from international institutions.
Largely as a result of these movements, the monetary gold
stock of the United States declined last year by 1,157 million
dollars, while the total gold reserves of foreign countries in­
creased approximately 1.6 billion. At the year end, the United
States held 60 per cent of world gold reserves (excluding
those of the USSR, but including those held by international
institutions), as against 70 per cent at the time of the currency
devaluations in September 1949.
Dollar holdings of foreign countries increased last year by
some 0.8 billion. The increase was largely concentrated in
official holdings, which rose by 674 million from January

The gold position of foreign countries as a whole was, of

through October 1953; private holdings during this period

course, affected not only by gold purchases from the United

went up by 131 million dollars. The greater part of the
increase in official holdings was in turn invested in U. S.

1
For an account of the changes in foreign gold and dollar holdings Government securities; the amount of such securities held for
in recent years, see the Monthly Review of July 1950, January 1951,
foreign monetary authorities (including the Bank for Interna­
February 1952, and February 1953. These articles also contain
tional Settlements) at the Federal Reserve Banks rose by 518
statistical data for earlier periods, comparable with those given in
million dollars during this period. At the year end about 50
Table II of the present article. The term "foreign gold and dollar
per
cent of the official dollar holdings of foreign countries was
holdings” is used in the present article (including Table II) in the
in the form of U. S. Government securities.
sense defined in the previous articles.




22

MONTHLY REVIEW, FEBRUARY 1954
R eserve Po sitions

of

Foreign C o u n tr ies

The movement in the combined gold and dollar holdings
of foreign countries since the war is shown in Chart I. By
the end of 1953 such holdings were well in excess of June

Chart II
Gold and Dollar Holdings of Selected Countries and Areas
Billions

Billi ons

1951, at the peak of the Korea raw materials boom. They were
also 1.7 billion higher than at the end of 1945, prior to
the serious depletion of the early postwar years; 7.7 billion
higher than in September 1949, the date of the general cur­
rency readjustments; and 3.9 billion higher than in March
1952, the post-Korea low.
Last year’s rise in foreign gold and dollar holdings, like the
decline in 1951 and early 1952, was very unevenly distributed,
as is apparent from Table II and Chart II. During the nine
months through September 1953 (the latest month for which
detailed data by individual countries are available at the time
of writing), the increase was accounted for largely by the
growth in the gold and dollar holdings of the Continental
European countries participating in the Organization for
European Economic Cooperation and of the sterling area coun­
tries. The holdings of the Western European countries other
than the United Kingdom stood at 8.6 billion dollars in
September 1953, as against 7.4 billion a year previous. These

* Including Switzerland, which now accounts for about 2 billion dollars of the
amount shown in the chart,
t Including the United Kingdom, but excluding Eire and Iceland.
t Excluding sterling, French-franc, and Dutch-guilder areas.

countries as a whole had been building up their gold and
dollar reserves since mid-1948; the rise was particularly marked

September 1953 such holdings were 0.9 billion higher than
in September 1952. Comprehensive data for the last quarter

in West Germany whose gold and dollar holdings rose by

of 1953 are not yet available, but gold and official dollar hold­
ings of the United Kingdom alone2 stood at 2,518 million
dollars in December, a 672 million gain during the year

449 million during the twelve months ended September 1953,
the Netherlands which showed a 288 million increase, and
Austria whose gold and dollar reserves grew by 82 million.
The recent reserve growth of the sterling area countries did

despite the service payments in December of 181 million

not get under way until the latter part of 1952, but by

States and Canada and lend-lease settlement with the United

Chart I
Gold and Dollar Holdings of Foreign Countries
(E xcluding international institutions and, as
regards gold, the U S S R )
Billions
of dollors




Billions
of dollors

dollars under the postwar loan agreements with the United
States. United Kingdom holdings at the year end v/ere 1,178
million dollars higher than at the time of the sterling devalua­
tion in September 1949, but were still 1,349 million lower
than in June 1951 when the effects of the post-Korea raw mate­
rials boom had been fully reflected in the sterling area’s
reserves.
Of the five broad groups of countries and areas included in
Chart II, Canada was the only one to show somewhat lower
gold and United States dollar holdings in September 1953
than a year before. Its holdings were still much larger, how­
ever, than during most of the postwar period; moreover, there
was a new rise in the last quarter. The strength of Canada’s
international economic position was also indicated by the
Canadian dollar rate, which stood at US$1.0273 at the end of
December compared with US$1.0309 a year before, after hav­
ing fallen to a low of US$1.0031 in May 1953.
Most Latin American countries experienced only small gains
in their gold and dollar holdings during 1953. Notable excep2
I.e., the central reserves of die sterling area as made public by
the Chancellor of the Exchequer.

FEDERAL RESERVE BANK OF NEW YORK

23

Table II
Foreign Gold and Dollar Holdings
(In millions of dollars)
March 1952

September 1949
Area and county
Gold

United Kingdom and rest of sterling area*..............
Other OEEC countries:
Belgium-Luxembourg (and Belgian Congo). . . .
France (and dependencies)................................

Other Continental Europe#.......................................
Latin America :§

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

Gold

Total

Dollar
holdings

Total

Gold

Dollar
holdings

September 1953p

T otal

Gold

Dollar
holdings

Total

460

827

1,287

874

1,340

2,214

892

1,545

2,437

970

1,320

2,290

1,777

670

2,447

2,116

1,041

3,157

1,980

1,153

3,133

2,772

1,260

4,032

258
179
70
1,485
597

12
166
191
148
280
194
62
509
222

62
935
7361
148
538
373
132
1,994
819

52
661
568t
28
346
364
214
1,432
715

106
861
868|
390
638
543
276
1,977
989

52
797
578f
118
348
350
202
1,404
667

74
237
450
486
292
384
78
614
289

126
1,034
1,028!
604
640
734
280
2,018
956

47
811
596f
259
348
747
206
1,456
739

3,953

1,784

5,737

4,380

2,268

6,648

4,516

2,904

7,420

5,209

3,433

8,642

499

102

601

462

85

547

462

83

545

465

105

570

164
317
373
726

222
145
99
819

386
462
472
1,545

268
317
373
988

189
100
67
1,064

457
417
440
2,052

268
317
373
852

130
89
154
1,152

398
406
527
2,004

373
317
373
867

147
164
198
1,205

520
481
571
2,072

1,580

1,285

2,865

1,946

1,420

3,366

1,810

1,525

3,335

1,930

1,714

3,644

176
206
1
321

27
161
348
333

203
367
349
654

279
122
7
377

141
682
332
321

420
804
339
698

280
122
9
380

87
773
320
393

367
895
329
773

163
130
9
387

35
932
309
446

198
1,062
318
833

704

869

1,573

785

1,476

2,261

791

1,573

2,364

689

1,722

2,411

55

85

140

180

166

346

186

138

324

178

170

348

9,028

5,622

14,650

10,743

7,796

18,539

10,637

8,921

19,558

12,213

9,724

21,937

50
769
545f
—

Netherlands (and Netherlands West Indies). . . .

Dollar
holdings

September 1952

54
200
300
362
292 :
179
62
545
274

161
268
416
794
365
275
103
666
385

208
1,079
l,012f
1,053
713
1,022
309
2,122
1,124

Note: The table covers reported gold reserves of central banks and governments (excluding the USSR) and official and private dollar holdings in the United States by
foreigners (including the USSR). Gold and dollar holdings of internationaHnstitutions are excluded; such holdings totaled 3,857 million dollars in September 1953;
3,850 million in September 1952; 3,506 million in March 1952; and 3,244 million in September 1949. Gold figures are partly estimated.
p Preliminary.

