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MONTHLY REVIEW of Credit and Business Conditions S e c o n d F e d e r a l R e s e r v e D is t r i c t J a n u a r y 1, 1943 F ed era l R eserv e B an k , N ew Y o rk Money Market in December funds raised, but also by reason of the avoidance of accom panying disturbance to member bank reserve posi The V ictory Loan D rive, which began November 30 and was largely completed by December 23, met with a gratifyin g public response. A id ed by the active efforts of the V ictory F u n d Committees in each of the twelve Federal Reserve Districts, the Treasury sold of the 2 y 2 per cent V ictory bonds of $2,600,000,000 1963-68 (exclusive of $239,000,000 sold to Government agencies and trust accounts), $3,100,000,000 of the 1 % per cent Treasury bonds of 1948, and $3,800,000,000 of the one year % Per cent certificates of indebtedness during the 24 days that subscription books were open. In addition to the $9,500,000,000 realized from the public sale of these three offerings, the Treasury during the month of December raised $900,000,000 of “ new m on ey” through weekly sales of Treasury bills in excess of cur rent maturities, and possibly as much as $2,000,000,000 through the sale of Tax Savings notes and W a r and Savings bonds. The aggregate amount raised during December thus exceeded $12,000,000,000, surpassing the m inim um objective of $9,000,000,000 by $3,000,000,000. This result compares $7,000,000,000 with obtained under the slightly less the F ou rth Liberty than Loan in October, 1918, the largest o f the Liberty Loan cam paigns, and the largest amount heretofore raised by the Government through borrowing in a similar period of time. tions. In this accomplishment, the liberal use made by banks of the “ book credit” method of paym ent, through W ar Loan deposit accounts, played an indispensable part. In addition, the Federal Reserve Banks, through purchases of Government securities for their own ac count, acted to m aintain an ample supply of bank reserve funds, offsetting losses of reserves through the heavy preholiday increase in currency circulation and the rise in member bank reserve requirements associated with expanded bank holdings of Government securities. Banks made use of credits to Government deposits on their books— that is, W a r Loan account deposits— not only in connection with purchases of Government securi ties fo r their own portfolios, but also in connection with the Government security purchases of their customers. A side from Treasury bills, fo r which paym ents could be made in cash only, over three fourths of the Government securities sold in the Second Federal Reserve District during December were paid method. for by the book credit Outside this D istrict, the book credit method of paym ent was em ployed to a less extent, but, even so, approxim ately h alf of the paym ents were made by that method. A nother influence in the same direction was the substantial use of T a x Savings notes by corporations and individuals in m eeting the December quarterly income tax instalm ents; of the total income tax collec The original expectation had been that a sufficient volume o f funds would be realized from the sale of Government war obligations during December to carry the Treasury, with the benefit of continuing receipts from the sale o f T ax Savings notes and W a r and Savings bonds, through the month of January. In actual fact, the campaign exceeded these m inim um estimates to such an extent that it probably w ill not be necessary to make a sales effort of similar scope until A p ril. L ack of D is t u r b a n c e to M em ber B a n k R e s e r v e P o s it io n s tions of approxim ately $2,000,000,000 during December, about 32 per cent was represented by T a x Series Treas ury notes received for taxes. The corresponding per centage was 25 per cent fo r September, 23 per cent for June, and 1 6 ^ per cent fo r M arch. B y these means— the use of the book credit method of paym ent fo r new security issues and paym ents of taxes through tax notes— the unbalance between Treasury cash receipts and expenditures was greatly reduced and un duly heavy drains upon bank reserve funds were avoided. A llow in g for $490,000,000 withdrawals from the W a r The V ictory Loan D rive represented a marked achieve Loan account deposits over the period December 1-4, ment not only from the standpoint of the volume of aggregate W a r Loan accouht deposits increased from M ONTHLY REVIEW , JANUARY 1, 1943 $ 1 ,695,000,000 on Novem ber 30 to about $8,200,000,000 at the end of the month. A ggregate credits to W a r Loan accounts during December exceeded $7,000,000,000, of which $4,200,000,000 was credited to such accounts of qualified depositaries in the District. Second Federal Reserve The use of credits to W a r Loan deposits in paym ent fo r new Government security issues has been promoted by the designation of m any additional special deposita ries, and by increases in the m axim um W a r Loan deposit lim its of several hundred banks previously qualified. On October 31 there were 3,253 banks throughout the coun try qualified for the use of W a r Loan accounts as special depositaries, with an aggregate deposit lim it of $ 6 ,2 2 9 ,0 0 0 ,0 0 0 ; on December 19, as a result of the joint efforts of the Treasury D epartm ent and the Federal Reserve Banks, 5,260 banks were qualified and the over all lim it was lifted to $9,355,000,000. In the Second Federal Reserve D istrict, where W a r Loan accounts previously had been more generally employed than in m any other sections of the country, the number of quali fied institutions was raised from 500 to 656 over this period and the over-all deposit lim it was increased from $3,243,000,000 to $4,317,000,000. The accumulated W a r Loan account deposits, supple menting current tax revenues, net proceeds from the weekly sale of discount bills, and receipts from the sale of W a r and Savings bonds and T ax Savings notes, will provide the funds necessary for meeting war and other expenditures during coming weeks. A s the Government makes its heavy day-to-day expenditures, “ ca lls’ ’ w ill be issued against these W a r Loan account deposits; that is, the Government w ill withdraw these fu n ds from the banks. In this way, the flow of funds to the Government from the banks will be roughly matched by Government expenditures which result in a return flow of funds into the banking system. B y gearing calls closely with Gov ernment expenditures, it w ill be possible fo r the large and growing volume of fiscal operations to proceed w ith out undue disturbance to the over-all reserve position of the banks. Individual