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MONTHLY REVIEW
O f Credit and Business Conditions
FEDERAL
V o lu m e 30
RESERVE
BANK
JA N UARY
OF
19 4 8
NEW
YORK
No. 1
MONEY MARKET IN DECEMBER
An increase in rhe possible alternative uses of funds by
nonbank investors, pressure on the reserve position of the
commercial banks, and uncertainty about the future course
of interest rates, led to a change in the character of the Govern
ment bond market (and of other security markets) during
October which was accentuated in November, and continued
in December. Whereas during the earlier months of the year
the pressure of buying tended to advance prices, and almost
1.8 billion dollars of Government bonds were sold to the
market from Treasury investment accounts, in addition to
about 900 million dollars of a special offering of long term
bonds which was made available primarily to investing insti
tutions, there now appeared an excess of selling orders which
moved prices downward. The likelihood of a continued heavy
demand upon the savings institutions of the country, by business
and mortgage borrowers, gave support to this trend. At the
same time both the power of the commercial banks to help
meet this demand, and the desirability of their doing so, were
brought into question by the emphasis on the inflationary
problem in the President’s message to the advanced session
of Congress. Subsequent discussion of possible anti-inflationary
measures in the field of credit policy and debt management
gave the market reason to believe that the large Treasury
surplus in prospect during the first months of 1948 would
be used in considerable part to retire Government obligations
held by the Federal Reserve Banks, and that commercial banks
would be under continuing pressure to sell Government securi
ties (or to sell other securities or reduce loans) in order to
maintain their reserve positions. The Federal Reserve Banks
began, in the week ended November 19, to give such support
to the Government security market as was required to main
tain orderly markets in medium and longer term Treasury
bonds at about the price levels then prevailing. Reserve Bank
purchases were supplemented by purchases for Treasury invest
ment accounts.
With the prospect of continued need for Reserve Bank
purchases of Government securities— a need which had to
be compromised with restraint on further expansion of bank
credit— and in the light of the fact that maintenance of
premium prices (rather substantial premiums for some issues)
appeared to be encouraging profit-taking sales by some
investors, a reconsideration of the prices at which Treasury
bonds would be purchased by the Federal Reserve Banks was
required. On December 24, after the completion of the
Treasury's current refunding operations, the support levels
were lowered— in most cases to prices slightly above par for
medium and long term, fully taxable Treasury bonds. The
fixing of premiums for special features of particular issues,
such as partially tax-exempt issues, was left for determination
by the market. At the same time, the market was given clearly
to understand that the abrupt change in prices did not repre
sent a step in a retreat from a policy of supporting the Treasury
bond market, but had been decided upon in lieu of a gradual
recession in support prices over an extended period. By
word and action it was also made clear that, whereas previ
ously the Reserve System had been a reluctant buyer, it would
now buy Treasury bonds aggressively, at the new price levels,
in such amounts as might be necessary to clear the market.
The abrupt reduction in support prices came as a surprise
to the market and a period followed in which the selling of
Treasury bonds by banks and other investors increased con
siderably, partly as a consequence of confusion as to the
purpose of the action and its future implications. In the period
from December 26 to 30, inclusive, Reserve Bank holdings
of Treasury bonds increased by 970 million dollars (reflecting
deliveries of securities purchased on December 24 through 29).
These large purchases made it evident that the Reserve
System was prepared to buy Treasury bonds freely at the new
prices. At the same time the amount of securities offered to
the System in this period was not so large as had been rumored
in the market, and it was noted that the increase in Reserve
Bank holdings was not directly comparable with the increases
in preceding weeks, as purchases for Treasury investment
accounts were suspended during this latest week. In the last
few days of the month the volume of Treasury bonds offered
for sale in the market declined and more transactions were
cleared by the market without recourse to the Federal Reserve
Banks. In addition to selling induced by market uncertainty
and anticipation of future needs for funds, there were also
substantial sales by commercial banks— reflecting, at least in
part, the taking of losses to offset profits taken earlier in the
year, in order to reduce income tax liabilities. Sales by other
2
MONTHLY REVIEW, JANUARY 1948
large institutional investors appeared to be smaller in the
closing days of December than before the lowering of support
prices.
It is important, under present circumstances, of course, that
over a period these Reserve Bank purchases of Treasury
bonds be offset by the sale or redemption of other Govern
ment securities so that reserve funds may not be put into the
market unnecessarily. During the first five weeks of the
Systems market stabilizing operations in medium and long
term Treasury bonds, from November 12 to December 17,
purchases of bonds were more than offset by sales and redemp
tions of short term issues, so that the System’s total holdings
showed a net reduction of about 400 million dollars. In the
week before Christmas, however, bond purchases by the
Reserve Banks were only partly offset by sales of short term
securities, as there was a heavy drain on bank reserves, caused
by corporation tax payments and the final heavy demands for
currency for the holiday trade. Again in the last week of
December, sales of Treasury bills and certificates were consid
erably short of the large purchases of bonds, and member
banks accumulated substantial amounts of additional reserves.
The increase in bank reserves may prove to be temporary,
however, as the Treasury issued a call for the payment by
depositary banks of about 500 million dollars from their
War Loan accounts on January 2, the greater part of which
will be used to redeem 400 million dollars of the certificate
of indebtedness maturing on that date, held by Federal Reserve
Banks. Furthermore, it appears likely that considerable amounts
of the latest issue of Treasury bills will be absorbed by the
banks, resulting in a corresponding reduction in Reserve Bank
holdings and in the excess reserves of member banks.
The effects of recent purchases of Treasury bonds and of
earlier transactions in other types of Treasury securities on
Federal Reserve holdings of Government securities, classified
Federal Reserve System Holdings of Government
Securities by Maturity, 1947*
by maturity, are shown in the accompanying chart by weeks
from the beginning of July 1947 through December 24. As
illustrated in the chart, Federal Reserve holdings of Treasury
obligations maturing within six months have declined since
early in July, and those maturing in over six months to a
year have increased, as a result of commercial bank shifts
from the longer term certificates and notes into shorter term
certificates, redemptions of maturing securities (chiefly Treas
ury bills and certificates), and sales of bills and short certifi
cates indirectly to nonbank investors as well as banks having
available funds for temporary investment. This tendency is
obscured somewhat by shifts of securities from one maturity
group to another caused by the passage of time. For example,
a large certificate issue entered the "within six months’’ cate
gory early in August, causing a sharp rise in Federal Reserve
holdings of the shortest maturity group during the week ended
August 6, while holdings of securities maturing in over six
months to one year showed a corresponding reduction.
The line for securities with final maturities extending beyond
five years began to rise toward the middle of November, and
Federal Reserve Bank holdings of such issues increased 600
million dollars between November 12 and December 17.
Purchases of longer term Treasury securities were more than
offset by sales of the shortest term Treasury securities outstand
ing and by redemptions of maturing issues, however, so that
Federal Reserve holdings of the latter fell about 1 billion dol
lars. In this period the decline in the total Federal Reserve
portfolio was about 400 million dollars. In the last two weeks
of the year, however, the volume of Federal Reserve acquisi
tions of Treasury bonds maturing in over five years exceeded
sales of shortest-dated issues by about 900 million dollars.
Treasury purchases of longer term Government bonds were
also substantial in November and in the first three weeks of
December, but such purchases in effect represented the return
of tax and other Treasury receipts to the market and could not
be considered as adding to the money supply.
M e m b e r B a n k R eserve P o s it io n s
In the three statement weeks ended December 17, net Treas
ury disbursements were substantial. Disbursements included
the usual large payments of interest on the public debt around
the middle of the month, which amounted to approximately
700 million dollars, and were further enlarged by substantial
cash redemptions of certificates of indebtedness maturing
December 1 and smaller redemptions of bonds maturing
December 15, and by the payment of 100 million dollars to
Great Britain following the unfreezing of the remaining 400
millon dollars of the United States credit to that country.
