View original document

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

ofCredit andBusinessConditions
S e c o n d

F e d e r a l

R e s e r v e

D is tr ic t

J u ly

Federal E eserve B ank, New Y ork

M o n e y M a r k e t in June
Principal developments in tlie money market during
June were in three broad classifications:
financing, changes in the reserve position of the member banks, and growth of commercial bank loans and
In the field of Treasury finance, the sale of Defense
Savings obligations was aided by a number of industrial
and other business concerns, which made it possible
for their employees to pay for Savings Bonds by
payroll deduction plans. The Secretary of the Treasury
on June 19 stated that the adoption of salary de­
duction plans on a nation-wide basis “ means that
thousands of working people are starting the sys­
tematic, regular buying of stamps and bonds out of
earnings, and doing it of their own free will.” Sales
of Defense Savings obligations since May 1, which had
reached $442,000,000 by the end of May, rose to a total
of $630,000,000 by June 21. Sales through June 21 were
composed of $185,700,000 of Series E bonds, $61,500,000
of Series F bonds, $376,800,000 of Series G bonds, and
$5,600,000 of Defense Postal Savings Stamps. In the
Second Federal Reserve District, total sales of the bonds,
not including those sold through the post offices, reached
$179,700,000 by June 21, including $37,500,000 of the
Series E obligations, $17,600,000 of Series F bonds, and
$124,600,000 of Series G bonds. The proportion of sales
of Series F and G bonds in the Second Federal Reserve
District to total sales of these series has been somewhat
larger than the proportion of Series E bonds sold in
this District. The Series F and G bonds are particularly
attractive investments for trust funds, of which there are,
of course, large amounts held in this District.
Aside from weekly issues of Treasury bills to replace
maturities, the Treasury engaged in no offering of
“ market” issues of direct Government securities in
June, although within the month— on June 2— subscrib­
ers made payment for the 2 % per cent Treasury bond
issue of 1956-58 offered on May 22. The Treasury did,
however, offer on June 24, on behalf of the Reconstruc­
tion Finance Corporation, $500,000,000, or thereabouts,
of Reconstruction Finance Corporation 1 per cent notes
dated July 3, 1941, and due April 15, 1944, and at the
same time offered to purchase on July 3, 1941, the
$211,000,000 outstanding Series N Reconstruction
Finance Corporation notes due July 20, 1941. This
operation will provide approximately $300,000,000 of



new money for the Corporation which will flow into
Treasury deposits in the Reserve Banks.
E x c e s s R e se rv e P o s it io n

During June, the excess reserves of member banks
showed further declines. For all member banks in the
country, excess reserves were reduced $670,000,000 be­
tween May 28 and June 25, to a total of $5,150,000,000,
the lowest figure since December, 1939. In New York
City, excess reserves dropped $370,000,000 in the four
weeks ended June 25, and at $2,165,000,000 were the
lowest since March, 1939. In the case of all member
banks in the country, the reduction in excess reserves
during June is to be explained by heavy payments into
Treasury deposit accounts in the Reserve Banks, rep­
resenting chiefly receipts on June 2 from the sale of
the 2 y 2 per cent Treasury bond issue of 1956-58 offered
on May 22, as well as from quarterly income tax collec­
tions which were in large volume in the ten days be­
ginning June 16. In addition, an increase of nearly
$200,000,000 occurred in the amount of currency out­
standing during the four weeks ended June 25. New

P rin cip a l F a cto rs A cco u n tin g fo r M ov em en ts o f F un ds In to and
O ut o f R e se rv e B alances o f M em ber B anks in S econd Federal
R e serv e D is tr ic t (C u m u lative sin ce J an uary 1, 1 94 1 ; ( + ) =
gain to reserv e b alances, ( — ) = lo ss to reserv e b a la n ce s)



York City bank excess reserves were reduced by the
operation of the same factors, and in addition by an
outflow of commercial, financial, and banking funds to
other parts of the country.
Since January, when excess reserves were practically
at their peak, there has been a decline of $1,750,000,000
in the excess reserves of all member banks, of which
$1,380,000,000 has occurred at New York City banks.
The principal factors that have caused the shrinkage
in excess reserves in New York City are indicated in
the preceding diagram; the shrinkage has resulted
only to a relatively minor degree from expansion of
reserve requirements. The data shown in the chart
are for the Second Federal Reserve District as a whole,
but the entire net effect of the decline has been felt by
the banks in New York City.
It is evident from the chart that since the beginning
of the year bank reserves in the New York area have
been absorbed in large amounts by an outward move­
ment of funds to other parts of the country through
"other commercial and financial transactions/’ repre­
senting movements of business funds and financial trans­
actions, the latter including payments to other parts of
the country for Government securities sold in the New
York market by holders in other districts. Losses of
funds to New York through such transactions have been
in progress since the latter part of 1938. There has
also been a large net loss of funds to member bank
reserves through Treasury transactions in this District
since the first part of the year, reflecting sales of new
Treasury securities, income tax collections, and other
Treasury receipts in this District, in excess of various
Treasury disbursements in this area.
Following a
large net loss of funds through Treasury transactions
for several years prior to the middle of 1937, the New
York market suffered no material net loss of funds in
Treasury transactions in the period from the middle of
1937 to the end of 1940. The extent to which the
losses of the first half of 1941 (which have helped to
raise Treasury balances in the Reserve Banks to more
than $1,000,000,000) will be restored will depend upon
the level at which Treasury deposits in the Reserve
Banks are maintained, and the extent to which Treasury
disbursements occur in the New York area. Another
important factor in the absorption of reserve funds in
New York since the first part of the year has been the
continued excess of withdrawals of currency over de­
posits of currency at the Reserve Bank.
As the diagram also indicates, there has been prac­
tically no net movement of out-of-town bank balances
to New York City banks since the beginning of this
year, following an inflow of bankers’ balances between
the latter part of 1937 and the end of 1940, aggregating
approximately $1,500,000,000. Most important of all,
from the viewpoint of the reserve position of the New York
City banks, has been the deceleration of the gold inflow
from abroad, the proceeds of which to a considerable
extent have flowed, directly or indirectly, into New York
banks, initially at least.
In summary, it may be said that the factors tending
to reduce reserves of the New York banks have consid­
erably exceeded the factors tending to increase them
since early in 1941, and that the resulting reduction in