institutions which gain funds on balance m ay add to their investment portfolios through purchase of Government securities, through reacquiring Treasury bills previously sold to the Federal Reserve Bank, or through entering tenders on the new Treasury bill offerings. Individual institutions which lose funds on balance have adequate means of adjusting their posi tions. Central reserve city banks (N ew Y o r k C ity and Chicago) w ill probably tend to lose funds, as they hold a large percentage o f total W a r Loan deposits. They are well prepared to meet such losses, as, in addition to available excess reserves, they now hold large amounts of Treasury bills which can be sold to the Reserve Banks at a fixed rate of discount (w ith a repurchase option if they wish) when needs fo r additional re serves arise, or they can borrow on their short term Government securities at a differential rate. Reporting New Y o rk C ity banks have increased their holdings of Treasury bills by nearly $1,000,000,000 since the middle of October, and now hold close to $1,900,000,000 of such bills. Banks that are not so provided with Treasury bills, and find themselves losing funds, can replenish their re serves by borrowing from the Reserve Banks against Government securities m aturing or callable in one year or less at the differential rate o f % of one per cent. M ember B a n k E xcess R eserves Excess reserves of all member banks were maintained at $2,500,000,000 or more during most of December. A s was to be expected, there was an acceleration of the outflow of currency into circulation prior to the holi days— the increase in currency circulation between November 25 and December 23 came to $680 ,000 ,00 0— and over the same period reserve requirements of all member banks rose approxim ately $700,000,000. These two forces cutting into member bank excess reserves were largely counterbalanced by an increase in outstand ing Federal Reserve “ float ’ 9 and by Federal Reserve Bank purchases o f Government securities. Between November 25 and December 23, the Federal Reserve Banks added to their holdings $403,000,000 in Treasury bonds, $220,000,000 in certificates of indebtedness, and $177,000,000 in Treasury bills. H oldings of Treasury notes showed a small decline due to maturities in this category. The aggregate increase in Government security holdings of all classes came to $784,000,000. Tow ard the end of the month, excess reserves of all member banks declined, owing to investments of such funds by banks, cash paym ents fo r Government securities purchased by their customers, and a post-holiday reduction in the “ float” at Reserve Banks. In N ew Y o rk C ity, excess reserves were maintained within a general range of $400,000,000— $600,000,000 during the first three weeks of December, although drop ping to a lower level toward the year end. H ere an outward movement of funds, associated in part with withdrawals resulting from purchases of Government securities in other sections of the country, constituted a principal influence tending to reduce excess reserves. This factor, together with the outflow o f currency into circulation and rising reserve requirements, was com pensated fo r in considerable measure by Reserve Bank purchases of Government securities. Money Rates in New York Dec. 31, 1941 Nov. 30, 1942 Dec. 29, 1942 Stock Exchange call loans..................... Stock Exchange 90 dav loans................ Prime commercial paper— 4 to 6 months Bills—90 day unindorsed....................... Average yield on taxable Treasury notes Average yield on tax exempt Treasury bonds (not callable within 12 years). Average yield on taxable Treasury bonds (not callable within 12 years)............ Average rate on latest Treasury bill sale 91 day issue......................................... Reserve Bank discount rates: On advances to member banks secured by Government obligations callable or maturing in one year or less........ On other advances to member banks secured by Government obligations, and on rediscounts......................... Reserve Bank buying rate for 90 day indorsed bills....................................... * Nominal. t 76 day issue. 1 *1H H -H A 7 1 1 *1H Vs-H A 7 Vs-% A 7 1.02 1.28 1.40 2.07 2.09 2.08 2.40 2.36 2.35 0.310t 0.370 0.365 M 1 1 1 3 FEDERAL RESERVE BAN K OF N EW YO R K W a r F in a n c in g L argely through the V ictory Loan D rive, a total of more than $12,000,000,000 of Government securities was sold during December to provide for the tremendous expenditures being required in the prosecution of the war. The campaign, which represented the largest financing effort ever undertaken by the Government, followed a month during which no m ajor security offer ings had been made. N et proceeds from Government borrowing in November amounted to no more than $2,600,000,000, the smallest total since A p ril. In commenting upon the success of the drive, Secre tary of the Treasury Morgenthau stated that he was “ deeply gratified by the superb public response to the financial needs of our country in this w a r ,” and he gave a fu ll measure o f credit to the m any thousands of volunteer workers drawn from the banking, securi ties, insurance, and other fields, who acted as salesmen of the V ictory F u n d organization during the campaign. The table at the bottom of this page summarizes the December war financing and the results of the V ictory Loan D rive. O f the total volume of funds raised, more than 45 per cent was attributable to subscriptions ob tained in the Second Federal Reserve District. On sales to nonbanking investors of each of the three new offerings— the 2 % per cent V ictory bonds, 1 % per cent Treasury bonds, and % P e r cent certificates of indebted ness— subscriptions entered in the Second D istrict ac counted fo r about 65 per cent of the totals fo r the country. These high percentages resulted in very con siderable part from the heavy subscriptions placed by insurance companies, other large institutional investors, and corporations with headquarters in this D istrict, or m aintaining their principal bank accounts here. L ife insurance companies alone placed subscriptions of more than $900,000,000 in the Second D istrict, principally represented by purchases o f the 2 ^ per cent V ictory bonds of 1963-68. O f even greater significance than the dollar volume of securities sold, in reflecting the efforts o f the V ictory F u n d organization in this D istrict, was the fact that sales were made to 60,000 subscribers, a fa r larger number than in any previous Treasury financing operation during the current war period, with the ex ception o f the continuous W a r Savings bond program. Subscription