* Excluding Eire and Iceland, which are included under “Other OEEC countries” ,
t For Fran e, only the gold reserves of the Bank of France are included.
J Including principally gold and dollar holdings of Denmark, Eire, Greece, Iceland, Norway, Portugal and dependencies, the Free Territory of Trieste, and Turkey, and
gold to be distributed by the Tripartite Gold Commission.
# Including the dollar holdings, but not the gold reserves, of the USSR.
§ Excluding sterling, French-franc, and Dutch-guilder areas.

tions were Argentina, whose holdings were 122 million dollars

D is a p p e a r a n c e o f t h e U n it e d St a t e s
Ex p o r t Su r p l u s

higher in September 1953 than a year previous, and Venezuela,
which added 44 million to its gold and dollar holdings.
Brazils holdings increased by 75 million dollars during the
same period, but this largely reflected that country’s drawings
on a 300 million dollar Export-Import Bank loan granted in
February 1953 for the purpose of settling its overdue obliga­

The foreign accumulations of gold and dollars reflected, of
course, the substantial readjustments in the trade and payments
relations between the United States and the rest of the world
that have been under way since the spring of 1952. The

tions to United States exporters; these debts had reportedly

goods and services (other than those provided under military

been liquidated by the end of the year.

aid) as well as emigrant and charitable remittances— amounted

Gold and dollar holdings of the nonsterling area countries

United States export surplus on current account— covering

to 1,726 million dollars in the first half of 1952, but shrank

of Asia as a whole changed little during the twelve months

to 90 million in the second half, and turned into an import

ended in September 1953.

Within this group of coun­

surplus of 159 million in the first six months and of 374 mil­

tries, the continued improvement in Japans holdings, which
amounted to 167 million dollars, was offset by a sharp decline

lion in the third quarter of 1953. It is true that the surplus
had also ail but disappeared during the second half of 1950

in Indonesia’s reserves.

when United States imports of goods and services were about




MONTHLY REVIEW, FEBRUARY 1954

24

countries, especially in Western Europe, greatly contributed

as large as exports, principally as a result of a sudden increase
in commodity prices after the Korean outbreak; that balance

to the widespread improvement in payments positions.

did not last long, and the export surplus reappeared in 1951.
At the present time, however, the restored balance seems to

spending in the United States and Canada during most of

rest on a firmer basis.
The disappearance of the United States export surplus was

their exports to the North American markets. Western Europe,

mainly the result of a decline in United States merchandise
exports (other than those made under military aid), which
were somewhat more than 1 billion dollars lower in 1953
than in 1952, and of an increase in merchandise imports and
other private payments to foreigners, which exceeded the 1952
level by some 500 million. Import prices continued to decline
last year, but further increases occurred in the physical volume
of imports, particularly of manufactured products. Military

The record levels of production, income, and consumer
1953 enabled many foreign countries to maintain and increase
for instance, increased its exports to the United States from
1,613 million dollars during the first ten months of 1952 to
1,919 million during the comparable period of 1953; the in­
creases in exports to the United States from Belgium, West
Germany, the Netherlands, and the United Kingdom were
particularly striking. These exports consisted in part of

expenditures abroad3 by the U. S. Government also increased
markedly; during the first three quarters of 1953 alone they

Europe’s traditional dollar-earning commodities, but sales of
machinery, automobiles, and certain other finished manufac­
tures of a semiluxury type were increasingly important. Even
though the expanded exports of steel mill products, non-

amounted to 1,880 million dollars, compared with 1,943 mil­
lion during the entire year 1952. Altogether, half of the 2

ferrous metals, industrial chemicals, and ferroalloys were partly
due to special defense needs in this country, the increase in

billion dollar shift over the last two years from export to
import surplus in the current-account balance of the United
States was due to a fall in exports, one fourth to a rise in

Western European exports to the United States (and Canada)
seems generally to have reflected a genuine improvement in
the dollar-earning ability of many of these countries.

imports, and the rest to increased military outlays abroad.
While the disappearance of the United States export surplus

The high level of business activity and incomes in the United
States during 1953 also enabled most primary-producing coun­

was the most significant factor in the improvement of foreign

tries to maintain satisfactory dollar earnings. This was espe­
cially true of the coffee-exporting countries of Central and
South America. However, most commodity prices last year

gold and dollar holdings, a contributing cause was the con­
tinued receipt of sizable, if reduced, United States economic
aid, in the form of grants and Government loans, along with
the outflow of American private capital. Economic aid grants
amounted to 1,328 million dollars and net U. S. Government
loans abroad totaled 212 million in the first three quarters of
1953, compared with 1,576 million and 515 million, respec­
tively, in the corresponding period of 1952. The net out­
flow of United States private long-term capital, which totaled
258 million dollars in January-September 1953, was, however,
much lower than in the first nine months of 1952, when it
amounted to 708 million.
So m e Fa c t o r s

in th e

R eserve G a in s

The disappearance of the United States export surplus on

were below their mid-1950 levels; the decline in the prices
and, hence, in the value of commodity imports from the over­
seas sterling area and such Asian countries as Indonesia tended
to reduce their dollar earnings during 1953. Nevertheless,
despite the return to more normal demand conditions for
primary commodities, the total value of United States imports
from primary-producing countries remained fairly stable; fur­
thermore, commodity inventories did not appear overextended
at the year end. In particular, the recent improvement in the
international position of the sterling area was not, as in 1950
and early 1951, the outcome of enlarged consumption and
stockpiling of raw materials in the United States; and it was
accomplished without a rise in sterling commodity prices.

current account during 1953 and the accompanying rise in

Another basic favorable factor in the improvement of the

foreign gold and dollar holdings were the outcome of several

dollar position of foreign countries, particularly in Western

basic factors that had already made themselves strongly felt

Europe, was the greater availability of certain key commodities

in 1952. The achievement of record levels of agricultural and

from nondollar sources. The replacing of abnormal dollar im­

industrial output in much of the world, together with the main­

ports by commodities produced domestically, in the associated

tenance of financial stability in many countries, led to a better

overseas territories, or in other nondollar countries, enabled

balance between aggregate demand and available resources

several Western European countries— such as the United King­

than in any other postwar year. In particular, the greater pro­

dom and West Germany— to achieve further increases in out­

duction of commodities previously imported from the dollar

put in spite of a sharp reduction of imports from the United

area and the increase in the dollar-earning ability of certain

States. For instance, the decline in shipments of four com­

3
Including goods and services purchased by the armed forces for modities— coal, petroleum, wheat, and cotton— alone accounted
their own use abroad and for transfer to foreign countries under the
for more than four fifths of the 1,052 million dollar fall in
military aid programs.




