View original document

The full text on this page is automatically extracted from the file linked above and may contain errors and inconsistencies.

M ONTHLY

R EV IEW

O f Credit and Business Conditions

F E D E R A L

V o l u m e

37

R E S E R V E

B A N K

F EBRU A RY

O F

N E W

Y O R K

19 5 5

No. 2

M O N E Y M A R K E T IN J A N U A R Y
While member bank reserve positions in the aggregate
remained fairly comfortable over most of January, the money
market did not develop the ease that is frequently witnessed
at the beginning of the year. The usual steady post-Christmas
return flow of currency from circulation and seasonal repay­
ments of bank loans, combined with some liquidation of
investments, supplied member banks with large amounts of
funds during the month, and reserve balances were further
augmented at times by large gains from Treasury operations
and from increases in the level of Federal Reserve float. For
member banks as a whole, however, the reserves released by
the operation of these market factors were about offset by a
net reduction in the security holdings of the Federal Reserve
System aggregating 1,277 million dollars over the four state­
ment weeks ended January 26, approximately the same amount
as in January 1954. Daily average free reserves averaged
380 million dollars, about 100 million dollars below December
levels.
The impact of System security operations was felt most
heavily in the central money markets, while the reserves sup­
plied by the other market factors tended to be more evenly
distributed throughout the country. The distribution of the
additional Treasury bills available in the market as the result
of the reduction in Federal Reserve holdings tended to bring
about a redistribution of the reserve funds released by sea­
sonal influences, but while this redistribution was in progress
the reserve positions of banks both in New York City and
Chicago were under some pressure. Consequently, some of
these banks found it necessary to bid actively for Federal funds
and to borrow fairly substantial amounts from the Federal
Reserve Banks in those cities for a few days during each
statement week in order to meet their reserve requirements;
Federal funds were traded at the 1716 per cent "ceiling” dur­
/
ing most of January.
Other sensitive short-term rates of interest also tended to
move somewhat higher. By the middle of the month, banks in
Newr York City and Chicago had increased their rates for
loans to dealers secured by Government obligations to a range




of I V 2 to V>/a per cent, the highest rates for such loans since
the spring of 1954. Yields on Treasury bills of all maturities
rose throughout the first part of the month, despite a brisk
demand from nonbank investors, the longest-term bill out­
standing rising to a yield of 1.39 per cent (bid) on January
18, while the shortest bills were quoted at 1.50 per cent on
the same date. The average rate of discount for the new issues
of Treasury bills reached a high of 1.407 per cent in the
auction for the bills dated January 20, the highest issuing
rate since the last issue sold in 1953. Open market rates on
short-term paper of private borrowers also advanced; quota­
tions for bankers’ acceptances increased by Vs per cent on
January 13, while dealers’ rates for prime commercial paper
rose by V a -Y s per cent in several steps. The large sales finance
companies also raised their rates by V per cent on paper placed
k
directly with investors.
In the intermediate and long-term sectors of the Govern­
ment securities market, prices moved almost uninterruptedly
downward over the first half of January, continuing a down­
trend that had started early in December. After declines of a
point or more had been recorded for the longest maturities
by the middle of the month, the market steadied but prices
of long-term bonds soon resumed their downward movement
and fell below their earlier lows. Trading was generally light
during most of the month, as investors tended to remain on
the sidelines awaiting the announcement of terms for the
Treasury’s February refunding.

CONTENTS
M oney Market in J a n u a r y ....................................
International G old and D ollar Movements
in 1954 ....................................................................
The R ole of Debt M o n e tiz a tio n ...........................
M em ber Bank Call Reports ..................................
Department Store T r a d e ........................................
Selected E conom ic Indicators ..............................

9
12
17
20
23
24

10

M O N T H L Y R E V I E W , F E B R U A R Y 1955

This period of uncertainty was ended on January 27, when
the Treasury made its announcement of the securities to be
offered in exchange for the 7.0 billion dollars of 1 Ys per cent
certificates maturing February 15, the 5.4 billion of l 1? per
/
cent notes maturing March 15, and the 2.6 billion dollars of
2Vs per cent partially tax-exempt bonds called for redemption
on March 15. The holders of the maturing certificates and notes
were offered a choice between two new issues of notes: either
a thirteen-month 1Ys per cent issue maturing March 15,
1956 or a 2 ^ -year 2 per cent issue maturing August 15,
1957. The called bonds may be exchanged for either the new
thirteen-month note or a forty-year 3 per cent bond. Sub­
scription books for the exchange, which will take place on
February 15 on a par-for-par basis with adjustments for
accrued interest on the maturing notes and called bonds, will
be open for three days, February 1-3. The new bond issue is
the longest security offered by the Treasury since an issue of
Panama Canal bonds sold in 1911.
Following an extended period of rising stock prices, unusually
active trading, and increasing use of credit to finance margin
accounts, the Board of Governors on January 4 raised margin
requirements for security loans covered under Regulations T
and U from 50 to 60 per cent. After the initial reaction to the
announcement of the rise in requirements, which the stock
market interpreted more as a warning than as a sharply
restrictive action, the volume of trading slackened and prices
tended to move irregularly over the remainder of the month.
Loans and investments of weekly reporting member banks
were reduced by 1,115 million dollars over the four statement
weeks ended January 19, a somewhat greater decline than had
occurred during the equivalent period a year ago, when earn­
ing assets (exclusive of loans to banks) contracted by about
750 million dollars. The contraction in loans, however, was
much less than during January 1954, especially with respect
to loans to businesses. During the four weeks following Christ­
mas 1953, business loans declined by 675 million, reflecting
declining levels of business, inventory liquidation, and repay­
ments of loans obtained previously ( or renewed beyond actual
needs) in order to reduce excess-profits-tax liabilities. This
year, the decline in business loans was only 260 million, con­
tinuing the tendency, which first appeared in late November,
for such borrowings to expand more rapidly, or to contract
less, than during comparable periods a year previous.
M

e m b e r

B

a n k

R

e s e r v e

P

T a b le
W e e k ly

I

C h a n g e s in F a c t o r s T e n d i n g t o I n c r e a s e o r D e c r e a s e
M em b er B a n k R e se rv e s, J a n u a ry 1955

(In m illions o f d o lla rs ; ( - j - ) denotes increase,
(— ) d ecrease in e xcess re se rv e s)
Statement weeks ended
Factor

Four
weeks
ended
Jan.
26

Jan.
5

Jan.
12

Jan.
19

Jan.
26

Treasury operations*............................
Federal Reserve float...........................
Currency in circulation........................
Gold and foreign a ccou nt....................
Other deposits, e t c ................................

+239
+156
+204
+ 13
+ 39

-2 4 3
-3 3 2
+238
+ 62
+ 15

+ 292
+ 197
+ 237
+ 29
2

-2 4 3
-2 6 8
+207
+ 41
+ 172

+
+
+
+

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

+652

-2 6 0

+ 750

-

89

+ 1 ,0 5 3

- 50
— 63
-2 0 6

-3 4 1
+ 27
+ 178

-5 9 8
- 17
-2 3 9

-2 2 8
7
+148

- 1 ,2 1 7
60
119

T o ta l........................................

-3 1 9

-1 3 6

—854

-

- 1 ,3 9 6

Effect o f change in required reserves~\.. . .

+333
+ 29

-3 9 6
+ 160

-1 0 4
- 29

-1 7 6
- 24

+

343
136

Excess reserves^ ..........................................

+362

-2 3 6

-1 3 3

-2 0 0

-

207

Daily average level of member bank:
Borrowings from Reserve B anks. . . .
Excess reserves'}*....................................

239
687

370
677

312
775

325
628

Operating transactions

45
247
886
145
224

o s it io n s

The largest and most persistent factor supplying reserves
to member banks through the four statement weeks ended
January 26, as in corresponding periods of past years, was
the return flow of currency from circulation after the holiday
season. In addition, during the statement weeks ended January
5 and 19, the banks gained a large volume of funds from
Treasury operations and from an expansion of Federal Reserve
float. Foreign account operations provided another smaller,
but steady, source of reserves over the month, partly through
net purchases of Treasury securities and partly indirectly




through repayment of indebtedness to the United States
Government. At the same time, the banks’ needs for reserves
to cover requirements were reduced, reflecting seasonal repay­
ments of bank credit and reduced investments. The combined
effect of all these factors operating together was to supply
member banks with 1,189 million dollars of available funds
over the four weeks ended January 26, about the same as the
figure for the equivalent period during 1954.
The only offset to this seasonal avalanche of funds was
provided by the security operations of the Federal Reserve
System. By reducing early in the month the relatively small
volume of repurchase agreements entered into with dealers in
Government securities over the year end, and by outright sales
and redemptions of Treasury bills on a large scale thereafter,
the System absorbed most of the funds coming into the market
as they were released, and thus prevented the building-up of
large amounts of free reserves.
As shown in Table I, a limited volume of outright sales
by the System Open Market Account took place as early as
the statement week ended January 5, and dealers promptly
repurchased all the securities sold to this Bank under repur­
chase agreements over the year end. These operations, how­
ever, were insufficient to absorb the entire amount of funds
being supplied to the market by other factors. As a consequence,
free reserves temporarily rose substantially at the end of the
statement week, and the money market developed an easier tone.
The period of relative ease was brief, however; in the following
week a decline in float and a build-up of the Treasury’s balance
to more normal working levels, together with Federal Reserve
security sales and redemptions, reduced free reserves by over
400 million dollars by January 12. System Account security
transactions reached their peak during the week ended Janu­
ary 19, when they absorbed 598 million dollars of reserves.

Direct Federal Reserve credit transactions

Government securities:
Direct market purchases or sales..
Held under repurchase agreements.

N ote: Because of rounding, figures do not necessarily add to totals.
* Includes changes in Treasury currency and cash,
t These figures are estimated.

87

312
692

FED ERAL RESERVE B A N K OF N EW Y O R K

Nonetheless, member banks on balance gained funds as float
climbed to its midmonth peak, the Treasury reduced its balance
in anticipation of heavy receipts following the January 15 tax
date, and the return flow of currency continued. Federal
Reserve open market operations were much reduced in the
final week of the month, but again the increases in the free
reserves of member banks proved to be temporary as funds
were absorbed in volume by the flow of income tax collections
into Treasury accounts and by a tapering-off of float.
While free reserves of all member banks averaged 380
million dollars during the four statement weeks ended in
January, they were concentrated entirely outside the central
reserve cities. Borrowings of New York City and Chicago
member banks from the Reserve Banks exceeded their excess
reserves by well over 100 million dollars. The moderate rise
in short-term rates, which accompanied the almost continu­
ously tight reserve position of the "money market banks”,
tended to attract funds from banks in other parts of the
country as they accumulated, but the flow of funds into the
money market usually lagged somewhat behind the need.
Banks in New York City found it necessary to liquidate Gov­
ernment securities, in addition to borrowing temporarily both
from this Bank and in the Federal funds market. The incidence
of any severe tightness was fleeting, however, and very much
localized, so that any incipient tendency toward actual stringency
over the four weeks ended January 26 was averted by small
variations in the amount of repurchase agreements outstanding
at the Federal Reserve Bank of New York.