books on the three new offerings were open to investors other than banks, without lim itation as to the amounts that m ight be purchased, over the period Novem ber 30— December 23, and the total sales were $5,280,000,000. The 2 % per cent V ictory bonds were not available fo r purchase by commercial banks. The 1 % per cent Treasury bonds of 1948 and % Per cent certificates of indebtedness were opened to sub scription by banks fo r three day periods and sales to banks were lim ited to an aggregate of $4,170,000,000. Books were open fo r bank subscriptions to the 1 % per cent Treasury bonds from Novem ber 30 to Decem ber 2 inclusive, total subscriptions amounting to $2,360,000,000. Subscriptions of $100,000 or less ($ 3 46,000,000) were allotted in fu ll, while the remain ing subscriptions were allotted on an 85 per cent basis. A llotm ents in the Second Federal Reserve District ($ 6 5 1 ,000,000) amounted to 32 per cent of the total. Paym ent fo r these bonds was made on December 11. The books on the % per cent certificates of indebted ness due December 1, 1943 were open for commercial bank subscriptions from the 16th through the 18th of December and paym ents were made on the 28th. Sub December War Financing— Results of the Victory Loan Drivef Sales in the Second Federal Keserve District Victory bonds, due December 15, 1968 and re deemable at par on or after December 1 5 ,1 9 63 Sales to nonbanking investors (banks* are not eligible to hold these bonds for their own account until D e cember 1, 1 9 5 2 )...................................................................... Sales in the country as a whole V /2% 1 % % Treasury bonds, due June 1 5 ,1 9 4 8 .............................. Sales to b an ks*............................................................................ Sales to nonbanking investors............................................... $1,6 6 5,0 0 0,00 0 $ 2 ,6 0 0 ,0 0 0 ,0 0 0 ** 1,29 0 ,00 0 ,0 00 $ 6 5 0 ,0 0 0 ,0 0 0 6 4 0 ,0 0 0 ,0 0 0 3 ,06 0 ,0 0 0 ,0 0 0 $ 2 , 0 6 0 ,0 0 0 ,0 0 0 1 ,0 0 0 ,0 0 0 ,0 0 0 % % Treasury certificates of indebtedness due December 1 ,1 9 4 3 .............................................................................................. Sales to b an ks*............................................................................ Sales to nonbanking investors.............................................. 1,81 0 ,00 0 ,0 00 7 5 0 ,0 0 0 ,0 0 0 1 ,0 6 0 ,0 0 0 ,0 0 0 3 ,7 9 0 ,0 0 0 ,0 0 0 2 ,1 1 0 ,0 0 0 ,0 0 0 1 ,6 8 0 ,0 0 0 ,0 0 0 T ax Savings notes, principally sold to nonbanking in vestors ............................................................................................ 420 ,0 00 ,0 00 1 ,10 0 ,00 0 ,0 00 W a r and Savings bonds Sales to nonbanking in v e s to r s ............................................. 160,000,000 8 50 ,0 00 ,0 00 Treasury bills N ew offerings in excess of weekly redemptions, prin cipally sold to banks............................................................. 520 ,0 00 ,0 00 900 ,0 00 ,0 00 T o t a l................................................................................... $5,8 6 5,0 0 0,00 0 $ 1 2 ,3 00 ,0 00 ,0 00 tPartly estimated. *Commercial banks, defined as banks accepting demand deposits. **Excluding $239 ,00 0 ,00 0 taken b y Government agencies and trust accounts. 4 MONTHLY REVIEW, JANUARY 1, 1943 scriptions totaled $3,496,000,000, of which $2,114,000,000 were allo tted ; those up to and including $100,000, totaling $270,000,000, were allotted in fu ll and the larger subscriptions on a 57 per cent basis. Allotm ents in this D istrict ($ 748 ,0 0 0 ,0 0 0 ) constituted 35 per cent of the total. The large sales o f the three new offerings during December were not made at the expense of sales of W a r bonds, Savings bonds, and T a x Savings notes. On the contrary, it would appear that receipts from W a r and Savings bonds and T ax notes during December ran substantially ahead of the figures fo r November. Receipts from the sale of W a r and Savings bonds m ay be estimated at approxim ately $850,000,000 as compared with $740,000,000 in November. In the Second Federal Reserve D istrict, sales by agencies other than post offices during December are estimated at $160,000,000, as compared with the Novem ber figure of $109,000,000. B oth the National and D istrict totals were the third highest reported fo r any month since these bonds first went on sale. The increase in December was in part accounted fo r by the vigorous drive conducted by the V ictory F u n d Committees to encourage the purchase of Series F and G bonds by larger investors and the work o f these committees also was reflected to some extent in increased sales of Series E bonds. Near the close o f the month it appeared likely that the m onthly sale of T a x Savings notes would exceed $ 1 ,000,000,000 fo r the first time since A u gu st, 1941 when these notes were first offered. In the Second Federal Reserve D istrict, sales of T ax notes were in excess of $400,000,000. The Treasury raised $900 ,000 ,00 0 in 4‘ new m o n ey ” during December through weekly sales o f Treasury bills in excess o f current maturities. Sales of the December 2 and 9 issues each amounted to $500 ,000 ,00 0 against maturities of $ 3 5 0 ,0 0 0 ,0 0 0 ; on each of the three sub sequent issues, dated December 16, 23, and 30, the amount offered was $600,000,000 compared with m aturi ties o f $400,000,000. Member Bank Credit Changes in member bank credit during the five weeks ended December 23 reflected, fo r the most part, the participation of banks and their customers in the Treas u r y ’s December financing program. The weekly re porting member banks in 101 leading cities added $2,087,000,000 to their Government securities portfolios, o f which $1,074,000,000, or slightly more than half, was taken by New Y o rk C ity banks. Over the five weeks there was a net increase o f $850,000,000 in the out standing volume of Treasury bills, and $2,058,000,000 of the new 1 % per cent Treasury bonds were allotted to commercial banks. (A s banks were not called upon to pay fo r the % per cent certificates of indebtedness allotted to them until December 28, their purchases of this issue were not reflected in the statements of December 2 3.) W eek ly reporting N ew Y o rk C ity banks added $560 ,000 ,00 0 to their holdings o f Treasury bills and $434 ,000 ,00 0 of Treasury bonds between Novem ber 18 and December 23. In addition these banks purchased $95,000,000 of certificates of indebtedness and $10,000,000 of guaranteed obligations, while holdings of Treasury notes dropped $25,000,000, reflecting the m a turity of an issue December 15. Outside New Y ork, member