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MONTHLY REVIEW
ofCreditandBusinessConditions
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

Federal Reserve Bank, New Y ork

M o n e y M a r k e t in June
As in March, the quarterly tax period in June passed
without material disturbance to the money market or to
bank reserve positions, despite the lower general level of
excess reserves prevailing. Government security prices
held steady and trading activity was light throughout
the month. Income tax collections by the Federal Gov­
ernment during June, which came to $2,100,000,000 in
the United States as a whole, and to about $570,000,000
in the Second Federal Reserve District, were, with the
exception of March, the largest on record. Nevertheless,
at no time during the period of heaviest collections did
excess reserves of member banks fall below $2,700,000,000
in the country as a whole, or below $500,000,000 in New
York City, thus maintaining approximately the same
levels as had prevailed since early May. On the last
“ statement date” of the month, Wednesday, June 24,
excess reserves fell slightly below those levels, to
$2,650,000,000 for all member banks, and to $485,000,000
for Central Reserve New York City banks, principally
as a result of payments for the $300,000,000 Treasury
bills sold on that date. The next day, June 25, payments
were due on the new issue of certificates of indebtedness,
and excess reserves temporarily declined somewhat
further, but funds transferred from member bank re­
serve accounts to Treasury balances with the Federal
Reserve Banks— in payment for those securities— were
largely returned to the banks within a relatively short
period, through Government expenditures.
At the beginning of the year some concern was felt
over the prospective impact of quarterly income tax
collections during 1942, because of the joint effect on
income tax revenues of a larger “ tax base” , and the
increases in tax rates contained in the Revenue Act of
1941. Special arrangements were made for a concen­
tration of Treasury bill maturities during the March
tax period. By acquiring Treasury bills which would
fall due during the period when heavy tax collections
are made, banks could be assured of receiving funds
with which to pay income tax checks drawn on them.
Similar preparations were made for the June tax period;
Treasury bill maturities, of $150,000,000 each, were
arranged for June 16, 17, 18, and 19. But the first two
of these maturities were offset by the sale of $300,000,000
of new bills on June 17, and the third and fourth maturi­
ties were followed by the sale of a like amount on June
24. The mounting volume of Government expenditures
made net redemptions of Treasury bills during the June




July 1,1942

tax period unnecessary. When Government receipts,
even though temporarily swollen by collections of income
tax instalments, fail to exceed expenditures, those ex­
penditures automatically provide the offset to the income
tax payments.
In June the collection of checks drawn by individuals
and corporations, in payment of second quarter income
tax instalments, extended over a number of days, and
the funds thus transferred from member bank reserve
balances to Treasury balances with the Reserve Banks,
were returned to the banks with unusual rapidity. Data
published in the Daily Statement of the United States
Treasury indicated that war expenditures reached about
$3,800,000,000 during June, and total Government ex­
penditures attained a level which required frequent
withdrawals of funds from “ war loan” accounts in
depositary banks to supplement tax receipts. These
withdrawals during June totaled $1,200,000,000 for the
country as a whole, and $780,000,000 in this District.
Treasury deposits with the Reserve Banks remained
at relatively low levels through the days when income
tax collections were heaviest. In fact, on several occa­
sions during the period June 16-23, the Federal Reserve
Banks purchased, direct from the Treasury, special one
day issues of certificates of indebtedness to adjust the
Treasury’s cash position. The authority of the Reserve
Banks to purchase securities direct from the Treasury,
which was revived by an amendment of the Federal
Reserve Act, contained in the Second W ar Powers Act,
BILLIONS
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Excess Reserves Held by Member Banks

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50

MONTHLY REVIEW, JULY 1, 1942

1942, was thus put to practical use. Temporary trans­
actions of this type were employed extensively in the first
World W ar financing and over tax periods during the
1920’s.
The use of previously acquired tax anticipation notes
by taxpayers to meet, in part, the June instalments on
their income taxes also contributed to the close balance
between Treasury receipts and payments during the tax
period. Of the total income tax collections during June,
tax anticipation notes were used to make 24 per cent of
the payments, a considerably larger proportion than in
March when the figure was 17 per cent. Consequently,
out of the total collections of $2,100,000,000, cash pay­
ments came to $1,600,000,000.
Federal Reserve open market operations in Govern­
ment securities continued to contribute to the volume of
member bank reserves and to the maintenance of stable
money market conditions during June, although, in
view of the rather firm security market that prevailed
during most of the month, net purchases were somewhat
smaller than in May. These operations took the form
largely of purchases of Treasury bills, partly under the
% per cent buying rate established by the Federal Open
Market Committee on April 30. During the four weeks
ended June 24, purchases of bills, in excess of maturities,
amounted to $63,000,000. Over this period the holdings
of the System Open Market Account as a whole showed
an increase of $94,000,000. Purchases and sales of par­
ticular issues of Government securities continued to be
made during the month when ready markets for certain
issues were unavailable or when other issues were in
particular demand.
Adjustments in the reserve position of individual
banks have been facilitated recently by an enlargement
of the supply of short term securities, which the banks
can acquire for temporary investment of available funds,
and which they can readily sell to obtain additional re­
serves when necessary. The weekly offerings of Treas­
ury bills were increased to $300,000,000 for the first
time on June 10, as a means of further enlarging the
supply of short term Government securities, as well as
supplying the Treasury with additional funds. For the
month as a whole, the outstanding volume of Treasury
bills increased $250,000,000.
The market supply of short term Government obli­
gations was enlarged further by the one major piece
of Treasury financing in June, which consisted of the
offering of another $1,500,000,000 issue of certificates
of indebtedness. Dated June 25, this issue will mature
in about 7 months, as compared with 6 ^ months on the
April issue of certificates of indebtedness, and carries a
rate of % per cent as compared with y 2 per cent on the
earlier issue. Two thirds of the payments for the new
certificates of indebtedness were made by the so-called
“ book-credit” method, and thus had the effect of replen­
ishing Government deposits with commercial banks on
“ war loan account” . These deposits had been drawn
down by $1,000,000,000, to $640,000,000, as a result of
heavy calls for repayment during the first twelve days
of June.
In the Second Federal Reserve District, where excess
reserves have been running at relatively lower levels
than elsewhere in the country, banks used the “ book




