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MONTHLY REVIEW
O f Credit and Business Conditions

FEDERAL
V o lu m e

31

RESERVE

BANK

JANUARY

OF

NEW

YORK

1949

No. 1

MONEY MARKET IN DECEMBER

Renewed strength developed in the Treasury bond market
during December and prices of all issues rose. All of the
longer-term issues advanced, and closed the month at levels
ranging from 2/32 to 17/32 above the highest points attained
in November. Unlike the November upswing, which took
place in a thin market as a consequence of a diminution of sell­
ing pressure, the December rise reflected a broadening of de­
mand as well as the absence of sales by some institutional
investors which, until November, had been consistent sellers.
Accumulating evidence that inflationary pressures were sub­
siding somewhat, and the less tangible influence of opinion
with respect to future fiscal and monetary policy, contributed
to the more favorable estimates of future price movements in
the Government security market.
Other factors lent strength to the main trend of the market.
The receding dimensions of the seasonal increase in business
loans of the banks during November and December, particu­
larly when compared with the soaring advances in the corre­
sponding periods of the preceding two years, was considered
both a confirmation of a weakening of demands for credit and
a portent of greater interest of the commercial banks in
Government securities of somewhat longer maturities. There
were few large offerings of new corporate issues after the first
week of the month and, concurrently, the sales of Treasury
bonds to obtain funds for new investment purposes declined
noticeably. The large life insurance companies refrained from
selling long-term restricted Government bonds and—tempo­
rarily at least—appeared to have withdrawn from the market.
Some investors, mindful of the heavy reinvestment demand
for securities that normally occurs in January, purchased securi­
ties in December in order to "beat the gun,” and contributed
to the market’s strength.
Much of the activity in the Government bond market was
centered in the trading of savings and commercial banks, which
tended to lengthen the maturities of their portfolios. Indica­
tive of a marked change in investment policy by the savings
banks was the sale of certificates of indebtedness and the pur­




chase of long-term ineligible bonds with the proceeds. The
savings banks also continued to shift from long-term eligible
to ineligible issues. Commercial banks were more cautious
about lengthening their portfolios; their operations involved,
in part, switching from the short end of the list of intermediate-term bonds to the long end. Commercial banks also
continued to acquire partially tax-exempt bonds as a hedge
against the possibility of higher corporation income taxes.
Prices of all intermediate and long-term Government bonds
rose considerably. All the ineligible issues but the 2Vas of
1959-62 (which were temporarily in supply) advanced above
their recent support prices during the first half of the month,
and the 2}4’s subsequently moved free. The Federal Reserve
System made small net purchases in support of one or two
longer-term issues of which modest amounts were overhang­
ing the market in the first part of December. But in the
second half of the month, the System made moderate net sales
of long-term ineligible bonds. Unlike the System sales of long­
term bonds in November, these sales did not cause a decline
in prices.
Trading in the short-term Government security market
tended to reflect mainly changes in the banks’ reserve posi­
tions. The demand for bills and longer certificates was strong
during periods of money market ease, and weakened as pres­
sure on bank reserves increased, particularly after the 15 th of
the month when quarterly tax collections grew heavy.
CONTENTS
Money Market in December . . . . . .

1

Corporate Working Capital . . . . . . .

3

Price Trends during 1948 ................

6

Department Store T r a d e ................

. . .

2

MONTHLY REVIEW, JANUARY 1949
M e m b e r B a n k R eserve P o s it io n s

Treasury operations and the pre-Christmas demand for cur­
rency were the chief influences affecting the money market
during December. Treasury transactions included the retire­
ment of about 200 million dollars of bills held by the Federal
Reserve System (100 million each in the weeks ended Decem­
ber 8 and 15), the payment of more than 600 million dollars
of interest on the public debt on the 15th of the month, with­
drawals from War Loan deposits aggregating 1.1 billion dol­
lars in the first half of December, and receipts of fourthquarter instalment payments of income taxes, most of which
reached the Treasury’s accounts with the Federal Reserve Banks
in the week ended December 22. Seasonal demands for cur­
rency prior to Christmas, which were smaller than in any year
since the end of the war, resulted in a total of 238 million dol­
lars being paid out between December 1 and 22; as usual,
currency began to return to the banks after the holiday.
In the week ended December 8, the beginning of the holi­
day outflow of currency together with the Treasury’s retire­
ment of 100 million dollars of maturing Treasury bills out of
Federal Reserve holdings brought moderate pressure on mem­
ber bank reserve positions. But the money market eased con­
siderably in the following week, when the regular disburse­
ments of the Treasury for defense, foreign aid, crop support,
and other purposes were heavy and were supplemented by
payment into the market of the interest on the public debt
due at the middle of the month. Because of these factors and
because the withdrawals from the Treasury’s War Loan de­
posits at commercial banks were limited to 450 million dollars,
Treasury disbursements in the week ended December 15
exceeded receipts by more than 550 million dollars. Approxi­
mately 100 million dollars of the Treasury’s disbursements
were used to retire bills held by the Reserve Banks, however,
and so did not reach the money market.
In addition to the substantial net Treasury disbursements,
member banks during the second week of December had the
benefit of a large increase in Federal Reserve "float” and of a
small, contraseasonal return flow of currency from circula­
tion—the latter being an unusual development during the
Christmas shopping season. Because a large part of the net
gains of funds occurred on the last day of the statement week,
most of these gains augmented excess reserves, which rose
almost 600 million dollars. Borrowings from the Federal
Reserve Banks were reduced 133 million dollars.
Thus, in the following week, the banks were in a favorable
position to meet the heavy losses of deposits which accom­
panied the payment of fourth-quarter instalments of Federal
income taxes. Additional pressure on member bank reserve
positions was exerted in that week by a resumption of the
seasonal outflow of currency and by sizable purchases, by non­
bank investors, of Treasury obligations from the Federal Re­
serve System. The heavy drains of funds quickly tightened




the money market, absorbing most of the previous week’s
accumulation of excess reserves and compelling the banks to
borrow almost 160 million dollars from the Reserve Banks and
to sell Government securities, some of which were absorbed by
the Reserve System. However, the System’s sales of Treasury
issues, mostly bills and longer-term bonds, to nonbank investors
exceeded its purchases from the commercial banks and total
System holdings consequently fell nearly 150 million dollars.
The heavy flow of tax checks to the Treasury subsided in
the week ended December 29, and currency returned to the
Federal Reserve Banks in considerable volume after the Christ­
mas holiday. At the same time a substantial shrinkage in
"float”, interdistrict flows of funds, and preparations for yearend statements resulted in temporary but large-scale borrowing
from the Reserve Banks early in the week which was subse­
quently repaid out of the proceeds of substantial sales of short­
term securities by commercial banks, and the money market
was rather tight.
M e m b e r B a n k C r e d it