reserve balances and excess reserves in New York has
accounted for most of the decline in reserve balances
and excess reserves of all member banks during this
M e m b e r B a n k C r e d it

Expansion of reporting member bank loans and
investments, amounting to $364,000,000 during the four
weeks ended June 25, was about the same as in the pre­
ceding four weeks. The proportion of the $662,000,000
Treasury bond issue dated June 2 taken by reporting
banks appears to have been somewhat smaller than the
proportion taken of recent previous issues, judging from
the net increase of only $142,000,000 in total holdings
of Treasury bonds of the reporting banks which occurred
during the week the new bonds were issued, and for
the four weeks as a whole the Treasury bond holdings
of the banks increased only $107,000,000. Treasury bill
holdings, however, rose $169,000,000, and holdings of
Treasury notes and Government guaranteed obligations
rose slightly. Holdings of other securities declined some­
what for the four weeks.
In the loan category, loans for commercial, industrial,
and agricultural purposes rose $152,000,000 further,
extending the increase in this type of credit since the
outbreak of the war to $1,829,000,000. Loans to brokers
and dealers in securities declined in June but remained
somewhat above the level prevailing before the large
increase in the last week of May which resulted from
financing requirements of Government security dealers
in connection with the new Treasury bond issue an­
nounced on May 22 and dated June 2.
M oney Rates in New Y ork
June 29, 1940 M ay 31, 1941 June 30, 1941
Stock Exchange call loans......................
Stock Exchange 90 day loans................
Prime commercial paper 4-6 m onths. .
Bills— 90 day unindorsed.......................
Average yield on Treasury notes (3-5
Average yield on Treasury bonds (not
callable within 1 2 y e a rs )!............
Average rate on latest Treasury bill
sale, 91 day issue....................... ..
Federal Reserve Bank of New York
discount rate..........................................
Federal Reserve Bank of New York
buying rate for 90 day indorsed bills




H -5

x -y8



0 .64




0 .3 8 §


2 .0 0











f “ Tax exem pt” issues only.
# Change of + 0.0 2 per cent
from previous yields due to dropping from the average the % per cent Treasury
note issue of June 15, 1944, which matures within three years.

G o v e r n m e n t S e c u r it ie s

United States Government securities advanced during
June to new highs for 1941. Following irregular fluc­
tuations during the first half of the month, the average
price of long term tax exempt Treasury bonds by June
26 had moved up % of a point to within % point of
the record high of December 10, 1940, and on a yield
basis slightly exceeded the 1940 high. Among the
taxable issues, the 2 y 2 per cent Treasury bonds of
1956-58 rose a point further to 104 during the month,
and the intermediate term taxable Treasury bonds also
rose to new highs since dates of issue. In the latter
part of the month, Treasury bond prices eased slightly.
Prices of Treasury notes likewise advanced in June.
Average yields on 3 to 5 year tax exempt Treasury

notes declined on June 11 and 12 to the lowest level
since last December and at the close of the month were
again at this low level. Similarly, yields on the taxable
% per cent National Defense note issues of 1944 and
1945 reached new lows for 1941 on June 11 and 12,
respectively, and toward the end of the month were quoted
only slightly above these lows.
The first three of the four taxable Treasury bill issues
during June were in the amount of $200,000,000, replac­
ing similar maturities. The fourth weekly issue was
for $100,000,000, also replacing a similar maturity.
Accepted bids for the $200,000,000 issues of bills were
tendered on an interest basis averaging between 0.100
and 0.107 per cent, while the $100,000,000 issue dated
June 25 was awarded at 0.066 per cent.
Security M a rk e ts
Although trading on the New York Stock Exchange
remained at low levels during June, stock prices recovered
much of the declines of April and May. According to
Standard’s stock price averages, the industrial shares
were mainly responsible for the 6 % per cent rise shown
by the combined 90 stock index between May 31 and
June 23, although railroad and utility equities also
advanced slightly. The stock market strengthened follow­
ing measures taken by the Federal Government to curb
strikes and again in the session following the outbreak of
war between Germany and Russia. Toward the end of
June stock prices fluctuated at levels slightly below the
month’s high reached on June 23.
As in stocks, industrial issues pointed the way in the
price gains made by domestic corporate bonds. After a,
minor irregular advance in the previous six weeks, the
price average of Moody’s high grade (Aaa) corporation
bonds moved upward more steadily during June to reach
on the 23rd the highest level since last January, only
about 1*4 points below the record high reached in De­
cember. Prices of medium grade corporate bonds, classi­
fied as Raa by Moody’s, again established a new record
high, as the price average showed a net advance of %
point for the month. Standard’s price index of prime
municipal bonds moved up slightly during June to a
level less than a point below the all-time peak set last
December. The volume of trading in bonds reported for
June by the New York Stock Exchange was the smallest
since last February.
N e w F inancing
The volume of both corporate and municipal new
security issues was considerably smaller in June than in
the previous month, and the total of both classifications,
at $255,000,000, was only about three quarters of the
corresponding monthly average for the first five months
of 1941. Corporate flotations aggregated $188,000,000 of
which $77,000,000 represented “ new money” borrowing
— mostly on the part of railroads through the sale of
equipment trust certificates.
The award of $60,000,000 Philadelphia Company bonds
and notes on June 24, marked the first completed trans­
actions under the Securities and Exchange Commission’s