credit” method to the extent of 80 per cent in making
payments for certificates of indebtedness taken in this
District. While purchases in this District of the new
certificates of indebtedness were again relatively large,
the issue was more widely distributed than the April
issue of certificates of indebtedness, as reflected in the fact
that 54 per cent of the June issue was taken in other
Federal Reserve Districts, as compared with 45 per cent
of the April issue.
G overnment Security M arket in J une
Stability and light trading activity were the predomi­
nant characteristics of the Government security market
during June. The announcement on June 22 that the
Treasury would borrow in the open market between
$3,750,000,000 and $4,500,000,000 in July and August
had only a slight effect on price quotations. Between
May 29 and June 29 the average yield on long term
partially tax exempt Treasury bonds fluctuated around
1.99 per cent, the 1942 low. The average yield on
long term taxable Treasury bonds during the greater
part of the month was 2.32 per cent, equaling the low
for the year. A somewhat higher level was reached
late in June. Intermediate term Treasury bonds were
steady.
While yields on Government bonds were at or near
the year's lows, yields on Treasury notes generally moved
to somewhat higher levels, at or near the year's peaks.
Thus, the average yield on three to five year taxable
Treasury notes, moving within a narrow range, rose
slightly between May 29 and June 5 to equal the 1942
high point, at which level the average remained during
much of the remainder of the month. Yields on tax
exempt Treasury notes also rose.
On June 18, the Treasury offered another $1,500,000,000
issue of Treasury certificates of indebtedness, designated
Series A-1943, which were dated June 25 and mature
February 1, 1943. Subscription books remained open
two days, compared with one day for the earlier issue.
This and several other changes in subscription rules, to­
gether with the slightly higher interest rate, had the de­
sired effect of obtaining a wider primary distribution for
the issue. The new certificates were well received, subscrip­
tions totaling $3,113,000,000, compared with total sub­
scriptions of $3,062,000,000 on the April offering, despite
a much smaller volume of insurance company subscrip­
tions. Subscriptions of $25,000 or less, which totaled about
$61,000,000, were allotted in fu ll; 50 per cent allotments
were made on the larger subscriptions (such allotments
on the April issue were on a 48 per cent basis). Total
allotments on the new issue aggregated $1,589,000,000.
Market quotations on the new certificates remained close
to par, the yield at the ejid of the month being 0.62 per
cent bid; trading has been inactive. The yield on the
earlier issue of certificates of indebtedness declined from
0.49 per cent bid on May 29 to 0.46 on June 29.
The weekly offerings of Treasury bills were again
raised during June.
While the June 3 issue, like the
three previous offerings, was in the amount of
$250,000,000, the June 10 and the two subsequent offer­
ings were raised to $300,000,000. Since Treasury bill
maturities during June totaled $900,000,000, the Treas­
ury through its weekly bill transactions obtained
$250,000,000 of “ new money” during the month. Short

FEDERAL RESERVE BANK OF NEW YORK

The increased availability of Treasury bills, arising out of the
larger offerings now being made, and the assurance of a market
at a fixed rate at the Federal Reserve Banks have consider­
ably broadened the Treasury b ill market. Tenders for new
issues of Treasury bills have been received in increasing num­
bers from outside of the principal money centers, where these
bills have previously found their principal market, and many
inquiries have been received, from banks and others, as to the
correct procedure to follow in bidding fo r Treasury bills. In
view of these inquiries and in the interest of a further broaden­
ing of the market, the procedure used in submitting tenders for
new issues of Treasury bills and other pertinent data are out­
lined in a circular addressed by this bank to all incorporated
banks and trust companies in the Second Federal Reserve Dis­
trict and to others concerned. Copies of this circular (No.
2453) may be obtained upon application to this bank or its
Buffalo Branch.

term Government securities (maturities of less than one
year) now outstanding total $5,600,000,000, of which
$3,100,000,000 are certificates of indebtedness and
$2,500,000,000 Treasury bills.
The Treasury bill rate during June continued stable,
slightly under the % per cent rate at which the Federal
Reserve Banks stand ready to purchase all Treasury
bills offered them. The first three weekly bill offerings
in June were of 91 day term; the June 24 issue was of
85 day term and will consequently mature during the
next quarterly income tax collection period in September.