Government security holdings of the weekly reporting mem­
ber banks declined moderately in the four weeks ended De­
cember 15. A modest increase in certificates and bonds (taken
together because of the exchange offering of certificates for
bonds due on December 15) and a moderate gain in notes were
more than offset by a decline in bills reflecting pressure on
reserve positions. Although the data are obscured by the De­
cember 15 exchange, it appears that the banks made small net
purchases of Government bonds in the four-week period, inter­
rupting the downward trend of their bond holdings that had
been in progress throughout the year.
Total holdings of Government securities of the weekly
reporting member banks in mid-December were about 4.2
billion dollars less than at the same date in 1947. This decline
reflected the effects of redemptions of commercial bank-held
Treasury obligations and the pressure maintained on bank
reserves through Treasury retirement: of issues held by the
Reserve Banks and through increases in legal reserve require­
ments. The banks shortened their portfolios considerably dur­
ing the year in order to strengthen their holdings of liquid
assets in view of uncertainties concerning their reserve require­
ments, to place themselves in a more favorable position to
obtain the higher rates offered on new short-term Treasury
issues, and also to avoid possible losses on longer-term bonds.
Treasury bill holdings rose during the 12-month period under
review by 0.9 billion dollars. An increase of 1.5 billion dollars
in certificates was not fully offset by a drop in note holdings.
The major change was in bond holdings, which declined 5.5
billion dollars during the year.
Total loans of the weekly reporting member banks rose to
a new high record of 25,529 million dollars (gross) on De­
cember 15, or 336 million dollars above the November 17

FEDERAL RESERVE BANK OF NEW YORK

total and 1,884 million dollars larger than a year earlier. Most
of the increase in the four weeks ended December 15 was
accounted for by an expansion of security loans to brokers and
dealers in connection with their increased position in Govern­
ment and new corporate securities. Both real estate and all
other (including consumer) loans continued their gradual
advances to new peak levels.
It was, however, the unexpectedly small seasonal rise in com­
mercial, industrial, and agricultural loans which received most
attention. Business loans rose only 27 million dollars in the
four weeks ended December 15; in the corresponding weeks
of 1947, they had gained 416 million (see the accompanying
chart). In fact, such loans actually fell 124 million dollars
between the November 10 peak and December 8, whereas they
had shown a rapid rise between the corresponding dates in
the two preceding postwar years. Only a sharp upturn in the
week of December 15 brought the commercial loan figure into
new high ground.
This lag in the expansion of commercial, industrial, and
agricultural loans has been generally interpreted as reflecting
a slackening of activity in a wider and wider area of business,
cessation of the rise in wholesale prices, and cautious inventory
practices. This view was strengthened by the fact that the
totals for this category of bank loans have been sustained
during the year’s final months by a heavy seasonal expansion
of crop loans made under the guarantee of the Commodity
Credit Corporation. Even though the weekly reporting mem­
ber banks comprise only the larger institutions of the country
and account for only a small proportion of total crop loans,
Cumulated Net Changes in Commercial, Industrial, and
Agricultural Loans, Weekly Reporting Member
Banks, 1947 and 1*948*

3

the large seasonal expansion of such credits this year influenced
the week-to-week changes in the combined commercial, indus­
trial, and agricultural loans reported by these banks. On the
other hand, the expansion of purely commercial and industrial
loans has been retarded to some extent by the repayment of
outstanding bank debt, by large corporations, with the pro­
ceeds of loans arranged directly with life insurance companies
and of securities offered in the capital market. The fact that
the most noticeable lag in loan expansion has been in the
loan portfolios of New York City banks tends to confirm the
evidence of some shift in the sources of borrowed funds.
CORPORATE WORKING CAPITAL

Despite their exceptionally liquid position at the end of the
war and the retention since then of large amounts from cur­
rent earnings, American business corporations have had to
seek unprecedented amounts of working capital funds from
banks and from institutional and other investors during the
past three years.
At the end of the war, corporate enterprise in the aggregate
probably enjoyed the most liquid financial position in history.
Working capital1 of all business corporations (exclusive of
banks and insurance companies) totaled 97.8 billion dollars
at the end of 1945, exceeding current liabilities by 51.6 billion
dollars. Cash on hand and in the banks plus Government
security holdings comprised 44 per cent of total quick assets,
reflecting in large part limited investment opportunities dur­
ing the war and the fact that the Treasury had financed a large
part of the wartime working capital needs of industry. These
liquid assets, amounting to 42.8 billion dollars, were sufficient
to pay off all but 3.4 billion dollars of total corporate obliga­
tions due within one year. Inventories and accounts receivable,
while considerably above the 1939 figures, were unusually low
in relation to total working capital.
Working balances of 1,122 corporations which are registered
on national security exchanges and for which there is a break­
down by industry showed no significant deviation, industry by
industry, from working capital patterns of all business corpo­
rations, other than such deviations as are characteristic of the
operations of individual industries. For the most part, at the
end of 1945 each of the major industries showed substantial
accumulations of liquid assets, a low level of inventories and
receivables, and a wide margin of quick assets over liabilities.
With industry in such strong financial condition, it ap­
peared as though a very considerable expansion of business
activity could be financed with funds on hand and with retained
current profits. Indeed, toward the close of 1945, prospects
for an increase in commercial loans and security issues seemed

*
Cumulated from Dec. 31, 1946 and Dec. 31, 1947. W ednesday dates; latest
. ^ T h e Slim total o f current assets, som etim es know n as gfOSS W O f k figure is for Dec. 22, 1948.
in g Capital.