T

h e

G

o v e r n m

e n t

S

e c u r it ie s

M

a r k e t

Most of the activity in the Government securities market
during January was centered in the short-term sector. Although
limited selling by commercial banks met with a ready demand
from industrial corporations and others seeking to invest
accruals of short-term funds, yields on outstanding Treasury
bills moved slowly upward at the start of the month. As the
System open market operations increased in volume during
the second statement week, and the central money markets
remained under some pressure, yields on outstanding bills
began to increase more rapidly. Nonbank demand, which was
not related to the supply of bank reserves but which was per­
haps stimulated by the rise in market rates resulting from the
pressures on the money market, continued strong throughout
most of January. This demand, together with additional buy­
ing interest toward the middle of the month on the part of
some commercial banks outside the major money markets, en­
abled dealers promptly to place the supply of bills released
from the System portfolio. As the pressures in the money
market temporarily subsided late in the statement week ended
January 19, yields were readjusted downward for several days.
Late in the month, yields fell further as System purchases of
bills undertaken to relieve temporary end-of-month reserve
shortages added to the continuing demand of nonbank investors,
including those switching out of "rights”. By the close of busi­




11

ness on January 31, the longest-term issues were quoted at
1.12 per cent (b id ).
Aggressive bidding, particularly in Chicago, for the Treasury
bill issue dated January 6 drove the average rate of discount on
that issue down to 1.049 per cent. On the next two offerings,
however, the issuing rate rose sharply, reaching 1.407 per
cent on the issue dated January 20. By the following week,
a scarcity of long-term bills in the market encouraged some­
what more vigorous bidding, and the issue dated January 27
was sold at an average yield of 1.349 per cent.
Prices for intermediate and long-term Government securities
were marked down steadily throughout the first half of January.
The largest loss w recorded on the longest issue outstand­
^as
ing, the 3W s of 1978-83, which fell by 2 Vs points between
the end of December and January 17 to a bid quotation of
1073%2>
lowest price since February 1954. Most other
long-term issues were off a point or more during the same
period, while intermediate issues maturing before I960 de­
clined generally by Ys to Vs of a point.
The intermediate bonds and selected short-term issues
steadied in the latter part of the month, primarily in response
to sizable buying by a public fund investing part of the pro­
ceeds of an earlier market financing. On the other hand, after
rising by l point or more on January 18 and 19 in a brief
A
reaction to the long downward movement, prices of long-term
issues drifted lower over the remainder of the month. Buying
interest in the long-term area was limited. A supply of long­
term bonds, however, continued to be available from several
life insurance companies and savings institutions, and occa­
sionally from banks. Over the month, prices were largely
influenced by recurring speculation over the prospects of the
inclusion of a new issue of long-term bonds in the Treasury’s
approaching refunding operation, and by discussions in the
market and in the press concerning the extent to which System
credit policy may have shifted away from active ease. The con­
tinued heavy offerings of new corporate and municipal securi­
ties, the sustained demand for long-term mortgage money, and
optimistic reports upon the general economic outlook also con­
tributed to declines in the market for long-term Treasury bonds.
In the early market reaction to the Treasury’s refunding offer
of January 27, the 27s per cent “rights”, the only issue that
/
may be exchanged into the new 3 per cent forty-year bonds,
advanced to a premium of about Ys of a point but by the close
on January 31 had moved back to a price of about 100^4 (b id ),
somewhat under the prevailing level since the middle of the
month. The new bond issue, in early “when-issued” trading,
followed a similar pattern. The premium on the new issues of
notes, together with the 1Vi per cent and 1 Ys per cent “rights”,
was approximately % 6 of a point at the month end. A
considerable amount of activity developed as investors made
adjustments in their portfolios to meet their particular needs.
The offering of 500 million dollars of 2 Vi per cent threeyear notes of the Federal National Mortgage Association on
January 11 was heavily oversubscribed. Allotments, on a basis

12

M O N T H L Y R E V I E W , F E B R U A R Y 1955

of 14 per cent of subscriptions, were somewhat smaller than
the market had anticipated and, after early "when-issued”
trading at or about par, the issue went to a premium of about
Va point.
M

em ber

Ba n k

C r e d it

A decline of 673 million dollars in investments accounted
for the bulk of the 1,115 million dollar reduction in the
earning assets of the weekly reporting member banks between
December 22 and January 19. As indicated in Table II, most
of the decrease in security portfolios took piace during the
first half of this four-week period, when these banks liquidated
over 400 million dollars of Treasury bills and lesser amounts
of certificates, notes, and bonds. Over the final two weeks,
the reporting banks were net purchasers of bills, although
continued declines in holdings of longer-term Treasury issues
and "other securities” reduced total investment portfolios
somewhat further during the week ended January 12.
In the comparable four-week period at the end of 1953
and the beginning of 1954, the weekly reporting member
banks were able to add 329 million dollars to their invest­
ments. During that same period, however, loans contracted
by 1,077 million dollars, whereas this year the net repay­
ments amounted to only 442 million dollars. In part, this
comparison reflected a smaller decline in security loans (240
million dollars this year, as against 351 million dollars a year
ago) and a strengthened demand for mortgage and con­
sumer loans, but the most important factor was the relatively
small reduction in commercial, industrial, and agricultural
loans at the end of 1954 and early in 1955. During the
entire four-week period ended January 19, 1955, business
loans declined by only 260 million dollars, considerably
under half of the decrease experienced last year, and even
less than in the four weeks following Christmas 1952, when
demands from businesses for bank credit had been heavy.
Most of the classified industrial groupings, with food, liquor,
and tobacco concerns and commodity dealers providing the
principal exceptions, had smaller repayments ( or larger
borrowings) this year than last. The contrast was especially
marked for metals-working firms, sales finance companies,

the wholesale and retail trade group, public utilities, and mis­
cellaneous industrial borrowers. To some extent, the heavy
repayments in early 1954 were influenced by the removal of
the excess profits tax, which had encouraged borrowings by
businesses during 1953 beyond their immediate needs for funds,
but the favorable comparisons with year-ago figures for a wide
variety of industries which have been noted over the last two
months apparently reflect, in part at least, increased demands
for bank credit growing out of the recent expansion in
economic activity.
T able II
W e e k ly C hanges in P rin cip a l A ss e ts and L iabilities o f the
W e e k ly R e p o rtin g M em ber Banks
(In m illions o f d olla rs)

i >t£
!

Statement weeks ended
Item
D e c. 29,
1954

Jan.
1955

Jan. 12,
1955

+ 63
+ 157

-1 5 2
-1 5 9

- 97
-1 4 1
+ 35

Jan. 19,
1955

weeks
11 tied
,J;m 19,

I'< 5
5

Assets
Loans and investments:
Loans:
Commercial, industrial, and
agricultural loans..............
Security loans........................
Real estate loans..................
A ll o th e r lo a n s (la r g e ly
consu m er)...........................

+ 20
+ IS

+ 6

-

74
97

+

260
240
82

-1 4 2

-

442

+196
-1 0 7

-

196
407

+ 89

-

603
70

-

673

+ 21

24

Total loans adjusted*. . ..

+257

-3 7 2

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

-1 5 0
-1 5 3

-264
- 65

-

82

T o ta l...............................
Other securities.....................

-3 0 3
+ 16

-329
- 9

-

60
98

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

-

+ 22

-3 3 8

+ 21
+110

T o ta l loans and in v e st ments
adjusted*....................................

-

30

-710

Loans to ban ks.............................

-1 6 9

+ 117

-

23

-106

-

181

L oans adjusted* and “ o th e r’
securities.....................................

+273

-3 8 1

-2 8 3

-121

-

512

+420

-5 8 8

+ 124

+ 387

-

343

+ 34
-5 8 7

+ 39
-3 5 1

+ 44
-7 4 4

-

83
-1,707

-3 7 8
+ 45

+653
- 50

-2 9 5
- 17

-2 1 5
- 31

-343

-1 ,1 1 5

Liabilities
Demand deposits adjusted.........
Time deposits except
Governm ent................ ..............
U. S. Government deposits........
Interbank demand deposits:
Dom estic.....................................
Foreign........................................

34
25

-

235
53

* Exclusive of ioans to banks and after deduction of valuation reserve*; figures
for the individual loan classifications are shown gross and may not, therefore,
add to the total shown.

IN T E R N A T IO N A L G O L D A N D D O L L A R M O V E M E N T S IN 1954
Since March 1952, when the total reached its post-Korea low*
aggregate holdings have increased nearly one third, and since
the currency devaluations of September 1949, by more than
two thirds. The 1954 rise in foreign gold and dollar holdings,
however, was largely confined to the countries of Continental
1
"Dollar holdings”, as used in this article, comprise both official Western Europe, the sterling area, and Canada; Latin America
and private holdings, and consist primarily of sight and time deposits,
failed to add to its gold and dollar holdings, while the nonshort-term United States Government securities, and bankers’ accept­
sterling-area countries of Asia suffered a moderate loss.
ances, as reported by United States banks. "Gold holdings” include

The growth in the gold and dollar holdings of foreign
countries continued throughout 1954, though at a more mod­
erate rate than in 1953. At the year end such holdings were
estimated at 25.0 billion dollars, an increase of 1.9 billion for
the year, compared with a gain of 2.6 billion during 1953.1

reported and estimated official gold reserves. Gold holdings of the
USSR are excluded, but dollar holdings of that country are included.
Gold and dollar holdings of international organizations other than
the Bank for International Settlements and the European Payments
Union are excluded. For further details, see footnotes to Table II.
Changes in foreign gold and dollar holdings in earlier years are sur­
veyed in the Monthly Review for January 1951, February 1952,
February 1953, and February 1954.




T h e F lo w o f G o ld a n d D o l l a r s

Almost half of the 1.9 billion increase in foreign gold and
dollar holdings during 1954 was in the form of gold, in con­
trast to the previous year when gold had accounted for two
thirds of the reserve gain and dollars for only one third. A.

13

FE D E R A L RE SE RV E B A N K OF N EW Y O R K

Table I
U n i t e d S t a t e s N e t G o ld S a l e s t o F o r e i g n

C o u n trie s

(In clu d es tra n saction s with the B ank fo r International
S ettlem en ts; (— ) =znet purchases b y th e U nited S tates)
Period

Millions of dollars

Annual

1950 ......
......................................................................
1951..........................................................................................
1952..........................................................................................
1953..........................................................................................
1954...... ...................................................................................