51

dropped sharply and holdings of Treasury notes in­
creased, as a result of the exchange offering of new 1 y 2
per cent Treasury notes, dated June 5, for outstanding
Home Owners’ Loan Corporation 2 % per cent bonds
and Reconstruction Finance Corporation 1 per cent
notes. Treasury bills held by the reporting institutions
were enlarged to the extent of $158,000,000 over the
four weeks ’ period, the bulk of the increase, as during the
previous month, being concentrated in banks outside New
York City. Commercial, industrial, and agricultural
loans showed a small increase in New York City but
declined $58,000,000 further in other reporting centers.
The total for all weekly reporting member banks, at
$6,505,000,000, on June 24, was $530,000,000 below the
high point reached March 18. New York City banks’
loans to brokers and dealers in securities dropped
$78,000,000.
Adjusted demand deposits increased $437,000,000 in
the 101 cities during the four weeks and $164,000,000
in New York City, most of the increases occurring during
the week ended June 10. Reflecting a series of calls by
the Treasury on depositary banks, Government deposits
declined $869,000,000 in the 101 cities and $579,000,000
in the New York City banks. As of June 17, U. S.
Government deposits were the lowest since last October
for the banks in the 101 cities and since last November
for the banks in New York City.

M oney Rates in New York

W a r Savings B o n d s
June 30, 1941 M ay 29, 1942 June 29, 1942
Stock Exchange call loans..........................
Stock Exchange 90 day loans...................
Prime commercial paper— 4 to 6 months
Bills— 90 day unindorsed............................
Yield on % per cent Treasury note due
March 15, 1945 (tax exem pt).................
Average yield on taxable Treasury notes
(3-5 years)...................................................
Average yield on tax exempt Treasury
bonds (not callable !within 12 years). .
Average yield on taxable Treasury bonds
(not callable within 12 years)..............
Average rate on latest Treasury bill sale
91 day issue.................................................
Federal Reserve Bank of New York dis­
count rate......................................................
Federal Reserve Bank of New York buy­
ing rate for 90 day indorsed bills.........
* Nominal

1
*1M

1

1

tt
%

A

* iy
% -%
%

0 .4 2

0 .5 4

0 .5 9

0 .6 6

1.0 2

1 .1 7

1 .9 6

1.99

2 .0 0

2 .1 8

2 .3 3

2 .3 4

0 .3 6 5

0 .3 6 2 f

0 .0 6 6
1

1

1

tt

tt

tt

f 85 day issue

M ember B ank Credit
During the four weeks ended June 24 there was a
contraction of $244,000,000 in the total loans and invest­
ments of the weekly reporting member banks in New
York City. Weekly reporting banks in 100 cities out­
side of New York, however, added $105,000,000 in the
aggregate to their loans and investments. Loans declined
both for the New York City and the outside institutions,
while total investments showed divergent movements— a
reduction of $136,000,000 in New York City and an
increase of $241,000,000 elsewhere.
Of the decline in total investments shown by New York
City banks, a considerable part was accounted for by
a reduction in holdings of “ other securities” , owing
principally to the maturity of an issue of New York
State notes and of short term notes of the Common­
wealth of Pennsylvania.
Holdings by all reporting
member banks of Government guaranteed obligations




Despite the fact that sales of War Savings bonds dur­
ing June, estimated at about $650,000,000, were approxi­
mately double those of the corresponding month a year
ago, the goal of $800,000,000 was not reached. On the
basis of reports through June 26, sales of Savings bonds
in the Second Federal Reserve District by agencies other
than post offices will probably show about the same total
as in May. The payment of second quarter income tax
instalments and continuing uncertainties with respect
to new tax legislation may have been partly responsible
for the failure of W ar Savings bond sales to increase in
June. On the other hand, encouraging reports of the
progress of the Treasury Pledge Campaign, and of in­
creasing numbers of persons enrolled in company pay­
roll deduction plans, point to an ever widening public
participation in the program.
As shown in the following diagram, the percentage
of National income devoted to the purchase of War
Savings bonds has averaged substantially higher than
was the case with the old type Savings bonds sold prior
to May 1, 1941. The peaks shown for May, 1941 and
January, 1942 were accentuated by numerous purchases,
especially of Series F and G bonds of amounts equal to
the calendar year limitations for individual subscribers
established by the Treasury Department, and included
substantial purchases with previously accumulated funds.
During the period January, 1939— April, 1941, sales of
Savings bonds averaged slightly under i y 2 per cent of
income payments to individuals while from May, 1941
to date sales have averaged about 5 % per cent. In May
and June sales amounted to somewhat above 7 per cent
of the National income. The Treasury Department’s
announced objective is 10 per cent.

MONTHLY REVIEW, JULY 1, 1942

52
P€B CENT

Cash R eceipts from th e Sale of U . S. S a vin gs B onds E xpressed as a
P ercentage o f N ational Incom e P a y m en ts (Jun e, 1 9 4 2 , sales o f
U . S. savin g s bonds estim ated on basis o f D aily Statem en t o f the
T reasu ry for first 2 2 d ays o f the m o n th ; N ational incom e
pa ym en ts estim ated for M a y and Ju ne)

Indications are that Series E bonds are accounting for
a considerably enlarged proportion of the sales of all
series, and that, of the Series E bonds, the greatest sales
increases are occurring in the smaller denominations.
Latest figures available show the Series E bonds as mak­
ing up about 65 per cent of the sales of Series E, F, and
G combined. Sales of $25 and $50 denomination bonds,
indicative of purchases by small savers out of current
income, in March, 1942 accounted for 30 per cent of
total Series E bond sales, as compared with about 12 per
cent in May, 1941.
Security M a rk e ts
Influenced by news of heavy bombing raids over
Germany and of naval successes in the Pacific, stock
prices continued to move up strongly early in June.
On the 17th Standard’s 90 stock price index reached its
high point for the month, culminating a seven week
advance during which the index rose 14 per cent. This
was the most considerable upward movement in about
PER CENT