25

FEDERAL RESERVE BANK OF NEW YORK

Unired States merchandise exports (other than those shipped
under military aid programs) between the first ten months
of 1952 and of 1953. The reduction in imports of these com­
modities from the United States was probably helped by dis­
criminatory import restrictions against dollar goods, but it
could hardly have been carried out without giving rise to new

United States military expenditures in, and economic aid to, the
independent countries of Asia, a large part of which accrued
to Japan, were somewhat larger in 1953 than in the year before;
the sizable growth of Japan’s gold and dollar holdings would
not have been possible without a rise in these special U. S.

inflationary pressures or an excessive depletion of stocks if

Government outlays.
Another reason for caution in interpreting the recent im­

increased nondollar supplies had not been available. The extent

provement in international payments positions is the continued

to which the decline in Western Europe’s purchases from the
United States represented a diversion of purchases to other
sources is shown by the fact that, while Western European

maintenance by foreign countries of discriminatory restric­

countries in the first quarter of 1952 had obtained 24 per cent
of their total merchandise imports from the United States,
this proportion fell to 18 per cent in the second quarter of

tions against dollar imports. In countries where inflationary
pressures did not subside noticeably last year, as in parts of
Latin America, discriminatory trade restrictions were a major
instrument in arresting the deterioration in their dollar

1953; this is all the more significant because the total volume
of imports of most Western European countries was higher

accounts. In other countries, particularly in the sterling area,
a greater degree of financial stability was achieved, and
accordingly a more self-sustaining balance seems to have been

in the second quarter of 1953 than in the same quarter of

re-established; some of the exchange and import restrictions

the previous year.

in those countries appear to have been applied more liberally
T h e N eed

for

Ca u t io n

Last year’s improvement in foreign gold and dollar holdings
thus appeared to rest on a firmer foundation than the reserve
gains of 1950 and 1951. Nevertheless, caution is still called
for in interpreting last year’s reconstitution of monetary re­
serves as a sign that the nondollar world has reached a selfsustaining dollar position. First of all, the reserve gains of
certain Western European countries and Japan last year re­
flected increased United States military expenditures abroad. In
the case of Western Europe there was also continuing, although
much reduced, United States economic aid for the purpose of
supporting their defense effort. For instance, during the first
nine months of 1953 United States military expenditures in
Western European countries and their dependencies totaled
847 million dollars, somewhat more than in the entire year
of 1952; and economic aid grants still amounted to 883 million,
compared with 1,172 million during the corresponding period
of 1952. On the whole, therefore, U. S. Government grants
and special dollar expenditures in Western Europe apparently
were of the same order of magnitude last year as in 1952.
The bulk of economic aid to European countries continued
to go to France and the United Kingdom; these two coun­
tries, along with Italy, were also the main recipients of off­
shore procurement payments and, together with Germany,
accounted for the greatest part of United States troop expendi­
tures in Europe. A large part of the dollars received by France
was in effect channeled by that country to the European Pay­
ments Union and through it to France’s European trade part­
ners, especially West Germany. The latter thus was able to
raise its gold and dollar reserves not only because of its lessened
dependence on dollar area imports and the increase in its sales
to the United States and other dollar markets, but also because
of its re-emergence as a major supplier in intra-European trade.




than in 1952. The Netherlands actually lifted, in October 1953,
some of its restrictions against dollar imports, and at the year
end West Germany was reportedly contemplating similar
action.
Finally, even though the over-all payments problem ap­
peared to be easing, certain countries still had considerable
dollar deficits in their balances of payments. Some of these
appeared mainly attributable to special circumstances, but
others apparently still reflected various maladjustments of a
structural nature.
Yet the temporary and special factors in last year’s improve­
ments in gold and dollar reserves and the remaining pay­
ments difficulties should not be allowed to obscure the basic
strengthening in the pattern of world production and trade.
Many countries appeared last year to be making greater strides
toward stabilizing their economies, domestically and externally,
than at any time since the war. More particularly, most indus­
trial countries of Western Europe seemed to be on their way
to a more nearly sustainable pattern in their dollar accounts.
Co n c l u s io n

On balance, therefore, the year 1953 appears to have seen
notable progress by foreign countries toward a closer balance
in their international accounts. While foreign gold and dollar
holdings of many countries still provide only a narrow margin
of safety to meet possible contingencies, their steady growth
since mid-1952 has improved the prospects for a further
advance toward convertibility of the principal currencies, and
for an abatement of discriminatory foreign trade practices.
The restoration of freer trade and payments has been a major
objective of United States foreign economic policy since the
end of the war. It also is of great importance to the nondollar
countries, which appear increasingly aware of the cost that

26

MONTHLY REVIEW, FEBRUARY 1954

the continuation of discriminatory foreign, trade practices
involves in the form of misdirection of resources and reduced

markets on competitive terms. It also depends importantly on
the maintenance of high levels of economic activity, and on

ability to compete in third markets. The finance ministers of
the British Commonwealth, meeting last month in Sydney,

national institutions in recreating a freer and more stable pat­

the concerted efforts of all major trading nations and inter­

Australia, reaffirmed their objectives of strengthening sterling

tern of trade. As stated in the report of the Commission on

as a currency, and establishing with other countries "a wider
and freer system of trade and finance in which the convertibility

Foreign Economic Policy, under the chairmanship of Mr.
Clarence B. Randall: "The free world must build its long-term

of sterling is an essential part”.

future, not upon extraordinary assistance from the United

Further advance toward viability would seem to lie along

States, but upon the resources and the efforts of the citizens

the same path as that followed in recent years. It depends
upon the steady pursuit of noninflationary domestic policies,

economy have already been laid is now clear, and it is reason­

designed to promote a sustained growth in output, productivity,
and over-all economic efficiency, which will strengthen the
ability of foreign countries to supply domestic and foreign

of each country. That the foundations for such an international
able to believe that with mutual helpfulness and understand­
ing a self-sustaining trade and payments system can be built
solidly for the future”.

REVIEW OF CAPITAL MARKETS IN 1953
The capital markets1 passed through conditions ranging

financing in advance of their future needs, hoping to obtain

from tightness to decided ease during the course of 1953.
During the spring, market anticipations of heavy Treasury
borrowing later in the year created considerable apprehension

funds before interest rates moved higher and the Treasury
began its seasonally heavy borrowing in the second half of

regarding the prospective availability and cost of funds for
private use. Such concern unduly magnified the restraining
effects of the Federal Reserve credit policy then being followed
and produced a degree of stringency, both in the credit and
the capital markets, which the Federal Reserve took vigorous
action to correct during May and June. As confidence in the
availability of adequate funds was restored, market conditions
eased considerably over the second half of the 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

During the first half of 1953, there was increasing concern
in the capital markets over the prospect of expanding needs
for funds. While private investment demand continued at
high levels, the Treasury’s March tax receipts fell substantially
below expectations, suggesting that the Treasury’s borrowing
program would have to be substantially larger and would have
to begin sooner than had been anticipated.