Despite the fact that a very substantial proportion of these
disbursements were financed through withdrawals of more than
1.2 billion dollars from War Loan accounts with depositary
banks, and that a large part of the funds disbursed for the
redemption of securities went to the Federal Reserve Banks,
and thus did not reach the commercial banks, the net effect
of Treasury operations in this period was to provide member
banks with additional reserves. Treasury deposits with the
FEDERAL RESERVE BANK OF NEW YORK
Reserve Banks fell from 1.3 billion dollars on November 26
to 600 million on December 17.
Continued increase in the monetary gold stock and a sharp
expansion of Federal Reserve float, particularly around the
middle of the month, reflecting the extraordinarily heavy vol
ume of checks presented for collection and the slowness of the
mails during the holiday season, also provided the banks with
additional reserve funds. These funds, together with those
obtained through Treasury operations, were more than suffi
cient to meet seasonal currency demands and a large rise in
reserve requirements resulting from deposit growth related to
a further increase in bank loans and to the sale by nonbank
investors of Government bonds. Thus, the banks were able to
retire a substantial amount of Federal Reserve credit, reducing
their borrowings by about 200 million dollars and purchasing
a large volume of Treasury bills (either directly from the Treas
ury, thus reducing allotments of new bill issues to the Reserve
Banks, or indirectly from the System through the open market),
and at the same time to increase their excess reserves by 200
million dollars.
In the week just before Christmas, pressure on member
bank reserves was renewed as Treasury balances with the
Reserve Banks rose substantially as a result of tax receipts,
pre-Christmas demands for currency reached a peak, and Fed
eral Reserve float was reduced. Bank needs for reserve funds
were substantial and were met largely by a decrease of about
130 million dollars in excess reserves, by an increase of 115
million in member bank borrowing from the Federal Reserve
Banks, and by receipt of the proceeds of net purchases of Gov
ernment securities by the Federal Reserve System.
In the last week of the month, the pressure on reserves was
eased by the substantial postholiday return of currency from
circulation, a moderate net excess of Treasury expenditures,
and the substantial purchases of securities by the Federal
Reserve System. Member banks used a considerable part of
their gains of funds to reduce their borrowings from the Fed
eral Reserve Banks so as to show a minimum of indebtedness
on their year-end published statements, and to purchase short
term Treasury securities in the open market, most of which
were supplied by the Federal Reserve System. Excess reserves
nevertheless were temporarily increased by a substantial
amount.
the other groups, stocks of companies in the farm machinery,
cotton, rayon and silk, fertilizer, carbonated beverage, automo
bile, shipping, leather, and petroleum industries made the
largest relative gains in prices. Rising stock values reflected
expanding or continued high level demand or sharply higher
prices for the products of the respective industries. The largest
proportionate losses occurred in the motion picture, drugs and
cosmetics, distillery, air transportation, mining and smelting,
rubber tires, printing and publishing, metal fabricating, and
public utility groups. Declining prices reflected reduced prod
uct demand (distillery, motion picture, and drugs and cosmetics
industries), relatively fixed selling prices and higher costs (air
transportation and public utility companies), and other factors.
Preferred stock issues were particularly weak during the last
quarter of 1947. Standard and Poors index of high grade
preferred stocks fell from 188 toward the close of September
to about 173 toward the middle of November, and fluctuated
irregularly in subsequent weeks. Common stock prices, on the
other hand, were virtually unchanged in the same period, as
shown in the accompanying chart.
The weakness in high grade preferred stocks in 1947 re
flected the firming of interest rates and high grade bond yields.
In the case of noncallable preferred issues, prices had risen
sharply during the period of falling interest rates, since there
was no ultimate call or maturity price or date to restrain the
advance. When interest rates rose, therefore, prices of these
issues declined relatively rapidly. The high grade callable
issues, on the other hand, had tended to rise to and fluctuate
about their call prices during the period of falling money rates,
with many issues being called and refunded with lower divi
dend-bearing securities. When money rates turned firmer,
these issues in many cases fell below their call prices.
In recognition of the susceptibility of preferred stocks to
relatively wide fluctuations and particularly of their vulnera
bility in the event of an upswing in interest rates, investors,
Weekly Indexes of Prices of Preferred and
Common Stocks, 1946-47*
(1935-39=100 per cent)
PER C E N T
THE SECURITY MARKETS
During the last quarter of 1947 prices of stocks continued
their indecisive course, and for the year as a whole they showed
virtually no change. Public interest in stocks was at a low ebb,
and the volume of trading fell more than a third from the total
for 1946.
Although stock prices moved in a narrow range during the
past year, variations among different industry groups were
wide. The most conspicuous gains occurred in the prices of coal
mining shares, which advanced to a new postwar high point in
November, when prices of most other stocks were considerably
below their 1946 peaks. Coal mining shares ended the year
about two-fifths higher in value than at the end of 1946. Among
3
* W ednesday dates; latest figures are for December 24, 1947.
S ource: Standard & P o o r’s Corporation.
4
MONTHLY REVIEW, JANUARY 1948
especially institutional investors, have tended in the case of
new offerings to require that corporations provide annual
sinking funds for the retirement of their preferred issues over
a period of years. Industrial companies have been issuing sink
ing fund "preferreds” for the past two years, but public utility
corporations have only recently begun to adopt this feature.
St o c k T rad in g
by
G roups
In 1947, as in 1946 and other recent years, small investors—
those trading in transactions of less than 100 shares (odd lots)
— constituted the chief support of the market (measured by
the number of shares rather than their value). As illustrated
in the accompanying chart, odd-lot customers purchased 3.1
million shares of stock (net) on the New York Stock Exchange
in the first eleven months of 1947. Most of these securities
were acquired from members of Stock Exchange firms, who sold
1.7 million shares (net) in transactions initiated off the floor
of the Exchange, and 1.3 million shares in trading initiated on
the floor. Round-lot transactions of the public (shown in the
chart as nonmembers of the Exchange) resulted in net sales of
less than 100,000 shares.
Absorption of shares by odd-lot investors in dealings on the
Stock Exchange was considerably smaller in 1947 than in
1946, when more than 10.5 million shares of equity securities
were absorbed in this manner. Practically all the net purchases
during the past year, furthermore, were made from members
of the Exchange, whereas in 1946 large nonmember traders
were also substantial net sellers of stocks. In both years,
Exchange members were merely the channels through which
ownership of corporate business passed from one section or
group of nonmember investors to another— chiefly from large
to small investors (odd-lot traders)— and through which cor
porations seeking funds tapped the resources of savers of mod
erate means. It is believed that the net sales of stocks by
members of the Exchange consisted in substantial part of stocks
Cumulative Net Purchases or Sales of Stocks on the New York
Stock Exchange by Investor Groups, 1946-47
(Round-lot transactions cumulated weekly from January 1,1946)
M IL L I ONS
OF SH A R ES
* Transactions (in round lots) of odd-lot dealers and specialists for accounts
of odd-lot customers.
S ource: Securities and Exchange Commission.
acquired over the counter by member firms acting as partici
pants in syndicates underwriting secondary offerings of shares
by large stockholders or new issues of corporations raising
additional capital.
Included in the figures for nonmember trading (both oddlot and round-lot accounts) are the transactions of foreigners.
The dollar value of foreigners’ net sales of domestic stocks in
the first ten months of 1947 was almost twice that of their net
sales in all of 1946, when prices averaged substantially higher
than in 1947. This liquidation of stocks of American com
panies by foreigners reflected, in many cases, compulsion
exercised by governments in the effort to meet part of their
needs for dollars by this means. Thus, it appears that the repa
triation of domestic stocks and the continued liquidation of
equity securities by large investors through the medium of
Stock Exchange member firms were the principal sources of
pressure on the market.
Bo n d M a r k e t
The intermittent decline in bond prices (rise in yields)
which began early in 1946 gained momentum in the last quar
ter of 1947, and toward the close of the year yields on corpo
rate issues approached prewar levels and the rate of return on
municipals reached the highest point since the middle of 1942.
Yields on long term Treasury bonds approached the levels of
the summer of 1945 late in November 1947 and were held
there during most of December by extensive Treasury and Fed
eral Reserve purchases in the open market; some further rise
took place in the last week of the year when the Federal Open
Market Committee reduced the prices at which it purchased
Treasury bonds in the market.