M ovement o f Stock Prices (Standard and Poor’s
90 stock index; 1 9 26= 10 0 per cent)




a year, as the accompanying chart indicates. The Libyan
defeat was a factor lending a heavy tone to the market
in the latter part of June, and, as a consequence of
declining tendencies that then developed, share prices
ended the month at levels close to those prevailing on
May 29. Even so, the index at its June 30 level was 11
per cent above the year’s low point reached in April.
Stock trading on the New York Stock Exchange again
was light, rising above 400,000 shares on only two days.
Medium and lower grade railroad bonds weakened
further during June, reportedly as a result of appraisals
of postwar prospects for many of the roads. Largely
reflecting this decline in railroad bonds, Moody’s index
of Baa grade bonds was off % of a point to a level within
half a point of the year’s low. High grade corporate
bond prices continued to show little fluctuation during
June.
Prime municipal bonds, on the other hand, extended
the irregular price recovery which they have shown
since February. Between May 27 and June 24 the
average yield on Standard’s prime municipal bonds
declined 0.08 per cent, to 2.35 per cent, the lowest since
January of this year.
N e w F inancing
A total of $162,000,000 corporate and municipal new
security issues was publicly offered or privately sold
during June. The volume of corporate financing, at
$124,000,000, was slightly in excess of the average for
the first five months of 1942, but municipal flotations
were only about two thirds of the January-May average.
Almost half of the corporate total represented private
sales; about $76,000,000 was for new capital purposes.
The principal public offerings of corporations during
the month were $36,500,000 Virginia Public Service
Corporation bonds and debentures and $15,000,000
Public Service Electric and Gas Company bonds. In
addition, the following were sold privately: $30,000,000
Aluminum Company of America debentures, $12,000,000
El Paso Natural Gas Company bonds, and $15,000,000
Standard Oil Company of Ohio debentures (of which
$5,000,000 were issued in exchange for outstanding
securities). The largest municipal award was that of
$7,100,000 Buffalo Municipal Housing Authority bonds.
Temporary financing, not included in the $162,000,000
total, amounted to $99,000,000 and included $32,000,000
New York City revenue bills, $31,000,000 Federal Inter­
mediate Credit Bank consolidated debentures, and
$20,000,000 Pittsburgh Housing Authority short term
notes.
The volume of corporate new security issues floated
during the second quarter of 1942 is compared with that
for earlier periods in the accompanying chart. During
the three months ended June 30, 1942, corporate financ­
ing averaged approximately $114,000,000 a month, the
lowest since the first quarter of 1939. Of this amount,
however, new capital flotations accounted for $90,000,000,
a somewhat higher figure than in either of the preceding
two quarterly periods. For the entire first half of 1942
corporate issues for new capital purposes ran more than
a quarter larger than in the corresponding period a year
earlier; as this was accompanied by a substantial decline
in corporate refundings, the proportion of new capital

53

FEDERAL RESERVE BANK OF NEW YORK

after having narrowed to 9 % per cent on May 29,
widened to 10 per cent on June 2 and held at about
this point for the remainder of the month. Among the
other Western Hemisphere currencies, the free market
rate for the Venezuelan bolivar was quoted at $0.3005
during most of June. This was approximately the level
at which the bolivar reportedly was stabilized toward the
end of May, following a steady appreciation which had
occurred since the end of 1941. Other leading Latin
American exchanges were steady vis-a-vis the dollar
during the past month.
P roduction and T ra d e

M on th ly

A v erage V olu m e o f D om estic Corporate Security
for R efund in g and for N ew Capital (Second quarter
o f 1 9 4 2 data prelim inary)

Issu es

to total corporate flotations rose from 27 per cent during
the first half of 1941 to 70 per cent during the six months
ended June 30, 1942. Issues of $10,000,000 or over
accounted for nearly two thirds of the new capital raised
by corporations during the first half of 1942.
Of the $491,000,000 of new capital raised by corpora­
tions through new security issues during the first half
of 1942, a sizable amount was accounted for by two
tobacco companies, the American Tobacco Company and
Philip Morris and Company which together raised
$98,000,000, nearly all of which was to be used for retir­
ing bank loans previously incurred for the purpose of
enabling the corporations to enlarge their inventories.
In addition, Schenley Distillers Corporation, National
Distillers Products Corporation, and R. H. Macy and
Company raised $42,000,000, all of which was to be
employed in retiring bank loans and increasing working
capital. In the category of concerns engaged in activities
related to war production, five companies in the oil
industry obtained $68,000,000 to finance new construc­
tion and purchase existing plant, and four public utility
companies borrowed $60,000,000, most of which was
scheduled to be used for additions to plant and equip­
ment. Proceeds from the sale of the $30,000,000 Alumi­
num Company of America debentures will be used in
the expansion of producing facilities; the United Air­
craft Corporation floated $26,600,000 of new securities
to obtain funds for research and development and later
repurchase of emergency plant facilities.
Foreign E xch anges
Foreign exchange trading in New York remained in­
active during June. The only appreciable fluctuation
in rates occurred in the so-called free Swiss franc, the
quotation for which declined rather abruptly during the
early part of the month to reach $0.2750 on June 11.
Some demand soon developed, however, and by June 15
the rate had returned to $0.2950. A t the end of the
month, the 4‘ free” franc was quoted at $0.2910 to show
little net change from the end of May.
Contrary to the rising tendency of the two preceding
months, the unofficial discount of the Canadian dollar,