new regulation requiring competitive bidding for new
security issues of utility companies. Bids had been sched­
uled to be submitted June 23 for $47,400,000 New York
State Electric and Gas Company bonds and preferred
stock but, since no tenders were received for the stock,
neither issue was awarded. Later, the company set a
higher dividend rate for the preferred stock and desig­
nated July 1 for the opening of new bids.
Temporary financing, not included in the $255,000,000
total above, amounted to $100,000,000 and included
$42,500,000 New York City 0.50 per cent revenue bills
maturing from July, 1941 to June, 1942 and $20,475,000
Federal Intermediate Credit Bank 0.75 per cent consoli­
dated debentures, maturing October, 1941 and April,
1942, sold on yield bases of 0.25 and 0.40 per cent, respec­
Corporate financing during the second quarter of 1941
averaged $199,000,000 a month, or about 20 per cent
less than in the first quarter, despite the fact that the
volume of flotations for raising new capital was slightly
higher. During the first six months of 1941, corporations
raised about one-third more new capital through security
issues than in the corresponding months of 1940.
Foreign E xch anges
As a result of the Executive Order of June 14, ex­
tending United States “ blocking” control to the accounts
of all Continental European countries, there came to
an end, at least for the time being, what remained of
New York trading in Continental exchanges. Just prior
to the suspension of dealings, the Swiss franc, which
has been the only principal foreign currency for which
an active market has existed in recent months, was
quoted at $0.2321% and the Swedish krona at $0.2385.
Both of these rates were close to the levels which had
prevailed for some time. The registered reichsmark
closed on June 14 at $0.1180, or about 3 % cents below
the high reached on May 20. In line with the Presi­
dent’s statement that preferential treatment would be
accorded to those European countries which gave ade­
quate assurances that any lifting of United States con­
trol would not be used to evade the purposes of the
Executive Order, general licenses were issued on June
20 relaxing control over Swiss and Swedish funds in
this country. On June 24 a general license was issued
having the effect of terminating the control over Russian
funds in the United States. Of the European neutrals.
Switzerland is by far the largest holder of assets in
this country, holding well over $1,000,000,000 in short
and long term investments. Despite the issuance of the
general licenses, New York trading remained suspended
in both the Swiss franc and the Swedish krona. Although
at the end of June dollars were quoted nominally in
Zurich at 4.30 Swiss francs, or equivalent to about
$0.2325% per franc, no business apparently has been
transacted there, pending the completion of arrange­
ments by the Banque Nationale Suisse for transactions
within the framework of the general license.
In order to supplement the new United States freez­
ing regulations, the British authorities informed British
banks on June 16 that no withdrawals from United
States dollar accounts held by them for nonresidents of



the sterling area could be made without the prior per­
mission of the Bank of England.
The Latin American exchanges, which now account
for the bulk of such unrestricted trading as still exists
in the New York market, continued to show a generally
firm tendency during the month, particularly prior to
the freezing of all Continental accounts. The discount
on the Cuban peso vis-a-vis the dollar continued to
narrow through June 16, when it was only % per cent,
the best rate since March, 1938, Although the discount
subsequently widened to about 1 % per cent, it never­
theless remained below that of a month earlier. The
Uruguayan peso was also in rather strong demand in
tlie noncontrolled market during most of the past month
and by June 25 the New York rate had appreciated to
$0.4505, as compared with $0.4063 as recently as May 7.
Some reaction occurred during the remainder of the
month, however, and the noncontrolled rate closed June
at $0.4400. In the controlled market, the Uruguayan
peso continued to be quoted at $0.6583. The free quo­
tation for the Venezuelan bolivar, after rising to $0.2900
on June 13, closed the month at $0.2750, as against
about $0.2588 a month ago. Evidencing the improved
exchange position of Argentina, an Argentine decree
was issued during the past month providing for the
abolition on July 1 of the “ prior exchange permit”
system, under which the granting of exchange for most
Argentine imports has been conditional upon the im­
porter’s first obtaining a permit. This liberalization
in the granting of exchange will probably affect more
than 80 per cent of Argentina’s imports, the remaining
imports being subject to quantitative regulation.
Presumably in a move to facilitate Japanese trade
with the sterling area, Japan on June 1 established a
“ foreign exchange concentrating account” and agreed
to indemnify Japanese banks against losses incurred in
the exchange business in sterling currencies. This re­
volving fund, into which banks are required to transfer
their sterling balances, was expected to amount to the
equivalent of about 500,000,000 yen and for the purpose
of this arrangement the pound sterling was valued at
14 pence to the yen, the same as the official rate for the
past seven years. As of July 1, Japan will also con­
centrate all dollar and certain other foreign exchange
holdings in a similar account and guarantee losses. In
addition to the United States dollar, the currencies to
be added to the concentration system on July 1 include
those of the Philippines, Canada, Argentina, Brazil, the
Netherlands East Indies, French Indochina, France,
Switzerland, Sweden, Italy, and Germany.
G old M o v e m e n ts
Imports of gold into the United States continued in
comparatively small volume in June. Gold held under
earmark for foreign account at the Federal Reserve
Banks decreased about $4,000,000 during the month to
approximately $1,917,000,000.
For the month, the
increase of about $50,000,000 in the gold stock was the
smallest of any month in three years.
In the four weeks ended June 18, the Department
of Commerce reported the receipt of $24,800,000 of