The rise in municipal bond yields has been relatively larger
than that in corporate bond yields, which in turn have increased
more sharply than Government bond yields. As a result, there
has been a gradual widening of the spread between high grade
corporate and Treasury bond yields, and a marked narrowing
of the differential between municipal and Treasury yields to
a point where the return on municipal issues exceeded that on
long term Treasury bonds. In late December the average yield
on Moody’s list of Aaa corporate issues was 50 basis-points
(0.50 per cent) greater than the average yield on taxable
Treasury bonds due or callable in 15 years and over. This was
the largest spread since the fall of 1941, when the Treas
ury bond taxable yield series first became available. The
yield on Standard and Poor’s average of high grade municipal
bonds rose so markedly during the past year that it reached a
level 5 basis-points (0.05 per cent) above the average yield
on long term, taxable Treasury issues in the final week
of December 1947. Thus, by December tax-exempt high grade
municipal bonds had fallen in price to a level where they yielded
a greater return than long term taxable Treasury obliga
tions. To a large extent, these changes represent a return to
more normal yield relationships, which had been distorted dur
ing the war by the large volume of funds available for invest
ment, by a dearth of new corporate and municipal bonds, and
FEDERAL RESERVE RANK OF NEW YORK
by a greatly increased supply of new Treasury issues. In the
case of municipal bonds, high personal income and excess
profits taxes had also increased the demand for such securities
and depressed their yields abnormally during the war.
N e w Issues
The weakness in the market for outstanding bonds appar
ently had little effect on the volume of new corporate securities
offered during the last quarter of 1947. Close to 1.9 billion
dollars of corporate securities were floated for new capital pur
poses; this was the highest amount since the second quarter of
1930. Refunding issues, however, fell to 184 million dollars,
the lowest quarterly total since the first three months of 1943.
Thus, aggregate business demands for long term funds exceeded
2 billion dollars in the last quarter of 1947.
Total sales of bond issues (for new money and refunding)
during the final quarter of 1947 amounted to 1.6 billion dol
lars, or about two-thirds more than the total of the preceding
three months; new stock issues, at 486 million dollars, rose in
similar proportion. The increase in stock offerings was con
fined to common stocks and accompanied the stabilization of
prices of outstanding common shares. Flotations of preferred
issues fell off owing to lack of demand for securities having
a fixed return and no fixed call or maturity date in a period
of rising interest rates.
A comparatively few large issues, principally of telephone
and electric and gas utility corporations, and petroleum com
panies, accounted for the bulk of financing during the final
quarter. About a third of the total volume of securities offered
in the last three months of the year were sold directly to the
issuers’ security holders, and another third were sold privately
to insurance companies and other large investors. In large
part these methods of financing probably reflected the unset
tlement in the security markets. Insurance companies are
reported to have a large backlog of applications for long term
loans from large corporations.
During the entire year about 6 billion dollars of new cor
porate securities were offered in the capital market. The de
crease of 400 million from the 1946 figure was entirely
attributable to a falling off in the flotation of refunding issues
to 1.4 billion from 2.9 billion. One billion more of "new
money” was raised in 1947 than in the previous year. Bond
New Security Issues*
(In millions of dollars)
Corporate
New capital
Period
Refunding
Grand
total
Municipal
Stocks
Bonds
Total
Quarters, 1947
First...............
Second.. . . . . .
Third..............
Fourth#.. . . . .
132
351
268
455
548
752
595
1,417
680
1,103
863
1,872
273
601
387
184
954
1,705
1,250
2,056
619
726
600
292
Annual totals
1947#..............
1946................
1,206
1,468
3,312
2,038
4,518
3,506
1,445
2,914
5,963
6,420
2,237
1,160
* Figures do not necessarily add to totals because of rounding.
# December estimated by the Federal Reserve Bank of New York.
Source: Commercial and Financial Chronicle.
5
issues for both refunding and new capital purposes came to
about 4.5 billion dollars, a gain of close to 200 million dollars
over the 1946 total, while stock financing at 1.5 billion was
about 600 million dollars or somewhat more than a fourth
below the previous year’s figure. Public utility and petroleum
companies accounted for about two fifths and one eighth,
respectively, of the new money issues; the former also accounted
for half of all security flotations.
In the municipal section of the new issues market, the weak
ness in outstanding issues brought a sharp curtailment of new
offerings in the last three months of the year. Total flotations
amounted to approximately 300 million dollars, or only about
one-half the volume of the preceding quarter. In many in
stances, bids for new issues were not forthcoming and other
bids were rejected pending stabilization of the bond market.
Inasmuch as most State and local governments do not have the
alternative sources of funds that are open to business corpora
tions, unsettled capital market conditions are more apt to lead
to postponement of capital projects by many such govern
mental units than in the case of private enterprise. However,
there has been a tendency recently of some State and other
local governments to finance their needs through issuance of
shorter term notes, to be funded at some later date when market
conditions become more stable.
In spite of the falling off in new issues in the last quarter
of the year, State and municipal financing for the year as a
whole came to 2.2 billion dollars, a new all-time high record.
STATUS OF SAVINGS BOND PROGRAM
In recent Congressional hearings both the Secretary of the
Treasury and the Chairman of the Board of Governors of the
Federal Reserve System have emphasized that an increase in
sales of Savings bonds to individuals would be one of the most
effective means of relieving the pressure on prices. It may
therefore be useful to review the status and progress of the
Savings bond program.
Since the end of the war there has been a sharp reduction
in the amount of Savings bonds sold, but sales have been more
than sufficient to offset redemptions, contrary to rather general
expectations. There has also been a significant change in the
composition of the investors purchasing these bonds. Among
the more important factors in these changes have been the
shifts in the geographic distribution of income payments, the
rising cost of living, the increasing availability of consumers’
durable goods, and a decline in the use of payroll deduction
plans. Also, large groups of the population evidently feel that
it is less important to buy bonds now than it was during the
war years.
During 1946, the first full peacetime year, sales of Savings
bonds dropped 43 per cent below the amounts sold in 1945.
At the same time, redemptions increased, so that net invest
ment in these bonds was reduced from 7.4 billion dollars in
1945 to 1.0 billion in 1946. Sales of Series E bonds during
that year declined even more sharply to a point where redemp
tions exceeded sales by nearly one billion dollars. During 1947
MONTHLY REVIEW, JANUARY 1948
Table I
Sales and Redemptions of Savings Bonds by Series, 1945-47
(In millions of dollars)
Series
All series*
1945..
1946..
1947#.
Sales
Table III
Percentage Distribution of Sales of Savings Bonds
by Denominations, 1945-47*
12,937
7,427
6,690
5,558
6,427
5 ,090
Series E
1945...
1946...
1947#.
9,822
4,466
4,060
4,963
5,423
3,910
Series F
1945...
1946...
1947#.
595
325
350
106
189
210
Series G
1945...
1946...
1947#.
2,520
2,637
2,280
264
426
500
$10
and
$25
$50
$100
and
$200
$500
and
$1,000
$5,000
and
$10,000
4,859
957
150
Series E
1945.........................
1946..........................
1947*.......................
34
27
18
14
12
9
20
17
17
32
44
56
—
—
—
100
100
100
489
136
140
Series F and G
1945..........................
1946..........................
1947*.......................
t
t
t
3
2
2
37
37
38
60
62
61
100
100
100
7,379
1,000
-
2,256
2,211
1,780
total Savings bond sales declined somewhat further (see Table
I), but redemptions fell sharply, and the Treasury’s net
receipts from the sales increased to 1.6 billion dollars. Savings
bonds, as Table II shows, were the only major form of
individual savings to register a larger gain in 1947 than in
1946. The net increase during 1947 in the dollar amount of
Savings bonds held by individuals was exceeded only by the
increase in the assets of life insurance companies.
During the war years, a very substantial proportion of
Savings bonds was purchased by wage earners in industrial
areas. Currently, however, statistics on sales by denomination
and by States appear to indicate that the proportion of bonds
purchased by industrial wage earners is declining while the
proportions purchased by farmers and others in the middle
and upper income groups are increasing.