Judging from preliminary data now at hand, indus­
trial conditions which characterized recent months con­
tinued to prevail during June— increased output of war
goods was again partially counterbalanced by a smaller
production of goods for civilian consumption. Weekly
estimates of the tonnage of steel produced during June
indicate a continuation of mill operations at approxi­
mately full rated capacity. Seasonal factors considered,
electric power production was maintained at the high
rate attained in the earlier months of this year and the
output of crude petroleum was somewhat higher in June
than in May. Figures for the first three weeks of June
show a slight tapering off in the daily rate of bituminous
coal mining and in loadings of railway freight.
The nation’s war production program will call for
the expenditure of $140,000,000,000 for war goods dur­
ing 1942 and 1943, according to Chairman Nelson of
the War Production Board. Mr. Nelson has stated that,
although the conversion of industry to war production
is still in progress, “ the spotlight has shifted from
manufacturing facilities to raw materials” . Measures
which are being taken to fill raw material needs include
the development of new natural resources and the pro­
duction of substitute materials, increased imports, resort
to accumulated inventories, stimulation of scrap flow,
1941
M ay

1942
March

April

M ay

Indexes o f Production and Trade*
(100 = estimated long term trend)
Index of Production and T r a d e .................

110

111

IlOp

109p

Production......................................................

113

120

120p

121p

Producers’ goods—total........................
Producers’ durable goods.................
Producers’ nondurable goods.........

121
123
118

145
162
125

146p
164p
126p

149p
168p
126 p

Consumers’ goods— to ta l.....................
Consumers’ durable goods..............
Consumers’ nondurable goods.. . .

105
105
105

90
49
104

89p
47 p
103p

87 p
45 p
102 p

Durable goods— total............................
Nondurable goods— to ta l....................

118
110

129
113

129p
113p

132 p
112 p

Primary distribution..................................
Distribution to consumer.........................
Miscellaneous services...............................

106
107
102

104
93
114

109p
89 p
115p

106 p
84 p
116p

103

114

115

116

121

132

133p

59
87

60
90

57 r
857-

Cost o f Living , Bureau of Labor Statistics
(100 = 1935-39 average).................................

Wage Rates
(100 = 1926 average)......................................

Velocity o f Demand Deposits *
(100 = 1935-39 average)
New York C it y ..................................................
Outside New York C ity .................................

p

Preliminary.

r Revised.

* Adjusted for seasonal variation.

66
88

MONTHLY REVIEW, JULY 1, 1942

54
PER CENT

output of producers’ durable goods mounted higher in
May, while the production of consumers’ goods— non­
durable as well as durable— declined somewhat further.
On June 26 the President disclosed that in May nearly
4000 planes and over 1500 tanks were produced, as
well as large quantities of other materiel. (In May,
1941 plane production approximated 1300.) The value
of new machine tools, presses, and other metal-working
machinery shipped during May again increased and
showed a gain of 80 per cent over the figure for the
corresponding month last year. The March peak in
steel production was practically equaled in May, while
the daily rates of cotton consumption and bituminous
coal mining, although slightly lower than in April,
remained at high levels.
C o m m o d ity Prices

Index o f D istribu tion to C onsum er (Fed eral R eserve B ank o f N ew
Y o rk index, expressed as a percentage of estim ated long term
trend, and ad ju sted for seasonal variation)

and the precise scheduling of the movement of materials
to and between production units.
Much stricter controls over the use of metals and other
scarce materials than the present priorities system has
provided are to be set up by the W ar Production Board.
The emphasis in the new “ Production Requirements
Plan” , which it is expected will eventually supersede
the priorities system, will be on tailoring the volume
of available materials to the consumers ’ needs with due
regard to the “ end use” of those materials. The dis­
tribution and use of metals will receive first attention—
presumably during the third quarter. Priority instru­
ments covering other materials will continue in effect for
the time being.
P roduction and T rade in M ay
For May the monthly index of production and trade
computed by this bank is placed at 109 per cent of esti­
mated long term trend, as compared with 110 in April,
1942 and in May, 1941. Production moved into new
high ground in May, but there was a further slackening
in the volume of retail trade. The decline in retail
trade has been attributed to a number of factors, among
them, the effect of plant conversions and the unavail­
ability of certain war materials in creating shortages of
particular types of commodities, the influence of higher
income tax obligations and war bond purchases, the
consumer credit regulations, and a subsidence of the
anticipatory buying which had particularly characterized
the months preceding our entrance into the war.
Sales of department stores, mail order houses, and
grocery chain systems were all lower in May than in
April, although variety chain stores reported a slightly
larger volume of business. Railroad loadings of mer­
chandise and miscellaneous freight declined further in
May, while loadings of bulk freight increased less than
in other recent years. Although the total number of
cars loaded in May was slightly lower than in the cor­
responding month last year, the volume of freight car­
ried, as measured in ton-miles, was considerably above
the May, 1941 level, owing to more efficient use of roll­
ing stock and longer hauls.
Under the continuing stimulus of war demands the