gold, in the following principal amounts: $15,800,000
from Canada, $3,200,000 from the Philippines, $1,200,000
from Mexico, $1,200,000 from Peru, $1,100,000 from
Chile, and $500,000 from the United Kingdom.
Central B a n k R a te C hange
Effective June 2 the South African Reserve Bank
lowered its discount rate from 3y> per cent to 3 per cent,
the lowest rate since the fixing of the bank’s first dis­
count rate on December 29, 1922.
E m p lo y m e n t and P ayrolls
According to the New York State Department of
Labor, factory employment in the State rose 1 % per cent
further between the middle of April and the middle of
May; payrolls, influenced by pay increases, were up 5
per cent. The gain in employment was contraseasonal in
nature, and reflected mainly continued expansion of op­
erations at plants manufacturing defense goods, particu­
larly firms in the automobile, airplane, and electrical
machinery industries, as well as a decline in the number
of workers affected by strikes. The usual sharp seasonal
decreases in employment were reported by most of the
companies in the clothing and millinery group, except
for a few men’s clothing plants engaged in work on Army
orders. Compared with a year before, working forces
were 28 per cent greater this May and payrolls 51 per
cent higher.
Over the past year industry in up-State New York, gen­
erally speaking, lias benefited relatively more from the
defense activity than has New York City industry. This
is largely attributable to the fact that New York City
factories are primarily engaged in the production of
clothing and other nondurable goods, while up-State
New York firms participate to a greater extent in the
manufacture of metal and other durable products— a
category which has been more substantially stimulated
by the defense effort.
Factory employment in the United States as a whole
also increased i y 2 per cent in May and payrolls rose 5 y>
per cent, according to the Bureau of Labor Statistics.
The largest gains in working forces continued to be re­
ported in the durable goods lines, particularly by the
aircraft, machinery, railroad equipment, and shipbuild­
ing industries, Among the nondurable goods industries
showing substantial increases in employment were cotton
goods and meat packing. The rise in payrolls reflected,
in part, further increases in wage rates.
According to data of the Bureau of Labor Statistics,
the increase in payroll disbursements at factories through­
out the United States amounted to 45 per cent between
May, 1940 and May, 1941, and 64 per cent in the two year
period May, 1939 to May, 1941. These gains, as indicated
in the accompanying chart, are attributable partly to the
adding of new names to factory payrolls— factory em­
ployment in May is estimated to have been 22 per cent
higher than in May, 1940 and 30 per cent higher than in
May, 1939, four months before the present European war
began. Important parts in the rise in factory payrolls


C o m m o d ity Prices




Indexes o f F a cto ry P a y rolls and E m p loy m en t (1 9 2 3 -1 9 2 5 a vera g e rr
100 p er c e n t ), A v e ra g e N um ber o f H ou rs W o rk e d per W ee k , and
A v e ra g e H ou rly E arn in g s (in c e n t s )— B ureau o f L a b or
S ta tistics D ata P lotted on E qu iv a len t R atio Scales

have also been played, however, by lengthening hours of
work and by increases in rates of compensation.
As indicated in the chart, working hours in plants re­
porting to the Bureau of Labor Statistics have reached
an average of 40 hours per week, as compared with 36%
two years ago. The final line on the chart, showing the
course of average hourly earnings, has been affected by
increases in wage rates, frequent in recent months, and
also by higher pay for overtime work. Under Federal
statute, working time of individual employees in excess
of forty hours a week must be compensated for at over­
time rates, and, while working hours are still under forty
in a number of industries, overtime is common in the
machine tool, aircraft, and other plants which have felt
the greatest pressure of increased output as a result of the
defense program. Hourly earnings of factory workers
averaged 71 cents, a record figure, in the most recent
month for which data are available (April) ; the rise in
two years amounts to 10 per cent.
Total nonagricultural employment in the United States
rose to 38,300,000 during May, an increase of 600,000
over the previous month and of 3,100,000 over May, 1940.
The largest employment gain, 310,000, was shown in min­
ing and reflected chiefly the return of bituminous coal
miners to work following the settlement of the strike at
the end of April. The gain in manufacturing employ­
ment amounted to 160,000 in May, following an increase
of 220,000 in April. On the other hand, there was a de­
cline in the number of persons engaged in construction,
because of the completion of many new army canton­
ments, and in wholesale and retail trade. Meanwhile,
military and naval personnel (not included in the esti­
mates of total nonagricultural employment) increased
115,000 further during May to a total of 1,660,000; com­
pared with May, 1940, there has been an increase of