4

MONTHLY REVIEW, JANUARY 1949

remote. Within two short years (in fact within the very next
year), however, it was necessary for business to seek additional
funds. The very large volume of liquid assets proved insuf­
ficient to meet the heavy needs for working capital and other
funds that developed after the war. In the aggregate, business
corporations except banks and insurance companies increased
their total current assets to 118.4 billion dollars on June 30,
1948, a gain of over 20 per cent from the 1945 year-end total.
The increase in working capital came primarily in inventories
and receivables, the two components which had grown least
during the war. In the 2V2-year period corporations added
16.7 billion dollars to their inventories—8.5 billion in 1946
and 5.8 billion in 1947. According to preliminary indications,
nearly five billion more was added in 1948 (2.4 billion in the
first six months). Between the end of 1945 and June 30, 1948,
customer financing rose 12.4 billion dollars, practically all of
which was in the first two years.
The postwar expansion of working capital stemmed princi­
pally from the need for funds to reorient production and dis­
tribution into normal peacetime channels after several years
of military production. During the reconversion period cer­
tain industries required additional cash because sales were low
and expenditures comparatively high. Inventories increased
at all levels of the productive and distributive system. Since
the national output was no longer directed preponderantly
toward meeting the needs of a single buyer (the Federal
Government) with known requirements and delivery sched­
ules, a peacetime variety and balance in stocks had to be re­
established, and depleted "pipelines” had to be filled. As pri­
vate buyers, unlike the Federal Government, did not make
payments in advance of delivery, credit to customers expanded
Total Current Assets of U. S. Corporations*
(December 31, 1945 and June 30, 1948)

of dollars

ABSOLUTE AMOUNTS

PERCENTAGE DISTRIBUTION

Other

Notes &
Accts. Rec.

sharply. Financing of American export trade gradually shifted
back to private channels, although the Government still plays
a very important role in this field.
On top of these needs for funds arising from the return to
peacetime patterns of production and channels of distribution,
working capital was required to meet the steadily rising cost
of goods and services. Three rounds of postwar wage increases
raised the cash requirements for payrolls, while the upsurge in
prices which followed the removal of price controls raised
inventory costs. Higher prices of industrial materials reflected
wage increases as well as acute demand and shortages of supply,
the latter resulting in part from the presence of production
bottlenecks. Since one concerns selling price is another’s cost,
a rise in prices tends to become cumulative throughout the
various stages of production and distribution. Thus the need
for additional working capital arose from the price element
as well as from the physical accumulation of inventories.
How was this growth of working capital financed, and did
the methods of financing used contribute to the process of
inflation?
The very process of inventory accumulation, of course, tends
to be inflationary since it creates incomes without making
goods available for immediate consumption. The inflationary
significance of the growth of working capital depends, how­
ever, on the manner in which the larger working capital needs
have been financed. To the extent that the additional funds
come from nonbank investors, no new income is generated in
the inventory accumulation process except when idle balances
are activated. In the main, postwar needs of American business
for expanding working capital have been met through (1) the
sale of Government security holdings, (2) increased short­
term borrowings from the banks, (3) an increase in trade pay­
ables, and, (4) long-term borrowing, sales of securities in the
capital market, and, most important, retained earnings and
other internal funds (designated "all other sources” in the
accompanying table).
On the whole, it appears that the financing of enlarged in­
ventories and corporate trade receivables has been inflationary
to a moderate degree only. As shown in the accompanying
table, corporate sales of Government securities
billion
dollars in the IVz years ended June 30,
accounted for
over a fourth of the total funds required. About three fourths
of these sales were made during the first postwar year, when
the Treasury retired large amounts of maturing or called
issues with funds which had been raised through the sale of
Government obligations to nonbank investors in the Victory
Loan drive. Thus, it is probable that the bulk of the Treasury
securities which corporations liquidated did not find their way
into bank portfolios. However, Government War Loan de­
posits which might otherwise have lain idle were put into
more active use as a result of such liquidation.
(8 .5

Inventories

U. S. Govt.
Securities

Cash

D EC .31,

JUNE 3 0 ,

* A ll U . S. corporations except banks and insurance companies.
S ource: Securities and Exchange Commission.




1948)