Throughout June— the first full month in which the
General Maximum Price Regulation was effective—
wholesale prices of most industrial commodities held
steady. Prices of farm and food products, which are
largely uncontrolled, fluctuated irregularly during the
month, reflecting among other influences war develop­
ments. Cotton prices on June 8 touched the lowest levels
since early in January, but afterwards developed con­
siderable strength, as the prospective duration of the
conflict seemed to be lengthened by unfavorable war
news; quotations for hogs moved in a somewhat similar
pattern, reaching on June 26, the highest level since
1920. Wheat prices also moved over a wide range,
reflecting uncertainties as to the position of Congress
with regard to pending agricultural legislation, but
showed small net changes for the month as a whole.
Based on conditions as of June 1, the Department of
Agriculture estimated this year’s total wheat crop at
868,000,000 bushels, 8 per cent less than last year’s.
It is indicated, however, that 1942 will be a record year
for crop production generally.
The accompanying table shows the Bureau of Labor
Statistics weekly indexes of wholesale prices by major
groups for June 20, compared with selected previous
dates. As the table indicates, the current price indexes
are only slightly above the March peaks and in general
are fractionally below the levels on May 9— immediately
prior to the effective date of the General Maximum
Price Regulation for wholesale prices.
During June the Office of Price Administration clari­
fied numerous features of the General Maximum Price
Regulation and added supplemental rulings. New ceil­
ing regulations were announced to become effective July
1 on charges for many types of consumer services, the
number of areas to be affected by rental ceilings was
further increased, and new wholesale price ceilings were
imposed on seasonal woolen fabrics for civilian use. In
a decision of apparently broad implications, the O.P.A.
denied the petition of a manufacturer to raise above
ceiling levels prices of certain items selling at losses, on
the grounds that profits on the company’s operations as
a whole were satisfactory. Large soap concerns agreed
during June to “ roll back” factory prices to February
levels to enable retailers to sell at March ceilings. E f­
fective June 29, the O.P.A. permitted increases in the
prices charged for gasoline and fuel oil on the East Coast.

55

FEDERAL RESERVE BANK OF NEW YORK

According to a special survey by the Bureau of Labor
Statistics showing immediate effects of the imposition of
the General Maximum Price Regulation, the cost of living
for wage earners and lower salaried workers in 21 urban
centers of the United States was estimated to have de­
clined fractionally between May 15 and June 2. For
the preceding year and a half the Bureau of Labor
Statistics data had shown a virtually uninterrupted rise
in the cost of living. While many retail prices have
tended to show slight downward reactions since May 15,
food prices in general again advanced, especially in
New York City, where the food index was about 1 %
per cent higher on June 2 than on May 15. In the past
three years— since June, 1939— the all items cost of
living index for the country as a whole has risen 17%
per cent and retail food prices alone about 30 per cent.
United States Bureau of Labor Statistics W eekly Indexes
of Wholesale Commodity Prices

1935

Percentage change June 20, 1942
compared with
Index
June 20,
1942
(1926=100)

Aug. 2 6 ,
1939

All commodities...........................

98. lp

+ 3 1 .1

+

6 .4

+

0 .7

— 0 .5

Raw m aterials..............................
Manufactured products............

9 8 .7
9 8 .8 p

+ 4 9 .1
+ 2 4 .6

+
+

9 .7
5 .2

+
+

0 .4
0 .9

— 0 .8
— 0 .5

+ 7 1 .0
+ 4 7 .5

+ 15.1
+ 1 0 .9

+
+

1 .1
2 .6

+ 0 .5
— 0 .9

+ 1 9.3

+

+

0 .6

+

Farm products..............................
Foods.................................................
All commodities other than
farm products and foods.. . .

104.5
9 8 .4
9 5 .9 p

Dec. 6,
1941

2 .3

M ar. 28,
1942

M ay 9,
1942

0 .1

p Preliminary

B u ild ing
On June 15 the War Production Board indicated that
nonessential building had been virtually halted since
April 9, when it was announced that all nonessential
civilian construction, except a limited number of small
projects, must receive specific authorization from the
Board. For the year as a whole the W .P.B. estimated
that only $650,000,000 would be spent on such building
compared with $4,000,000,000 in 1941. The volume of
essential construction, on the other hand, was expected
to amount to $13,500,000,000 in 1942, 20 per cent above
the total volume of construction in 1941.
Owing to the rapidly expanding rate of war produc­
tion, demands on the existing supply of critical mate­
rials have become so great that some modifications have
recently been made in the program of war construction.
In the field of plant expansion, the W .P.B. announced
on May 30 that no new war plants would be built unless
they were deemed absolutely essential to the war effort.
In the future, emphasis will be placed as far as possible
on the use of existing facilities, and, in the event that
new plants are considered necessary, on structures of
the simplest type which require a minimum of scarce
materials.
During May the volume of construction contract
awards in the 37 Eastern States included in the F. W .
Dodge Corporation survey rose to the second highest
level on record, the previous high being reached in Au­
gust, 1941. Three fourths of the total contracts awarded
in the month were for defense construction financed by
the Federal Government, 9 per cent was for other pub­
lic projects, including State and municipal construction,




1936

1937

1936

1939

1940

1941

1942

D aily A v era g e V a lu e o f P riva te R esidential Building C ontracts
A w arded in 3 7 S ta tes, A d ju s te d for Seasonal Variation
(B a sed on F . W . D odge Corporation d ata)