Rising price tendencies, at a somewhat increased rate,
continued to be manifest during June. Owing in consid­
erable measure to further advances in food prices and
in domestic agricultural products generally, the Bureau
of Labor Statistics broad weekly index of wholesale
prices rose progressively during the month. On June
21 this index showed an increase of 9 per cent over the
level prevailing at the end of last year and an increase
of 17 per cent for the war period as a whole. Addi­
tional official price control measures were adopted dur­
ing June, a number of them designed to prevent increases
in prices of consumer goods.
The pronounced rise in food prices in recent months
reflects to some extent increased demand, accompanying
the expansion in consumer incomes, but to a larger extent
perhaps the effect of governmental measures to increase
domestic prices of farm produce. In addition, the prices
of sugar, coffee, and other imported foods have risen,
accompanying anxiety over limited shipping facilities,
especially for products not essential to defense needs.
The Bureau of Labor Statistics weekly index of whole­
sale food prices, which has shown an advance of 15 per
cent thus far in 1941 and of 25 per cent since August,
1939, is currently, however, still somewhat below the
highest levels of 1937, as the accompanying chart indi­
cates. Acting to check increasing food prices, the Office
of Price Administration and Civilian Supply on June
16 requested leading bakeries throughout the country
to refrain from advancing bread prices, and the coffee
and cocoa markets were subject to official regulations.
Supplementing the effect of the assurance of liberal
loans on this year’s production of several major crops,
the extension of the European war into Russia appears
to have had some stimulating influence on agricultural
prices in June. Generally unfavorable weather for the
growing cotton crop was also a strengthening factor in
this market. The average price of cotton in 10 Southern
markets reached the highest point since 1930, closing
with a net advance of about 1 % cents for the month at
14.27 cents a pound. Following the establishment of






1 94 1

Index o f W h olesa le F o o d P rice s (M o n th ly range o f B ureau o f L abor
S ta tistics w eek ly in d e x e s; 192S — IOO per ce n t; latest w eekly
index included is fo r J une 2 1 )



a 14 year peak in print eloth prices, the Office of Price
Administration and Civilian Supply late in the month
announced a schedule of price ceilings for a variety of
cotton cloths.
Winter wheat in Kansas City rose from 86% cents a
bushel at the end of May to $1.00% a bushel on June
30; wheat flour prices were also advanced during the
month. Partly associated with the Surplus Marketing
Administration’s buying program, prices of hogs and
lard rose to new high levels since 1937; hogs advanced
$1.50 from the end of May to $10.84 a hundredweight on
June 26, although in later trading a sizable downward
reaction occurred. Cottonseed oil reached the highest
price in about fifteen years and a sharp increase was
also recorded in soy beans. Corn quotations, however,
moved within a relatively narrow range, reflecting offer­
ings in the market of Commodity Credit Corporation
Despite fears of shortage of ocean shipping space,
price advances during June in import commodities were
generally less marked than in earlier months of the year.
Sugar prices advanced 11 points to 3.53 cents a pound
on June 20, but subsequently lost part of that gain. Silk
prices showed a net gain of 15 cents to $3.03% a pound.
Announcement was made that all crude rubber would
be purchased through the Rubber Reserve Company,
and rubber prices were relatively steady throughout
the month. On June 26 the Office of Price Administra­
tion and Civilian Supply announced that ceilings would
be placed on tire quotations.
Among mineral products, price advances occurred dur­
ing June in fuel oil, gasoline, and coal. The metal
markets generally were unchanged, as new official
measures were taken to insure supplies for defense
requirements. The Priorities Division of the O.P.M.
placed scrap aluminum and zinc under mandatory pri­
orities, and ordered allocations in July of 22 per cent
of zinc output for defense purposes.
P rodu ction and T ra d e
Such data as are now available for June point to a
continued advance in the rate of business activity.
Under the pressure of defense program needs, the usual
seasonal slackening appears to have been absent in a
number of important lines.
Steel mills operated at or near rated capacity through­
out June. Late in May, Gano Dunn, the special con­
sultant to the Office of Production Management, indi­
cated in his second report to the President that steel
requirements this year would exceed productive capac­
ity by 1,400,000 tons and would be 6,400,000 tons in
excess of capacity in 1942. The Office of Production
Management thereafter requested the submission of plans
for an increase in the annual capacity of the industry
by about 10 million tons in the shortest possible time.
The necessity of curtailing the use of steel for non­
defense purposes was emphasized by the issuance of a
general steel preference order by the Office of Produc­
tion Management. Blanket preference ratings were
issued during June to 24 shipbuilders; 13 steel com­

