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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

PR C N
E ET

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

Stock on
hand,
Nov. 30,
1942

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.............................

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

November,
1942

+ 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

—

+ 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

— 2

1942

Y O R K C IT Y

Nov.
SECOND

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




Sept.

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

D IS T R IC T

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/"
coh g y
lti
n

RN
ET
FO
OD

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.