In 1945, as Table III shows, the $10 and $25 denominations,
those which are most often purchased through the payroll
savings plan and by individuals in the lower income brackets,
accounted for 34 per cent of the amount of Series E bonds
sold. By 1947 this percentage had dropped to 18. On the other
hand, the $500 and $1,000 denominations, which accounted
for only 32 per cent of the amount sold in 1945, last year rep
resented 56 per cent of the total. This, however, is still a
considerably smaller percentage than in 1939 and 1940, when
Table II
Annual Increases in the Major Types of Individual Savings, 1945-47
Dollar increase (In millions)
1945
1946
1947e
7,412
5,988
2,009
1,060
592
3 ,9 1 5
1,497
3,505
1,484
1,183
351
3,465
2 ,250
1,380
830
1,080
140
3 ,070
* Outstanding amounts of Series E , F, and G bonds held b y “ all other investors”
as reported b y the U. S. Treasury Department.
# Tim e deposits of all commercial banks less interbank and Government deposits
and deposits of States and political subdivisions in all insured commercial
banks, from Federal Reserve B ulletin. Includes an unknown amount of business
deposits.
t From Federal Reserve Bulletin.
** From Federal Hom e Loan Bank Administration.
## Adm itted assets less policy loans and premium notes, from Institute o f Life
Insurance.
e Estimated b y Federal Reserve Bank of New York.
Series
1,600
* Includes redemptions of Series A -D , which are not shown separately.
# Estimated b y the Federal Reserve Bank of New York.
Source: U. S. Treasury Department.
Savings b on d s*.................................. ............ ..
Commercial bank time deposits#................. ............
Mutual savings banks t ...............................................
Savings and loan associations**................. ..............
Postal sa v in gsf..............................................................
Life insurance##............................................................
Denomination
Redemptions Net receipts
—
—
—
Total#
* Figures for 1947 cover only first nine months.
# Because of rounding, the percentages do not necessarily add to 100.
t Less than one half of one per cent.
Source: U. S. Treasury Department.
75 per cent of this type of Savings bonds sold were of the
$1,000 denomination. Sales of F and G bonds are also showing
increased concentration in the large denominations.
The decline in sales of Series E bonds between the first half
of 1945 and the first half of 19471 was much less marked in
the Midwest farm States than in the large industrial and war
production centers. Total sales of series E bonds in Massachu
setts, New York, New Jersey, Michigan, Ohio, and California
during the first six months of 1947 were 65 per cent below
the amounts sold in the corresponding period of 1945. In
Illinois, Iowa, Kansas, Missouri, and Nebraska, however, total
sales were only 42 per cent under 1945. Sales in these five
farm States accounted for 21 per cent of the total amount of
Series E bonds sold during the first half of 1947, compared
with 15 per cent in the first half of 1945.
The Treasury is currently asking Congress for more funds
to promote the sales of Savings bonds; promotion through
payroll deduction plans is a special aim, as it is believed that
in this field a relatively small concentrated effort could pro
duce a significant boost in sales totals. The amount of Series
E bonds purchased through payroll deductions declined from
6.8 billion dollars in 1945 to an estimated 1.1 billion in 1947,
or from two thirds to one third of the total amount of this
series sold.
While it is to be expected that holders will redeem a certain
amount of Savings bonds each year before maturity in order
to meet emergencies or for other special purposes, there is
evidence that a good proportion of the ‘ weak holders,” includ
ing individuals who bought bonds under pressure during War
Loan drives and others who had no intention of holding their
bonds to maturity, have already been "shaken out,” so that in
the future redemptions will probably be smaller than in
recent years. Of the Series E bonds sold during 1943-45, over
40 per cent have already been redeemed, and not all of the
remaining bonds issued in those years will be held until
maturity. In contrast, only 26 or 27 per cent of the prewar
issues which matured between 1945 and 1947 were redeemed
before maturity. Savings bonds today are being sold to a much
wider group of investors than they were in the 1930s and a
higher percentage of redemptions than in the case of prewar
1 N o later breakdown by States is available.
FEDERAL RESERVE BANK OF NEW YORK
issues is probably to be expected, but coming years should see
the over-all redemption ratio decline from the levels of recent
years. The fact that the drop in redemptions during 1947 was
very largely due to a decline in redemptions of small denomi
nation Series E bonds is indicative of this trend.
There has been some discussion recently of the effects that
a further increase in long term interest rates might have on
the Savings bond program and particularly on redemptions.
A review of the yields to maturity of outstanding Savings
bonds makes it clear that it would not be profitable for indi
viduals to redeem their bonds in order to reinvest the proceeds
in marketable securities unless there should be a much greater
rise in interest rates than has occurred thus far or appears
to be in prospect for the foreseeable future. This is illustrated
by Table IV. For example, one year after purchase a $100
Series E bond can be redeemed for $75.50; the $24.50 interest
which would accrue on that bond during the succeeding nine
years, if it were held to maturity, would be equal to a com
pound annual rate of 3.15 per cent on the $75.50. The annual
rate of interest accrual to maturity, similarly calculated, on a
Series E bond which has been held for 6 years is 4.41 per cent;
after 6 years the redemption value of a $100 bond is $84.00
and from then until maturity interest is credited at the rate
of $4.00 a year.
The annual rate of interest accruals to maturity on the cur
rent redemption values of approximately 85 per cent of the total
amount of Savings bonds outstanding today is 3.00 per cent
or more per annum. Only on Series E bonds which have been
held less than six months and on Series F and G bonds which
have been held less than 3 or 2 Vi years, respectively, is the
rate less than 3 per cent. Only about IV 2 billion dollars of the
former and somewhat more than 6 1/2 billion dollars of the
latter are outstanding. The total amount of Savings bonds of
all series now outstanding is about 52 billion dollars.
Table IV
Average Annual Rate to Maturity of Interest Accruals or Payments on
Current Redemption Values of Savings Bonds, by Series
(In per cent)
After bond has been held
1 year
..................................................
3 years
.................................................
4 years........................................................
5 years........................................................
8
9
10
11
years.. .................................................
years........................................................
years
..................... ...........................
years........................................................
Series E
Series F
Series G
3 .1 5
3 .3 8
3 .5 8
3 .7 5
4 .0 1
4 .41
4.31
4 .21
4 .1 2
2 .7 3
2.91
3.07
3 .2 0
3.27
3 .2 9
3 .3 2
3 .4 0
3 .5 4
3 .7 2
3.91
2 .7 3
2 .9 4
3 .1 3
3 .2 6
3 .3 2
3 .3 3
3 .3 5
3.3 9
3 .4 6
3 .6 0
3 .9 4
_
Source: U. S. Treasury Department.
CURRENCY REFORM IN THE USSR
Rarely has an internal currency reform in a foreign coun
try aroused as much interest as the one recently promulgated in
the Soviet Union. Widely reported and commented upon, it
was generally interpreted as an indication of Russia’s economic
difficulties during and since the war and even, at times, as
evidence that her postwar reconstruction would be subject to
additional delay and obstruction. This latter evaluation of the
7
measures decreed in Moscow on December 14, 1947 is, how
ever, hardly borne out by analysis. Part of the misunderstanding
stems from focusing attention exclusively on the monetary
aspects of the legislation, without giving sufficient considera
tion to the simultaneously announced abolition of consumers’
rationing. Yet the two are closely interrelated and together
form an important point of departure toward a normalization
of Russia’s economic life.
Rationing had been reintroduced in the Soviet Union
immediately after the Nazi invasion of that country. For over
six years it covered the bulk of consumers' goods purveyed
to the population by the State-owned and cooperative-owned
retail trade system. The prices charged for the allotted rations
were increased during the war, but on the whole remained
low. Yet the rations of food, clothing, tobacco, etc., although
differentiated according to their recipients’ contribution to the
war effort, were just barely sufficient to maintain the working
capacity of the Russian population. Unable to provide larger
rations and to furnish in this way the necessary incentives for
harder work and better performance, the government relied
upon patriotic appeal and liberal disbursements of monetary
premiums, bonuses, etc., to induce the maximum exertion on
the part of industrial workers, governmental employees, and
others who were essential to the war effort. The funds so
supplied to the urban population went into "open markets”
where peasants were offering their scant surpluses at very
much higher and ever rising prices.1 The share of income freely
paid out to the urban population, and of the remittances which
members of the Armed Forces sent home, that could not be
spent on rationed goods thus found its way to a considerable
extent into rural villages. There the money remained. The
peasants in their turn were unable to spend it on goods that
they required. The production of civilian clothing, household
necessities, and other such goods all but ceased during the war.