Quarterly

-

1,725
75
394
1,164
327

1953—

1 ................................................................................
1 1 .................................................................................
H I ................................................................................
I V ............................................................................

599
128
307
130

1954 —

j ................................................................................
I I ...... .........................................................................
I l l ................................................................................
I V .......................................................................... ..

172
72

63
20

striking aspect of the 1954 growth in gold holdings abroad
was the fact that less than 40 per cent wras purchased from the
United States; more than half reflected accruals from new gold
production, and the rest apparently purchases from the USSR.
During the year the United States on balance sold 327 mil­
lion dollars’ worth of gold to foreign countries, as against
1,164 million in 1953. About three fourths of the 1954 sales
took place during the second half of the year, as shown in
Table I, the third quarter alone accounting for more than half
of the year’s totaL
Most United States gold sales in 1954 were made to coun­
tries of Western Europe; during the first nine months, on the
basis of data so far released, West Germany bought 196 mil­
lion dollars’ worth from the United States (more than half of
the total United States gold sales), the United Kingdom 50
million, Portugal 45 million, and Switzerland 8 million. Among
non-European countries Venezuela purchased 30 million,
Lebanon 9 million, and Uruguay 5 million, but these pur­
chases were more than balanced by sales to the United States
of 80 million by Mexico and 15 million by Bolivia. The 1954
gold outflow from the United States thus continued to reflect
primarily, as in 1953, the improvement in the gold and dollar
holdings of Continental Western Europe and, to a lesser extent,
the sterling area.
It appears that in 1954 about three fifths of new gold pro­
duction outside the United States and the USSR— 450 million
to 500 million dollars— went into the official reserves of
foreign central banks and governments, as against only two
fifths during 1952 and 1953 and a mere fifth at the height of
the Korean war in 1951. The remainder of the 1954 gold out­
put apparently served industrial, artistic, and professional uses
to a larger extent than in earlier years. Additions to private
gold hoards seem to have been smaller than in any year since
the end of World War II; gold prices in the so-called free
markets abroad where gold is traded against dollars and other
convertible currencies remained close to the parity level, to
which they had fallen during 1953.
In addition to acquiring gold from new production and
through purchases from the United States, foreign countries
also bought gold from the USSR. The latter reportedly sold




50-100 million dollars’ worth in Western European countries
in the spring of 1954, following similar sales toward the end
of 1953; a good part of this gold apparently found its way
into the official reserves of foreign countries.
As a result of these various gold movements, the total gold
reserves of foreign countries increased approximately 900
million dollars last year, while the monetary gold stock of the
United States declined 298 million. In consequence, the United
States at the year end held 58 per cent of world gold reserves
(excluding those of the USSR but including those held by
international institutions), as against 70 per cent in September
1949.
Dollar holdings of foreign countries increased last year by
about 1 billion. The rise was concentrated largely in official
holdings, which rose by 651 million from January through
September 1954, while private holdings rose by 56 million.
The increase in the official holdings was used during the
first half of the year mainly for the acquisition of time deposits
at United States commercial banks, since the interest rate
paid on such deposits was significantly higher than the yield
on short-term United States Treasury bills. After midyear,
however, as Treasury bill yields tended to rise, there was a
renewed emphasis on purchases of United States Government
short-term obligations.
R

e s e r v e

P

o s it io n s

o f

F

o r e ig n

C

o u n t r ie s

In 1954, even more than in 1953, the rise in total gold and
dollar holdings reflected primarily the improvement in the
international reserve positions of Continental Western Europe
and the sterling area, as is apparent from the chart and Table
[I. In fact, during the nine months through September 1954
(the latest month for which detailed data are available), the
increase of 1,405 million dollars in foreign countries’ gold
and dollar holdings was nearly accounted for by a 1,007 million
rise in the reserves of Continental Western Europe and a 362
million increase in sterling-area gold and dollar holdings.
Canadian reserves rose by 126 million, and Latin America

14

M O N T H L Y R E V IE W , F E B R U A R Y 1955

gained a mere 37 million, while nonsterling Asia suffered a
reserve loss of 156 million dollars.
It is particularly noteworthy that the growth in the gold
and dollar holdings of Continental Western Europe during
the twelve months ended September 1954 exceeded its reserve
gains during the twelve preceding months. Significantly, the
768 million dollar increase in West Germany’s holdings ac­
counted for almost half the areas rise in reserves, while Austria,
Italy, France, the Netherlands, and Sweden also showed sizable
increases. The French and Dutch reserve gains were all the
more notable in view of the fact that these two countries made
substantial repayments of dollar obligations in advance of
maturity. France prepaid the remaining 70 million of a 100
million dollar Export-Import Bank loan due in mid-1955,
beside making a voluntary 20 million dollar repayment to the
International Monetary Fund (IM F ); the Netherlands repaid
52 million of a 1947 International Bank loan, thereby amor­
tizing the 1970, 1971, and 1972 maturities ahead of time. The
Continental Western European countries as a group thus con­
tinued the building-up of their gold and dollar holdings that
had been under way since June 1948; by September 1954 their
reserves of 10.8 billion dollars were more than twice as large
as at the 1948 date.

The 1954 increase in the aggregate gold and dollar holdings
of the sterling area also was sizable, although more limited than
in the previous year. By September 1954 the area’s holdings
totaled 4.4 billion dollars, compared with 4.1 billion the year
before and 3.2 billion in September 1952. Comprehensive data
are not yet available for the last quarter of 1954, but the official
gold and dollar holdings of the United Kingdom2 stood at
2,762 million dollars in December, a 244 million gain for the
year. This increase was realized in the face of the usual D e­
cember service payments of 181 million dollars under the
postwar loan agreements with the United States and Canada
and the lend-lease settlement with the United States; of a
voluntary repurchase of sterling from the IMF by the United
Kingdom, amounting to 112 million dollars; and of a 99 mil­
lion dollar payment in July to the United Kingdoms European
Payments Union (EPU) partners in partial settlement of
cumulative EPU debts.
The 251 million dollar increase in Canadian reserves during
the year ended September 1954 stands in contrast to the 145
million dollar drop during the preceding twelve months. The
strength of Canada’s balance-of-payments position was also in2
I.e., the central reserves of the sterling area as made public by the
Chancellor of the Exchequer.

T able II
F o reig n G old and D olla r H old in gs
( In m illions o f d o lla rs )
March 1952
Area and country

i

Gold

! Dollar
I
holdings

September 1952

Total

Gold

Dollar
holdings

September 1953

Total

Gold

Dollar
holdings

September 1954p

T otal

Gold

Dollar
h old ings

T otal

Canada..............................................................................

874

1,340

2,214

892

1,545

2,437

970

1,322

2,292

1,059

1,484

2,543

United Kingdom and rest of sterling area ...............

2,134

1,063

3,197

1,998

1,177

3,175

2,791

1,279

4,070

3,231

1,181

4,412

106
903
858*
390
638
543
276
1,977
1,321

52
797
578*
118
346
350
202
1,404
1,017

126
1,036
1,021*
604
638
733
280
2,018
1,497

47
811
596*
259
346
747
206
1,456
1,074

208
1,081
1,003*
1,053
714
1,022
309
2,120
1,746

53
872
596*
574
346
820
219
1,503
1,240

279
152
528
1,247
527
298
180
667
717

332
1,024
1,124*
1,821
873
1,118
399
2,170
1,957

5,542

3,714

9,256

6,223

4,595

10,818

463

131

594

Continental OEEC countries:
A ustria....................................................................
Belgium-Luxembourg (and Belgian C on go)........
Germany (Federal R epublic)...................................
Netherlands (and Netherlands West Indies). . . .
Sweden..........................................................................
Switzerland...................... ............................................
Other f ...........................................................................

52
701
568*
28
346
364
214
1,432
953

54
202
290
362
292
179
_62
54 5
368

74
239
443
486
292
383
78
614
480

161
270
407
794
368
275
103
664
672

T o ta l.............................................................

4,658

2,354

7,012

4,864

3,089

7,953

Other Continental Europe J..........................................

462

79

541

462

89

551

465

95

560

Latin America:§
Argentina......................................................................
B razil.............................................................................
Venezuela......................................................................
Other..............................................................................

268
317
373
988

189
100
67
1,063

457
417
440
2,051

268
317
373
852

130
89
154
1,154

398
406
527
2,006

373
317
373
866

147
164
198
1,270

520
481
571
2,136

373
322
403
738

205
91
215
1,313

578
413
618
2,051

T otal.............................................................
Asia:§
Indonesia.......................................................................
Japan.............................................................................
Philippines....................................................................
Other..............................................................................

1,946

1,419

3,365

1,810

1,527

3,337

1,929

1,779

3,708

1,836

1,824

3,660

279
133
7
378

141
682
332
32S

420
815
339
706

280
125
9
382

87
773
320
400

367
898
329
782

163
130
9
387

35
932
309
459

198
1,062
318
846

81
132
9
396

87
669
309
470

168
801
318
866

T o ta l............................................................

797

1,483

2,280

796

1,580

2,376

689

1,735

2,424

6 IS

1,535

2,153

All other.......................................... .................................

178

173

351

178

133

311

178

103

281

178

111

289

Grand to ta l............... .................................

11,049

7,911

18,960

11,000

9,140

20,140

12,564

10,027

22,591

13,608

1

10,861 | 24,469

i

N ote: In this table, “ gold” covers reported and estimated gold reserves of central banks and governments (excluding the USSR) and of the Bank for Internationa1
:
Settlements and the European Payments Union (but not other international institutions). “ Dollar holdings” consist primarily of sight and time deposits, short­
term United States Government securities, and bankers’ acceptances, as reported by United States banks, and comprise official and private holdings in the United
States by foreigners, including the USSR, the Bank for International Settlements, and the European Payments Union (but not other international institutions).
The excluded gold and dollar holdings of international institutions totaled 3,536 million dollars in September 1954; 3,212 million in September 1953; 3,265 million
in September 1952; and 3,094 million in March 1952.
p Preliminary.
* For France, only the gold reserves of the Bank of France are included.
f Including principally the gold and dollar holdings of the Bank for International Settlements, of the European Payments Union, and of Denmark, Greece, Norway,
Portugal and its dependencies, and Turkey; and also the gold still 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.




