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MONTHLY REVIEW ofCreditandBusinessConditions S e c o n d F e d e r a l V o l. 25 JULY M O N E Y Not only D is tr ic t 1943 M A R K E T Unusually heavy flows of funds through the money market marked the June 15 income tax period this year. 1, R e s e r v e IN No. 7 JU N E total collections, compared with 26 per cent during March and 23 per cent during June of 1942. In this District total col were income tax collections considerably heavier than in any lections for June are estimated at about $900,000,000, some previous June— for the double reason of the tax increases what more than one fifth of the national total. imposed by the Revenue Act of 1942 and the unusually large been true of past tax periods, Tax Savings notes were used in number of income tax payers who in March had chosen the the payment of taxes to a greater extent here than in other quarterly instalment method of payment— but the Treasury sections of the country; 34 per cent of income taxes collected As also has paid off in cash $1,083,000,000 of securities which matured or in this District were paid in the form of Tax notes during were called for payment on June 15. reflecting the rapid growth June. At the same time, While the redemptions and interest payments created ex in the public debt, the amount of interest due on outstand ceptionally heavy net Treas ury disbursements on the ing Government securities ($400,000,000) was larger than in any previous month. As in March, although to 15 th and thus temporarily swelled member bank reserve balances, most of these funds a smaller extent and for a much shorter period, the Treasury borrowed direct from the Federal Reserve were immediately put to use by the banks, chiefly through the repurchase of bills pre viously sold to the Reserve Banks on special certificates Banks. The central reserve of indebtedness in anticipa city banks of New York tion of the income tax col gained $585,000,000 reserve lections. For purposes of funds on June 15 but they 1940 1941 1942 1943 Average Daily Excess Reserves of Member Banks (Data for New convenience, the form of repurchased $360,000,000 York and Chicago partly estimated for June, 1943; separate figures for reserve city and “ country” bank classifications these special certificates was Treasury bills from the not available for June, 1943) changed from the one-day Reserve Bank before the close certificates heretofore employed, to certificates maturing at the of business, with the result that their excess reserves rose ( from end of the month but redeemable at any time, by which means a small deficiency on the preceding day) only to $205,000,000. the reissuance of large amounts of certificates from day to day On Wednesday, the 16th, these banks showed a reserve defi was avoided. The Treasury borrowed $805,000,000 on the ciency of $35,000,000. For all member banks excess reserves special certificates on June 15, to cover a part of the unusually increased $120,000,000 to $1,630,000,000 during the state large expenditures on that day. This borrowing was eliminated ment by June 21, through cash income tax collections supplemented their declining tendency the following week, dropping to by withdrawals of funds from War Loan account depositaries. Income tax receipts during June may be roughly estimated $1,300,000,000 on June 23 (the lowest level since January at $3,800,000,000, compared with $4,700,000,000 to the Federal Reserve Banks fell considerably short of the losses of reserve funds through net Treasury receipts. On the during March and $2,100,000,000 during June of last year. The week ended Wednesday, June 16, but resumed 5, 1938) as heavy offerings of Treasury bills by the banks proportionate use of Tax Savings notes in the payment of taxes last statement day of the previous month, May 26, excess is estimated to have reached a new peak of 29 per cent of reserves of all member banks amounted to $1,500,000,000. M ONTHLY REVIEW , JULY 1, 1943 50 M o r e A c t iv e U se of A v a i l a b l e B a n k R eserves For a number of months the Federal Reserve authorities enlarged use of Treasury bills, but also in the persistent bank demand for Government bonds, notes, and certificates of have encouraged an active use by member banks of their sur indebtedness, both for the new issues made available from plus reserve funds in support of war financing, not with a time to time for commercial bank subscriptions, and for issues already outstanding. Recent offerings of new Government view to increasing the aggregate amount of financing done through the banks, but rather with a view to promoting a security issues for bank subscription have been heavily over distribution of the securities in keeping with the money flows subscribed, and, while anticipation of low allotment bases of the war period, and to avoiding unnecessary extensions of and consequent "padding” have played a part in swelling bank Federal Reserve credit. subscriptions, it is clear that the banks in the aggregate actu ally have wished to obtain more of the securities than were The excess reserves which the banks hold are subject in considerable measure to their own con trol. They exercise this control not only through their par ticipation in major financing operations by the Treasury, but also through their capacity to convert earning assets into made available to them. Moreover, since the first of this year, commercial banks have also been steady net purchasers of already outstanding issues in the open market. The strength These processes of of this demand has not been fully apparent in price and yield conversion are readily apparent in "option account” transac figures, because Federal Reserve Banks’ sales of these classes tions in Treasury bills. reserves and reserves into earning assets. Banks may sell bills direct to the of securities, partially to meet