FEDERAL RESERVE BANK OF NEW YORK

5

have been available, in whole or in part, to small business and
others.
(In billions of dollars)
Equity funds and long-term borrowing (including retained
1946earnings, other internal funds set aside in various reserves, and
First half first half
of 1948 of 1948#
1947
Uses
1946
the proceeds of new security issues in the capital market)
0 .7
0 .0
1.2
0 .0
Increase in cash................................................
12.4
0 .5
5.9
Increase in customer financing......................
6 .0
provided most of the remaining working capital needs. In the
2 .4
16.7
Inventory accumulation..................................
5 .8
8 .5
0 .0
1.5
0 .0
0 .0
Repayment of bank and trade d eb t.............
21/2 years ended in mid-1948, 12.2 billion dollars of new
0 .2
0 .0
0 .0
2 .5
Reduction in taxes due Federal Government
0 .0
0 .0
0 .3
0 .0
Decrease in other liabilities............................
working capital were received from these sources by American
30.0
17.0
12.9
4 .7
T o ta l.......................................................
corporations. In addition, of course, a substantial part of
corporations’ internal funds and of the proceeds of their
Sources
security issues was used to finance the unprecedented expan­
sion of plant and equipment.
0 .0
0 .2
0 .0
0 .3
Decrease in cash................................................
0 .8
8 .5
6 .2
1 .5
Liquidation of Government securities.........
0 .0
0 .8
0 .1
0 .7
Decrease in other assets..................................
Although a clear-cut answer cannot be given, it appears that
0 .0
7 .7
5 .2
4 .0
Increase in bank and trade debt...................
0 .0
0 .2
0 .0
2.1
Increase in taxes due Federal Government. .
on the whole the increase in corporate working balances has
0 .8
0 .0
0 .0
1.1
Increase in other liabilities.............................
4 .1
3 .5
12.2
All other sou rces!.............................................
4 .6
not been one of the main factors exerting inflationary pressures
12.9
4 .7
30.0
17.0
T o t a l.......................................................
on the pricing system during the postwar years.
What is the present position of industry with respect to
* All corporations other than banks and insurance companies.
# Data in this column show net changes in asset or liability items for the
working capital and what are the prospects for further ex­
year period and are not summations of the items in the preceding columns.
t Retained profits, increases in reserves, long-term loans, and sales of new se­
pansion of working capital needs?
curity issues.
Source: Securities and Exchange Commission.
In spite of the large volume of expenditures made, corpora­
tions have actually added 700 million dollars to their holdings
More than one fourth of the postwar needs for working of cash since the end of 1945 (an increase of 3 per cent). The
capital funds were obtained through the expansion of notes liquidation of Government security holdings has continued,
and accounts payable. Unfortunately, no breakdown between
but on a sharply diminished scale. Thus, despite a 40 per cent
short-term bank borrowings and indebtedness to suppliers is decline in Government securities since the end of 1945, cor­
available. However, it is known that business loans of the porate liquid assets still totaled 35 billion dollars on June 30,
banks rose sharply in 1946 and 1947 and accounted for a siz­ 1948, when they accounted for 30 per cent of total working
able part of the total expansion of corporate payables, which capital. Current assets are still more than twice quick liabilities.
amounted to 7.7 billion dollars in the period under review. They should provide an ample cushion against the contingency
The decline in business loans during the first half of 1948 of substantial losses through shrinkage of inventory values.
was largely seasonal. Probably more than half the postwar
While it is apparent that in the aggregate corporate work­
expansion of corporate payables was indebtedness to suppliers. ing capital is ample and liquidity high, the position of
Corporate trade receivables expanded much more than corpo­ individual industries and of individual enterprises is not
rate trade payables, however, so that credit extended by cor­ uniformly favorable. For the 1,122 large corporations registered
porations to individuals and unincorporated business increased on national security exchanges, it appears that ample working
substantially. This together with the rise in intercorporate capital margins prevail in all of the major industries and that
indebtedness (that part of the increase in the volume of cor­ liquidity remains high (except among trade corporations and
porate trade receivables financed by a rise in corporate trade sales finance and personal loan companies, where there is less
payables)2 resulted in a larger volume of sales being carried need for liquidity). This is not necessarily true for the smaller
on without any change in the money supply, thus causing the corporations.
velocity or turnover of money to increase somewhat. The
The expansion of corporate working capital was most rapid
extension of trade credit by corporations to individuals and during 1946 and 1947. Preliminary data for 1948 indicate
unincorporated business has tended to reduce the need of the considerable reduction in additional working capital needs,
latter groups for additional outside financing, including bank reflecting the filling of "pipelines” and the lessened impact of
loans. However, such outside financing may not otherwise price increases on inventories. W ith the return of buyers’
markets in more and more industries and the continuation of
2 In the data for all corporations, intercorporate accounts receivable selective price declines, it appears likely that there will be some
and payable are necessarily equal; the difference between total accounts
further lessening of demands for working capital funds for
receivable and total accounts payable (almost always an excess of re­
the further accumulation of inventories and for customer
ceivables) represents credit extended by corporations to individuals and
unincorporated business or indebtedness of the former to the latter.
financing.
Uses and Sources of New W orking Capital Funds of
Business Corporations*




2% -

6

MONTHLY REVIEW, JANUARY 1949

PRICE TRENDS DURING 1948

At the end of 1948, the over-all level of wholesale prices
was slightly lower than that which prevailed at the start of the
year, making 1948 the first year since 1938 in which whole­
sale prices failed to show a net advance. The U. S. Bureau of
Labor Statistics’ new weekly index of wholesale prices was
163.5 per cent of the 1926 average in the week ended Decem­
ber 28, compared with 164.5 for the last week of 1947 and
the all-time high of 169.7 set in the week ended August 17,
1948. The year’s net decline in prices was not, however, a
general one; instead it was mainly a drop in prices of farm
products and foods which offset the continued firmness in
prices of other commodities, as shown in the accompanying
chart.
At the end of 1948, farm products as a whole were selling
at about 13 per cent below the peak reached near the start of
the year. The course of farm prices during the year was char­
acterized by the divergence between the price movements of
grains and other crops, on the one hand, and those of livestock
and livestock products, on the other. Grain prices broke
sharply in late January and early February, dropping 20 per
cent in four weeks. There was a partial recovery in March
and April, but, as the new crops reached the market, grain
prices started a steady downward movement which persisted
until, by mid-October, all grains except rice were at or below
the level (90 per cent of parity) at which Government sup­
ports generally become operative. The record size of some crops
and near-record size of others caused a shortage of approved
storage facilities, which forced some farmers to sell their grain
below the prices at which the Government would make loans
on properly stored grain.
Wheat prices, which at one time in Kansas City were 17
cents below the support price equivalent, strengthened as
harvesting was completed and heavy exports relieved some of
the pressure on storage space. During most of November and
December, wheat prices were as much as 10 cents above sup­
port levels. The margin by which prices must exceed support
levels to make it profitable for a farmer to repay a grain loan
increases with the passage of time. It is estimated that approxi­
mately 16 cents per bushel above support prices are required
to pay principal, interest, and storage charges on a wheat loan
which has run for six months.
Corn prices dropped sharply in September and October, and
at election time hit a low of $1.35 per bushel at Chicago, or
about 20 cents below the support level. By late December,
corn prices had risen about 14 cents, but the problem of ade­
quate storage was still acute.
Cotton prices followed somewhat the same pattern as that
of grains, with a peak early in the year, a sharp drop to less
than support levels when the new crop came on the market,
and a subsequent partial recovery in the latter part of the year.




The recent increase has been spurred by improved export pros­
pects, the large proportion of the crop going into loan, and
the emergency program for advances on farm-stored cotton
instituted by the Department of Agriculture to protect farmers
against the necessity of selling below loan levels.
One interesting result of the downward movement in grain
prices has been the narrowing of the gap between prices for
near and distant future delivery contracts on the major grain
exchanges. In the case of wheat, the gap narrowed by the end
of 1948 to approximately one-half what it had been a year
earlier, while for corn and oats the price differential was only
about one third of the margin prevailing a year earlier.
The decline in grain prices also caused a correspondingly
rapid drop in feed prices. Since the Second Federal Reserve
District is in general a feed-consuming, rather than grainproducing, area, the result has been lower feed costs for the
dairy farmers and poultry and livestock raisers in this area.
Similarly, the abundant supply and lower cost of feed are
expected to promote increased supplies and lower prices of
livestock and meats by late 1949- Until the last few months
of 1948, however, the low livestock population and the large
consumer demand at high income levels had pushed meat
prices to new peaks. During the spring, livestock and meat
prices had fallen together with grain prices. Later, when
livestock prices were depressed because labor-management
disputes had reduced the meatpacking industry’s ability to
absorb the livestock brought to market, meat remained rela­
tively scarce and high-priced. During the summer and early
Weekly Indexes of Wholesale Prices of Farm Products and of
All Commodities other than Farm Products and Foods, 1948*
(1926 average— 100 per cent)

* Tuesday dates; latest figures are for December 2 1 , 1948.
Source: U . S. Bureau of Labor Statistics.