In April, the

Treasury announced a 1 billion dollar cash offering of long­
term 3 Va per cent bonds, the highest offering yield in twenty
years. Despite the attractive terms and a heavy oversubscrip­
tion, market expectations of tighter credit and higher interest
rates were so strong as to put the price of this key issue below
par before May 1, the date on which the new bonds were
actually delivered against payment. As a consequence of the
intensifying market tightness, some borrowers sought new

1953. Such anticipatory financing, of course, caused even fur­
ther tightening of credit and capital market conditions.
Against the background of the policy of restraint then
being pursued by the Federal Reserve System, fears of impend­
ing capital shortages tended to feed upon themselves and to
produce a far greater degree of market stringency than was
warranted by the underlying economic situation. Accordingly,
the System undertook early in May to provide additional
reserve funds through System purchases of Treasury bills. Fur­
ther purchases of Treasury bills by the System in June and a
reduction in legal reserve requirements, effective early in July,
succeeded in relieving market apprehension and resulted in
much easier market conditions. As the seasonal expansion of
currency and bank loans to business in the fall months failed
to measure up to the levels previously anticipated, the market
turned even easier, encouraging the banks to place a larger
portion of their funds in longer-term securities, principally
Government bonds acquired outright or in exchange for matur­
ing issues. The Treasury’s receipts-expenditure position during
the second half of 1953 necessitated less borrowing than had
been anticipated by the market, while a slackening of business
activity was interpreted by some as grounds for expecting a
continuing decline in interest rates and bond yields.
P rice

and

Y ie ld T r e n d s

Although the pressure of demand, coupled with borrowers'
and investors’ expectations of tighter credit and capital market

1
The capital markets are defined broadly for the purposes of this conditions, brought about marked increases in bond and mort­
article as encompassing the markets for private securities (including
gage yields (i.e., price declines) in the first half of 1953, yields
direct placements) and term loans of banks to business, as well as
fell back during the second half. The drop in Treasury bond
the governmental security markets and the real estate mortgage market.




FEDERAL RESERVE RANK OF NEW YORK

yields (i.e., the recovery in prices) in the second half was
greater than the preceding six months’ rise, so that the rate of
return on long-term Treasury issues actually decreased over the
year, as shown in the accompanying chart. The decline in the
yields of high-grade corporate and State and local government
bonds, on the other hand, did not fully offset the January-June
rise. The greater buoyancy evident in the Government security

27
Chart I

Yields on Long-Term Bonds and Stocks
(January 1951-Decemher 1953*)

market in the last six months of 1953 reflected, not only the
less-than-expected needs of the Treasury for new financing, but
also the continuing large supply of new corporate and ‘ muni­
cipal” offerings which tended to retard the recovery in the
prices of such issues.
Preferred stock yields moved similarly to corporate bond
yields, although not so rapidly nor so far, but the trend of
common stock prices and yields was less closely related to the
changes in money rates. Equity security prices, as measured
by Standard and Poor’s index of 479 common stocks, declined
12 per cent during the first nine months of the year, and then
recovered about half of the decline in the remaining three
months. Common stock yields rose irregularly through most
of the year, reflecting a moderate increase in corporate dividend
payments as well as the decline in prices through September.
A decrease in margin requirements from 75 to 50 per cent
of market values, effective February 20, 1953, did not lead
to any substantial increase in margin trading. Customers’ debit
balances of New York Stock Exchange member firms rose
about 300 million dollars; and the expansion was over by June.
While the moderate response to lower margins may have
been attributable to the uncertain outlook for business, cor­

O — L .J __ '__ I___I__ 1___I__ L _J___L J ______ L .1 J . L J J __ L J ___I—1___L - L ...I _ i __ i J ___1___I___I__ 1 - L - L J . J 0

13 51

1952

19 5 3

* Data for corporate and Government bonds are weekly averages of daily
figures; all others are based on specific days, Wednesday (preferred
stocks and municipal bonds) or Friday (common stocks). Latest data
are for week ended January 2, 1954; Wednesday, December 30, 1953 ; or
Thursday, December 31 (because of Friday holiday).
# Fifteen years and over, up to April 1, 1952; twelve years and over,
thereafter.
Source: U. S. Government bonds, Treasury Department; high-grade, noncallable preferred stocks and municipal bonds, Standard and Poor’s
Corporation; Aaa corporate bonds, Baa corporate bonds, and 125 indus­
trial common stocks, Moody’s Investors Service.

was less favorable, while new issues of high-grade stocks were

porate earnings, and stock prices, it also was a further illustra­

in demand and the relative volume of such offerings increased,

tion of the dual nature of the stock market, or what has com­
monly come to be referred to as '’two stock markets”. The

as evidenced by the substantial expansion in new public utility
common stock flotations.

first, the market for higher-grade "blue chip” issues, for which

The upward adjustment of the yields on long-term debt and

a Jarge part of the demand originates from institutional inves­

equity funds also reached the mortgage market. The official

tors, is principally a cash market; the other, the market for
lower grades of stocks, tends to attract a larger proportion of
margin trading. During the past year, demand for the better
grades of stocks was well sustained, reflecting in part the pur­
chases of institutional investors, including trust accounts, and
in part the uncertainty of the stock price outlook which led
noninstitutional investors to assume a "defensive” investment

rates on new mortgages on single-family homes
by
the Veterans’ Administration (V A ) and on those insured by
the Federal Housing Administration (F H A ) were raised on

policy of preserving capital through purchases of the best

guaranteed

May 2 to 4 Vi per cent from 4 and AVa per cent, respectively.
Rates on conventional mortgages also rose about Vz of 1
per cent to a prevailing rate of 5 per cent in the Northeast
and Midwest, and to higher levels in other sections
the
country. Unlike bond yields, loan rates on new mortgages on

of

half of

grades of stocks. On the other hand, the demand for other

single-family homes did not decline in the second

grades of equity securities suffered, and their prices more

year. However, the direction of mortgage rates in dealings in

the

nearly reflected the uncertain outlook. Thus, compared with

the secondary market for outstanding loans followed bond yields

a decline of 5 per cent in the over-all averages for the year as

throughout the year. Discounts on Government-underwritten

of

a whole, Standard and Poor’s average of high-grade stock prices

mortgages increased substantially in the first half

rose 6 per cent while its average of low-priced stocks fell 21

reaching as much as 10 per cent for some of the old 4 per cent

per cent. The divergent courses of these two major groups of

V A mortgages originating in certain Western and Southern

stocks were paralleled by a similar divergence in new equity

States, and then narrowed in the second half, but the recovery
lagged substantially behind security yields.

financing. The new issue market for the lower-grade stocks




the year,

MONTHLY REVIEW, FEBRUARY 1954

28
M ar k et R ecep tio n

of

N e w O fferings

As corporate and State and local government issuers at­

surance companies and savings banks, became cautious in
extending commitments for future V A and FHA loans.

of 1953, they encountered considerable difficulties in market­

Builders who had obtained construction loans but not commit­
ments from permanent lenders, and mortgage brokers who

ing new securities. Market prices of successive new issues
quickly fell below offering quotations, with resultant (and

planned to sell new mortgages acquired either with their own
funds or wTith the proceeds of temporary loans from commer­

often substantial) losses to investment bankers. At times, the
volume of unsold new issues reached sizable totals. Because

cial banks, found it increasingly difficult to find "permanent”
buyers for V A and FHA mortgages. Under the circumstances,

of these unfavorable bond market conditions, underwriters in

the commercial banks in many instances were compelled to
become the permanent lenders, thus causing a reduction in
the availability of bank funds for temporary or short-term real

tempted to anticipate their financing needs in the first half

some instances refrained from bidding for new issues. In other
cases, corporate issuers withdrew or postponed new issues,
either on their underwriters’ advice or because they were dis­

estate lending. Although the savings and loan associations

satisfied with the rates required.2 Undoubtedly, the financing

continued to expand their mortgage lending in line with the

of a sizable volume of capital projects that had not reached

growth of their share capital, the expansion in their holdings

the new issue stage was at least temporarily abandoned.

of, and commitments for, Government-insured mortgages was
modest in relation to the volume for which accommodation
was sought.