F E D E R A L R E SE RV E B A N K OF N EW Y O R K

15

dicated by the Canadian dollar rate, which stood at U.S. $1.0353
at the end of December, as compared with U.S. $1.0273 a

the decline of merchandise imports, and about 16 per cent by
the rise in nonmilitary exports.

year earlier.
Latin America showed a 48 million dollar drop in its aggre­
gate gold and dollar reserves during the twelve months ended
September 1954, a sharp reversal of the 371 million
dollar gain for the October 1952-September 1953 period.
Argentina and Venezuela and, during the earlier months of
the year, Colombia registered sizable gains, while most other
major Latin American countries— notably Cuba, Brazil, Chile,
and Mexico— suffered losses. The less favorable dollar position
of Latin America was also indicated by the fact that, during
1954, Mexico and Colombia found it advisable to have
recourse to the IMF, while Brazil secured loans totaling 200
million dollars against its gold holdings to cope with a
difficult dollar situation.
Gold and dollar holdings of the nonsterling countries of
Asia as a whole also showed a relatively unfavorable develop­
ment during 1954 compared with the previous year, reflecting
predominantly the dollar difficulties of Japan and Indonesia.
During the second half of the year, however, the decline in
these countries’ reserves appears to have been arrested.

The reappearance of the United States surplus, and the re­
duced rate at which foreign countries added to their gold and
dollar holdings during 1954, were in part the result of the
somewhat lower level o f business activity in the United States.
Continental Western Europe experienced the largest decline
in merchandise exports to the United States, with a drop of
about 215 million dollars from January-September 1953 to the
corresponding period of 1954. This decline was largely
accounted for by the area’s reduced exports of iron and
steel mill products; in the previous year such exports had been
particularly large, primarily because of special defense needs in
the United States. The 160 million dollar drop in United
States imports from the sterling area was due, in large measure,
to lower purchases of a few industrial raw materials, notably
rubber, tin, and wool, while the decline of imports from Latin
America and Canada reflected reduced buying of metals, par­
ticularly copper, tin, and aluminum. In general, it should be
noted that the United States recession, as well as its effect on
United States imports, was moderate. It is especially significant
that average import prices actually rose slightly, largely as the
result of higher prices for such foodstuffs as coffee and cocoa,
while raw-material import prices averaged about 3 per cent
lower than a year earlier.

S

o m e

F

a c t o r s

in

t h e

R

e d u c e d

R

e s e r v e

G

a in s

In 1954, changes in the gold and dollar holdings of foreign
countries reflected to an important extent such factors as the
acquisition of a sizable part of new gold output and the re­
payment of dollar obligations before maturity, as already
discussed. The reduced rate at which foreign countries accu­
mulated gold and dollars was, however, due primarily to the
reappearance of a United States balance-of-payments surplus
on current account. The distribution of reserves abroad was
also considerably influenced by transfers of gold and dollars
among foreign countries.
The United States surplus on current account— covering
goods and services (except those provided under military
aid) as well as emigrant and charitable remittances— amounted
to 504 million dollars in the first half of 1954, as contrasted
with a deficit of 26 million in the first half of 1953 and a
surplus of 113 million in the second half. A deficit reappeared
in the third quarter of 1954, largely for seasonal reasons, but
at 7 million dollars was still far below the 258 million deficit
recorded in the comparable quarter of 1953. For the first nine
months of 1954, therefore, a surplus of 497 million was re­
corded, in contrast to a 284 million dollar deficit in JanuarySeptember 1953.
The January-September 1954 surplus was the result prima­
rily of a 637 million dollar decline in merchandise imports
and, to a lesser extent, of a 124 million rise in nonmilitary
exports. Net changes in other types of current-account trans­
actions were relatively minor, somewhat higher tourist and
military expenditures abroad being partially offset by increased
income from overseas investments. Altogether, about 82 per
cent of the shift from a deficit in the first nine months of 1953
to a surplus in January-September 1954 was accounted for by




The over-all stability of primary-product prices was con­
nected in part with the rapid growth of production in Western
Europe, which was about 8 per cent greater in the first three
quarters of 1954 than in the comparable period of the previous
year. The resulting increase in European demand for raw
materials, by counterbalancing the reduced United States pur­
chases, tended to prevent more serious effects on the countries
of the overseas sterling area and of nonsterling Asia and Latin
America. The increased production in Western Europe, com­
bined with the maintenance of reasonable monetary stability,
had another consequence: the demand for certain dollar prod­
ucts, notably coal and finished manufactures, declined substan­
tially. Nonetheless, total United States exports rose slightly,
largely as the result of increased sales of cotton and such semi­
manufactures as ferroalloys, nonferrous metals, and industrial
chemicals.
An important factor in the continued accumulation of gold
and dollars by foreign countries in the face of their less favor­
able trade balance with the United States was a fivefold increase
in the export of United States private capital. Such exports
totaled 1,019 million dollars during the first nine months of
1954, or 834 million more than in the comparable period of
1953. About half of the rise was attributable to an increase in
portfolio investment, notably through private United States
purchases of Canadian securities and of obligations of the
International Bank for Reconstruction and Development. The
rest of the increase reflected a sizable outflow of short-term
capital, largely in the form of exporters’ credits and bank
credits to Latin America; in contrast, during the comparable

16

MONTHLY REVIEW, FEBRUARY 1955

period of 1953, Latin American countries, especially Brazil,
had made large repayments of commercial arrears.
Foreign countries continued during 1954 to receive dollars
as the result of United States Government transactions (com­
prising military expenditures abroad, economic-aid grants,8
and United States Government lending operations) that totaled
2,890 million dollars during January-September 1954. This was
half a billion dollars less than in the comparable 1953 period,
and involved significant shifts in the regional distribution.
United States military expenditures in Continental Western
Europe, for example, rose by over 160 million, almost exactly
offsetting the decline in economic-aid grants and net United
States Government lending to the area. In the sterling area,
higher United States military expenditures were more than
outweighed, however, by a sharp decline in economic-aid
grants. The countries of nonsterling Asia also experienced a
rather marked reduction in dollar receipts from the United
States Government, primarily as the result of lower military
expenditures in South Korea and Japan. Finally, it should be
noted that repayments on United States Government loans
actually exceeded new lending, mainly as a result of a sharp
decline in lending to Latin America; however, United States
official loans to Latin America had been unusually large in
1953 because of a 300 million dollar Export-Import Bank
credit to Brazil to enable that country to repay its commercial
arrears.
The payments difficulties of certain countries of Latin Amer­
ica and nonsterling Asia, of course, reflected only in minor
part the fall in receipts from the United States Government
and its lending institutions. More basic influences were struc­
tural factors, the continuation of inflationary pressures, and
the associated export difficulties.
In addition to their direct transactions with the United
States, changes in the reserve position of foreign countries
reflected transfers of gold and dollars among themselves. Of
particular interest were the special July EPU settlements of
accumulated indebtedness,4 which resulted in a shift of re­
serves from the United Kingdom, France, Italy, Denmark,
Norway, and the EPU itself to West Germany, Belgium, the
Netherlands, Switzerland, Sweden, Austria, and Portugal. It
is notable that West Germany gained 147 million dollars from
these settlements, which accounted for one quarter of its entire
reserve gain in the first nine months of 1954. Sweden, the
'Netherlands, and Switzerland received much smaller payments,
but these furnished a major part of the increase in their gold
and dollar holdings; indeed, for Switzerland, the special EPU
receipts were in excess of the reserve gains. Such receipts also
served to limit the decline in Belgium’s gold and dollar hold­
ings. In contrast, the rise in the reserves of France, Italy, and
the United Kingdom would have been substantially greater but
for their relatively large payments in the July settlement. Sub­
3 Econom
ic-aid grants, a used here, include all aid grants except
s
those in the form of m
ilitary goods and services.
4 for details on these special EPU settlem
ents, see "The European
P ents Union Today”, Monthly Review, Septem
aym
ber 1954.




stantial reserve shifts also resulted, of course, from the regular
operations of the EPU; in the first nine months of 1954, as in
the comparable period of 1953, West Germany, the United
Kingdom, and Switzerland derived the greatest gold and dollar
gains from such settlements, while Italy and France made the
most sizable payments.
R elaxations

of

Trade

and

Payments Restrictions

The rise in foreign gold and dollar holdings during 1954
was associated with major moves toward freer trade and pay­
ments. Relaxations of exchange and trade controls were prob­
ably more substantial and more extensive than in any other
year since World War II. For the most part, however, the
easing of controls was confined to Western Europe and the
sterling area, and reflected the new confidence derived from
their substantial gold and dollar gains in 1953 and the con­
tinued, though more moderate, gains in 1954, as well as the
very real improvement in their over-all economic situation.
The less favorable gold and dollar position in the rest of the
world tended to prevent other countries from making moves
of similar importance.
Discrimination against purchases of dollar-area products was
sharply reduced in Western Europe. The Netherlands, which
had liberalized its dollar imports in October 1953, virtually
ended discrimination for currency reasons against dollar goods
at the end of May, bringing its policy into line with that of
Belgium-Luxembourg. Italy relaxed its restrictions in August,
Sweden in October, and Denmark at the year end. West Ger­
many, following earlier liberalization measures in February,
broadened its list of uncontrolled imports from the dollar area
in November. France, the major exception to the trend toward
freer dollar trade, nevertheless made substantial moves toward
the liberalization of its intra-European trade, thereby partly
catching up in this respect with the progress made by other
Western European countries in earlier years.
In the sterling area, too, curbs on dollar spending were re­
duced. Britain ended or eased quantitative restrictions on a
number of dollar products, and a start was made in freeing
legacy remittances to the dollar area. South Africa ended all
discrimination against dollar products in January 1954 and,
during the year, gradually relaxed its over-all import controls.
Other significant moves toward freer dollar imports were made
by New Zealand, India, Pakistan, and the new Federation of
Rhodesia and Nyasaland.
The relaxation of restrictions on the purchase of dollar goods
was accompanied by various important developments that
served to encourage multilateral trade and payments. The
British further reactivated the international commodity mar­
kets, gradually broadening the rights of nonresidents to obtain
dollar commodities through these markets against payment in
sterling. An additional step toward the rehabilitation of free
market mechanisms was the reopening, on a restricted basis,
of the London gold market in March; gold can be purchased
only with convertible sterling held by residents of dollar coun­
r