FEDERAL RESERVE BANK OF NEW YORK

fall, both meat and livestock prices reached new peaks. As the
fall marketing season got under way, prices declined appre­
ciably, but they still remained well above parity levels. The
decline, which exceeded normal seasonal expectations, reflects
to some extent consumer resistance to high prices; the Bureau
of Agricultural Economics expects that meat consumption per
person in the fourth quarter of 1948 will prove to have been
about two pounds less than the 40.8 pounds per capita con­
sumed in the last quarter of 1947. Livestock and meat prices
are expected to rise seasonally in the next few months; ordi­
narily hog prices increase about 15 per cent between Decem­
ber and March, while beef cattle rise about 7 per cent in the
same period. After that time, however, livestock should be
more plentiful as the new pig crops, fattened on lower-priced
corn, come on the market.
As shown on the accompanying chart, prices of commodities
other than farm products and foods during 1948 were, as a
group, remarkably steady. Except for the rise around mid­
year, reflecting the third round of wage increases and higher
raw material costs, there has been little fluctuation in the
weekly index of these prices. The main sustaining factor in
this group has been metals and metal products. Demand for
nearly all types of metals is still in excess of supply, and metal
prices moved upward substantially during the year, as indi­
cated in Table I. There has been no increase in basic steel
prices since July, but charges for "extras” (special grades and
shapes of steel) were boosted substantially in recent weeks.
An increase of about 10 per cent in tin plate prices, effective
January 1, was also announced recently. Among the nonferrous
metals, lead, zinc, aluminum, mercury, and cadmium all
advanced in price during the final quarter of 1948.
The next greatest year-to-year gain was registered by the
fuel and lighting material group. The average for this group
Table I
Spot Prices of Selected Foodstuffs and Industrial Commodities
December 31, 1947— December 30, 1948
Percentage change
Comm odity
Unit

Price in dollars
December 30,
1948

December 31,
1947 to
December 30,
1948

Highest 1948
price to Decem­
ber 30, 1948

Foodstuffs
B arley........................
C orn...........................
Lard............................
B u tter........................
W heat (winter)........
H ogs...........................
Steers.........................

bu.
bu.
lb.
lb.
bu.
cwt.
cwt.

1.450
1.490
.162
.659
2.275
22.375
28.000

-4 6
-4 2
-3 9
—25
-2 2
-1 9
-1 0

-4 7
-4 7
-4 4
-2 6
-2 6
-2 8
-2 4

Industrial commodities
Print cloth................
C otton .......................
C opper.......................
T in ..............................
Steel scrap.................
Lead...........................
Zinc............................

yd.
lb.
lb.
lb.
ton
lb.
lb.

.158
.322
.234
1.030
44.500
.215
.182

-4 4
-1 1
+ 9
+10
+ 11
+43
+64

-4 4
-1 7
0
0
- 1
0
0

Source: U. S. Bureau of Labor Statistics.




Table II
W eekly Wholesale Prices by Major Commodity Groups
Percentage
change,
Dec. 30,
1947 to
Dec. 28, Dec. 28,
1948
1948

Index, 1926 average = 100
Group totals
and selected items
Dec. 30,
1947
All com m odities................................
Farm products..............................
Grains.........................................
L ivestock....................................
F oods..............................................
M eats............................. ............
All commodities other than farm
products and food s..................
Textile products.......................
Fuel and lighting materials. . .
Metals and metal products. ..
Building materials...................
All other.....................................
Hides and skins...................

1948 peak
Index
D a te *

164.5
199.0
248.2
250.3
179.2
238.4

169.7
203.3
261.3
280.0
191.0
282.9

Aug.
Jan .
Jan .
J u ly
J u ly
Sept.

17
18
13
18
20
21

163.5
177.4
170.9
221.4
173.6
228.7

- 0 .6
-1 0 .9
-3 1 .1
-1 1 .5
- 3 .1
- 4 .1

146.7
149.4
127.7
151.9
192.6
137.5
245.4

153.5
151.8
136.9
173.8
203.9
140.4
240.8

Sept. 14
Jun e 1
Aug. 3
N ov. 2 8
Sept. 14
J an . 2 0
Jan. 2 0

152.5
145.6
136.9
173.8
200.3
132.8
192.5

+ 4 .0
- 2 .5
+ 7 .2
+ 1 4 .4
+ 4 .0
- 3 .4
-2 1 .6

* W eek first attained.
Source: U. S. Bureau of Labor Statistics.

is, however, still one of the lowest relative to the base period,
as shown in Table II. Most of the gain in fuel and lighting
material prices during 1948 occurred in the first seven months
of the year, when coal and petroleum prices rose. Since then
the index has remained quite stable, although recently reduc­
tions have been made in some prices for crude oil and petro­
leum products. The building material group was the only other
major category to show a year-to-year advance in prices, and
here too the increase was arrested in the latter part of the
year, chiefly as a result of a softening in lumber prices. Prices
of textile products, another component, have in some cases
declined very sharply; spot prices of certain cotton yarns and
fabrics are down close to, or even below, the levels prevailing
immediately before OPA controls were lifted in November
1946. Nevertheless, the textile product group as a whole had
declined only 4 per cent by the end of 1948 from its June 1
peak.
Retail prices at the end of 1948 were somewhat higher than
a year earlier, but the peak for 1948 had been reached in
August. Retail food prices declined during September, Octo­
ber, and November, and it seems likely that the decline con­
tinued into December. The sharp drops in grain prices have
not yet resulted in similar declines in grain products at the
retail level, in large part because of higher processing costs,
but prices of meat, butter, and eggs have recently reflected
the declines at wholesale of livestock and products. On the
whole, the other commodities in the BLS consumers’ price
index—apparel, housefurnishings, fuel, and miscellaneous—
continued to increase. Near the end of the year, however, the
relatively poor sales showing of department stores and other
retail outlets increased the pressure for lower-priced consum­
ers’ goods, particularly apparel. The number of promotions in
soft goods lines appears to be increasing, and special discounts
and trade-ins are reported to be more prevalent for major
appliances; such developments are ordinarily not fully reflected