With the complete reversal of bond market conditions in
the second half of the year, the flotation of new securities was
greatly facilitated, new issues were offered at progressively

In the second half of the year, conditions in the market for

lower yields and were usually quickly sold out, market prices

V A and FHA home mortgages improved as security yields
fell and mortgage rates remained unchanged. However, the

generally rose above offering figures soon, if not immediately,
after issuance (or in when-issued trading), and underwriters’
profits replaced losses. Some of the new issues postponed or
withdrawn in the first half of the year were successfully sold
in the second.
The market’s reception of new money and refunding
Treasury issues was similar to that of corporate and State and
local government bonds. In the first six months of the year,
the Treasury had to pay progressively higher rates on new

more cautious loan policies adopted earlier in the year by many
lenders were only partly relaxed, so that the easing of the
market for Government-underwritten mortgages was limited.
Funds for conventional loans on single-family residences and
on commercial structures remained in good supply throughout
the year, although at higher rates than in 1952.
Supply of and D em and for Long -T erm Funds

offerings, and the key issue of long-term 3^/4’s fell below par

Nonbank investors supplied a larger volume of funds to the

even before its issue date. Toward the end of this period,

capital market in 1953 than in any other year in history. The

"attrition” ( cash redemptions of securities for which refunding
issues were offered) was sizable. In a refunding in February in
which holders of an expiring issue were offered an alterna­
tive between short-term and intermediate-term new issues, the
choice was preponderantly for the nearer maturities. The
second half of the year, however, was a complete reversal of
the first. The Treasury was able to float new issues at lower
yields, "attrition” fell to nominal proportions, and larger

net increase in such savings, moreover, was larger in dollar
amount than the increase in the demand for capital, so that
the volume of additional bank credit made available to the
markets was considerably less than in 1952.

amounts of maturing securities were exchanged into longer
maturities. New issues offered during 1953 sold at sizable
premiums at the close of the year.
Difficulties in mortgage financing in the first half of 1953

According to preliminary estimates, nonbank funds supplied
to the capital market aggregated approximately 22 billion
dollars in 1953, compared with 17% billion in 1952. Savings
through major savings institutions grew somewhat more rapidly
in 1953 than in 1952, partly in response to higher interest
rates. However, the major part of the growth of nonbank
funds last year, judging from the Securities and Exchange
Commission estimates of liquid savings for the first nine

were concentrated in the market for new VA and FHA mort­

months of the year, took the form of a sizable expansion of the

gages on single-family homes. Because rates on such loans

savings of individuals placed directly in marketable Federal

became less favorable as security yields rose, even after the

securities and, to a lesser extent, State and local government
issues.

increase in the official rate on such mortgages early in May,
and because fears of overindebtedness and of overbuilding in

Demand for long-term funds also reached a record total in

some areas developed, mortgage lenders, particularly life in­

1953, although the year’s net expansion over 1952 came en­
tirely from governmental borrowers; the net increase in pri­

2
For a detailed account of the difficulties of marketing new securi­
vate demands for funds was somewhat smaller than in 1952.
ties and mortgages, see the Monthly Review for July 1953, pp. 102-4.




FEDERAL RESERVE BANK OF NEW YORK

29

Net new security issues of Federal, State, and local govern­
ments (including both long and short-term Treasury issues)

gold” remaining from the devaluation of 1934 to purchase
500 million dollars of Government securities from the Federal

totaled an estimated 8 V1 billion dollars for 1953, an increase
of IVi billion over 1952. Private demands for long-term funds
declined by one-half billion dollars to 16 V2 billion. Net mort­

Reserve Banks. Total Treasury security offerings in the market,
including issues to retire maturing securities and to take up

gaged indebtedness rose, but this increase was more than offset

stantially greater than the net cash borrowing.

those not exchanged for refunding issues, were of course sub­

by a decline in net corporate flotations of new issues (includ­
ing private placements) and new term loans from commercial
banks. The combined total of new demands for funds aggre­
gated about 25 billion dollars in 1953, according to preliminary

C orporate Fin a n c e
Corporate demands upon the capital markets eased some­
what in 1953.

According to preliminary estimates, new

gate demand of about 25 billion dollars, and with the aggre­

security issues net of cash retirements ( including private place­
ments but excluding investment company issues) declined about

gate supply of nonbank funds estimated at 22 billion, the
difference left for financing through bank credit expansion

funds stemming from record outlays on plant and equipment

estimates, or 2 billion more than in 1952. Thus with aggre­

was about 3 billion.

In 1952, this difference was about

5 Va billion dollars.
The year 1953 proved to be the second largest on record
for real estate financing in spite of the tightness in the home
mortgage market during part of the year. The net increase in
total mortgage indebtedness was estimated at 9.5 billion dollars,
compared with 8.7 billion in 1952 and a peak of 10 billion
in 1950 when approximately 1.4 million housing starts were
financed. Reflecting the expansion of commercial building in
1953, the financing of new commercial structures made a much
larger contribution to the total of new real estate financing
than in 1952 or 1950. Although the volume of private housing
starts remained practically unchanged at the 1952 total of about
1.1 million units, the increase in residential mortgage indebted­
ness was somewhat larger, owing in considerable part to in­
creases in the average size and price of new homes that were
reflected in an increase in the average amount of mortgage
loans. The estimated growth of 700 million dollars in 1953
in agricultural mortgage indebtedness was greater than in any
other postwar year, reflecting in part a funding of short-term
farm debt.
The borrowing requirements of the Federal Government
increased in calendar 1953. Larger outlays for defense, farmprice supports, and interest on the public debt brought total

0.5 billion dollars to about 7 billion. Increased requirements for
and enlarged inventory needs were in major part financed as
in the past with funds generated from current operations.
Such internal funds, in fact, contributed an even larger pro­
portion of capital needs in 1953 than in 1952. A sharp expan­
sion of corporate profits enabled corporations generally to
retain a substantially larger volume of earnings for reinvest­
ment in their businesses, even though taxes were greater and
cash dividends were increased. Depreciation allowances were
markedly higher as more defense plants bearing five-year
amortization rates were completed and placed in production.
In addition, corporations were able to borrow temporarily
from their increased Federal income and excess profits tax
accruals on the higher 1953 profits (as well as to provide for
their future taxes by expanding their holdings of Government
securities). Gross security offerings (excluding securities
offered outside the regular market channels— i.e., sales to
officers, employees, and customers— and before cash retire­
ments) were about 9 billion dollars, compared with 9.5 billion
in 1952.
Tight capital market conditions and rising interest rates in
the first half of 1953 caused only a moderate reduction in the
volume of new bond sales for the year as a whole. About 7.2
billion dollars, or approximately four fifths, of the gross cash
security offerings were debt issues, roughly the same proportion
as in 1952. Common stock offerings remained at the post­

cash expenditures to 76.5 billion dollars, 3.5 billion
above 1952. Cash receipts, on the other hand, declined 0.9
billion dollars to 70.5 billion, owing almost entirely to a

war peak total of 1.4 billion dollars reached in 1952, but
new preferred stock sales declined 100 million dollars to nearly
500 million. Although preliminary reports indicate a sizable

reduction in corporate income and excess profits taxes on the

drop in private placements to more than 3 billion dollars in

reduced level of profits in 1952. In order to finance its 6.0

1953 from 4 billion a year previous, the total of publicly

billion dollar cash deficit, the Treasury borrowed nearly 5.1 bil­

offered bonds and stocks rose to a new high record.

lion net through long and short-term funds (compared with 3.4

The gross volume of refunding and refinancing securities

billion in 1952), and reduced its deposit balances by 1.0 bil­

(both bonds and preferred stocks) declined about one half

lion. In order to prevent a reduction of those balances below

from the 1952 total of 1 billion dollars, reflecting the generally

satisfactory working levels, while at the same time avoiding an

higher level of corporate bond and stock yields prevailing

increase in the public debt beyond the ceiling of 275 billion
dollars, the Treasury in November used about half of the "free

during the year. Flotations for the purchase of existing plants




and other purposes were the same at about 200 million dollars.