To the extent that the peasants could acquire secondhand items
from other private citizens, the proceeds once more found their
way to the countryside in exchange for food.
While thus serving as an important mechanism for providing
the receivers of higher wages, prizes, premiums, and the like
with some additional food supplies, the open markets were at
the same time a source of major annoyance. Making use of their
powerful bargaining position, the peasants hardly bothered to
carry their wares to the cities. Essential munition and trans
portation workers, highly skilled specialists, and responsible
officials spent valuable time and energy in procuring food in
distant villages. In 1944 the government therefore established
so-called "commercial stores” which sold, without regard to
quantity, rationed and other consumers’ goods at prices re
sembling those prevailing on the open market. Since, however,
these stores were few and far between, and since their managers
were authorized to replenish the store inventories by buying in
1 Members of collective farms and such individual peasants as
survived were (and presumably still are) permitted to sell freely what
ever they could spare after completing their prescribed deliveries to
the government.
8
MONTHLY REVIEW, JANUARY 1948
the open markets, this innovation hardly reduced the flow of
money into the rural communities.
When at the end of the war the task of rehabilitation and
reconstruction called urgently for the restoration of normal
incentives to replace the waning patriotic appeal, the abolition
of rationing and the expansion of the flow of consumers’ goods
became a matter of foremost political and economic im
portance. Yet the government was faced with formidable
obstacles. The resumption of consumers’ goods output pro
ceeded only slowly. The severe drought that hit large parts of
Russia in the summer of 1946 considerably damaged crops and
seriously reduced the available food supplies. At the same time
the population’s demand for all kinds of consumers’ goods,
which had been barely satisfied before the war and largely
neglected during the war, could be expected to assume large
proportions. Even if backed only by currently earned income,
the demand for consumers’ goods would exceed the current
supply. In fact, however, the popular quest for more food,
clothing, hardware, furniture, and the like was supported by
very large amounts of liquid assets accumulated during and
after the war.
The volume of these hoards is difficult to estimate. Statistics
on money in circulation in the Soviet Union have not been pub
lished since 1937, and any estimates are necessarily based on
circumstantial evidence. However, it would appear that, in
spite of increased taxation, of intensified bond sales campaigns,
and of pressure for contributions to Defense Funds, total
governmental receipts from the population in the years 1941-47
were probably about 350 billion rubles smaller than the total
governmental additions to the income stream. This sum, which
exceeds the entire present annual budget of the USSR, must
have been secured from the State Bank of the USSR or issued
directly by the Finance Ministry. Taking into account the
money hoards that had existed already before the war, and
uncollected claims against the government on account of back
pay, vacation allowances, etc., the total purchasing power in the
hands of the public at the end of 1947 may well have amounted
to over 400 billion rubles. To complicate matters further,
most of this amount was concentrated in the hands of one part
of the population— the peasantry.
Under such circumstances an outright abolition of rationing
was quite impossible. The opening of stores to all who would
pay would necessarily have been followed by a run on the
distributive system. The sparse supplies of consumers’ goods
gradually appearing on the market would have been immedi
ately submerged by the demands of a goods-starved population
with large amounts of cash at its disposal. The resulting "first
come, first served” distribution would not only have been
inequitable, but would have defeated a major objective of
derationing: the strengthening of incentives for work and
initiative.
A modification of this procedure by a sharp increase of all
prices with a view to equating supply and demand would
hardly have produced better results. The stratum of the popula
tion possessed of the largest cash hoards— the peasants— would
have been able to purchase whatever the stores had to offer,
while the bulk of the urban population, not wealthy enough
to pay the high prices, would have had to go without many
necessities (at least in the absence of a very drastic upward
revision of wages and salaries). Such a course, in addition to
being inadequate so far as the incentives aspect is concerned,
would have caused serious resentment among Soviet citizens.
They would have found it hard to comprehend why the
peasants, who had fared economically best during the war,
should continue to enjoy a large advantage over the hard
pressed urban dwellers, who had had to bear the brunt of war
time privations.
The policy actually adopted by the government was an
attempt at an intermediate solution.
The abolition of rationing effective December 16, 1947 was
accompanied by a conversion of the Soviet currency. The con
version implies no external devaluation; the ratio of the Russian
ruble to gold and foreign exchange remains in general un
changed, and the commitments of the Soviet Government with
respect to foreigners are unaffected. Equally unaffected are the
current incomes of Soviet citizens. Wages, salaries, pensions,
stipends, grants, and social security benefits will continue to be
paid after conversion in the amounts in which they had been
paid prior to the conversion.
What is being drastically reduced is the purchasing power
of savings accumulated by the Russian population. These
savings are treated in three different ways: (1) The largest
part of savings— hoards of cash— is treated most severely. All
cash was called up for presentation at the offices of the State
Bank of the USSR or its appointed agents to be converted in
the ratio of 10 old rubles to 1 new ruble of the "1947 model”.
After the conversion period is over (one to two weeks follow
ing the announcement of the decree, depending on the locality)
the old money ceases to be legal tender. (2) Savings held in
the form of deposits with banks or savings institutions are
treated much more leniently. Balances up to 3,000 rubles retain
their full value. Balances between 3,000 and 10,000 rubles are
reduced in the ratio of 3 old rubles to 2 new rubles. Balances
above 10,000 rubles are revalued at 2 old rubles to 1 new ruble.
(3) All government bonds will be exchanged during 1948 for
a new conversion issue at the rate of 3 rubles face value of the
old bond to 1 ruble face value of the new bond.2 The conver
sion issue moreover will pay only 2 per cent annual interest
while the average interest rate on the securities subject to con
version was approximately 4 per cent.
At the same time the prices of consumers’ goods are being
drastically revamped. The multitude of price levels existing
before— ration prices, commercial store prices, open market
prices, special discounts, etc.— is replaced by a unified price
structure. While the majority of staple foods such as bread,
cereals, meat, fish, fats, milk, eggs, sugar, tea, potatoes, and vege
tables are to be sold at or somewhat below the moderate prices
2 There are a few exceptions to this rule: the loan currently on tap
as well as the 1937 loan remains unaffected by the conversion. The
1938 loan on the other hand will be exchanged either for the 1937
loan in the ratio of 5 rubles to 1 or redeemed in the same ratio for cash.
The reasons for the special treatment of the 1937 and 1938 issues have
not been revealed.
FEDERAL RESERVE BAN K OF N EW YO RK
previously prevailing in ration stores, manufactured consumers’
goods such as fabrics, clothing, footwear, etc., are to be offered
at prices higher than the ones formerly charged in ration stores
but about 65 per cent lower than those of the commercial
stores.
The combined effect of these measures on the welfare of
Soviet citizens will probably be rather uneven. The peasants
obviously are hit hardest. Through the conversion of their
cash hoards, partly offset by the reduction of prices for the
commodities which they require, they lose about two thirds
of their previously accumulated purchasing power. Moreover,
the virtual disappearance of open markets that is bound to
result from the abolition of rationing, and the stabilization of
food prices on the low level previously prevailing in ration
stores will cut sharply their current receipts.3 It is very likely
nevertheless that in spite of these blows the peasantry on the
whole will remain in a better economic position than the
majority of the urban population.
A group which will continue to fare badly is that of the
urban dwellers who are at the very bottom of the income
pyramid and whose cash receipts were just sufficient to pur
chase whatever supplies were issued at ration prices. They will
still be able to buy the same quantities of food, but clothing,
footwear, etc., now more expensive than previously in the
ration stores, will be largely beyond their reach. From what
little we know about present Soviet income distribution it
appears probable, however, that wartime upgrading and wage
increases markedly reduced the size of this group.