8

MONTHLY REVIEW, JANUARY 1949

in official price indexes. Lower cotton textile prices will also
be instrumental in reducing apparel prices for the coming
season. To some extent, a decline in consumers’ prices from
this direction may be offset in the next few months by the
seasonal rise in meat prices noted earlier. There have also been
requests for increases in utility rates, freight rates, and railway
passenger and commutation fares, while pressure for upward
adjustment of rent ceilings likewise persists.
At the beginning of 1949, there seem to be definite signs
of weakness in the price structure. Although similar signs
appeared to a greater or less extent near the start of 1947 and
1948, this time the durable goods lines as well as the non­
durables are affected. Only in the case of goods for which
demand is still well in excess of supply, such as basic metals
and new lower-priced passenger cars, is there continued
upward pressure on prices, and even in these lines open and
concealed premiums are of considerably less importance than
they were a year ago. Despite the weakening of inflationary
pressures, however, there are sustaining factors in the situation,
such as the relative absence to date of speculative inventory
accumulation, the prospect of large Government expenditures
on defense and foreign relief, and the existence of a support
program which should prevent any considerable further decline
in farm prices.

The unseasonably warm weather in November, by keeping
shoppers out of the stores, undoubtedly affected more than the
sales of winter items alone. The failure of December sales
to rise markedly above 1947, however, weakens the explana­
tion that lower sales in November were due primarily to
weather conditions. When the weather did turn cool in the
early weeks of December, sales did not expand to 1947 levels
in all areas of the country. And in those areas where the
cooler weather was accompanied by a pick-up in sales, gains
were not as great as in earlier months.
To what extent resistance by price-conscious consumers was
involved is not entirely clear. On several earlier occasions
there have been reports of widespread price resistance, while
department store sales were maintaining a fairly stable rate of
increase (as they were during much of 1948). The composi­
tion of total sales, however, has at times reflected price con­
siderations: luxury lines have either declined or have failed
to match the pace set by more essential merchandise or by
goods for which a deferred demand existed. Considerable price
resistance has undoubtedly been a factor in the stores’ willing­
ness to promote or mark down slow-moving goods.
Since November is a large volume month, the decline in
sales offset much of the gain of the preceding two months, as
shown in the table. Thus, for the three-month period ended
in November, dollar sales were only one per cent greater than
in 1947. Considering the decline in November sales, the
year-to-year increase in stocks shown for the end of Novem­
ber was small, reflecting the cautious policy of store man­
agers. The drastic decline in outstanding orders at the end of
that month compared with one year previous indicates clearly
the quick action which merchants are taking when prospects
for sales are questionable. Notwithstanding the relatively low
sales volume in November, the outstanding order-sales ratio
dipped well below that of the year before.

DEPARTM ENT STORE TRADE
December buying in Second District department stores
showed some improvement, but was little if any greater than
in 1947, according to preliminary information. Combined sales
in the two final months of the year were certainly less than in
the corresponding months a year previous, for the first time
in 10 years. November sales had lagged behind those of the
same month in 1947 by fully 4 per cent. Not until the last
calendar week before Christmas Day—which included two
more pre-Christmas shopping days than in 1947—did sales
T h e P a t t e r n o f t h e N o v e m b e r Sa l e s D e c l in e
again rise above those of the previous year.
However, sales in December expanded considerably more
The decline of sales in November as compared with Novem­
from November’s unexpectedly low volume than can be ac­ ber 1947, although rather general in Second District depart­
counted for by the measures of seasonal variation derived from ment stores—extending even to basement lines—was not
data for other postwar years. Owing to wartime scarcities of shared by all departments. The few year-to-year gains which
goods, which in some cases continued into the postwar period,
consumers until 1948 started Christmas buying much earlier
Sales, Stocks, and Orders of Second District Department Stores*
in the season than they did before the war. This past season
(Percentage change, 1947 to 1948)
they have apparently shifted back to the prewar habit of con­
Outstanding
centrating Christmas shopping in December.
Sales
Stocks
New orders
orders
Period
-1 3
+ 10
National sales of the leading mail-order houses and of many
-2 0
+ 5
+ 5
- 6
-2 0
variety chains specializing in items of low unit price also
+ 4
-1 7
- 5
+ 5
-3 5
experienced in November a year-to-year sales decline, in some
-1 2
-2 4
+ 6
cases for the first time in more than three years. And, as dis­ Three-month average. + 1
cussed below, basement sales in this District did little better * For a group of the larger stores which in 1947 accounted for about 55 per cent
of estimated total District department store sales.
in November than upstairs departments.




FEDERAL RESERVE BANK OF NEW YORK

were made, however, were with rare exception smaller than
in immediately previous months. In some departments the
rate of increase had begun to narrow in earlier months. A
great many departments showed sharp declines in November
after having exceeded 1947 sales by substantial margins dur­
ing the retail fiscal quarter ended in October 1948.1
Basement sales dipped below those of a year before almost
to the same extent as the main store sales. The gap between
the greater relative increases of the lower priced downstairs
departments and the main store increases had been closing
since mid-spring, partly because of the exceptional improve­
ment in basement sales during 1947. When the extraordinary
increases of main store sales made during the first postwar
year tapered off, basement store sales soared. In November,
however, the weakening of sales in higher priced lines was not
accompanied by a further rise in basement sales.
Women’s wear as a whole had been characterized by a
gradual improvement during the third quarter months AugustOctober, when they averaged at least 5 per cent greater in
dollar volume than a year earlier. The rising trend was abruptly
reversed in November, when sales fell some 8 per cent behind
those of the year before, accessories falling off somewhat more
than apparel. Although of lesser magnitude, the decline in
apparel was a greater reversal, for it was apparel which
accounted entirely for the gain noted for the total women’s
wear departmental group during the third quarter. (In Octo­
ber women were spending one-sixth more on apparel than
they had spent in the year before.) Accessories had been lag­
ging all along.
The dress department, after having previously improved
over 1947, was the largest volume apparel department to show
a decrease in November. Sales of inexpensive dresses fell off
along with those of better quality dresses. Furs had a poor
response from shoppers throughout most of 1948. November
fur sales were off still more acutely from the year before— 42
per cent below the level of November 1947.
Coats and suits sold better this past November than in the
same month of 1947, but the rate of increase contracted
abruptly from the third fiscal quarter. Differences in style
acceptance as between dresses and coats and suits may have
accounted for the maintenance of at least a small gain for coats
and suits in November. It may be noted that during the third
quarter, also, the year-to-year improvement in coats and suits
1 November 1948 had one more shopping day, but one less Satur­
day, than November 1947. Probably, therefore, increases from the
year before are slightly overstated, and decreases slightly understated,
in this review of the recent past and in the accompanying chart, both
of which are based on monthly totals.