panies were requested to curtail production of sheet and
strip steel for nondefense purposes and use the released
capacity to turn out plates for shipbuilding, railroad
car building, and other defense needs; and railroad
freight car builders were assured preference over steel
necessary for car building.
As in May, automobile production in June proceeded
at the highest rate since the spring of 1937 and retail
demand continued strong. Mill sales of cotton gray
goods were brisk during the first three weeks of the
month, but subsequently decreased sharply following
rumors that price ceilings would be placed on cotton
goods generally. Mill activity held at an exceptionally
high rate. Loadings of railway freight continued in
large volume; during the week ended June 21 the total
of all cars loaded exceeded last fall’s peak by 48,000 cars,
and was the highest for any week since November 4,
Electric power production appears to have
reached a record high level during the month.
In May this bank’s seasonally adjusted index of pro­
duction and trade advanced five points over the February-April level to 109 per cent of estimated long
term trend. The unusually large increase in the index
reflected in considerable part the resumption of large
scale operations in lines of industry that had been
affected by labor disputes.
Advancing tendencies in production and trade were
general during May, and each of the component group
indexes moved upward. The index of producers’ dur­
able goods production, which includes important defense
lines such as steel, aircraft, shipbuilding, and machinery,
rose four points further to a level about 50 per cent
above that of May, 1940, and the recovery in bitu­
minous coal output resulted in a particularly sharp rise
in the producers’ nondurable goods index. A marked
gain was indicated in the rate of flow of merchandise
through primary distribution channels.
of consumers’ goods, particularly those in the durable
category, was at a considerably higher level than in
May, 1940, and it is estimated that retail trade expanded
somewhat further between April and May, seasonal









P e rce n ta g e Increase in E stim a ted N a tion a l In com e and in Certain
T y p e s o f C onsum er E xp en d itu re fo r F irst F iv e M on th s o f 1941,
as Com pared w ith C orresp on d in g P eriod o f 1940

factors considered. Retail sales of passenger cars ex­
ceeded those of any previous month.
The accompanying chart presents some indications of
the disposition which consumers have been making of
their increased incomes. Total income payments to indi­
viduals during the first five months of this year are esti­
mated at a rate of almost $80,000,000,000 a year, 12 per
cent above the level in the corresponding period of 1940.
Larger increases, in some cases substantially larger,
are shown by the other items in the chart which reflect
consumer expenditures. New passenger car sales in the
first five months of this year were the greatest for any
similar period on record, 41 per cent ahead of the total
for the first five months of 1940. Combined sales of two
major mail order houses ran 25 per cent above the
first five months of last year, and private residential
building contract awards were 22 per cent greater.
Year-to-year increases in the other items— sales of de­
partment stores, independent retailers (other than de­
partment stores), grocery and variety chain store sys­
tems— ran 13 to 19 per cent higher.
(Adjustedffor seasonal variations and estimated long term trend;
series reported in dollars are also adjusted for price changes)


In d ex o f Production and Tra d e .....................

Production of:
Producers’ durable g ood s.....................
Producers’ nondurable goods...............
Consumers’ durable g ood s...................
Consumers’ nondurable goods.............
Primarv distribution..................................
Distribution to consumer.........................

M ay


89 r


104 p




117 p
109 p

12 1p

73 r

10 2

10 2 p




98 p




12 1
12 1
12 2 p

M ay


Industrial Production

Autom obiles.................................................
Bituminous coa l..........................................
Crude petroleum .........................................
Electric pow er..............................................
Cotton consum ption..................................
W ool consum ption......................................
Meat packing..............................................
T obacco p roducts.......................................




10 1


12 0



110 p

10 1

10 0



112 p



Manufacturing E m ploym ent

Em ploym ent................................................
Man-hours of em ploym ent.......................



Residential building contracts.......... ..
Nonresidential building and engineering










10 2

10 2

Prim a ry Distribution

R y. freight car loadings, mdse, and misc.
R y. freight car loadings, oth er................
E xports.........................................................
Im ports.........................................................


10 0

10 0






Distribution to Consum er

Department store sales (U .S .).................
Grocery chain store sales..........................
Variety chain store sales...........................
M ail order house sales...............................
New passenger car sales............................


10 0
10 1

10 1
10 0




112 p

Velocity o f D ep osits *

Velocity of demand deposits, outside New
Y ork C ity (1919-25 average = 1 00 )..
Velocity of demand deposits, New York
C ity (1919-25 average = 100).............













Cost o f L iving and W a ges*

Cost of living (1935-39 average = 100)
W age rates (1926 average = 100)..........


r Revised.

* Not adjusted for trend.