banks in 100 cities took $196,000,000 of Treas u ry bills, $877,000,000 of Treasury bonds, and $9,000,000 of guaranteed issues. On the other hand, these banks sold $52,000,000 of certificates of indebtedness and their holdings of Treasury notes were reduced $17,000,000. In addition to purchasing new issues fo r their own account during the period, member banks in New Y o rk C ity made a substantial volume of loans to their cus tomers for the purchase of Government securities. The total of loans to brokers and dealers and loans to others fo r the purpose of carrying securities rose $623,000,000 in the case of the New Y o rk City banks. Other types of loans, for the most part, declined during the five weeks’ period. In New Y o rk City there was a further contraction of $87,000,000 in commercial, industrial, and agricultural loans, and outside N ew Y o rk such loans of member banks in 100 cities were reduced $37,000,000. The T rea su ry ’s borrowing program also had a marked effect on the total, and on the composition, o f bank de posits. Total deposits of the reporting banks in 101 leading cities rose $2,725,000,000. U . S. Government deposits alone, however, rose $3,936,000,000, reflecting the use of the book credit method of paym ent for G ov ernment securities purchased during the month. P u r chases fo r ban ks’ own account paid fo r by the book credit method increased Government deposits without affecting custom ers’ deposits, while custom ers’ p u r chases, paid fo r by this method, resulted in a shift of funds from adjusted demand deposits to U . S. Govern ment deposits. D u rin g the period adjusted demand deposits were off $777,000,000 in the case of the New Y o rk C ity banks and $417,000,000 in the banks in 100 other cities. Security Markets The Government security market continued to show only m inor price fluctuations during December and the market was again characterized by light trading. The offering of two additional Treasury bond issues and one additional certificate of indebtedness issue, under the V ictory Loan D rive, resulted in some port folio readjustm ents on the part of investors. In some instances, partially tax exempt Treasury bonds were offered by holders shifting to taxable issues, and some investors reduced holdings of outstanding certificates o f indebtedness in order to acquire larger amounts of the new certificate issue. Tow ard the close of the month, all of the three new issues were quoted slightly above par. F rom the y e a r ’s high in November, m unicipal bond prices showed a downward reaction during D ecem ber; the average yield computed by Standard and P o o r ’s Corporation advanced 0.08 to 2.28 per cent between Novem ber 25 and December 23 to reach the highest point since A u gu st. A m o n g the Standard and P o o r ’s indexes of domestic corporate bond prices, small gains were reported in the average quotations fo r industrials, rails, and utilities. The general rise in stock prices which began last M ay was continued in December and by the end of the month FEDERAL RESERVE B AN K OF NEW YO R K about 75 per cent of the decline which occurred between September, 1941 and A p ril, 1942 had been recovered, according to Standard and P o o r ’s index of 90 stocks. A ccom panying the highest daily rate of turnover in a year, stock prices advanced about 5 per cent to reach a new high since October, 1941. The December rise was largely concentrated among the industrial shares. Owing in part to changes in this y e a r ’s tax law, tax selling appears to have been less of a market factor than fo r merly. Expansion in Demand Deposits, 1938-1942 Over the past five years the volume of adjusted demand deposits of the weekly reporting member banks in 101 leading cities has risen by $14,100,000,000, to a total of $28,500,000,000 on December 23, 1942. This latter fig ure represents a m ajor portion of the total of bank deposits belonging to the public against which checks m ay be drawn in m aking paym ents. D u rin g these years there have been im portant changes in the factors caus ing the expansion of deposits and an acceleration in the over-all rate of increase. W h ile the inflow of gold from abroad was the chief factor in increasing deposits during 1938-40, more recently the expansion in bank holdings of U . S. Government securities has played the dominant role. Over the entire period the volume of currency in circulation has grown from $6,600,000,000 at the end of 1937 to $15,300,000 ,000 toward the end of 1942. To this extent the increase in demand deposits alone failed to reflect the fu ll upw ard movement in the money supplies. The geographical distribution of deposits has under gone a significant change during these years. A lthough adjusted demand deposits of the weekly reporting m em ber banks in New Y o rk C ity rose faster than in the 100 other cities during the first three years, since 1941, as a result of a strong tendency fo r fu n ds to flow from the metropolitan area, where much of the borrowing has taken place, to other parts of the country, where the bulk o f war expenditures have been made, the increase in deposits in New Y o r k C ity has been relatively much smaller than fo r banks elsewhere. D u rin g the three years 1938 through 1940, adjusted demand deposits in the 101 cities (including New Y o rk C ity ), rose $7,900,000,000 — $1,600,000,000 in 1938, $2,600,000,000 in 1939, and $3,700,000,000 in 1940. A n increase o f $4,100,000,000 in loans and investments con tributed to this increase, but the principal factor of gain was the tremendous inflow of gold which occurred during those years. A total o f $9,200,000,000 was added to the United States gold stock between 1938 and 1940, including the sum o f $4,300,000,000 in the year 1940 alone. H owever, the fu ll effect of these factors in in creasing demand deposits was offset to a certain extent by a rise o f $2,200,000,000 in the volume of money in circulation. D u rin g this period deposits of the reporting member banks in New Y o rk C ity rose $4,700,000,000, while in the 100 other cities the increase amounted to $3,200,000,000. In 1941 there was a marked change in the pattern. A lth ou gh adjusted demand deposits increased in the 100 cities by about the same amount as in the preceding 1938 1940 1941 1939 1942 Adjusted Demand Deposits of Weekly Reporting Member Banks in New York City and in 100 Other Leading Cities (Monthly averages of weekly figures) year, in New Y o rk there was actually a small net decline fo r the year as a whole. A d ju sted demand deposits of member banks in the 101 cities rose only $1,400,000,000, or less than h alf as much as in the preceding year. In 1941 the