30

MONTHLY REVIEW, FEBRUARY 1954
Chart II

Corporate Security Offerings for New Capital
(Semiannual totals, 1951-53)
Bil'i ons
o f d o ll a rs

for the enlarged volume of publicly offered securities and the
sustained high volume of common stock offerings. The marked
expansion of new offerings for working capital purposes may

Billions
o f d o l l a rs

be accounted for largely by the unusual increase in security
flotations of sales finance and other consumer credit companies
in need of funds to meet the heavy demand for automobile
instalment loans. Finance company offerings of new issues
amounted to more than 1.2 billion dollars in 1953, compared
with about 265 million in 1952 as shown in the accompanying
chart. Expansion of finance company operations, of course,
required additional working capital funds rather than fixed
assets.
State and Local G overnment Fin a n c e
New offerings of State and local government issues reached
a new high record in 1953 of 5.5 billion dollars, of which
only 100 million dollars were for refunding purposes. In 1952,
4.4 billion dollars of State and local government new issues
were sold, of which 300 million were refunding securities.
Cash retirements reduced the net volume of offerings in 1953

p

P relim inary.

S ource:

Securities and E x c h a n g e C o m m issio n .

Gross new money issues to finance expansion and moderniza­
tion of plant and to provide for additional working capital
needs remained practically unchanged at more than 8 billion
dollars; however, the volume of funds for plant and equip­
ment outlays declined, while securities sold to obtain addi­
tional working capital rose to a new peak of about 2 V2 billion
dollars.
Although the aggregate volume of new corporate security
flotations in 1953 was only slightly under 1952, there was a
marked shift in the industrial composition of corporate issuers
from manufacturing to public utility and sales finance com­
panies. This shift, in turn, was responsible for the substantial
changes noted above in the form, purpose, and certain other
characteristics of the 1953 security offerings. Influenced by
the tapering-off of the defense plant program and especially
by the increased reliance on internal funds for financing capital
requirements, new offerings by manufacturing corporations
are estimated to have fallen about 40 per cent in 1953 to less
than 2.5 billion dollars. This drop accounts in considerable
part for the decrease in private placements and in new issues
for plant and equipment. On the other hand, the volume of
public utility offerings reached a new peak, reflecting the con­
tinued expansion of capacity in that industry, as well as the
limited reliance that such issuers can have on internal funds to
finance their capital needs because of the restriction of profits
by government rate regulation and because of their relatively
larger dividend requirements. Inasmuch as most utilities are
required to offer their securities at competitive bidding in the
open market, and as they also float a substantial volume of
stocks in order to maintain balanced capital structures, the
increase in their offerings was in considerable part responsible




to 3.5 billion dollars, compared with 2.7 billion in 1952.
A substantial portion of the municipal security offerings was
absorbed by investment and trust accounts and sinking funds
of State and local governments.
Bond offerings during the year financed chiefly such urgently
needed facilities as schools, highways and streets, vehicular
crossings, sewerage and water facilities, low-cost housing,
hospitals, and other public buildings; a substantial volume of
veterans’ bonds also was issued. Sales of revenue bond issues
to finance self-sustaining capital projects reached a new record
total of 1.6 billion dollars, 100 million larger than the previous
peak in 1952. Nevertheless, the volume of State and local
government construction rose only modestly during the year,
the increase falling behind the expansion of new State and
local government security flotations for the second successive
year. Disbursements of the various regional and local govern­
mental units have apparently increased by larger amounts than
current revenues in the last two years, leaving a progressively
smaller tax cover for capital outlays. The rising proportion of
public construction financed in the capital market may also be
accounted for in part by the running-out of postwar reserves
for construction. Another factor may have been the progres­
sive increase in the volume of maturing issues that have had
to be redeemed each year (i.e., increased debt amortization),
resulting from the marked growth of State and local govern­
ment debt since the end of the war. Perhaps more important
than any of these factors in 1953 was the substantial increase
in repayments to the Public Housing Administration against
previous construction advances, with funds raised through the
sale of low-cost housing bonds by local housing authorities.
Such repayments amounted to about 1.4 billion dollars gross
in the eighteen months ended December 31, 1953.

31

FEDERAL RESERVE RANK OF NEW YORK
SELEC T ED

E C O N O M IC

IN D IC A T O R S

U n it e d S t a t e s a n d S e c o n d F e d e r a l R e s e r v e D is t r ic t

Percentage change
1953

Unit

Item

December

November

1952
October

December

Latest month Latest month
from previous from year
earlier
month

UNITED STATES
Production and trade

Industrial production*^..............................................................
Electric power output*................................................................
Ton-miles of railway freight*.....................................................
Manufacturers’ sales*§................................................................
Manufacturers' inventories* § .....................................................
Manufacturers’ new orders, total*§...........................................
Manufacturers’ new orders, durable goods*§...........................

Prices, wages, and employment
Basic commodity pricesf............................................................
Wholesale pricesf.........................................................................
Consumer pricesf.........................................................................
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................................

2
1
3
2
1
2
#
- 1
- 1
-1 1

- 5
+ 7
-1 3
+ 1
+ 6
- 6
-1 6
- 2
- 5
+ 4

+ 1
#
#
- 1
#
- 1
- 1
#
+30

-

2
#
+ 1
+ 3
+ 4
- 1
- 3
- 4
+31

77,461
64,163
101,506
29,896
90,447
n.a.
18,684

#
+ 2
+ 3
#
#
—
+ 1

+
+
+
+
+

+17

6,320
7,364
4,538

#
+ 1
+ 9

-1 5
-1 4
- 6

+ 1
+ 2
#
#
#
- 1
#
+ 9

+ 2
-1 8
+18
+ 1
#
- 1
+ 4
+ 4

127p
160
—
—
—
—
—
14. Ip
174p
227p

129
159
95p
24.6 p
46.7p
21.8p
9.7p
14.2
176
255

132
160
98
25.0
47.0
22.2
9.7
14.0
183
262

133
150r
100
24.7
44.2
24.9
12.7
14.4
183
219

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

88.5
110.Ip
114.9
—
—
48,462p
16,360p
40. Ip
1,850

87.4
109.8
115.0
285.4p
253p
48,843
16,587
40.0
1,428

86.4
110.2
115.4
287.2
252
49,205r
16,788r
40.3
1,162

90.4
109.6
114.1
280.6
243
48,957
16,870
41.7
1,412

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

78,140p
68,260p
103,270p
30,360p
91,507
n.a.
21,807

United States Government finance (other than borrowing)

Cash income.................................................................................
Cash outgo...................................................................................
National defense expenditures....................................................