9

was far more substantial than for dresses (32 against 5 per
cent).
As for men’s wear, a poor spring-summer selling season was
followed by considerably more favorable sales in the early fall
months. But sales of men’s wear, like those of womens wear,
contracted sharply in November, falling more than 10 per cent
below the figures for the year before. Men had been limiting
their purchases of clothing more than their buying of the lower
unit-priced furnishings—contrary to the experience in
women’s lines—and in November they spent on outerwear
fully one-fifth less than the amount spent in 1947.
The housefurnishings group was the only major depart­
mental group to score an improvement in November sales, as
the accompanying chart shows. But the gain in November was
less than half that reached in the third quarter as a whole.
Apparently demand is leveling off even for these lines. In fact,
a preliminary estimate for November indicates that in many
areas outside this District there was a year-to-year lag in sales
of housefurnishings greater than for soft lines.
There were widely divergent trends among the components
of the housefurnishings group in this District’s stores. Some
"big-ticket”, large volume departments, notably furniture and
floor coverings, continued to improve markedly in November.
The expanding sales of these commodities are of course closely
Recent Changes in Department Store Sales
Second Federal Reserve District
(Main store only; percentage change, 1947 to 1948, for
third fiscal quarter* and November)

10

MONTHLY REVIEW, JANUARY 1949

related to the high rate of completion of new dwellings. Sales
of floor coverings actually showed a slightly greater improve­
ment in November than in the third quarter. The District
gain in both furniture and floor coverings exceeded the
average gain for the country. Sales of major household elec­
trical appliances fell off sharply during November; this was
true in particular of refrigerator sales, where the change is in
sharp contrast to the average increase noted for the third
quarter. The remarkable success of television receivers, how­
ever, caused November sales of the radio department to exceed
those of the year before, although to a lesser extent than in
the months just preceding. A special survey of December sales
Department and Apparel Store Sales and Stocks, Second Federal Reserve
District, Percentage Change from the Preceding Year

in New York City department stores indicates a further nar­
rowing of the year-to-year gain. In many areas outside this
District, however, particularly where television broadcasting
is not yet very extensive, radio departments failed by a wide
margin in November to equal their dollar sales volume of a
year previous.
Among the miscellaneous departments, even toys and games
suffered a sharp year-to-year drop in November. Piece goods
and household textiles failed to continue the improvement
made during the third quarter, both groups declining by about
5 per cent in November. Silverware and jewelry, despite
widely reported consumer resistance, had shown at least a
small average gain for the third quarter, but in this department,
too, a year-to-year decrease occurred in November.

Net sales
Locality
N ov. 1948
Department stores, Second D istrict----New York C ity ......................................
Northern New Jersey...........................
Newark................................................
Westchester C ounty..............................
Fairfield C ou n ty....................................
B ridgeport...........................................
Lower Hudson River V alley...............
Poughkeepsie......................................
Upper Hudson River V alley...............
A lb a n y.................................................
Schenectady........................................
Central New York S tate.....................
M ohawk River V alley.....................
U tica.................................................
Syracuse...............................................
Northern New Y ork State..................
Southern New York State...................
Binghamton........................................
Elm ira..................................................
Western New York State....................
B uffalo..................................................
Niagara Falls......................................
Rochester............................................
Apparel stores (chiefly New York C ity ).

-

Stocks on
Jan. through
hand
N ov. 1948 N ov. 30, 1948

4

+ 5

+ 6

- 5
- 5
- 6
- 1
- 4
- 6
- 4
- 1
+ 1
+ 1
+ 3
- 4
- 6
— 5
- 4
-1 1
- 4
- 2
-1 1
0
+ 1

+ 4
+ 5
+ 3
+ 3
+ 1
- 1
+ 7
+ 10
+ 8
+ 7
+ 10
+ 5
+ 7
+ 7
+ 5
+ 11
+ 9
+ 11
+ 8
+10
+10

+ 4
+ 8
+ 5
+ 1
+ 4
+ 1
+ 8
+ 7
+ 10
+ 10
+ 10
+ 11
+ 11
+ 11
+11

0

+10

+ 21

-1 0

-

+ 11
+10
+22
+ 9
+ 3

1

+ 8

Indexes of Business
1947

1948

Index
N ov.
Industrial production*, 1935-39 = 100.........
(Board o f Governors , Federal Reserve

Sept.

Oct.

Nov.

192

192

195

194p

235

252

253

2 55 p

211

201

209 p

323

340

338

334 p

System )

Electric power output*, 1935-39 = 100........
( Federal Reserve B ank o f N e w York)

Ton-miles of railway freight*, 1935-39 = 100
(Federal Reserve B ank o f N ew York)

Sales of all retail stores*, 1935-39 = 100........
(Department o f Commerce)

Factory employment
United States, 1939 = 100..........................

161

165

163

161 p

132

128

127

12 5p

353

382

382p

294

306

294

294

313

314p

182

194

194 p

165

175

174

172

97
89

104
93

109
93

101
93

( Bureau o f Labor Statistics)

New Y ork State, 1935-39 = 100................
( N .Y .S . D iv. o f Place, and U n em p. In s .)

Factory payrolls
United States, 1939 = 100..........................
(Bureau o f Labor Statistics)

New York State, 1935-39 = 100................
Personal income*, 1935-39 = 100..................
(Department o f Commerce)

Composite index of wages and salaries*!,
1939 = 100......................................................
1947

301 p

( N .Y .S . D iv. o f Place, and U nem p. In s.)