FEDERAL RESERVE BANK OF NEW YORK
tries or with "registered” sterling that is obtainable by residents
of other areas in exchange for gold and dollars.
Most striking, however, were the moves undertaken to
broaden the transferability of sterling. The regulations now
permit the transfer of sterling without restriction among all
nondollar countries except Turkey; previously, a number of
countries could not use sterling freely to make payments out­
side the sterling area. Although the ban on the transfer of
sterling to dollar countries (whose current acquisitions of
sterling from approved transactions are fully convertible) still
remains in force, so-called "transferable” sterling can in practice
be sold against dollars in free markets at a relatively small
discount. The broadened transferability of sterling, like the
similar moves in West Germany, represented no direct relaxa­
tion of discrimination against dollar goods but did facilitate
indirect purchases in the dollar area.
Despite the foregoing liberalization moves, the rise in overall United States nonmilitary exports has been relatively mod­
erate, in part perhaps because some of the most important
relaxations have occurred too recently to show up fully in
available trade data. United States exports to the sterling area
during the first three quarters of 1954 were only about 25
million dollars higher than in the comparable period of 1953.
The rise in United States exports to Continental Western
Europe was, however, considerably larger, amounting to about
200 million dollars or some 10 per cent. In this connection,
the increase in exports to the Netherlands and to West Ger­
many is especially noteworthy since both countries reduced
their barriers against dollar imports early enough to influence
1954 purchases; Dutch imports from the United States were
74 per cent higher, and West German imports 36 per cent
higher, than in the first nine months of 1953.
Conclusion
The gold and dollar position of most foreign countries was
one of notable strength in 1954. While aggregate foreign
holdings increased less than in the previous year, the rise was
still substantial, although largely concentrated in Western
Europe, the sterling area, and Canada. The continued increase

17

was all the more significant since it was achieved in the face
r
of a moderate United States recession, the anticipation of
which had created grave fears as to the strength and perma­
nence of the favorable international economic position achieved
by foreign countries in 1953. Moreover, several countries used
part of their dollar earnings to repay in advance certain obliga­
tions to the United States and to international financial organi­
zations. On the other hand, the gold and dollar position of a
few countries deteriorated, and in some cases heavy short-term
obligations were incurred.
The rise in foreign gold and dollar holdings was accom­
panied by important moves toward freer trade and payments.
Two features are of special interest. First, the sustained increases
in gold and dollar holdings in Western Europe and the sterling
area provided the confidence and furnished the reserves nec­
essary for the new relaxations of trade-and-payments restric­
tions. In effect, countries in these areas were now strong
enough to be able to test the extent to which reduced dis­
crimination against dollar products and freer transferability of
currencies would lead to higher dollar imports. Secondly, the
pattern of liberalization indicated that the idea of a purely
"formal” convertibility, with little or no easing of trade restric­
tions, had been abandoned; relaxations of import controls pro­
ceeded hand in hand with moves toward greater convertibility
of major currencies.
Thus, all the signs of 1954 pointed to further progress
toward a sustainable economic balance in the free world. A
gradual, but steady, advance was under way toward a system of
freer multilateral trade and payments. Further progress by
foreign countries in this direction would undoubtedly be stimu­
lated by an endorsement of more liberal trade policies by the
United States Congress, as called for by President Eisenhower’s
special message to Congress of January 10, 1955 in which he
stated that: "It is essential for the security of the United States
and the rest of the free world that the United States take the
leadership in promoting the achievement of those high levels
of trade that will bring to all the economic strength upon
which the freedom and security of all depends”.

T H E R O L E OF D E B T M O N E T IZ A T IO N
The expression "monetization of debt” came into frequent
usage during the early postwar years as a summary description
of the shifting of Government securities from private port­
folios to the Federal Reserve Banks at a time when the strong
inflationary pressures generated during the war were finding
an outlet in an economy which was being freed of direct
controls. As a consequence, the phrase acquired certain in­
flationary connotations which are not generally valid. Like
other expansive forces, debt monetization may be highly use­
ful as well as disruptive, depending upon the time, the rate,
and the manner in which it occurs.
T he Concept

of

D ebt M onetization

In its most fundamental sense, debt monetization refers to
the creation of money by the banking system in exchange for




title to debt instruments. Thus, the normal lending operations
of commercial banks give rise to debt monetization whenever
the banks, as a result of such transactions, increase their loans
or investments and thereby create a corresponding amount of
new money in the form of demand deposits or currency paid
out to the public. The debt so monetized may be that of
either the Federal Government or other governmental or
private borrowers; the final expansionary effect on the money
supply is the same, regardless of whether the debt monetized is
a private loan obligation or a Government security. Further­
more, the debt monetized need not be newly created debt.
Insofar as the commercial banks or the Federal Reserve Banks
acquire existing debt, government or private, from the non­
bank public, the deposits of the commercial banks (or currency

18

MONTHLY REVIEW, FEBRUARY 1955

in circulation) are correspondingly increased. As money is
created by the process of debt monetization, so may it be
extinguished by a demonetization of debt. Such demonetiza­
tion may arise from (1) sales of existing debt by the com­
mercial or Federal Reserve Banks to the public or (2) net
repayment by the public of debt owed to the banks.
The initiative in such debt monetization or demonetization
may come from the general public, from the commercial banks,
or from the Federal Reserve System. The loan operations of
commercial banks primarily depend, of course, upon the
demand for loans by creditworthy business firms, farmers, and
consumers. On the other hand, the investments of a commer­
cial bank are primarily a matter of its own decision within,
of course, the limits imposed by its legal reserve requirements.
Finally, the Federal Reserve System may, and frequently does,
take the initiative in promoting or restraining growth in the
money supply by purchases or sales of Government securities
in the open market. These purchases and sales supply or
absorb reserves, and so affect the ability of the banking system
to expand credit and to create deposits. Furthermore, to the
extent that the securities purchased or sold by the Federal
Reserve Banks come from or go to nonbank investors,
they result directly in monetization or demonetization of debt.
Like most generalizations, this brief definition and descrip­
tion of debt monetization requires some qualification. Bank
purchases of new issues of Government debt directly from the
Treasury, for example, generally result in the crediting of new
deposits to the Treasury’s Tax and Loan Accounts in the
banks. According to the usual definition of money, however,
these Treasury deposit balances with the banking system are
not counted as money; they are not used directly to make pay­
ments. In this case, therefore, the process of debt monetization
does not become complete until these newly created funds are
transferred to Treasury balances in the Reserve Banks and
disbursed, thus adding to the demand-deposit or currency hold­
ings of the general public.
Monetization and demonetization of debt is thus not only
a primary function of a fractional reserve banking system but
also constitutes the essential means of providing a flexible
adjustment of the money supply to the needs of the economy.
Developments here and abroad have amply demonstrated, how­
ever, that the volume of money cannot safely be left entirely
to the investment and borrowing decisions of the commercial
banks and general public. Too rapid growth in bank credit
and the money supply tends to have inflationary effects, and
too little growth, or actual contraction, tends to have deflation­
ary effects. Accordingly, Congress has found it necessary to
regulate the extent to which the commercial banks can create
deposits in exchange for debt by requiring them to maintain
certain minimum reserves against their deposit liabilities. As
soon as the banks exhaust whatever unused reserves may
initially be available to them, any further scope for debt mone­
tization on their part depends primarily upon the willingness
of the central bank to provide additional reserves— by reducing
legal reserve requirements, by open market purchases of




Government securities, or by rediscounts and advances. Such
central bank authority to regulate the availability of credit and
the money supply may be made ineffectual, however, if the
central bank is simultaneously committed to support prices of
Government securities at some predetermined level. Under
such circumstances, the initiative in debt monetization passes
to the commercial banks, other financial institutions, and the
general public, which may acquire additional funds at any
time by sales of Government securities to the central bank.
Inflationary M onetization of D ebt
D uring W ar and Postwar Y ears
Debt monetization may be either desirable or undesirable at
any given time, depending both upon prevailing economic
conditions and upon the volume and rate of such debt
monetization operations. During World War II, for example,
the magnitudes reached in monetization of the public debt
through commercial bank acquisitions of Government securities
had a strongly inflationary potential, since the resultant rate of
expansion of the money supply far outstripped the growth in
the supply of goods and services available for civilian use. This
inflationary process was, in conditions of rapid mobilization
and of economic expansion under forced draft, an unavoidable
consequence of the Government s inability to finance a larger
proportion of its war expenditures through taxation and sales
of securities to nonbank institutions and the general public.
As a result, a substantial percentage of Government security
issues during the war had to be absorbed by the commercial
banks. Such security purchases by the commercial banks
involved a corresponding expansion of deposits, an increase
in required reserves, and an outflow of currency into circula­
tion. Not all of this monetization was undesirable, then or
later, but the magnitudes reached did outrun a sustainable
relationship with real factors at the prevailing prices. These
strains upon the commercial banking system in turn necessi­
tated action by the Federal Reserve System to supply sufficient
reserve funds to sustain the higher levels of bank investments
and deposits as well as to meet heavier demands for currency
by the public. In effect, about 40 per cent of the Government’s
net borrowing from July 1940 through June 1946 was financed
by the creation of new money, i.e., by monetization of the
public debt. The inflationary effects of such debt-monetization
operations were partly suppressed at the time by price, wage,
and rationing controls, but inevitably worked themselves out
after the end of the war through more active use of the exces­
sive money supply created during the war years.
As Treasury deficits were replaced by cash surpluses during
calendar 1946, this process of monetization of the public debt
came to a halt, and for the following three years, bank hold­
ings of Government obligations generally declined. This reduc­
tion in Government security holdings by commercial banks did
not prevent a further growth in the total volume of bank credit
and money supply, however, which took place through another
form of debt monetization, that of private debt.