principal factor contributing to the expansion in deposits was a $4,600,000,000 increase in total loans and investments, o f which slightly more than h alf rep resented purchases of U . S. Government securities. A s the inflow o f gold came to a virtual halt during the first part of 1941, and only a little over $700,000,000 was added to the gold stock during the entire year, this factor became relatively unim portant as a source of new de posits. On the other hand, during 1941 two factors tending to hold down the rise in deposits of member banks in the 101 cities became increasingly important. The first of these was an increase of $2,400,000,000 in the volume of money in circulation, which was about double the increase of the previous year. The other factor was a sharp rise in the volume o f deposits outside the 101 cities. A s an indication o f the flow of funds from banks in the weekly reporting group to other banks, adjusted demand deposits of member banks outside the 101 cities rose $2,000,000,000 during 1941, compared with the $1,400,000,000 increase fo r the member banks in the 101 cities. The expansion in adjusted demand deposits in 1942, which amounted to $4,800,000,000 in the 101 cities, was associated prim arily with increased bank holdings of U . S. Government securities. The weekly reporting banks added approxim ately $11,500,000 ,000 to their holdings during the year. A nother factor which contributed to this expansion was $3,400,000,000 net purchases of Gov ernment securities b y the Federal Reserve Banks. Part o f these gains, however, was offset by a decline of $ 1,100,000,000 in loans and investments other than Gov ernment securities, an increase of $4,200,000,000 in money in circulation, and a further increase in deposits of banks outside the 101 cities. W ith in the 101 cities, the difference between the movement of deposits in New Y o rk and in the 100 other cities was again pronounced. A d ju sted demand deposits o f the New Y o rk C ity banks rose only $800,000,000 during the year, while deposits o f the reporting member banks outside New Y o r k rose $4,000,000,000. 6 M ONTHLY REVIEW, JANUARY 1, 1943 B a n k E a r n in g s R e p o r ts In the past there has been a notable lack of uniform ity in the practices follow ed by commercial banks with respect to reports of their earnings to their shareholders. M an y banks have not published earnings reports and those that have published such reports have followed widely different practices with respect to the treatment o f various earnings, expense, and profit and loss items. D u rin g the past month circulars have been issued both by the Committee of B ank M anagement and Research of the New Y o rk State Bankers Association and by the Bank M anagement Commission of the A m erican Bankers Association, which contain suggested form s fo r con densed reports of bank earnings for shareholders and others. The form s suggested in the two publications are identical. The proposed reports are, of course, much less detailed than the earnings and dividends reports which are required by Federal supervisory agencies, and differ substantially from those reports in their treatment of certain items. Nevertheless, the work done by the State and National bankers’ organizations in this field constitutes an important step toward more uniform and more enlightening reports on bank earnings. Circulation of Federal Reserve Bank Notes The B oard of Governors of the Federal Reserve Sys tem, on December 12, issued the follow ing statement for publication on December 1 3 : A s a part of the program of the Government to conserve both labor and materials during the war period, the B oard of Governors, after consultation with the Treasury Departm ent, has authorized the Federal Reserve Banks to utilize at this time the existing stock of currency printed in the early Thirties known as “ Federal Reserve Bank notes” . The stock of these notes, which is in $5, $10, $20, $50, and $100 denominations, amounts to approxi m ately $660,000,000. B y making available fo r use, as needed, this stock of unissued paper currency, which is identical with Federal Reserve B ank notes now in circulation, it is estimated that more than $300 ,000 w ill be saved in the cost of printing new currency. In terms of labor and materials, there would be a saving of 225,000 man hours in printing alone, and of 45 tons of paper in addition to a sub stantial saving of nylon and ink. Some use was made of Federal Reserve B ank notes in 1933, and the amount in circulation reached a m axim um somewhat in excess o f $200 ,000 ,00 0 at the end of that year. Subsequently, their circulation was gradually reduced, dropping below $100,000,000 early in 1935. A t that time all of the Federal Reserve Banks paid to the Treasury sums corresponding to the amounts of such notes still in circulation, and subsequently the Federal Reserve B ank notes outstanding have been shown in the public debt statements as a liability o f the Federal Government. The outstanding volume of the notes con tinued to contract, to less than $20,000,000 at the end o f November, 1 9 4 2 ; those outstanding were retired from circulation as they reached Federal Reserve Banks and corresponding charges were made against the T rea su ry ’s account. The notes now being pu t into circulation represent the remaining stock of Federal Reserve B ank notes which has been lyin g idle for several years. The same procedure is now being followed as in 1935— the Federal Reserve Banks are making paym ents to the Treasury for the redemption of Federal Reserve B ank notes pu t into circulation, and the amount outstanding is included in published reports of “ Treasury cu rren cy” outstanding, rather than as a liability o f the Federal Reserve Banks. A s the notes now being issued become worn out and unfit fo r further circulation, they w ill be redeemed by the Treasury, and so will tend gradually to disappear from circulation again. Production and Trade The magnitude of the war production effort during 1942 is revealed by the estimates recently released by the Office of W a r Inform ation which indicated that 49.000 planes, 32,000 tanks and self-propelled artillery, 17.000 anti-aircraft guns, and 8,200,000 deadweight tons of merchant shipping were produced during the year. Expenditures fo r munitions and war construction for the year amounted to some $47,000,000,000, while the number o f persons engaged in war work rose from 7,000,000 to 17,500,000. The m ajor task of converting industry from a peace to a war basis proceeded rapidly and was largely completed by the autumn of the year. More than 86,200,000 tons of steel ingots and castings were produced in 1942, according to the estimates o f the Am erican Iron and Steel Institute. This figure exceeded that of the previous peak year, 1941, by 3,400,000 tons, and, by the middle of 1943, it is expected that the steel industry will have facilities capable of producing at the rate of 96,000,000 tons annually. Shipments o f iron ore over the Great Lakes during 1942 totaled over 92,000,000 tons, an amount greater than in any previous season. Business activity in December, according to early indi cations, held close to the advanced level reached in N o1941 1942 Nov. Sept. Oct. 113 120 122p 123p 117 129 131p 133p Producers’ goods—total........................ Producers’ durable goods................. Producers’ nondurable goods............ 130 139 120 163 195 126 168p 202p 128p 169p 205p 129p Consumers’ goods— total...................... Consumers’ durable goods................ Consumers’ nondurable goods.......... 103 87 108 87 36 103 86p 37p 103p 88p 39p 105p Durable goods— total............................ Nondurable goods—total..................... 123 113 148 113 154p 113p 156p 115p Primary distribution................................. Distribution to consumer......................... Miscellaneous services............................... 118 101 107 137 89 128 140p 91p 129p 139p 91p 131p 110 118 119 120 128 142 143p 70 95 69 85 60 81 Nov. Indexes of Production and Trade* (100 = estimated long term trend) Index of Production and Trade............... Cost of Living, Bureau of Labor Statistics (100 — 1935-39 average)......................... Wage Rates (100 — 1926 average)............................... Velocity of Demand Deposits* (100 = 1935-39 average) Outside Now York City........................... p Preliminary. * Adjusted for seasonal variation. 62 82 FEDERAL RESERVE BAN K OF NEW YO R K vember. Steel m ill operations averaged approxim ately 9 8 per cent of capacity throughout the month, a rate comparable with that of the last h alf of November. Electric power production, which generally reaches its yearly peak in December, seems to have shown a more than seasonal increase over November. Production of crude petroleum continued at approxim ately the same rate as during the fou r preceding months. The daily output of the bituminous coal mines during the first three weeks o f the month was somewhat below the N ovem ber average; loadings of railway freight continued to show a slight decline of a seasonal character. P r o d u c t io n and T rade in N PER CENT ovem ber D u rin g November the seasonally adjusted index of production and trade computed at this bank increased one point further to a record level of 123 per cent o f estimated long term trend. In the year follow ing our entry into the war, the index rose 10 points. Industrial production was still on the upgrade in November, while retail trade and prim ary distribution remained at a p proxim ately the same levels as in October, after adju st ment fo r seasonal variations. A lthough productive activity was at a new high level in November, the increase in the output of producers' durable goods— the classification which includes m any important types of war material— was not quite so pro nounced as in recent months, owing in part to the fact that steel production was down slightly from the October peak because of the shutdown of some furnaces for re pairs. Output of producers’ nondurable goods and of consumer goods was slightly higher in November than in October. In retail trade, department store sales increased more than seasonally between October and November, reflect ing early Christmas shopping, while sales by variety chain store systems rose about as usual. M ail order house and grocery chain store sales, which show no definite seasonal tendency at that time of the year, were slightly lower in November than in October. Cost of Living Between October 15 and Novem ber 15 the cost of living of wage earners and lower salaried workers rose 0.7 per cent further to the highest level since June, 1930, according to the Bureau of Labor Statistics index. This increase reflected prim arily advances in prices of foods, especially o f those not under control, and also of several items on which ceiling adjustm ents were permitted. B e tween mid-October and m id-Novem ber retail food prices as a whole showed an increase of 1.2 per cent, reaching the highest level since January, 1930. The average price of foods not under direct control, chiefly fresh fru its, vegetables, and fish, showed an advance of 6.6 per cent over October. Eetail food prices fluctuate more widely than most other elements in the cost o f living and hence the over all cost of living index tends to move less rapidly than the food index. Both indexes have been rising steadily since early in 1 9 4 1 ; in November the cost of living was nearly 9 per cent above the year earlier level, while food prices were 16 per cent higher. 7 Indexes of Cost of Living and Retail Food Prices (Based on Bureau of Labor Statistics data; 1935-39 averages 100 per cent) Increases that have occurred in food prices since the outbreak o f war are due to a number o f factors. A m ong them are the exceptions made in favor of farm prices in the establishment of ceiling regulations, the increasing amounts bought fo r our armed forces and our A llies, expanding civilian purchasing power at home, as well as manpower and distribution difficulties. W holesale prices of farm products have risen nearly 25 per cent since November of last year. Secretary of A gricu lture W ick a rd , recently appointed as W artim e Food A dm inistrator with wide control over the production and distribution of farm and food prod ucts, has established m inim um 1943 agricultural goals which, fo r a number of foods, are substantially higher than even the record volumes produced this year. It is estimated that in 1943 our m ilitary forces and the other A llied nations w ill require about 25 per cent of our food output. The W a r Production B oard announced that be tween 50 and 55 per cent o f our 1943 pack of canned fru its and vegetables m ust be set aside to fulfill these requirements. The Office of Price A dm inistration announced on December 27 that it had been directed by the D epart ment of A griculture to undertake the rationing of vir tually all commercially processed vegetables and fruits— canned, bottled, and frozen vegetables, fruits, juices, dried fruits, and all soups. The list includes more than 200 commodities and it is estimated that approxim ately three quarters o f the average amount available in 19371941 w ill be allocated to civilians in 1943. Rationing of these commodities w ill be administered through a new point system