Indexes of Department Store Sales and Stocks
Second Federal Reserve District
(1 9 35 -3 9 average = 100 per cent)
1948

(Federal Reserve B ank o f N e w York)

Item

Consumers’ prices, 1935-39 = 100.................
Nov.

Sept.

Oct.

Nov.

Sales (average daily), unadjusted.................
Sales (average daily), seasonally ad ju sted ..

323
249r

257
252

280
250

298
229

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

263
228

256
243

267
236

(Bureau o f Labor Statistics)

278
242

r Revised.
* Seasonal adjustment factors for 1946-48 revised; available upon request from
Research Department, Domestic Research Division.




Velocity of demand deposits*, 1935-39 = 100
(Federal Reserve B ank o f N e w York)

New York C ity..............................................
Outside New York C it y ..............................

* Adjusted for seasonal variation.
p Preliminary.
t A monthly release showing the 15 component indexes of hourly and weekly
earnings in nonagricultural industries computed by this bank will be sent upon
request. Tabulations of the monthly indexes, 1938 to date, may also be pro­
cured from the Research Department, Domestic Research Division.

11

FEDERAL RESERVE BANK OF NEW YORK

National Summary of Business Conditions

INDUSTRIAL PRODUCTION

(Summarized by the Board of Governors of the Federal Reserve System, December 30, 1948)
NDUSTRIAL

activity was maintained in November at about the high October rate. Department

I store sales were 5 per cent below last year’s level but in the early part of December sales increased

more than a year ago. Commodity prices showed further moderate decreases in November and the
first half of December.
I n d u s t r i a l Pr o d u c t i o n

Federal Reserve index. Monthly figures; latest
figure shown is for November.

CONSTRUCTION CONTRACTS AWARDED

Output at factories and mines showed little change in November, and the Board’s seasonally
adjusted index of industrial production was 194 per cent of the 1935-39 average as compared with
195 in October and 192 in November 1947.
Activity in the automobile, machinery, and nonferrous metals industries showed small reduc­
tions in November, but output of most other durable goods was maintained at the level of the
preceding month. The number of new automobiles assembled declined about 4 per cent in Novem­
ber, but rose again in the early part of December to a new postwar peak rate. Output for the
year has been about 5,275,000 passenger cars and trucks, the largest annual total since 1929. Copper
smelting was curtailed sharply in November as a result of a labor dispute affecting mine output.
Steel production, on the other hand, showed a slight further gain, averaging 100.4 per cent of
capacity in November as compared with 100 in October.
Production of nondurable goods declined slightly in November, reflecting in large part further
curtailments in output of textile and leather products. Cotton consumption decreased 5 per cent
and was 18 per cent smaller than in November 1947. Newsprint consumption was reduced some­
what from the peak rate reached in October. Activity at paper and paperboard mills continued at
record levels, and output of most other nondurable goods was maintained at about the October rate.
Minerals production increased somewhat in November, reflecting a slight further gain in
crude petroleum output and an unusually large volume of iron ore production for this season. Coal
output was maintained in November at the October rate but declined about 5 per cent in the first
half of December.
Em p l o y m e n t

Employment in nonagricultural establishments showed a small decline in mid-November from
the record level in October. The decline, which was unusual for this season, reflected mainly some
further curtailment of employment in industries manufacturing nondurable goods. Trade employ­
ment continued to increase seasonally, although the gain was the smallest for November since 1942.
Employment in most other lines showed little change.
F. W . Dodge Corporation data for 37 Eastern
States. Other includes nonresidential buildings
and public works and utilities. Monthly figures;
latest shown are for November.

DEPARTMENT STORE SALES AND STOCKS

Co n s t r u c t io n

Value of contracts awarded for most types of private and public construction declined more
than seasonally in November, according to reports of the F. W . Dodge Corporation. The number
of new housing units started decreased further in November to 65,000 as compared with 72,000
in October and 80,000 a year ago.
D

is t r i b u t i o n

Value of department store trade in November showed less than the usual seasonal rise and
the average daily rate of sales was 5 per cent smaller than a year ago. The Board’s adjusted sales
index was 287 per cent of the 1935-39 average as compared with the advanced level of about 310
which prevailed from April to October. Sales recovered to year-ago levels during the first half of
December, however, and it is estimated that total dollar sales for the holiday shopping period will
be near last year’s record volume. Sales of appliances and various other durable goods except new
automobiles have been below the exceptionally high levels prevailing at the end of last year.
Railroad carloadings of most classes of merchandise showed more than the usual seasonal
decline in November and early December and total shipments were about 9 per cent below the
same period a year ago. Loadings of coal were about 15 per cent below a year ago. Shipments of
manufactured goods were down about 5 per cent, owing to a further diversion of freight to other
forms of transportation and a reduction in the physical volume of goods shipped for export. This
reduction was augmented in November by a maritime dispute.
Federal Reserve indexes. Monthly figures; latest
figure for sales is November; latest
for stocks is October.
LOANS AT MEMBER BANKS IN LEADING CITIES

C o m m o d i t y P r ic e s

Wholesale prices and consumers’ prices declined about 1 per cent from mid-October to midNovember, reflecting chiefly decreases in livestock and foods. In the first three weeks of December
prices of foods continued to decline, various industrial materials weakened further, and prices of
some appliances and textile, petroleum, and soap products were reduced. Additional advances were
reported in prices of metals.
Ba n k

C r e d it

Federal Reserve System holdings of Government securities were further reduced in the first
three weeks of December, reflecting sales of Treasury bills, certificates, and bonds. These securities
were purchased primarily by commercial banks, which had an abundant supply of funds as a result
of a seasonal increase in the volume of checks in clearing and a further gold inflow. Absorption
of bank reserves by the pre-Christmas outflow of currency was somewhat smaller than usual.
Loans and investments at banks in leading cities showed little change in November, but
increased somewhat in the first half of December. Loans to businesses showed a much smaller
growth than in the same period last year. Loans to brokers and dealers for purchasing Government
securities rose sharply in November while bank holdings of Treasury bills declined. Deposits
declined slightly at all commercial banks in November, but increased sharply at banks in leading
cities during the first half of December.
S e c u r it y M a r k e t s

Excludes loans to banks. Wednesday figures;
latest shown are for December 15.




Prices of U. S. Government bonds and high-grade corporate and municipal bonds rose slightly
during the first three weeks of December. Common stock prices were steady with a moderate vol­
ume of trading.