and the remaining 16 per cent was for private construc­
tion. Compared with the corresponding month of last
year, when only one quarter*of all contracts was for
Government financed defense work, the daily rate of
awards in May was up almost one quarter. All major
types of private construction were off more than 50 per
cent, while public projects were more than double the
rate prevailing in May, 1941.
The accompanying chart indicates the extent to which
the rate of awards for private residential building has
already been curtailed as a result of the demands of
the war construction program. From August, 1941 to
May, 1942 the daily rate, adjusted for seasonal varia­
tion, declined about 60 per cent, and in May was at a
level corresponding to the low point reached during the
recession of 1937-38.
In New York State and Northern New Jersey the
daily rate of construction contract awards declined about
one fifth from April to May, owing primarily to a
decrease in the volume of awards for heavy engineering
projects. Compared with May, 1941, however, the rate
of awards in this region was up about 10 per cent. As
in the case of the 37 States as a whole, awards for private
construction were off more than 50 per cent, while awards
for public projects more than doubled between May,
1941 and May, 1942.
E m p lo y m e n t and P ayrolls
The War Manpower Commission has recently esti­
mated that 10 million new workers will be needed for
war work during 1942, as well as 2y 2 million who
will probably be required for the Army and Navy. At
the end of 1941 about 7 million persons were working in
war industry and by April 1,1942 this number had grown
to approximately 9 million. The Commission believes
that the 12y 2 million added to war industry and the
armed forces during 1942 will be raised as follows: 7
to 8 million from peacetime industries, about y 2 million
from farms and a like number from the ranks of the
self-employed, i y 2 million from the unemployed, and
2 million from housewives, students, and others not regu­
larly in the labor force.

56

MONTHLY REVIEW, JULY 1, 1942

On June 24, the War Manpower Commission issued
eight directives to Federal agencies covering plans to
coordinate information regarding the manpower supply
and to mobilize available manpower where it is needed
in war industry and in agriculture. Under this program,
the United States Employment Service is directed to
analyze and classify workers ’ skills, to establish priorities
for the placement of workers with critical skills in essen­
tial industries, and to recruit and allocate workers in
essential activities.
According to the New York State Department of
Labor, employment in New York State factories declined
somewhat during May from the level of the two preced­
ing months, but owing to a large number of wage rate
increases, payrolls continued to rise. Although factory
employment as a whole was only slightly smaller, there
were sizable changes in the working forces of individual
industries. Producers of transportation equipment, ord­
nance, electrical machinery, and other war goods con­
tinued to hire more workers, while shortage of materials
for civilian production caused layoffs at plants making
carpets, woolen fabrics, radios, cans, and heating appa­
ratus. In addition, there were large seasonal reductions
in employment by clothing manufacturers. Compared
with May, 1941, factory working forces were 12y 2 per
cent greater, and wage payments were 36 per cent larger.
In New York City, both employment and payrolls
declined during May, largely as a result of seasonal
layoffs in the garment industry. In Upstate New York,
however, larger working forces and increased payrolls
were reported, as employment gains in war industries
more than offset declines at plants manufacturing con­
sumers’ goods and nonessential metal products.
In the United States as a whole, manufacturing em­
ployment rose about 1 per cent during May, and pay­
rolls were 3 per cent greater, according to the Bureau
of Labor Statistics. Manufacturers of war goods, as
represented by the transportation equipment and ma­
chinery industries, continued to hire more workers;
automobile factories increased employment for the first
time since November, indicating progress in the conver­
sion of the industry to war production. However, all
major industrial groups in the nondurable goods cate­
gory, except food products, reported reduced working
forces, although in many cases the declines were seasonal
in character. Total factory employment in May was 10
per cent greater than in the corresponding month last
year, and payrolls were 34 per cent larger.
During May, the number employed in civil nonagricul­
tural pursuits in the United States as a whole increased
330,000 to a total of 41,200,000 persons, according to esti­
mates made by the Bureau of Labor Statistics. The
largest gains during the month occurred among those
engaged in construction work, civil government em­
ployees, and factory workers. Total civil nonagricul­
tural employment in May was 2,300,000 above the May,
1941 level and nearly half of this gain occurred in
manufacturing industries.
D e p a r tm e n t Store T ra d e
For the four weeks ended June 27, total sales of the
reporting department stores in the Second District were




about 7 per cent lower than in the corresponding 1941
period, and were also below the May average, whereas
little change usually occurs between these two months.
Inasmuch as these figures are in dollar terms, and inas­
much as retail prices average considerably higher than
a year ago, indications are that the physical volume of
Second District department store trade— as opposed to
the dollar volume— was quite substantially below the
level of June, 1941.
Total sales during May of the reporting department
stores in this District were 5 per cent below May, 1941,
owing in part to the fact that there was one less shopping
day and one less Saturday this year than last. On an
average daily basis, sales were somewhat higher than in
the corresponding month last year, but fell below the
April, 1942 level. Large gains between May, 1941 and
May, 1942 were reported in sales of yard goods, carpets,
and radios, while substantial decreases were shown in
linens, sheetings, millinery, furs, men’s clothing, furni­
ture, sporting goods, and wines and liquors.
A further gain was reported during May in retail
stocks of merchandise on hand in the reporting depart­
ment stores in this District, and at the end of the month
stocks were 79 per cent higher than a year earlier.
Returns from a limited number of department stores
in this District indicate that at the end of May outstand­
ing orders for merchandise purchased by the stores, but
not yet delivered, were still declining, but were about
one-half larger than those at the end of May, 1941.

Percentage changes from a year earlier
N et sales
Department stores

New York C it y ..............................................
Northern New Jersey..................................
Newark..........................................................
Westchester and Fairfield Counties.. . .
Lower Hudson River Valley.....................
Poughkeepsie............................................
Upper Hudson River Valley.....................
A lb a n y...........................................................
Central New York State............................
M ohawk River V alley............................
Northern New York S t a t e ........................
Southern New York State.........................
B in gh am ton ...............................................
Western New York S ta te ..........................
Niagara Falls . . ........................................
All department stores...................
Apparel stores.................................................