FEDERAL RESERVE BANK OF NEW YORK
The end of the war unleashed a flood of private demands for
credit to finance reconversion, expansion of plant and equip­
ment, new housing, and other more or less essential needs that
had gone unsatisfied during the war years. As previously indi­
cated, an excessive growth in the money supply had occurred
during the war years and very large cash balances were held
at the end of the war by business organizations and consumers.
Although the activation of these balances was in itself enough
to generate initially strong inflationary pressures, there was the
further danger that a substantial part of the greatly swollen
Government debt might be cashed in, either by redemptions
or by sales to the Federal Reserve System of Government
securities held by the commercial banks, savings institutions,
and the general public, in order to raise funds for new private
investments. Since the Federal Reserve felt bound, at that time,
to the maintenance of minimum floor prices on Government
securities, the power to force the creation of Federal Reserve
credit and thereby expand the money supply was, in effect,
delivered over to anyone holding a marketable Government
security that he wished to sell.
Fortunately, this threat of a massive monetization of debt
during the early postwar years was largely averted by a com­
bination of factors, of which perhaps the most important were
Treasury retirements of outstanding debt and a partial removal
of the rigid price supports for Government securities. Although
the System continued to support the long-term market during
periods of weakness, the pegging of bill and other short-term
rates was relaxed and then removed in 1947, and yields
immediately rose at this end of the maturity structure. As the
gap betwr
een short and long-term rates narrowed, the demand
for short-term securities increased, and the sale and redemption
of short-term securities by the System provided a means of
offsetting a considerable part of its acquisitions of longer-term
bonds. Furthermore, the strong market for bonds in 1945 and
early 1946 raised their prices sufficiently above par so that,
during much of the period through 1950, there was room for
considerable decline in prices before Federal Reserve support
was required to prevent them from falling below par.
Although the threat of an inflationary monetization of debt
temporarily disappeared with the development of the 1949
recession, the outbreak of the Korean war in June 1950 posed
the problem once more in even more dangerous form. Reflect­
ing the impact of industrial expansion and speculative inven­
tory accumulation, the commercial banks and other investing
institutions resumed the liquidation of Government security
holdings in order to finance additional loans and investments
on private account. During the first year of the Korean war,
commercial bank holdings of Government securities declined
by 7 billion dollars, while total bank loans and investments in
other securities rose by 11.5 billion; in the same period new
corporate issues rose to 6.9 billion dollars, almost reaching the
postwar peak of 7.1 billion. The brunt of the burden of
absorbing Government securities thrown into the market was
borne by the Federal Reserve System which added 4.7 billion




19

dollars to its Government security portfolio in the course of the
year, considerably more than would have been added if the
Systems direct monetization of debt had been limited to the
magnitudes required for any necessary expansion of the money
supply at this time. Although reserve requirements were raised
in January 1951, the additional 2 billion dollars of reserves
needed by the banks was readily obtained by sales to the
System of approximately the same amount of Government se­
curities, with the result that the restrictive effects of the action
were largely nullified. In the light of the excessive and rapid
monetization of debt, it became increasingly clear that the
Federal Reserve must regain its freedom to exercise some con­
trol of the process by means of which "debt was becoming
money”. The Treasury-Federal Reserve "accord” of March
1951 restored to the System authority to limit its purchases
of Government securities to amounts consistent with general
credit policy objectives and thereby to impose effective re­
straints upon undue monetization of debt.
It is important to observe, however, that the initiative in.
regulating credit availability which was regained by the System
in March 1951 was not employed to cut off abruptly and com­
pletely any further monetization of debt. Thus, while member
bank borrowings from the Federal Reserve Banks increased
during 1952 and remained high in the early months of 1953,
the holdings of Government securities by the Reserve Banks
also increased in both 1952 and 1953. The System had no wish
to shut off all Federal Reserve credit other than that obtained
through borrowings by member banks. The System did seek
to prevent inflationary excesses, but it also sought to provide,
through open market operations, sufficient reserves to allow
for sustainable growth in the economy.
T he Stabilizing Role of D ebt
M onetization in 1954
The downturn of economic activity in mid-1953 created
the danger that the pendulum might swing too far in the
opposite direction in the form of an excessive liquidation
(demonetization) of debt and contraction of the money supply.
One of the major forces initiating the downturn was the
liquidation of inventories that had been built up to levels
exceeding the requirements of a prompt-delivery economy.
Just as Federal Reserve credit policy during 1952 and early
1953 had tended to restrain the build-up of inventories by
reducing the availability of credit, and thus to reduce the
dead weight of stocks to be worked off, so Federal Reserve
policy now moved to ensure ready availability of credit and
thus to facilitate an orderly liquidation of inventories. As a
result of this and other stabilizing influences, the readjustment
proceeded relatively smoothly, no scramble for liquidity devel­
oped, and commodity price levels remained remarkably stable
throughout 1.953 and 1954.
During the winter months of 1953-54, however, a sub­
stantial further reduction in Government defense outlays
gave new impetus to the downturn, and continued to exert
a depressing influence throughout most of 1954. To help

20

MONTHLY REVIEW, FEBRUARY 1955

cushion and reverse the recession, the Federal Reserve made
effective use of its instruments of general credit policy. The
net effect of open market operations and reductions in reserve
requirements during 1954 was to free some 600 million
dollars in reserve funds in addition to the 2,439 million sup­
plied in 1953, while discount rates were lowered twice in the
winter and spring months. Described as a policy of “active
ease”, the objective of Federal Reserve operations during most
of 1954 was to ensure that abundant credit facilities were
T
available to all creditworthy borrowers and to give all the
encouragement to economic recovery that cheap and abundant
credit could provide.
Despite substantial repayments of business borrowings
through reductions in inventories and receivables, elimination
of excess-profits-tax borrowings, and the refinancing of bank
loans with security issues, total commercial bank credit ex­
panded by 11.2 billion dollars in 1954,1 an increase not only
much greater than that of 1953 and 1951 but even in excess
of the exceptionally large growth in 1952. By far the largest
share of the 1954 increase in commercial bank credit was in
the form of investments rather than loans. Although there
was a spectacular rise in mortgage loans of commercial banks
through the year, amounting to 1.1 billion dollars by the end
of September, total loans increased by only 3.6 billion dollars
over the year, and the banks accordingly turned to security
investments to find employment for the largest part of their
l All data used in the article for 1954 are prelim
inary, and cover
the year to Decem
ber 29 only.

available funds. During the course of 1954, commercial bank
holdings of Government securities increased by 6.0 billion
dollars while holdings of other securities rose by a further
1.6 billion.
Bank purchases of mortgages, of course, contributed to the
financing of building activity which was probably the strongest
single sustaining element in the economic situation during the
past year. And the purchases of Government securities by the
banks not only helped to finance Government expenditures,
but provided sellers of such securities (notably insurance com­
panies and savings banks) with additional funds for invest­
ment in mortgages and new corporate and “municipal”
securities, thus helping to sustain a high level of capital
expenditures. As a corollary of the rapid growth in commercial
bank assets in 1954, and of the monetization of marketable
Government debt that principally characterized it, the money
supply (defined as privately owned demand deposits and
currency outside banks) grew by about 3.7 billion dollars.
Underlying the whole process of debt monetization was the
provision by the Federal Reserve System of the additional
reserves that enabled the banks to buy Government debt, both
directly from the Treasury and in the market, to extend loans
freely to private borrowers, and to purchase State and local
government securities. In summary, debt monetization formed
an integral part of the whole process of economic recovery
during 1954, demonstrating that it is not necessarily destructive
or dangerous if it does not occur in excessive amounts or at the
wrong times.

M E M BER B A N K CALL REPORTS
The Federal Reserve Act provides (in Section 11) that the
Board of Governors of the Federal Reserve System shall be
authorized and empowered “To examine at its discretion the
accounts, books, and affairs of . . . each member bank and to
require such statements and reports as it may deem necessary”.
Among the statements and reports that the Board requires of
member banks are the periodic reports of condition that have
come to be known as Call Reports, since they are submitted
by the banks in response to “calls” for them issued at various
times throughout the year by the supervisory authorities. A
minimum of three such calls each year is required by law; in
recent years, calls have averaged four a year, and have required
member banks to submit reports of their condition at the end
of June and December and also on some date in March or
April and in September or October.
Many member bankers look on the preparation of Call
Reports only as a regularly recurring chore, and the general
public becomes aware of them only when bank statements of
condition periodically appear in the press. Yet Call Reports
are a most useful instrument for Federal Reserve oper­
ations, and they contribute valuable information for the formu­
lation of Federal Reserve policy and for other important
purposes, including use by the member banks themselves.
This article briefly describes the nature of Call Reports, and
attempts to explain the various uses to which the data they
yield may be put.




Call Reports antedate the Federal Reserve Act; national
banks were required to submit reports of condition to the
Comptroller of the Currency by the terms of the National
Banking Act of 1865. After the Federal Reserve Act was
passed in 1913, and the Federal Reserve Banks were established
in 1914, the Reserve System began requiring Call Reports of
all member banks. Arrangements to avoid duplication in
reporting by national banks were then worked out between
the Comptroller and the System. Under these arrangements,
each Federal Reserve Bank receives copies of the reports made
to the Comptroller by the national banks in its District, while
State-chartered member banks report directly to the Federal
Reserve Banks.
The Call Report form now in use provides on its face for a
detailed listing of major asset and liability accounts, and capital
accounts, and for certain additional “memorandum” informa­
tion. The reverse side of the report contains nine “schedules”,
seven providing for breakdowns of the major asset and liability
totals on the face of the Report, and two requiring additional
“memorandum” information.1
1 The seven schedules supporting m
ajor asset and liability account
totals are: Schedule "A”—Loans and Discounts; Schedule "B”—United
S
tates Governm
ent Obligations; Schedule "D”— Cash, B
alances w
ith
Other Banks; Schedule "E”— Demand Deposits; Schedule M
F”— Time
Deposits; Schedule "H”— Other Assets; and Schedule * 1 Other Lia­
* ”—
bilities. Schedule "CC” requires a listing of contingent liabilities, and
Schedule "FF” ("EE” in the Com
ptroller’s form) the insertion of the
num
ber, if any, of “affiliates” or "holding com
pany affiliates” of the
reporting bank for w
hich reports are required.

2
1

FEDERAL RESERVE BANK OF NEW YORK
Originally, member banks were required to submit periodic
reports of their condition as an incident to the Systems respon­
sibility for supervising the operations of member banks and
testing their soundness through regular examinations. Call
Reports are still a useful instrument of bank supervision,
but through the years they have also come to serve the
Federal Reserve System, the member banks themselves, and
the public generally in a number of other important ways.
Reserve Bank U ses

of

Call Report D ata

Before Call Report data can be used, the Reports must be
carefully reviewed and edited to detect and correct inaccuracies
in reporting. The data must then be transcribed from the
Reports into a form suitable for statistical processing. Call
Report data are processed at the Federal Reserve Bank of
New York on punch-card tabulating equipment. After the
Reports have been reviewed for accuracy, the data are coded
and key-punched into cards. Codes are included for such things
as the State and county in which the reporting bank is located,
and the bank’s reserve classification, deposit size, and ratio of
loans to assets.
The first ''run” of the cards through the tabulating machines
is made to summarize Schedule "A ”— Loans and Discounts—
for all the member banks in the District. This summary distri­
butes the total loans of the District’s member banks by type
of loan (business loans, loans to farmers, security loans, real
estate loans, consumer loans, etc.). Similar loan distributions
for their Districts are made by all the other Federal Reserve
Banks, and the results are then consolidated by the staff of the
Board of Governors for the country as a whole. This informa­
tion on the direction of the flow of credit— the amounts being
borrowed by businesses, farmers, consumers, the amounts being
used to purchase or carry securities, or real estate— is essential
for the determination of national credit policy. In addition, it
is invaluable to the System’s economists in providing "bench­
mark” data for comparison with the weekly and monthly
estimates of credit changes which they make between *call”
dates.
A second run of the cards through the tabulating equipment
yields a complete summary, for all member banks in the Dis­
trict, of all the items on the Call Report. The purpose of this
summary, in which the data are broken down by size-groups
of banks, is to provide a means of following banking trends,
Changes from preceding "call” dates are carefully watched by
the research departments of the Reserve Banks and the Board
of Governors for trends in bank assets or liabilities that might
have significance for the economic situation and for Federal
Reserve credit policy.
A final run of the cards through the machines provides an
"abstract sheet” of the condition of each individual member
bank. These abstracts are for the use of the Bank Examinations
Department of the Federal Reserve Bank. The sheets condense
on one page the figures and ratios relating to each bank that
examiners find most useful and valuable in judging a bank’s
soundness and performance. Each sheet has data on it for