which is expected to be inaugurated some time in February. Employment and Payrolls L argely as the result o f continued hiring by war plants, factory em ploym ent in N ew Y o rk State rose 1 per cent further during Novem ber, and payrolls in creased 2 per cent, according to the N ew Y o rk State Departm ent of Labor. W o rk in g forces in shipyards and in plants producing tanks, planes, and firearms con tinued to expand. In m any civilian lines, however, em ployment decreased between October and N ovem ber; 8 MONTHLY REVIEW, JANUARY 1, 1943 in the m anufacture of clothing and food products there were seasonal layoffs of employees, and furniture plants curtailed operations, partly because of Government re strictions. Compared with November, 1941, employment was 9 per cent greater and payrolls were 35 per cent larger. In New Y o rk C ity, the seasonal layoffs in the apparel industry offset em ployment gains in other lines, and there was little net change in factory working forces during the month. In the rest of the State, gains in war plants were chiefly responsible fo r an em ployment in crease of 1 % per cent in November. In the year-to-year comparisons, N ew Y o rk C ity factory em ployment was 7 per cent above the November, 1941 level, and Upstate the gain was 10 per cent. The total number of civilians at work in the United States rose 400,000 during Novem ber to 52,800,000, ac cording to estimates of the Bureau o f the Census. The number of male workers in November was approxim ately the same as in November, 1941, while the number of women at work was 2,800,000 greater than a year pre vious. The number of unemployed was estimated at 1,700,000, about the same as in the preceding two months. In order to promote the most effective mobilization and utilization of the n ation ’s manpower, the President on December 5 issued an Executive Order transferring the Selective Service System to the W a r M anpow er Com mission. The order also gave P aul V . M cN utt, chair man of the Commission, authority over all hiring and recruitm ent of workers in any designated plant, occu pation, or area, and the power to order that no employer retain in his em ploy any worker whose services are more urgently needed elsewhere. Department Store Trade exercised a dominating influence on local business condi tions. In comparison with sales increases of 50 per cent or more in such cities over the three years, the growth in department store sales in New Y o rk C ity amounted to approxim ately 21 per cent. Sales records have, of course, been strongly influenced by advancing retail price le v e ls; it is estimated that prices of the types of goods handled by department stores have risen, on the average, 20-25 per cent during the three years. I t appears doubtful that the physical volume of goods sold by department stores in New Y o rk City during 1942 was on the whole any larger than it was in 1939. D u rin g December department store sales in this D is trict exceeded the figures for December, 1941 and closely approxim ated December, 1929. How ever, as a result of an apparently considerable amount o f Christmas shopping during November, the rise in department store sales between November and December was estimated to have been somewhat smaller than in m any other years. Retail stocks of merchandise on hand in the reporting department stores in this D istrict at the end of N ovem ber were only 13 per cent higher than those on hand Novem ber 30, 1941, and this b a n k ’s seasonally adjusted index of department store stocks declined fu rth er to 134 per cent of the 1923-25 average. Returns from a lim ited number of department stores in this D istrict indicate that at the end of November outstanding orders fo r merchandise purchased by the stores, but not yet delivered, were 10 per cent higher than in November, 1941, but were about 12 per cent lower than in October, 1942. Percentage changes from a year earlier Net Sales Department Stores D u rin g the year 1942, the dollar volume of depart ment store sales in the Second Federal Reserve D istrict continued the expansion which began in 1940. Com parative sales increases, 1939-42, for six of the largest cities w ithin the D istrict, are shown on the accompany ing diagram. In general, the most substantial gains in retail trade have occurred in cities where, as in B ridge port and Buffalo, rapidly expanding war plants have Jan.through Nov., 1942 + 6 + 2 + 4 +12 +11 + 3 + 3 — 2 — 10 +12 +16 +10 + 4 +12 +11 + 8 +19 +25 +36 +10 + 6 + 4 + 6 +12 +14 + 4 + 7 — 1 — 8 +12 +24 + 8 — 3 + 9 + 7 +12 +13 +15 +36 + 9 +16 +12 +13 + 4 + 3 — 5 All department stores................. + 7 + 7 +13 Apparel stores............................. + 8 + 7 + 7 New York City....................................... Northern New Jersey............................. Westchester and Fairfield Counties. .. . Lower Hudson River Valley................. Poughkeepsie....................................... Upper Hudson River Valley................. Central New York State....................... Mohawk River Valley........................ Northern New York State..................... Southern New York State..................... Binghamton........................................ B R ID G E P O R T Western New York State...................... BU FFALO Niagara Falls. »................................... SYRACUSE ROCHESTER — 2 — + 8 +28 + 2 +13 — + + + + 7 9 6 5 Indexes of Department Store Sales and Stocks, Second Federal Reserve District (1923-25 average = 100) ME W AR K 1941 NEW Stock on hand, Nov. 30, 1942 November, 1942 1942 Y O R K C IT Y SECOND D IS T R IC T 0 10% 20% 30% 40% 50% 60% Percentage Increases in Dollar Volume of Sales of Reporting Depart ment Stores in Second Federal Reserve District and in Selected Cities, Year 1942 (estimated) Compared with Year 1939 Nov. Sept. Sales (average daily), unadjusted................ Sales (average daily), seasonally adjusted.. 130 109 120 112 130 115 144 121 Stocks, unadjusted........................................ Stocks, seasonally adjusted r....................... 132 115 161 156 158 145 151 134 r Revised Oct. Nov. FED ERAL RESERVE BANK OF N E W YORK MONTHLY REVIEW, JANUARY 1, 1943 General Business and Financial Conditions in the United States (S u m m arized by the B o ard of G overnors of th e F e d eral R eserve S ystem ) A G G R E G A T E in d u stria l p ro d u ctio n in N ovem ber w as m ain tain e d close to th e O ctober level, reflectin g a continu ed gro w th of o u tp u t in w ar in d u stries a n d a seasonal decline in p ro d u ctio n of civilian goods. D istrib u tio n o f com m odities to consum ers rose fu rth e r in N ovem ber a n d the first h a lf of D ecem ber, red u cin g som ew hat th e larg e volum e of stocks on hand. R e ta il foo d prices continu ed to advance. P r o d u c t io n Index of Physical Volume of Industrial Produc tion, Adjusted for Seasonal Variation (193539 averages 100 per cent; subgroups shown are expressed in terms of points in the total index) M ain tenan ce of in d u stria l p ro d u ctio n in N ovem ber w hen th e seasonal tend ency is dow nw ard w as reflected in a rise of th e B o a rd ’s seasonally a d ju ste d index fro m 189 to 191 p e r cent of th e 1935-1939 average. T his rise w as larg e ly accounted fo r by a fu rth e r advance in o u tp u t of du rab le m an u fa ctu re s. N o n d u rab le m an u fa ctu re s declined season ally, w hile o u tp u t of m in erals show ed less th a n th e usu al seasonal decrease. I n all gro ups of p ro d u cts the p ro p o rtio n of o u tp u t fo r w ar purposes w as considerably la rg e r th a n a y e ar ago. T he increase re p o rted fo r du rab le m an u fa ctu re s fro m O ctober to N ovem ber w as in finished m unition s an d in d u stria l equipm ent fo r new p la n ts w hich w ill be com pleted in larg e nu m b er over th e n ex t few m onths. S teel p ro duction , a t 98 p e r cent of c ap a city in N ovem ber an d th e first th ree weeks of D ecem ber, w as dow n slig h tly fro m th e O ctober peak, b u t the red u ctio n a p p e are d tem p o rary as the scrap supply situ a tio n h a d been relieved an d as fu rth e r p ro g ress w as bein g m ade on co n struction of a d d itio n a l iro n a n d steel capacity . S upplies of iro n ore on h a n d are re g a rd ed as sufficient fo r o p erations a t cap acity u n til m ovem ent of ore dow n th e lakes is resum ed in th e spring . S hipm ents fro m U p p er L ake p o rts th is y e ar to ta le d 92 m illion tons, an d w ere 15 p er cent above th e reco rd estab lished in 1941. A t co tto n tex tile m ills a c tiv ity w as m ain tain e d a t a h ig h level in N ovem ber an d a t shoe fa cto ries p ro d u ctio n declined less th a n is usual a t th is season. O u tp u t of m an u fa c tu re d fo o dstuffs show ed a seasonal decline. C onstruction c o n trac t aw ard s in N ovem ber w ere 10 p er cent below th e level of th e th ree preced in g m onths, according to d a ta of th e F . W . D odge C o rporation, b u t w ere still a b o u t fo rty p e r cent h ig h er th a n in N ovem ber of la s t year. A s in other recent m onths, publicly-financed w ork accounted fo r over n in e ty p e r cent of all aw ards. D Indexes of Value of Department Store Sales and Stocks, Adjusted for Seasonal Variation (1923-25 averages 100 per cent) is t r ib u t io n D istrib u tio n of com m odities to consum ers increased fu rth e r in N ovem ber a n d D ecem ber w ith active C hristm as bu yin g. A t d e p a rtm e n t stores, v a rie ty stores, a n d m ail ord er houses servin g ru ra l areas, sales in N ovem ber expanded m ore th a n seasonally. I n the first h a lf of D ecem ber d e p a rtm e n t sto re sales continu ed to rise sh a rp ly an d w ere con sid erab ly la rg e r th a n a y e ar ago. F re ig h t car load ing s in N ovem ber declined ab o u t 7 p e r cent fro m th e ir p eak levels in S eptem ber an d O ctober b u t on a seasonally a d ju ste d b asis rose slig h tly over th e O ctober level. Coal load ing s rose som ew hat a lth o u g h a decline is usu al in N ovem ber. S hipm ents of o th er com m odities declined seasonally. C o m m o d it y P r ic e s r/" clothing y REN T FO O D U. S. Bureau of Labor Statistics Indexes of the Cost of Living (1935-39 average= 100 per cent) G rain prices advanced fro m th e m iddle of N ovem ber to th e m iddle of D ecem ber, w hile m ost other w holesale com m odity prices show ed little change. R e ta il foo d prices increased fu rth e r by 1 p e r cent in th e five w eeks ended N ovem b er 17 to a level 16 p e r cent h ig h er th a n in N ovem ber, 1941. P rices of such fre sh foods as are un con tro lled— fru its , vegetables, a n d fish— show ed th e la rg e st advances fro m O ctober to N ovem ber, b u t price increases in controlled item s co n trib u te d a b o u t tw o fifth s of th e to ta l rise. B a n k Cr e m t D u rin g th e p erio d of larg e scale T rea su ry financing in D ecem ber, to ta l excess reserves of m em ber banks w ere gen erally above 2.5 billion dollars. S u b sta n tia l p u r chases of G overnm ent securities fo r th e F e d eral R eserve System offset th e effect o f d rain s on reserves by th e continu ed heavy currency outflow an d fu rth e r increases in req u ired reserves re su ltin g fro m a ra p id gro w th in b a n k deposits. R eserve B an k holdings of G overnm ent secu rities show ed a n increase of 850 m illion dollars in the fo u r w eeks an d reached a to ta l of 5.5 billio n on D ecem ber 16. A t re p o rtin g m em ber b an k s in 101 lea d in g cities holdings of U n ite d S ta te s G overn m en t securities increased by 800 m illion do llars in th e fo u r weeks ended D ecem ber 9. T rea su ry bills accounted fo r p ra c tica lly th e e n tire increase, w ith alm ost tw o th ird s o f th e am o unt go ing to N ew Y ork C ity banks. I n th e w eek ended D ecem ber 16, bond hold in g s rose sh arp ly as ban k s received th e ir allo tm en ts of th e new 1 % p e r cent bonds su b scribed on N ovem ber 30-D ecem ber 2 ; allotm ents of th is issue to all banks to ta le d 2 b illion dollars, re p re sen tin g 85 p e r cent of sub scription s. T o ta l loans show ed little change over th e fo u r weeks ended D ecem ber 9. Com m er cial loans declined by 200 m illion dollars, w ith a b o u t h a lf th e decline a t N ew Y ork C ity banks, w hile loans to b ro kers an d dealers increased over th e perio d, reflectin g larg e ly a d vances m ade to secu rity dealers in N ew Y ork in connection w ith th e V icto ry F u n d drive. P ay m en ts by b a n k depositors fo r new G overnm ent secu rity issues re su lted in a decline of a d ju ste d dem and deposits an d a rise o f U . S. G overnm ent deposits to 5.8 billion dollars in m id-D ecem ber, th e la rg e st to ta l on record. U Member Bank Reserves and Related Items (Latest figures are for December 9) n it e d S t a t e s G o v e r n m e n t S e c u r it y P r ic e s P rices of U n ite d S tates G overnm ent securities have been stead y in th e p a st th ree weeks follow ing a n a d ju stm e n t in the la tte r p a r t of N ovem ber w hen th e T rea su ry announced th e drive to sell 9 billion do llars of securities in D ecem ber. L ong te rm tax a b le bonds are selling on a 2.36 p er cent yield basis on the average a n d long p a rtia lly ta x exem pt bonds on a 2.09 p e r cent basis.
@FedFRASER