+
-

1947-49= 100
1947-49 - 100
1947-49= 100
billions of $
billions of $
billions of $
billions of $
billions of $
1947-49= 100
1947-49= 100

millions of $
millions of $
millions of $

5 ,384p
6 ,335p
4 ,245p

78,210p
67,250p
100,210p
30,313
91,653
n.a.
21,586

76,790p
6 7 ,120p
100,270p
30,245
92,291
n.a.
21,486

5,396
6,258
3,879

2,950
5,759
4 ,lllr

1
6
2
2
1

SECOND FEDERAL RESERVE DISTRICT
Electric power output (New York and New Jersey)*.................
Residential construction contracts*...............................................
Nonresidential construction contracts*.........................................
Consumer prices (New York City)f..............................................
Nonagricultural employment*........................................................
Manufacturing employment*.........................................................
Bank debits (New York City)*......................................................
Bank debits (Second District excluding New York City)*........
Velocity of demand deposits (New York City)*..........................

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

138
—
—
113.0
—
—

54,022
4,392
n.a.

137
130p
219p
112.9
7,608.Op
2,706.3p
54,269
4,034
n.a.

135
128
220
113.3
7,628.8
2,735.2
54,152
4,321
n.a.

135
158
183
112.0
7,645.4r
2,773.2r
52,141
4,218
n.a.

Note: Latest data available as of noon, February 2, 1954.
p Preliminary.
r Revised.
J Revised series. Back data available from the Board of Governors of the Federal
n.a. Not available. Series in process of revision.
Reserve System.
* Adjusted for seasonal variation.
# Change of less than 0.5 per cent.
f Seasonal variations believed to be minor; no adjustment made.
§ Revised series. Back data available from the U. S. Department of Commerce.
Source: A description of these series and their sources is available from the Domestic Research Division, Federal Reserve Bank of New York, on request.

DEPARTMENT STORE TRADE
Dollar volume of sales at Second District department stores
for the month of January declined about 1 per cent below the
year-earlier figure, according to preliminary information,
reflecting the difference in the number of trading days (one
less shopping day in the month this year than last). Average

The reduction in the dollar volume of the Districts major
trading area, the New York-Northeastern New Jersey Metro­
politan Area,1 was largely responsible for the lack of growth
in total department store trade in the Second District during

daily sales, however, rose an estimated 3 per cent above January

in department store sales within the corporate limits of New

a year ago.

York City; dollar volume of the City stores fell 3 per cent

Final figures for 1953 indicate that aggregate department

1953. The decline in this area, in turn, reflected the decrease

below the year-ago figure to an eight-year low. Conforming

store sales in the Second District continued to fall short of

to the experience of recent years, however, department stores

the rate of growth in dollar volume experienced by depart­

in the surrounding suburban areas fared much better than the

ment stores in the country as a whole. Department store sales

stores located in New York City (or in Newark, where 1953

in this District were approximately equal to those of 1952,

1 Comprising the five counties of New York City, and Nassau,
Rockland, Suffolk, and Westchester Counties in New York; and
Bergen, Essex, Hudson, Middlesex, Morris, Passaic, Somerset, and
Union Counties in New Jersey.

amounting to about 1.3 billion dollars, while 1953 sales in the
nation exceeded those of 1952 by an estimated 2 per cent.




MONTHLY REVIEW, FEBRUARY 1954

32

sales were only 1 per cent above 1952). Sales for 1953 in the
Metropolitan Area excluding New York City and Newark

changed from a year earlier, the substantial reduction in the
amount of commitments outstanding for additional merchan­

exceeded the year-earlier figure by a notable margin. This

dise brought the combined total for stocks and outstanding

reflected not only the marked increase of the population in

orders on December 31, 1953 to a four-year low. Outstanding

the suburbs since the war, but also tjie continuing development

orders, which had shown year-to-year declines for each month

and expansion of suburban shopping centers through which

since July, had by the year end fallen 16 per cent below the

the department store can more readily reach the suburban

level at the end of December 1952.

customer. Although the sizable gain in department store sales

Apparel store sales in New York City during 1953 were
about 1 per cent below the year-earlier figure, compared with

in this area was not sufficient to offset the decrease in business
at department stores in New York City, it did bring the annual

the 3 per cent drop in City department store sales. The per­

total for the Metropolitan Area within 1 per cent of the

centage decline in the gross number of transactions (sales

1952 figure.

checks written) at apparel stores was greater than in sales,
indicating that the average value of transactions actually rose

Outside the New York-Northeastern New Jersey Metro­
politan Area, Second District department store trade, exceed­
ing the national rate of increase, gained 3 per cent over the
1952

dollar volume.

while total sales were declining.
Sales in New York City furniture stores declined 6 per cent

Department store sales for 1953 in

below the record volume of 1952, a somewhat larger decrease

Buffalo and in the Metropolitan Areas of Syracuse and
Rochester rose 4, 4, and 5 per cent, respectively, over the

than that registered in sales of this type of merchandise by
City department stores.

year-earlier levels to set all-time records.
Although the average end-of-month stocks held by Second

D e p a rt m e n t a n d A p p a r e l S t o r e S a le s a n d S t o c k s , S e c o n d F e d e r a l R e s e r v e
D is t r ic t , P e rc e n t a g e C h a n g e fro m th e P r e c e d in g Y e a r

District department stores through 1953 were second in dollar
Net sales

volume only to the record year of 1951, stocks on hand at the
end of December just equaled the year-earlier figure. Inven­

Locality

tories in department stores in most areas within the District,
however, were larger than in December 1952; the District

Department stores, Second District.........

figure was held down, in large measure, by the 2 per cent

New York-Northeastern New Jersey
Metropolitan Area........................
New York City*..............................
Nassau County................................
Westchester County.........................
Northern New Jersey.......................

decline below the year-ago level in stocks held at stores in
the New York-Northeastern New Jersey Metropolitan Area.
As was true in the case of sales, this decline was centered
largely in New York City department stores.
Although the aggregate dollar value of inventories at Second
District department stores at the end of 1953 remained unIn d e x e s o f D e p a rt m e n t S t o r e S a le s a n d S t o c k s
S e co n d F e d e ra l R e s e r v e D is t r ic t
(1 9 4 7 -4 9 a v e ra g e = 1 0 0 p e r c e n t)

1953
Item
Sales (average daily), unadjusted................
Sales (average daily), seasonally adjusted..
Stocks, unadjusted........................................
Stocks, seasonally adjusted..........................

r Revised.




1952

Dec.

Nov.

Oct.

Dec.

178
101

129
102

no
104

181
103r

104
113

132
115

130
116

104r
113

Fairfield County.................................
Lower Hudson River Valley.................
Poughkeepsie...................................
Upper Hudson River Valley.................
Schenectady....................................
Central New York State......................
Mohawk River Valley......................
Syracuse Metropolitan Area.............
Northern New York State...................
Southern New York State....................
Binghamton Metropolitan Area........
Western New York State.....................
Buffalo Metropolitan Area................
Niagara Falls...............................
Rochester Metropolitan Area............
Apparel stores (chiefly NewYork City)....