Stock on hand
end of month,
M ay,
1942

M ay,
1942

Jan.through
M ay, 1942

— 4
— 10
— 8
+ 2
+ 5
— 11
— 10
— 17
— 23
— 5
+ 5
— 8
— 21
— 9
— 12
— 4
— 1
0
+26
— 2

+13
+ 13
+14
+21
+24
+ 8
+12
+ 8
+ 2
+18
+31
+14
— 3
+17
+14
+22
+ 19
+22
+40
+ 15

— 5

+14

+79

—

+16

+61

3

+86
+75
+74
+54
+61
+43
+59
+75
+75
+75
+67
+64
+65
+34
+68

Indexes of Department Store Sales and Stocks, Second Federal Reserve District
(1923-25 average = 100)
• 1942
1941
M ay
M ar.

Apr.

M ay

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

95
99

106
120

106
110

99
103

Stocks, unadjusted...............................................
Stocks, seasonally ad ju sted..............................

89 r
86 r

137
135

152
149

160
156

r Revised

FED ER AL RESERVE B A N K OF N E W Y O R K
MONTHLY REVIEW, JULY 1, 1942

General Business and Financial Conditions
(Summarized by the Board of Governors of the Federal Reserve System)

I N D U S T R IA L

activity continued to advance in May and the first ha lf of June.
Commodity prices showed little change after the middle of May when the general
maximum price regulation went into effect. Retail trade declined further in May
but increased somewhat in the first h a lf of June.
P roduction

Index of P h ysical V olu m e o f Industrial Produc­
tion, A d ju ste d for Seasonal Variation (1 9 3 5 -3 9
a v e r a g e = 1 0 0 per cent)

Indexes o f V a lu e o f D epartm en t Store Sales and
S tock s, A d ju ste d for Seasonal Variation
( 1 9 2 3 - 2 5 average = 1 0 0 per cen t)

Volume of industrial production increased in May and the Board’s seasonally
adjusted index advanced to 176 per cent of the 1935-39 average, as compared with
173 in A p ril and 171 during the first quarter of this year. Output of manufactured
products continued to increase, reflecting chiefly further growth in production of
war materials, while mineral production showed a seasonal rise.
The largest increases in May, as in other recent months were in the machinery
and transportation equipment industries which are now making products chiefly fo r
m ilita ry purposes. The amount of copper smelted rose sharply and output of chem­
icals continued to advance. A c tiv ity in the automobile industry, which since January
had been retarded during the conversion of plants fo r armament production, showed
an increase in May.
Steel production was maintained at about 98 per cent of capacity in May and
the first h a lf of June. Lumber production increased seasonally and activity at fu rn i­
ture factories, which usually declines at this time o f year, was sustained at a high
rate. In industries manufacturing textiles and food products, output continued large
in May. Gasoline production declined further, however, reflecting the effects of
transportation difficulties. There was a further marked decrease in paperboard pro­
duction which, according to trade reports, reflected a slackening in demand.
Coal production was sustained at a high rate in May and output of crude petro­
leum increased somewhat, following considerable declines in March and A p ril. Copper
production and iron ore shipments rose sharply to new record levels.
^Value of construction contract awards increased sharply in May, following a
decline in the previous month, and was close to the record high level reached last
August, according to figures of the F. W. Dodge Corporation. Awards fo r publicly
financed work increased in May and, as in other recent months, constituted around
three quarters of the total. Awards fo r residential building continued to decline.
D is t r ib u t io n

Retail trade declined further in May. Department store sales were about 7 per
cent smaller than in A p ril and sales by mail-order houses showed a similar decrease.
In the first h a lf of June department store sales increased somewhat.
Car loadings of revenue freight increased in May by about the usual seasonal
amount. There was a further substantial decline in the number of cars loaded with
merchandise in less than carload lots, reflecting the effect of Federal orders raising
the minimum weights fo r such loadings. Increases were reported in shipments o f
most other classes of freight, particularly coal, ore, and miscellaneous freight.
C o m m o d it y P r ic e s

M em ber B ank R eserves and R elated Item s
( L a te s t figures are for June 1 0 )

Prices of most commodities both at wholesale and retail showed little change
after the general maximum price regulation went into effect around the middle of
May. Declines occurred in prices of cotton and some other agricultural commodities,
and prices of some industrial commodities were reduced to conform w ith the general
order that prices should not exceed the highest levels reached in March. Action was
taken to exempt most m ilita ry products from the general regulation and to allow
fo r special treatment of women’s coats and dresses and a few other nonm ilitary items.
B a n k C r e d it

During May and the first h a lf of June, the Federal Reserve Banks purchased
about 200 m illion dollars of United States Government securities. Additions to
member banks * reserves from this source, however, were offset by continued w ith­
drawals o f currency by the public. Excess reserves fluctuated around 2,700 m illion
dollars during the six week period.
Reporting member bank holdings of United States Government securities increased
by nearly a billion dollars during the period. Two thirds of the increase came in the
week ended May 20 w ith delivery of new Treasury 2 per cent 1949-51 bonds, and the
balance represented mainly increased b ill holdings. Loans declined somewhat in the
period. Adjusted demand deposits continued to increase, while United States Gov­
ernment deposits were reduced.
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 P r ic e s

W ednesday Figures for Reporting Member
Banks in 101 Leading Cities (Latest
figures are for June 10)




Prices of taxable United States Government bonds, which declined by about
% point at the time of the early May financing, subsequently regained that loss and
during the first h a lf o f June remained steady.