B u ild ing
The daily rate of construction contract awards in
New York and Northern New Jersey, according to the
F. W . Dodge Corporation survey, was 42 per cent
higher in May than in the previous month. Part of
this increase resulted from the inclusion of a large
volume of defense contracts awarded in New Jersey
during previous months, but not included in the re­
ported totals, owing to the lack of detailed data. Awards
for nonresidential building rose 71 per cent and awards
for residential building and for heavy engineering con­
struction also increased, though by considerably smaller
amounts. Compared with May, 1940, the rate of contract
awards of all classes was up 22 per cent. Nonresiden­
tial building awards, mainly responsible for this favor­
able showing, were about double the figure for the same
month of the previous year, while residential building
showed little change and heavy engineering projects
declined by one third.
For 37 Eastern States the daily rate of construction
contract awards during May rose to the highest level
since June, 1930; it was 25 per cent higher than in
April and 67 per cent above the average for May, 1940.
One quarter of the month’s reported total was for Gov­
ernment contracts in connection with the defense pro­
Nonresidential building awards in the 37 States were
more than double the figure for May, 1940. Large
public and private contracts for factory buildings to
handle defense production were mainly responsible for
this increase. Awards for heavy engineering construc­
tion were 56 per cent above the same month last year.
Reflecting a high level of private residential building
and progress on the Government’s program for housing
defense workers, awards for residential building were
38 per cent above May of last year and the highest for
any month since July, 1929.
Owing primarily to the stimulating effect of the year
old defense program, the total volume of contract awards
in the 37 States during the twelve months ended May
31, 1941, was 37 per cent greater than in the preceding
twelve months. The largest gain (83 per cent) occurred
in the field of nonresidential building, reflecting, for
the most part, construction of, and additions to, factory
buildings. Residential building awards were up 32 per
cent; awards for heavy engineering projects increased
only 8 per cent. The relatively small increase in this
latter category is due in part to the fact that defense
construction of this type has to a certain extent taken
the place of the civilian public works program rather
than representing a net addition.
During the first half of June the daily rate of con­
struction awards showed little change from the average
for May. Compared with the corresponding period of
1940, contracts were up 75 per cent, and all major classi­
fications recorded substantial increases.
F oreign T ra d e
Despite numerous disruptions since the outbreak of the
present European war, including stringency that has
developed in the ocean shipping situation, this country’s



foreign trade has been substantially above the prewar
levels, both in aggregate dollar values and in estimated
quantities. The monthly average value of domestic mer­
chandise exports in the first eight months of the second
year of the war (September, 1940— April, 1941) was
$326,000,000, an amount about equal to the average of
the first war year, when France was drawing heavily
upon the United States for war materials, and 35 per
cent above the rate in the twelve months prior to the war.
Shipments of American products to British Empire
countries, which have increased sharply during the war
period, have played the dominant part in the expansion
of our export trade. The average value of imports for
consumption in the September, 1940— April, 1941 period,
at $229,000,000, exceeded the monthly average for the
first year of the war as well as the average for the twelve
months preceding the war. The gain in imports reflected
increased receipts of strategic materials for defense pur­
poses, and greater industrial activity generally.
The expansion in this country’s foreign trade since
August, 1939 has been accompanied by wide shifts in the
types of commodities exported and imported, as is in­
dicated in the following chart. A marked gain has
occurred in exports of finished manufactures, which in­
creased from a monthly average value of $130,000,000
in the prewar year, or 53 per cent of all exports, to
$221,000,000 in the first eight months of the second war
year, or 68 per cent of the total. The increase in this type
of exports is accounted for largely by the accelerated
shipments abroad of airplanes and other manufactured
products for military use. On the other hand, as Conti­
nental Europe became virtually closed to all outside mar­
kets and as the British Empire demands were concen­
trated more and more in war materials in advanced
stages of manufacture, exports of crude materials and of
foodstuffs were reduced to small proportions. Exports of
crude materials, including cotton and tobacco, decreased
from a monthly average value of $42,000,000 to one-half
that volume in the first eight months of the second war
year. Exports of foodstuffs, already at low levels in the
prewar period, declined to comparatively negligible

Changes in the different types of imports have not
been so pronounced as in the case of exports, although
imports of crude materials rose from a monthly average
of $55,000,000, or 31 per cent of all imports in the
prewar year, to $97,000,000 or 42 per cent of the total
in the September, 1940— April, 1941 period. Large fac­
tors in the gain were increased receipts of rubber, wool,
and other industrial raw materials included in this
D e p a rtm e n t Store T rad e
Sales of the reporting department stores in the Second
Federal Reserve District during the four weeks ended
June 28 were about 9 per cent larger than in the cor­
responding weeks of 1940, and the daily rate of sales
for this portion of June appears to have averaged slightly
higher than in May.
In May, sales of the reporting department stores in
this District were 16 per cent higher than in May, 1940,
but the daily rate of sales declined more than seasonally
from the high April level, the changing date of Easter
and other seasonal factors considered. During May
substantial year-to-year advances were reported in sales
of housefurnishings, clothing, and silverware and jewelry.
Retail stocks of merchandise on hand in the depart­
ment stores at the end of May continued 9 per cent higher
than a year ago, but remained low relative to the current
rate of sales.
Percentage changes from a year ago
Stock on hand
end of month

Net sales
Department stores
New York City (includes B ro o k ly n )...
Northern New Jersey..............................
Westchester and Fairfield Counties. . .
Lower Hudson River V alley.................
Upper Hudson River V alley.................
Central New York S ta te........................
Mohawk River Valley. .......................
Northern New Y ork State.....................
Southern New Y ork S tate.....................
Bingham ton...........................................

Niagara F alls........................................

M ay, 1941

+ 14
+ 16
+ 15

+ 10


+ 13
+ 12

+ 19
+ 24
+ 13
+ 15
+ 14


+ 17
+ 19



+ 19
+ 17
+ 4




+ 13
+ 15



+ 4



M ay,

+ 17

+ 11

+ 6

+ 11
+ 12
+ 11


All department stores.........................