The great intermediately placed bulk of the urban popula
tion will most likely have about as much or somewhat more
real income than it had prior to the reform. The impact of the
reform on individuals’ real income will depend almost entirely
on the quantity of clothing previously obtained by them at
ration prices. That quantity is reported to have been very small,
but its disappearance will nevertheless constitute a loss to some.
The majority, however, which previously had to purchase a
large part of its requirements in the commercial stores, will to
that extent nearly treble its average purchasing power.
Most favorably affected will be the "aristocracy” of the Soviet
society— highly skilled specialists, scientists, artists, writers,
etc. In their income the outlay for rationed goods played only
a subordinate role; most of their requirements were covered
in the commercial stores. Their rubles will now go thrice as
far as before the monetary conversion.
On the whole, the savings of the urban population will fare
much better than those of the rural classes. To the extent to
which these funds are kept in savings banks (total savings
bank deposits are estimated to be about 13 billion rubles) or
in government bonds (about 100 billion rubles’ worth of
securities are in the hands of the population, of which probably
9
75 billion are held in cities) they will be converted at the most
advantageous rates. On the average their reduction in value
should be smaller than the over-all decline in prices.
The conclusion has frequently been drawn that the Soviet
monetary reform as a whole has regressive implications—
penalizing the poor and treating leniently the rich. Such does
not seem to be actually the case. It would appear rather that
the over-all effect of the measures on the distribution of
incomes is on the whole neutral. As far as the distribution of
wealth is concerned, however, it distinctly discriminates against
the rural population.
The impact of the reform on the future development of the
Soviet economy is more difficult to assess. If the estimates
mentioned above at all approximate reality, cash held by the
population will after conversion be still about 40 billion rubles.
Together with about 10 billion rubles deposited in savings
banks this will make about 50 billion rubles of liquid assets.
Total effective demand for consumers’ goods may still continue
to exceed their total supply. Prices may have to be raised, and
measures may have to be taken to increase the output of con
sumers’ goods beyond previously contemplated production
goals. Even some shifts of resources from heavy industries to
consumers’ goods industries may become imperative if prices
are to be held down.
There can be no doubt, however, that at the present juncture
the reform constitutes a genuine improvement of the Soviet
citizens’ daily existence. In addition to widening the scope of
consumers’ choice, the abolition of rationing will render the
process of procuring necessities less time consuming, less
onerous, less aggravating. The possibility of readily securing
goods for one’s earnings, even at high prices, cannot fail to
increase incentives and to improve morale among urban
workers. The establishment of unified prices may go a long
way toward restoring the "financial discipline” in enterprises
that was severely shaken during the war. The curtailment of
money supply should contribute to better husbandry of
resources, and to more care in the expenditure of funds.
Whether all this will materialize is impossible to predict. It
may depend to a very large extent on the success of the present
economy drive of the government, and on its ability to avoid
further inflationary money issues in financing its ambitious
industrialization program.
PRODUCTION TRENDS IN 1947
Manufacturing activity in the last quarter of 1947 appears
to have reached an even higher level than in the first quarter
of the year. In November, the Federal Reserve index of indus
trial production advanced to a peacetime record and prelimi
nary data for December indicate a high rate of activity, despite
3 The improvement of the agricultural situation and the resulting some seasonal declines. The November index indicated that
increase in available food supplies would in any case have eventually
the physical volume of production, although still well below
weakened the bargaining position of the village and turned the “ terms
the high levels maintained for more than three years during
of trade” in favor of the cities.
10
MONTHLY REVIEW, JANUARY 1948
the war, was 92 per cent greater than the average for prewar
years (1935-39). The failure of present production to
approach wartime levels is largely attributable to the smaller
working force presently employed in manufacturing and the
shorter average work week prevailing in American factories
during 1947 as compared with the war years.
One of the major developments in 1947 was a temporary
setback in the production of nondurable goods which (as
described below) occurred in the spring and early summer.
At the same time, shortages of raw materials, principally steel,
and in a few instances labor disputes limited the output of
durable goods. As a result, the Federal Reserve index of manu
facturing production declined for four consecutive months,
from 198 per cent of the 1935-39 average to 183. By Novem
ber this fall in the level of production had been recovered in
both the durable and nondurable goods groups, which
equaled or surpassed their spring peaks.
At the end of 1946 and the beginning of 1947, nondurable
goods production was close to the all-time record. Since durable
goods at that time had not yet become available in sufficient
quantities to meet the exceptionally high levels of consumer
demand, sales of nondurable goods had been stimulated. By
the end of the first quarter of 1947, however, the situation
had been changed by the combined influence of several factors.
Much of the accumulated demand for nondurable goods had
already been filled. The increasing availability of durable
goods and the rise in prices, particularly food prices, cut into
consumer budgets and limited purchases of other nondurable
goods. As sales slackened and the promptness of deliveries
from manufacturers to distributors increased, retailers were
enabled to reduce their outstanding orders and, later, their
inventories. Meanwhile there was considerable discussion of
the possibility of a widespread downward readjustment of
prices, which culminated in a campaign to "talk prices down,”
sponsored by leading Government officials and businessmen. As
a result, many consumers and retailers deferred purchases in
the hope of obtaining lower prices later. Some manufacturers
exhausted their backlog of orders and, especially in such lines
as soft woolen textiles, curtailed or suspended operations rather
than produce for inventory at current high prices.
In this same period, the prewar seasonal patterns reappeared
in several industries, notably textiles and apparel. The New
York City womens garment industry experienced its first major
spring slump in employment since 1942. During the war and
reconversion periods, in industries where demand was greater
than supply, manufacturers were in a position to fix delivery
terms and allocate quantities to their customers. As a result,
production was stabilized to a much greater extent than had
been possible under more highly competitive peacetime con
ditions. But in the spring of 1947, distributors of apparel appar
ently reverted to the prewar practice of placing partial orders
at the start of the season and depending on reorders to main
tain their stocks, thereby intensifying the overtime work at
the peak of the season and curtailing work in the off-season.
Altogether, employment in the textile and apparel indus
tries dropped by 164,000 persons between March and July
and the number of workers in shoe and rubber goods factories
also decreased. In many cases the declines were spotty, the
major reductions occurring in lines which had increased their
share in these industries’ production during the war, such as
soft woolen textiles and "nonrationed” types of shoes. Inven
tories of nondurable goods in the hands of wholesalers and
retailers dropped nearly one billion dollars, or 10 per cent,
between the end of March and the end of July.
In the first half of the year, durable goods producers were
plagued principally by shortages of raw materials which, in
effect, put a ceiling on production. Steel output was main
tained at an average rate of 93 per cent of capacity during the
first half of the year, despite short supplies of steel scrap and
coal. Yet this was not sufficient to meet the demand from
makers of producers’ and consumers’ durable equipment, and
from time to time production of finished goods was curtailed
for lack of materials. On the whole, however, the flow of raw
materials and component parts to manufacturers was much
smoother than in 1946, partly because of the relatively small
number of major labor conflicts in 1947. Consequently, as
indicated in the accompanying chart, most consumers’ goods
industries have been able to show a good production record
for the year, by prewar standards.
However, certain durable goods lines did experience declines
in production and employment during the first half of 1947.
Largely because of reduced demand, employment at factories
making radios and some types of nonferrous metal products
dropped, and output of building materials slackened.
In the second half of the year, demand for most types of
goods was strengthened when it became apparent that the gen
Output of Selected Consumers’ Durable Goods,
1941, 1946, and 1947
(Averages of monthly data; 1947 partly estimated)
RADIO PRODUCTION
( t e n th o u s a n d u n it s )
VACUUM CLEANER
(FLOOR TYPE) SHIPMENTS
( THOUSAND U N IT S )
WASHING MACHINE
SHIPMENTS
( THOUSAND UNITS)
ELECTRIC HOUSEHOLD
REFRIGERATOR SHIPMENTS
(th o u s a n d u n its )
PASSENGER CAR
FACTORY SALES
(th o u s a n d u n it s )
350
S ource: Radio Mfrs. Assn., Vacuum Cleaners Mfrs. Assn., American
W asher and Ironer Mfrs. Assn., U . S. Department of Commerce, and Automobile Mfrs. Assn.