several previous "calls” as well as for the most recent one, so
that examiners can readily follow the trends in each bank s
operations.
The information yielded by Call Reports is also used by the
Federal Reserve Bank of New York for a variety of purposes
other than the ones already mentioned. For example, each
member bank’s ownership of stock of the Federal Reserve
Bank is compared with Call Report figures for paid-up capital
and surplus.2 Also, on the basis of Call Report data, member
banks are classified into size-groups for the purpose of electing
directors to the board of the Federal Reserve Bank.3 Balances
in member bank reserve accounts on the books of the Federal
Reserve Bank are reconciled with "Reserve with Federal
Reserve Bank” figures shown on the Call Reports, and with
reported deposit liabilities subject to reserve requirements.
Allocations of wrapped coin and new currency to member
banks are based by the Federal Reserve Bank on deposit figures
shown in the Call Reports, and the Bank’s Discount Depart­
ment uses some Call Report information in evaluating applica­
tions by member banks for loans from the Reserve Bank.
U sefulness

of

Call Report D ata

to

M ember Banks

In addition to its internal uses at the Federal Reserve Bank,
Call Report information is employed in the preparation of a
yearly report to the member banks that bankers have found
valuable— the annual circular on "Operating Ratios of Mem­
ber Banks” that each Federal Reserve Bank prepares for the
member banks in its District. Data from the member bank
Call Reports, and from the Reports of Earnings and Dividends
that member banks submit twice each year to the Reserve Bank,
are used to compute sets of ratios covering earnings, expenses,
profits, assets, and capital positions. These ratios are computed
for each member bank, for all member banks in the District
as a group, and for groups and subgroups of banks distributed
by deposit size and (in this District) by the relationship of
loans to total assets. Each member bank is provided each year
with its own ratios and with the average ratios for all of the
various groups and subgroups, thus making possible a com­
parison of its performance with the average performance of
other banks in the District, including those of comparable
size and asset structure. Also, the member banks can make
year-to-year comparisons of their own ratios, thus checking
their past performance and measuring their progress. Bankers
2 Member banks are required to subscribe to stock of the Federal
Reserve Bank in an am
ount equal to 6 per cent of their paid-up capital
and surplus. Only half of this subscription has been called, how
ever,
so each m ber bank m
em
ust pay for and hold Federal Reserve Bank
stock equal in value to 3 per cent of its paid-up capital and surplus,
and holdings of Federal Reserve stock m
ust be adjusted w
ich each
change in the am
ount of a m ber bank’s paid-up capital and surplus.
em
3 Six of the Federal Reserve Bank’s nine directors are elected by the
m ber banks (the rem
em
aining three are appointed by the B
oard of
Governors of the Federal Reserve System). In electing directors, mem­
ber banks in this District now are divided, on the basis of the latest
Call Report inform
ation, into three groups. Group 1 banks are those
w a capital and surplus of 10 million dollars or over; Group 2
ith
banks have a com
bined capital and surplus of over $400,000 but less
than 10 million; and Group 3 banks’ capital and surplus is $400,000
or less. E
ach group elects two directors. See also "Our Board of
Directors”, this Review, April 1953, pp. 51-54.

MONTHLY REVIEW, FEBRUARY 1955
throughout the Second Federal Reserve District have testified
in numbers over the years to the usefulness of these annual
member bank operating ratios as a management tool for
measuring the success of bank operations and for promoting
.greater efficiency.
U ses

of

System-wide Call Report D ata

Mention has already been made of the fact that the
summaries of Schedule "A ”— Loans and Discounts, prepared
by each Federal Reserve Bank from the Call Reports of the
member banks in its District, are consolidated for the country
as a whole by the staff of the Board of Governors, and provide
a nation-wide picture of the distribution of bank credit by
type of loan that is very informative and valuable for credit
policy purposes. Similarly, the District summaries of all asset
and liability items in the Call Report, prepared by each Federal
Reserve Bank, are consolidated at the Board of Governors. The
consolidated Call Report data are regularly published by the
Board in pamphlet form ( titled "'Member Bank Call Report” ),
and also appear in the Federal Reserve Bulletin, for the infor­
mation of the general public and for the use of students and
others interested in commerical banking developments. The
national data also have important uses within the Federal
Reserve System, for purposes both of economic analysis and
of policy determination.
Analysis of Call Report data, and of changes in these data
over time, yields information that is valuable to the Systems
economists and to other interested observers in interpreting
economic developments. Together with other pertinent data,
the Call Report data indicate, for example, the extent to
which business, personal, and Government expenditures are
dependent upon credit for their financing.
To fill in the ‘ gaps” between call dates, and provide a
continuous and current statistical record of the more important
Call Report items, information is obtained weekly and monthly
from groups of banks known as "Weekly Reporting Member
Banks” and "Monthly Reporting Member Banks”. The peri­
odic Call Reports provide data on the basis of wdiich the
currently reporting groups can be selected, and they serve as
recurring "benchmarks” against which the current incomplete
data, and interim estimates for the banking system as a whole
that are based on them, can be checked. Also, Call Report
figures are used in maintaining various other Federal Reserve
statistical series, such as those on consumer credit outstanding,
and in making certain regular estimates and surveys, such as
those of liquid asset distribution and of the ownership of
demand deposits.
The analysis of Call Report data, which yields economic
information of wide interest and importance, is undertaken
primarily for policy ends. For example, policy actions taken
with respect to Reserve Bank discount rates, open market
operations, reserve requirements, and margin requirements
are all based in part on the analysis of information from Call
Reports and intervening reports obtained from member banks.
The data are useful, first, to ascertain the advisability of, or




need for, proposed policy changes and to estimate their effects;
also, after changes are made, later Call Report data will reflect
their actual effects.
A ccuracy of Call R eport D ata
The preceding review of the various important uses to which
Call Report data are put indicates that a considerable premium
must be placed on the complete accuracy of the information
Call Reports contain. As a reflection of this, when a member
bank submits its report to the Federal Reserve Bank (or to
the Comptroller of the Currency, if the reporting bank is a
national bank), the president or cashier of the bank must swear
that, to the best of his knowledge and belief, the information
shown on the face of the Report is true and that the schedules
on the back of the Report "fully and correctly represent the
true state of the several matters therein contained and set
forth”. And three of the bank’s directors must attest to this
sworn statement.
Nevertheless, the experience of the Federal Reserve Bank
of New York indicates that errors and omissions occur in about
15 per cent of all Call Reports received. These include such
things as incorrect totals, missing or incorrect subtotals, missing
figures, disagreement of items that should correspond, and
"slipped” carbon copies. These errors are corrected, and miss­
ing figures obtained from the banks, before the Call Report
data are processed, and consequently do not affect the accuracy
of the final data.
In addition to these errors and omissions, however, the
reviewing and processing of Call Report data at the Federal
Reserve Bank of New York not infrequently also turn up
figures that, while not clearly incorrect, appear to be of doubtful
accuracy. These doubtful cases occur most often in Schedule
"A ” of the Call Report, which requires a classification of loans
and discounts by purpose of loan.
The earlier discussion of the uses to which the information
derived from Schedule "A ” is put indicated that it is important
for credit policy purposes for the Reserve System to have loan
data classified by purpose of loan. But not all banks seem to
keep records that indicate clearly, and in all cases, the types of
loans made or the purpose for which they are made. Conse­
quently, to list several cases that recur with some frequency,
loans to individuals actually made for business purposes, which
should be reported under "Commercial and industrial loans” in
Schedule "A ”, may be reported as "Other loans to individuals”,
either as single payment or instalment loans. Or loans that
should be classified as business loans, or loans to farmers, or
other loans to individuals may be placed in the residual
category, "All other loans”, instead of where they really
belong.
To attempt to remedy this situation in the Second Federal
Reserve District, the Federal Reserve Bank of New York,
working with the Chief National Bank Examiner for the
7
Second District, has developed and embarked on a program
of assistance to and cooperation with member banks. The
7
program is aimed at discovering and overcoming the reasons

23

FEDERAL RESERVE BANK OF NEW YORK
for inaccurate reporting where they exist, and at developing
methods— such as "coding” loans with Schedule “A ” classifi­
cations when they are made— that will enable the member
banks to maintain the accuracy of their Call Reports with a
minimum of effort and expense. Through this program, which
will continue as long as a need for it seems to exist, the Reserve
Bank will try in all possible ways to help the member banks
maintain the generally high level and standards of accuracy
they have developed over the years in their Call Reports, and
to improve accuracy and raise standards in the few segments
of the Report— such as Schedule "A ”, in particular— where
difficulties appear to have developed.
Su m m a r y

Although member bankers frequently look upon the prepara­
tion of Call Reports only as a regularly recurring chore, and
although there may be only limited public interest in them,
Call Reports are a most useful instrument of bank supervision
and guidance, and they contribute information that is valuable
for the formulation and execution of Federal Reserve credit
policy and for other significant public purposes. Within
Federal Reserve Districts, the Federal Reserve Banks find Call
Report figures essential in a number of areas of their relation­
ships with member banks— supervision of member banks,
member bank ownership of Federal Reserve Bank stock, elec­
tion of Federal Reserve Bank directors by member banks,
maintenance of proper member bank reserve balances, alloca­
tion of wrapped coin and new currency, and discounts and
advances to member banks. Also, Call Report data, and changes

in them over time, are used by Reserve Bank research staffs in
evaluating regional and national economic developments and
prospects. And member banks themselves employ Call Report
information, recast by the Reserve Banks into the familiar
“Operating Ratios of Member Banks”, in assessing their own
internal operating efficiency and their performance relative
to the average performance of comparable institutions.
Finally, these Call Report data provide a rich source of
information for use in regular and special studies within the
Federal Reserve System, and for study by interested observers
of banking and monetary developments outside the System.
Thus they contribute materially to the total of knowledge
about the banking system and its role in the American
economy.
In view of the important uses to which Call Report data
are put, their complete accuracy is extremely important. The
experience of the Federal Reserve Bank of New York, cover­
ing the Second Federal Reserve District, indicates that the
standards of accuracy maintained by the member banks in
their Call Reports are in the main quite high. However, there
appears to be some room for improvement in some parts of
the Report, especially in the accuracy of the classification of
loans by purpose that is required in Schedule “A ” of the
Report. The New York Reserve Bank is therefore presently
engaged in a continuing program of cooperating and working
with the member banks in the Second District toward the
resolution of this problem of accuracy in reporting loan
classifications and of any other reporting problems that banks
may encounter.