+ 16

+ 12

+ 9

Apparel stores...........................................

+ 14

+ 8

+ 4

Indexes of Department Store Sales and Stocks, Second Federal Reserve District
(1923-25 average = 100)


M a jo r E con om ic C lassification s C om p osin g U n ited S ta tes E xp orts
and Im p orts (D ep a rtm en t o f C om m erce d a ta )

M ay

M ar.


M ay

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

88 r


10 0



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

79 r




r Revised.


Business Conditions in the United States
(Summarized by the Board of Governors of the Federal Reserve System)
FTER a slight decline in A p ril industrial activity increased sharply in
, May and the first half of June. Wholesale commodity prices showed a
further considerable advance and retail prices also increased. Distribution o f
commodities to consumers was maintained in large volume.


P r o d u c t io n

Index o f P h y sica l V olu m e o f Industrial P r o ­
d u ction , A d ju s te d fo r S easonal V aria tion (1 9 3 5 1939 a vera g e = 100 per c e n t; durable m an u­
fa ctu res, non durable m an u fa ctu res, and m in er­
als exp ressed in term s o f p oin ts in tota l in d ex)

Indexes o f V alu e o f D ep artm en t S tore Sales and
S tock s, A d ju s te d fo r S easonal V aria tion
(1 9 2 3 -1 9 2 5 a vera g e = 100 p er ce n t)

Volume of industrial output increased sharply in May, following a decline
in A p ril, and the Board’s seasonally adjusted index rose to 149 per cent of the
1935-1939 average, as compared w ith 140 in A p ril and 143 in March. The
decline in A p ril had reflected mainly reduced output of bituminous coal and
automobiles occasioned by shutdowns accompanying industrial disputes. These
were settled during the month and in May and the first h a lf of June output in
these industries rose to the high levels prevailing earlier.
In a number of other lines activity increased steadily throughout the spring
months, particularly in the machinery, aircraft, and shipbuilding industries.
Steel production was maintained at 99 per cent of capacity, except fo r a short
period during late A p ril and early May when output was reduced somewhat
owing to a shortage of coal. Output of nonferrous metals also continued near
capacity; deliveries of foreign copper in May increased to 49,000 tons, amount­
ing to about one th ird of total deliveries to domestic consumers. Toward the
end of the month, as i t became apparent that combined m ilita ry and civilian
need fo r these metals would soon greatly exceed available supplies, a General
Preference Order covering all iron and steel products was issued by the P rio ri­
ties Division of the Office of Production Management and in June mandatory
p rio rity controls were established fo r copper and zinc.
Textile production rose further in May, reflecting increased activity at cot­
ton, wool, and rayon mills. A continued rise in output of manufactured food
products was likewise reported and activity in the chemical and shoe industries
was maintained at earlier high levels, although usually there is a considerable
decline at this season. Petroleum production increased, and output of anthra­
cite also advanced following some curtailment in A p ril. Iron ore shipments
amounted to 11,000,000 tons in May, a new record level and near the shipping
capacity of the present Lake fleet.
Value of construction contract awards rose sharply in May, reflecting
increases in both public and private construction, according to F. W. Dodge
reports. Awards fo r private residential and nonresidential building increased
more than seasonally, and contracts fo r defense projects continued in large
D is t r ib u t io n

Distribution of commodities to consumers was sustained at a high level in
May. Department store sales showed a further rise, while sales at variety stores
declined by slightly more than the usual seasonal amount. Retail sales o f new
automobiles continued at the high A p ril level and sales of used cars rose further.
Freight car loadings increased sharply in May, reflecting a marked rise in
coal shipments and a further expansion in loadings of miscellaneous freight. In
the first half of June total loadings were maintained at the advanced level of
other recent weeks.
Co m m o d it y P

Indexes o f W h olesa le P rice s C om piled b y
U nited S tates B ureau o f L a b or S ta tis­
tics (1 9 2 6 a vera g e = 1 0 0 per ce n t)

... ...


----------------- --





A -


v rn *

m o -,r«




s W




___ A ^ w .





M on ey R ates in N ew Y o r k C ity

Cr e d it

Commercial loans at reporting banks in 101 cities continued to rise during
the four weeks ended June 11. Bank holdings of United States Government
securities increased further, chiefly through the purchase of bills by New York
City banks and of bonds by banks in other leading cities. As a result of the
expansion in loans and investments bank deposits continued to increase.
U n it e d S t a t e s G o v e r n m e n t S e c u r it y

V j u


r ic e s

Wholesale prices of a number of agricultural and industrial commodities
showed further increases from the middle of May to the middle of June and the
general index of the Bureau of Labor Statistics advanced two points to 87 per
cent of the 1926 average. Federal action to lim it price increases was extended
to some consumer goods, principally new automobiles, hides, and certain cotton
yarns. In retail markets prices of most groups of commodities have advanced,
reflecting in part increases in wholesale prices earlier this year.



P r ic e s

Following a rise in the latter part of May Treasury bond prices declined
slightly in the first ha lf of June. On June 14 the 1960-65 bonds were % of a
point below the all-time peak in prices of December 10. Yields on both taxable
and tax exempt 3 to 5 year notes declined slightly from the middle of May to
the middle of June.