Stocks
on hand
Jan.through Feb.through Dec, 31,
Dec. 1953 Dec. 1953
Dec. 1953
1953
-1

0

0

-1
-3
n.a.
4-5
0
0
-1
n.a.
+3
+3
-1
-4
4-3
-1
_2
0
-1
-1
0
0
—2
+1
0
0
-3
+3

-1
- 3 (-2)
—
+4
+2
+1
n.a.
n.a.
+4
+5
-1
-2
+3
+4
+2
+3
+4
+4
0
0
+1
+4
+4
+4
+4
+5

-1
—2 (—2^
—
+5
+2
+1
n.a.
n.a.
+4
+5
-1
-2
+3
+3
+2
+3
+4
+3
0
-1
+1
+4
+4
4-4
+4
4-5

-2

-1

-1

0
- 2
- 4
n.a.
- 3
4- 1
4- 2
n.a.
—
4- 8

+10
- 1

4- 4

—5
-I- 7
4- 6

4-- 4
4- 8
4- 4
4- 9

+ 15

4444-

3
6
7
7

4- 0
4- 7

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

NATIONAL SUMMARY OF BUSINESS CONDITIONS
(Summarized by the Board of Governors of the Federal Reserve System, February 1, 1954)

Industrial production and employment declined moderately
further in December, while construction activity was main­
tained at earlier advanced levels. Retail sales were not far from
the high levels of last November and a year ago. Consumer

was reduced from near-record levels. Paperboard production

prices in December declined slightly further. In January, aver­

showed little further change in early January. Output of chemi­

age prices of industrial materials continued to decline somewhat

cal and petroleum products continued at very high levels in
December.
Total minerals production was maintained in December at
a level about 7 per cent below earlier highs, with metal and

while prices of farm products, notably hogs, advanced further.
I n d u s t r ia l P r o d u c t io n

The Boards seasonally adjusted index of industrial produc­
tion declined further in December, reflecting mainly greaterthan-seasonal declines in the primary metal, electrical machin­
ery, and textile industries. The preliminary figure for December
is 127 per cent of the 1947-49 average as compared with a
final figure for November of 129— levels slightly lower than
indicated by the data available earlier. Output at the end of
1953 was 7 per cent below the peak reached in May and July,
but for the year as a whole was 8 per cent above 1952. A
slight further decline is indicated for January.

Output of nondurable manufactures declined a little fur­
ther in December. In addition to further curtailment at textile
mills, output of paperboard and some other paper products

bituminous coal mining showing only small further declines.
In January, output of bituminous coal held steady.
C o n s t r u c t io n

New construction activity, seasonally adjusted, was main­
tained at a high level in December, and for the year was the
largest on record in terms of both dollar amount and physical
volume. The number of housing units started declined less
than seasonally in December and was slightly smaller than a
year earlier, During 1953, 1.1 million units were started, about
the same as in 1952. Value of contracts awarded for non­

Steel mill operations declined more than the usual seasonal
amount in December and did not show the usual seasonal
expansion in January. At the month end, output was still at
a rate of about 75 per cent of an expanded annual capacity of
124 million tons. With major model change-overs completed,

residential construction decreased somewhat further in Decem­
ber, as awards for private buildings dropped. For the entire
year, nonresidential contruction awards were 8 per cent larger
than in 1952.
Em p l o y m e n t

auto output in January has risen somewhat from the reduced

Seasonally adjusted employment at nonfarm establishments

level of November and December. Output at several impor­
tant plants has been limited, however, owing to dealers’ large

declined further in December to 48.5 million, a half million
less than a year earlier. The decline from November occurred

stocks.

Production of household goods, notably television,

mainly in durable goods manufacturing industries. The aver­

declined further in December, and inventories were apparently
reduced further. Over-all activity in producers’ and military

age work week at factories failed to show a seasonal increase

equipment industries was also cut back somewhat further in

Average hourly earnings continued at $1.79, 3 per cent above
a year earlier, but average weekly earnings, at $71.78, reflecting

December. Truck output increased somewhat, but freight car
output continued to decline.
INDUSTRIAL PRODUCTION

in December and, at 40.1 hours, was below a year earlier.

the decline in the work week, were slightly below a year ago.
EMPLOYMENT IN NONAGRICULTURAL ESTABLISHMENTS

180

160

140

120
100

80

60

1949

1951

Federal Reserve indexes.




195 3

19 4 9

1951

1953

Monthly figures, latest shown are for December.

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.

Unemployment rose somewhat more than seasonally in early
January. At 2.4 million, the number of unemployed was
500,000 more than in early December and about double the
very low October level.

ices continued to advance, but prices of fuel oils and used
cars declined and new 1953 model cars were offered at sub­
stantial discounts.
B a n k C r e d it a n d R e s e r v e s

Total loans at banks in leading cities, which had increased

D is t r ib u t io n

Seasonally adjusted sales at department stores declined
slightly in the first half of January and were at about the
year-ago level. Total retail sales in December, after seasonal
adjustment, were slightly below their November level, reflect­
ing mainly reductions from earlier highs in new and used car
sales. For 1953 as a whole, value of retail sales was 4 per cent
larger than in 1952. Seasonally adjusted stocks held by depart­
ment stores are estimated to have been reduced further in
December and at the end of the month were about 3 per cent
above a year ago.
C o m m o d it y P rices

in December, declined sharply in the first three weeks of
January. Business loans were reduced by almost 54 billion
dollars, reflecting in part the usual end-of-year adjustments.
Loans for purchasing and carrying securities also declined.
Holdings of U. S. Government and other securities, however,
increased slightly. Interest rates charged on short-term busi­
ness loans made during the first fifteen days of December by
banks in selected cities averaged 3.76 per cent, about the same
as in the previous quarter.
A substantial volume of reserves became available to banks
during the first three weeks of January, largely through the
post-holiday currency inflow, a reduction in Treasury balances

The average level of wholesale commodity prices advanced
slightly further in January, reflecting chiefly further increases
in prices of farm products and foods to about the year-ago
level. Prices of hogs rose further as marketings continued
at about the reduced December volume. Coffee prices rose,
reflecting tightening world supplies, and in late January were

with the Reserve Banks, and temporary Treasury borrowing
from the Federal Reserve. Only part of these funds were
absorbed by reductions in System holdings of U. S. Government
securities. Over the period, excess reserves of member banks
averaged almost 1 billion dollars, while member bank borrow­
ings at the Federal Reserve averaged about 100 million.

one-third above a year earlier. Average prices of industrial
materials decreased somewhat. Scrap metals generally declined
and, after midmonth, prices of refined lead and zinc were

S e c u rity M a r k e ts

Yields on Treasury securities moved sharply lower during

reduced. Hides also declined, but raw cotton increased some­

the first three weeks of the year. The market rate on 90-day

what and fuel oils advanced. List prices of finished goods were

Treasury bills dropped to about 1.2 per cent from a year-end

generally unchanged.
Consumer prices declined

rate of 1.4 per cent. High-grade corporate bond yields also
slightly

further

from

mid-

November to mid-December. Foods rose and rents and serv-

continued to decline. Common stock prices rose further,
reaching their highest level since March 1953.

PRICES AND TRADE
Per C e n t, 1 9 4 7 -4 9 -1 0 0

Seasonally adjusted series except for prices. Price indexes compiled by Bureau
of Labor Statistics. Total retail sales and disposable personal income,
Federal Reserve indexes based on Department of Commerce data.
Department store trade, Federal Reserve indexes. Monthly figures,
latest shown are for December, except income (November) and depart­
ment store stocks (November 30).




Figures except for Federal Reserve discount rate are monthly average market
yields. Corporate Aaa bonds, Moody’s Investors Service; U. S. Govern­
ment long-term (excludes 3*A per cent bonds issued May 1, 1953),
U. S. Treasury Department and Federal Reserve; municipal high-grade
bonds, Standard and Poor’s Corporation; Treasury bills, Federal Reserve.
Latest figures shown are for December.