FEDERAL RESERVE B AN K OF N EW YO R K
eral price level was more likely to rise than to decline. The
chief factors in effecting this change of attitude were the rise
in farm and food prices following short crops at home and
abroad, and the generous bituminous coal wage settlement in
July, which was followed by increased coal and steel prices.
Buying for inventory was resumed in anticipation of still higher
prices, and by the end of October manufacturers, wholesalers,
and retailers each held a record-breaking dollar volume of
inventories. However, when the rise in price level and the
increasing dollar volume of sales are taken into account, over
all inventories of these groups appear to be well in line with
prewar sales-stock relationships. With steel output at a new
postwar peak, durable goods production has been further
stimulated, and output of automobiles and other consumer
durables has reached new high levels.
As indicated in the accompanying table, a great many of
the nondurable goods industries represented in the Boards
index of industrial production did not exceed in 1947 the post
war peaks set in 1946, but only one component of the durable
goods category (transportation equipment) failed to set a new
peacetime record in 1947. Many of the components of the
textile and manufactured food groups have not yet equaled
their 1946 peaks. In the past two years metal-working indus
tries have not come close to the highest points reached during
the war, but most building material industries have surpassed
their wartime peaks. Output in a large number of the non
durable goods industries represented in the index has risen to
new peaks since the end of the war, particularly in the textile,
petroleum product, and alcoholic beverage industries.
Although the aggregate volume of production currently is
not much greater than at the start of 1947, it is much better
balanced. Consumers can buy staples and most standard appli
ances, although supplies of a few things such as automobiles
are still lagging behind demand; the pipe lines are almost all
Highs and Lows for Recent Years for Selected Components of the
Federal Reserve Index of Industrial Production
(Adjusted for seasonal variation, 1935-39 average = 100 )
Series
Wartime Postwar
high
low
1946
High
1947
High (month)*
Industrial production........................
Manufactures.....................................
247
268
152
154
183
191
192
198
Nov.
Nov.
Durable manufactures.......................
Steel.................................................
Machinery.......................................
Transportation equipment............
Nonferrous metals.........................
Lumber...........................................
Cement...........................................
376
242
463
786
292
136
174
138
46
188
199
128
72
97
214
196
275
245
197
135
177
225
224
282
239
206
138
203
Nov.
Oct.
Nov.
Mar.
Feb.
Mar.
Feb.
Nondurable manufactures................
Cotton consumption......................
Wool textiles...................................
Shoes...............................................
Butter.............................................
Wheat flour.....................................
Meatpacking.................................
Tobacco products...........................
Paper...............................................
Gasoline..........................................
Chemicals.......................................
180
177
178
132
116
140
215
150
156
156
404
154
118
130
97
58
100
38
112
129
129
228
173
164
181
144
79
163
178
173
145
149
247
177
161
178
127
85
162
173
175
152
163
253
Nov.
Feb.
Feb.
Oct.
July
Jan.
Nov.
Oct.
May
Aug.
May
Minerals......... ............... .....................
Fuels................................................
Metals............................................
144
150
158
104
108
63
146
153
117
156 Nov.
164 Nov.
136 Apr.
* When identical peaks were reached in two or more months, the latest only is
shown.
Source: Board of Governors of the Federal Reserve System.
11
filled; bottlenecks in production because of missing component
parts are fewer. Similarly the labor force is better balanced.
Most of the temporary wartime workers— women, children, and
older persons— have left the labor force. Discharged veterans
have been absorbed into the labor force with a minimum of
difficulty, and most of those at work are acquiring further skills
or renewing old ones.
This tendency toward a more homogeneous and more highly
skilled working force than has prevailed in recent years will
be an important factor in increasing productivity. The U. S.
Bureau of Labor Statistics, on the basis of fragmentary data,
estimates a median increase in productivity of about 2l/z per
cent between the average for 1946 and the average for the
first nine months of 1947. However, there is considerable
variation among industries, and the full effects of the vast
capital expansion during and since the war are yet to be felt.
Under present conditions of practically full employment, the
principal means of raising output (or of reducing costs) will
be the stimulation of increased worker effort, further invest
ment in labor-saving machinery, and the introduction of new
techniques. Recognition of the need for increasing produc
tivity through capital investment as well as the necessity of
expanding raw materials production if manufacturing output
as a whole is to be substantially increased has been evident in
the exceedingly high rate of domestic capital investment dur
ing 1947 and in the further expansion of plant and equipment
anticipated for 1948.
DEPARTMENT STORE TRADE
Sales of Second District department stores during December
1947 surpassed in dollar volume those of any previous month.
Total December sales appear to have been close to 190 million
dollars, compared with close to 175 million dollars in December
1946. Some of the increase over December 1946 was due to
the fact that December had one more shopping day in 1947
than in 1946. On a daily average basis, the December year-toyear increase was approximately 6 per cent, somewhat less than
the increase of 9 per cent for the whole year 1947. When
adjusted for the normal November to December seasonal
increase, daily average sales were little changed from November.
The physical volume of sales in Second District department
stores during 1947 appears to have declined below the quan
tities sold during 1946, despite an increase in the dollar sales
volume. It is estimated that during the first 9 months of the
fiscal year which began February 1, 1947 price increases on
goods sold by department stores have more than offset the
increase in dollar volume of sales over the corresponding 9
months of 1946, thus indicating a decline in unit sales. In
fact, comparison of the two 9-month periods suggests that,
although dollar volume was 9 per cent higher during 1947,
unit volume was perhaps as much as 7 per cent below 1946,
inasmuch as retail price indexes of apparel and homefurnish
ings have risen by roughly 17 per cent on the average.
12
MONTHLY REVIEW, JANUARY 1948
Department stores normally increase their stocks between
August and November in anticipation of the peak seasonal
selling months of November and December. As shown in the
accompanying chart, however, department stores in the Second
District increased their stocks at a considerably more than sea
sonal rate during the past few months. The seasonally adjusted
retail value of stocks at the end of November was almost 15
per cent larger than at the end of July, the year’s low point,
and was 7 per cent larger than a year previous. Notwithstand
ing this rapid rise in stocks, the ratio of end-of-month stocks
to sales during November stood at 2.3, in contrast to a 2.7
(November) average during 1935-39 and 2.6 in 1940.
Indexes of Department Store Sales and Stocks,
Second Federal Reserve District
(Adjusted for seasonal variation, 1935-39 average=100 per cent)
PER C E N T
Owing to greater availability of goods and more cautious
merchandising policies on the part of stores, outstanding orders
of a representative group of stores in this District at the end of
November 1947 were 29 per cent below the figure reported for
the end of November 1946. Merchandise receipts of this
group of stores were exceptionally heavy during October and
November and net new orders declined during November to
an amount 18 per cent below a postwar peak in October.
D epartm ent and A p pa rel S tore Sales and S tock s, S econd F ed era l R eserv e
D is trict, P ercen ta g e C hange from the P reced in g Y e a r
Indexes o f B usin ess
Net sales
Locality
N ov. 1947
Department stores, Second D istrict-----
+ 3
+ 9
+ 7
New Y ork C it y ......................................
Northern New Jersey...........................
Newark.................................................
Westchester C ounty..............................
Fairfield C ou n ty ....................................
Bridgeport...........................................
Lower Hudson River V alley...............
Poughkeepsie......................................
Upper Hudson River V alley...............
A lb a n y .................................................
Schenectady........................................
Central New Y ork S ta te.....................
Mohawk River V alley .....................
U tica.................................................
Syracuse...............................................
Northern New York State..................
Southern New York State...................
Bingham ton........................................
Elm ira..................................................
Western New York State....................
B uffalo.................................................
Niagara Falls......................................
Rochester............................................