D E P A R T M E N T ST O R E T R A D E
Preliminary information for the first few weeks of this year
indicate that seasonally adjusted sales at Second District depart­
ment stores declined about 1 per cent in January, but were
3 per cent higher than in January a year ago. During the first
half of the month, sales were roughly 8 per cent above those of
the comparable period last year when severe weather conditions
hampered retail activity. However, in the latter half of Janu­
ary, sales are estimated to have approximately equaled the level
of the corresponding period a year ago.
Department store sales in the Second District last year
exceeded the dollar volume of 1953 by 1 per cent while, in
the rest of the country, sales fell somewhat short of the 1953
level

( 1 9 4 7 -4 9 a v e ra g e — 100 per cent)
1953

Item
Dec.

Nov.

Oct.

Net sales

Area

Department stores, Second District...............
New York— Northeastern New Jersey
Metropolitan Area.................................
New York City..........................................
Nassau County..........................................
Westchester County..................................
Northern New Jersey................................
Fairfield County............................................
Bridgeport..................................................
Lower Hudson River Valley........................
Poughkeepsie..............................................
Upper Hudson River Valley........................
Albany-Schenectady-Troy
Metropolitan Area.............................
Schenectady............................................
Central New York State..............................
Utica-Rome Metropolitan Area..............

Indexes of Department Store Sales and Stocks
Second Federal Reserve District

1954

Department and Apparel Store Sales and Stocks, Second Federal Reserve
District, Percentage Change from the Preceding Year

Dec.

Syracuse Metropolitan Area....................
Northern New York State...........................
Southern New York State............................
Binghamton Metropolitan Area..............
Elmira.........................................................
Western New York State.............................
Buffalo Metropolitan Area.......................

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

184
105

132
105

110

101

Niagara Falls..........................................
Rochester Metropolitan Area..................

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

103
113

129
113

130
116

104
113

Apparel stores (chiefly New York City)........

+




3

+ 4
+ 4
+ 10
—
+
+
+
4+

0
2
2
1
7
7

2

+ 2
+ 4

0
+ 1
+ 2
+ 4
+ 1
- 1

0
0
— 5
+

0
1
0

+

7

+

1

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

1
0
- 2
- 2
-

+
—
_

-

3

1
1
5

2
1
6
0
2

1

0

+ 2
+ 2

+ 2

+

+
+
+
—
+
—

6
0
1
3
4
4
3

1

1
0
2
1
2
2
1
4

1
1
5

0
2
2

0
+20
4-- 2
- 1
+ 10
—
+ 1
— 5
+ i
+

i

0

+ i
+ 3
+ 1
+ 4
+ 4
+ 9
— 3
— 2
-1 5
-r 2

0
0

0

- 3
+ 2
3

+
+

3
3

+ 0

+10

+ 3

+ 4

0

178

105

Stocks
on hand
Dec. 31,
Jan.through Feb. through
1954
Dec. 1954 Dec. 1954
Dec. 1954

—

24

MONTHLY REVIEW, FEBRUARY 1955

The improvement in Second District sales was almost
entirely attributable to the favorable sales experience of stores
in the New York-Northeastern New Jersey metropolitan area.
On the average, these stores reported an annual sales increase
of 2 per cent in 1954. The suburban areas surrounding New
York City and Newark fared much better than "downtown”
shopping centers, reflecting the continued rapid growth of
suburban branch operations of large metropolitan stores.
In New York City, nevertheless, sales rose somewhat more
than the District average to a level 2 per cent higher than in
1953. This is in sharp contrast to the experience of both 1952
and 1953 when sales of New York City stores fell below
previous-year levels by 8 and 3 per cent, respectively. In
Northern New Jersey, department store sales did not quite
measure up to their 1953 performance; however, the decline
of 1 per cent in this area was mainly attributable to lower
sales in Newark.
In the Second District outside the NewTYork-Northeastern
New jersey metropolitan area, department store sales in 1954

were 1 per cent below 1953. The Syracuse metropolitan area,
Buffalo, and Bridgeport experienced 1954 sales that were 1, 3,
and 5 per cent, respectively, below the record levels of 1953.
In the Rochester metropolitan area, however, sales reached a
new all-time high, 3 per cent above the previous peak in
1953. Small gains were reported also for Poughkeepsie,
Niagara Falls, and Utica.
Inventories held at Second District department stores re­
mained consistently below year-earlier levels during the first
eleven months of 1954, but in December rose to the level of
the previous year. A more active buying policy was apparently
adopted by Second District department stores during the latter
half of 1954, as sales began to show some improvement over
1953 and new orders rose 8 per cent above those placed in
the corresponding six months a year earlier. Nevertheless, out­
standing orders at the end of 1954 were only 6 per cent above
the level of December 31, 1953 which, on a seasonally adjusted
basis, was the lowest for any month in over five years.

SELECTED ECONOMIC INDICATORS
United States and Second Federal Reserve District
Percentage change
1954
Item

Unit
December

U N IT E D S T A T E S

1953

November

October

December

Latest month Latest month
from previous from year
month
earlier

.......

Production and trade
Industrial production*.............................................................................
Electric power output*.............................................................................
Ton-miles of railway freight*................................................................
Manufacturers’ sales*...............................................................................
Manufacturers’ inventories*..................................................................
Manufacturers’ new orders, to ta l* ......................................................
Manufacturers’ new orders, durable goods*...................................
Retail sales*..................................................................................................
Residential construction contracts*...................................................
Nonresidential construction contracts*............................................
Prices , wages, and employment
Wholesale pricesf.......................................................................................
Personal income (annual rate) * ............................................................
Composite index of wages and salaries*...........................................
Nonagricultural em ployment*..............................................................
Manufacturing employment*............................. ..................................
Average hours worked per week, manufacturingj.......................
Unemployment * ..........................................................................................

1947-49 =
1947 -49 =
1947-49=
billions of
billions of
billions of
billions of
billions of
1947-49 =
1947 -49 =

100
100
100
$
S
S
$
$
100
100

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

130p
177
—
—
—
—

129
173
91 p
2 4 .6 p
4 3 .8 p
2 4 .5

11.8
—

283p
249p
8 9 .9
109 . op
114.3
—
—
4 8 , 349p
16 ,043p
4 0 .5 p
2 ,8 3 8

1 4 .4p
264
250

126
174
94
2 3 .3
4 3 .8
2 4 .1

126
160
89
2 4 .1
4 6 .7

11.6

9 .6
1 3.9
177
229

1 4.1
263
226

22.0

+
+

1
2
3

+

6

+
+
+
+

2
2
2

+ 3
+ 10
- 6
+ 1

#

7
#

+ 13
+23
+ 2
+60
+ 9

9 0 .5
109.7
1 14.5
2 8 6 .3
259
4 8 , 209r
1 5 ,880r
3 9 .9
2,7 4 1

114.9
28 7 .0
253
4 9,109
16,704
4 0 .2
1,850

— 1
#
#
#
#
#
#
+ 1
— 2

86,310p
6 9 , 540p
104,030p
30.017
6 5,826
122.5
2 2,014

8 6 ,300p
6 7 ,7 9 0 p
1 0 3 ,120p
29 ,9 5 8
6 0 ,1 1 8
1 16.3
21 ,9 5 2

78,094
67,593
102,452
30,300r
62,084
116.9
22,187

— 1
+ 2
+ 3
#
+ 4
-f 3
#

+ 10
+ 5
+ 4
— 1
4-10
+ 7

5,122
4 ,3 8 5
3,286

2,6 1 7
5 ,0 9 5
3 ,3 4 3

5 , 349r
6.301r
4 ,2 4 5

-1 0

- 14
4- 2
-1 6

9 0 .8

110.0
114.6
2 8 7 .6p
260p
48,401
16,017
4 0 .2
2 ,8 9 3

8 8 .5

110.1

+

-

2

1
1

P
+

a
4

4- 1

Banking and finance
Total investments of all commercial banks.....................................
Total loans of all commercial b a n k s .................................................
Total demand deposits adjusted..........................................................
Currency outside the Treasury and Federal Reserve Banks*.
Bank debits (338 centers)*.....................................................................
Velocity of demand deposits (338 centers)*...................................
Consumer instalment credit ou tstan din g!!.....................................

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

85,700p
71,150p
1 0 6 ,830p
3 0 ,0 8 7 p
68 ,1 4 9
125.6
—

it

United States Government finance ( other than borrowing)
Cash income..................................................................................................
Cash outgo....................................................................................................
National defense expenditures..............................................................

rtiill ions of $
millions of $
millions of $

4 ,617p
6 , 396p
3 , 568p

+46
+ 9

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
Electric power output (New York and Newr Jersey)*....................
Residential construction contracts*........................................................
Nonresidential construction contracts*.................................................
Consumer prices (New York C ity )f. •....................................................
Nonagricultural employment*...................................................................
Manufacturing employment*.....................................................................
Bank debits (New York C ity )* ................................................................
Bank debits (Second District excluding New York C ity )* .........

1947-49 = 100
1947 -49 = 100
19 47-49 = 100
1947-49 = 100
thousands
thousands
millions of $
n iliions of S
1947-49 = 100

139
—
—

112.2
—
—

62,5 5 7
4 .6 1 5
1 62.6

137
177p
217p
112.7
7 , 4 3 4 . Ip
2 ,5 4 1 ,6p
6 3,212
4 ,2 9 4
162.6

136
175
197

112.6
7 ,4 3 0 .7
2 ,5 3 9 .9
58 .2 1 0
3,9 9 1
154.6

138
153

201
113.0
7 ,6 3 1 .1
2 ,7 3 3 .3
55,396
4 ,4 0 0
145.4

1
1
+10

+
+

_
+

#
#
#

1
7
#

+ 36
1
— 1
—
— 7
4-13
+ >
+ 12

Note: Latest data available as of noon, January 28, 1955.
r Revised.
§ Revised Series.
* Adjusted for seasonal variation.
* Unemployment figures for December 1953 are on the basis of the old sample and, therefore, not
t Seasonal variations believed to be minor; no adjustment made.
necessarily comparable with the figures shown for 1954 which are on the new sample basis;
# Change of less than 0.5 per cent.
consequently, a percentage change from a year ago is not shown.
Source: A description of these series and their sources is available from the Domestic Research Division, Federal Reserve Bank of New York, on request.

p Preliminary.