+
+
—
+
3
2
1
4
0
— 2
+ 8
+10
4* 5
+ 7
+ 1
+ 3
+ 8
+ 9
+ i
+24
+ 7
+ 5
+ 13
+ 5
+ 5
+ 4
+ 4
+ 10
+ 7
+ 5
+ 8
+ 6
+ 6
+10
+ 8
+ 8
+ 8
+ 5
+ 6
+ 8
+ 9
+ 6
+20
+ 8
+ 5
+ 8
+ 8
+ 8
+ 7
+ 8
+ 7
+ 2
0
+ 7
+ 8
+ 6
+ 11
+11
_ 2
— 4
— 4
+ 3
+15
+ 12
— 3
—
+13
+ 7
+28
+ 13
+ 19
+ 3
+ 2
Apparel stores (chiefly New Y ork C it y ).
+
— 5
— 13
1
Indexes o f D epartm ent S tore Sales and S tock s
S econd Federal R eserv e D istrict
(1 9 3 5 -3 9 a v e ra g e := 100 per ce n t)
Index
Industrial production*, 1935-39 = 100.........
{Board of Governors, Federal Reserve
System)
Electric power output*, 1935-39 = 100........
(Federal Reserve Bank of New York)
Ton-miles of railway freight*, 1935-39 = 100
(Federal Reserve Bank of New York)
Sales of all retail stores*, 1935-39 = 100........
(Department of Commerce)
Factory employment
United States, 1939 = 100...........................
(Bureau of Labor Statistics)
New Y ork State, 1935-39 = 100................
(New York State Department of Labor)
Factory payrolls
United States, 1939 = 100..........................
(Bureau of Labor Statistics)
New Y ork State, 1935-39 = 100................
(New York State Department of Labor)
Personal income*, 1935-39 = 100..................
(Department of Commerce)
Composite index of wages and salaries*J,
1939 = 100.......................................................
(Federal Reserve Bank of New York)
Consumers’ prices, 1935-39 = 100................
(Bureau of Labor Statistics)
Velocity of demand deposits*#, 1935-39 = 100
(Federal Reserve Bank of New York)
New Y ork C ity ..............................................
Outside New York C it y ..............................
* Adjusted for seasonal variation.
1947
1940
%
Item
N ov.
Sept.
O ct.
N ov.
Safe* (average daily), unadjusted.................
S abs (average daily), seasonally a d ju sted ..
301
231
244
234
253
223
323
248
Stocks, unadjusted............................................
Stocks, seasonally adjusted............................
247
220 r
227
210
253
224
263
234
r Revised.
1947
1946
Stocks on
Jan. through
hand
N ov. 1947 N ov. 30,1947
N ov.
Sept,
Oct.
N ov.
183
186
190
192 p
212
238
228
235p
188
203
206p
267
290
291p
152
157
157
157p
131
130
132
132p
298
337
342p
269
288
297
275
307
298p
165r
179
180 p
152
164
164p
87
80
88
86
94
88
p Preliminary.
295p
97
89
r Revised.
A monthly release showing the 15 com ponent indexes of hourly and weekly
earnings com puted b y this bank will be sent upon request. Tabulations of the
m onthly indexes, 1938 to date, together with information on com ponent series,
sources, and weights, and reprints of articles describing the indexes may also be
procured from the Research Department, Dom estic Research Division.
# These are new series for the period 1935 to date based on “ annual rate of turn
over of demand deposits except interbank and Governm ent” published b y the
Board of Governors. These rates have been adjusted for seasonal variation and
placed on a 1935-39 base b y this bank. Tabulations of monthly data, both
adjusted and unadjusted, are available on request from the Research Depart
ment, Financial Statistics Division. The series formerly published was dis
continued because of the revision in the weekly reporting member bank series.
FEDERAL RESERVE BANK OF NEW YORK
MONTHLY REVIEW, JANUARY 1948
INDUSTRIAL PRODUCTION
National Summary of Business Conditions
(Summarized by the Board of Governors of the Federal Reserve System, December 24, 1947)
production expanded somewhat further in November. Department store sales
showed more than a seasonal increase in November and the first half of December. Whole
sale commodity prices generally continued to advance.
I
NDUSTRIAL
In d u s t r ia l Pr o d u c t io n
Federal Reserve index. Monthly figures; latest
figure shown is for November.
DEPARTMENT STORE SALES AND STOCKS
The Board’s seasonally adjusted index of industrial production advanced 2 points in Novem
ber to 192 per cent of the 1935-39 average, a new postwar peak rate.
Output of durable goods expanded somewhat further, reflecting largely increases in activity
in most machinery, transportation equipment, and nonferrous metal fabricating industries. Out
put of steel in November was at a slightly lower rate than in October, but in the early part of
December scheduled operations rose to new postwar peaks. Motor truck assemblies were curtailed
in November and early December, as a result of model changeover activity at plants of a major
producer, while output of passenger cars increased. Output of lumber and other construction
materials was maintained in large volume.
Manufacture of nondurable products continued to increase in November, reflecting mainly
a further marked rise in activity at cotton textile mills and an expansion in the volume of live
stock slaughtered as a result of reduced feed supplies and high prices for feeds. Liquor produc
tion, which increased sharply in October, was curtailed in November in accordance with the
Federal program to conserve grain.
Production of minerals rose somewhat further in November, reflecting further gains in
output of bituminous coal as increased numbers of freight cars became available.
C o n s t r u c t io n
Values of most types of construction contract awards, according to the F. W . Dodge Cor
poration, showed seasonal declines in November and were substantially larger than a year ago.
The number of dwelling units started during the month, as estimated by the Department of
Labor, decreased from 94,000 in October to 82,000 in November; completions increased from
83,000 units to 86,000.
Federal Reserve indexes. Monthly figures; latest
figure shown for sales is November,
latest for stocks is October.
4
MEMBER BANKS IN LEADING CITIES
D is t r ib u t io n
Department store sales showed a sharp seasonal increase in November and the Board’s
adjusted index rose to a new high of 300 per cent of the 1935-39 average, as compared with
275 in October and 291 in September. Value of sales continued at a high level in the first
half of December and was 8 per cent above the corresponding period in 1946. Value of depart
ment store stocks has also increased in recent months and is above the corresponding period of
a year ago.
Shipments of most classes of railroad revenue freight were maintained in large volume in
November and the first half of December, after allowance for usual seasonal declines at this
time of the year. Coal shipments continued to increase and were at the peak rate reached at
the beginning of the year.
C o m m o d it y Prices
Demand deposits (adjusted) exclude U. S. Govern
ment and interbank deposits and collection items.
Government securities include direct and guar
anteed issues. Wednesday figures; latest
shown are tor December 10 .
MEMBER BANK RESERVES AND RELATED ITEMS
Wholesale commodity prices generally advanced further in November and the early part
of December. Crude petroleum prices were increased sharply and advances were announced in
refined petroleum products, newsprint, rayon, textile products, shoes, and some metal products.
Government disposal prices for Japanese silk were reduced by nearly one half. Prices of com
modities traded in the organized markets rose further in November but showed little change
in the first three weeks of December.
The consumers’ price index was unchanged from September to October. Food prices gen
erally showed little change in November and December, while additional increases occurred in
retail prices of other goods and services.
B a n k C redit
Loans to businesses, consumers, and real estate owners expanded further at banks in leading
cities during November and the first half of December. Demand deposits of individuals and
businesses increased 800 million dollars at these banks, and currency in circulation rose by 400
million.
In the four weeks ended December 17, member banks gained reserves as a result of a
continued inflow of gold, Treasury transactions, and Federal Reserve purchases of Government
securities. These sources of reserves more than offset the seasonal growth in currency.
Reserve Bank holdings of Government securities declined in the four-week period, reflecting
Treasury retirement of bills and certificates. The System also sold substantial amounts of bills
and certificates in the market, but purchased larger amounts of notes and bonds.
In t e r e s t R a t e s a n d B o n d Y ields
Wednesday figures; latest shown are
for December 17.
Prices of Treasury bonds, which declined sharply in October and November, were held
firm after the middle of November by official support. Prices of corporate bonds declined further.
Yields on Treasury certificates rose and a new issue of iy% per cent one-year certificates was
offered in exchange for the issue maturing January 1.
@FedFRASER