the demand and to maintain Federal Reserve Bank under repurchase option and obtain in orderly market conditions, have exercised a steadying influ return credits to their reserve accounts. Reciprocally, they may ence on the price and yield quotations. reacquire bills previously sold to the Federal Reserve Bank and 1942, the Federal Reserve Banks have reduced their holdings give up surplus reserves in exchange. Banks making active of Government bonds by $1,254,000,000 and of notes by use of the Treasury bill option accounts are, for the most part, institutions which are seeking to maintain, from day to securities from other investors to commercial banks, especially day and week to week, "fully invested” positions. In recent months most of the central reserve city banks of New York and Chicago, largely through option account trans actions in Treasury bills (as well as through subscriptions to new Treasury issues and purchases and sales in the market), have been keeping their available funds actively employed, as manifested by the negligible average amounts of excess reserves which they have been carrying. Some banks in other centers and in other reserve classifications as well are employ ing option account transactions in Treasury bills to maintain fully invested positions. Institutions without considerable bill holdings generally have sought to maintain a "leeway” of excess reserves, even though they are able to borrow from the Federal Reserve Bank, at the Vi per cent rate on discounts secured by Government securities maturing within a year, for the purpose of meeting temporary or unexpected losses of reserve funds. Neverthe $492,000,000. Since the end of There has also been a shifting of outstanding before and during the Second War Loan drive, when insurance companies and mutual savings banks reduced their holdings of outstanding obligations in order to enlarge their capacity to purchase the issues offered to them during the drive. It is estimated that commercial banks throughout the country added more than $5,000,000,000 net to their holdings of Government bonds, notes, and certificates of indebtedness during the first four months of the year. Over the same period, the banks made net purchases of Treasury bills to the extent of about $2,000,000,000. Of the addition to bank holdings of bonds, notes, and certificates, about $2,800,000,000 was ac counted for by net purchases in the open market. Purchases of new issues sold during the first four months of the year (excluding the sales to banks of the 2 per cent Treasury bonds offered under the Second War Loan drive, payments for which were not due until May 12) approximated $3,200,000,000, while cash redemptions of matured issues came to $900,000,000. less, there has been a perceptible lessening in the reluctance of member banks to borrow; day-to-day borrowings of banks Money Rates in New York in need of additional reserve funds from banks with consider June 30, 1942 May 29,1943 June 29, 1943 able surplus reserves— so-called "purchases of Federal funds”— have been rather common over the past year, and over the past two months about twenty member banks in this District, including one downtown New York City institution, have borrowed from the Reserve Bank at one time or another. Most member banks outside New York and Chicago still hold considerable amounts of excess reserves, although there has been a general tendency for these banks— especially those in the "reserve city” classification— to invest their available funds more fully and thus to draw down their excess reserves. Stock Exchange call loans........................ Stock Exchange 90 day loans................. Prime commercial paper— 4 to months Bills— 90 day unindorsed......................... Average yield on tax exempt Treasury bonds (not callable within years) . . Average yield on taxable Treasury bonds (not callable within years)............. Average rate on latest Treasury bill sale 91 day issue............................................. Reserve Bank discount rates: On advances to member banks secured by Government obligations callable or maturing in one year or less......... On other advances to member banks secured by Government obligations, and on rediscounts............................ Reserve Bank buying rate for 90 day 6 12 12 - S A * Nominal. t 85 days *\Y k , A - % b *1H 7 A 7 A 7 A 2.00 1.87 1.81 2 .35 2.29 2.28 0.362$ 0.3 7 3 f 0 .3 7 4 f X X 1 1 1 X The tendency for banks to invest their funds more fully is apparent not only in the excess reserves figures and in the A 5 1 1 1 t 92 days. H X 51 FEDERAL RESERVE BANK OF NEW YO R K MEMBER BANK CREDIT ment securities have continued the decline which has been In recent weeks the composition of the deposit total of the weekly reporting member banks has undergone another in evidence since March, 1942. Partly as a result of this prolonged contraction— although even more as a result of marked change. As the Treasury issued calls for the repay ment of War Loan account deposits, representing accumulated proceeds from the Second War Loan drive, and spent these the large increase in bank holdings of Government securities — the proportionate composition of member bank earning assets has undergone a considerable change. Statements of funds, Government deposits of the reporting banks were sharply the weekly reporting member banks for March 18, 1942 reduced, while deposits belonging to the public recovered. indicated that at that time loans and other securities made From May 19 to June 23 adjusted demand deposits of the up 44 per cent of the total loans and investments of the New New York City banks rose $655,000,000, but were still York City reporting banks and 53 per cent in the case of the $912,000,000 short of the total on April 14 at the inception banks in 100 other cities. of the drive. of Government securities of the New York City banks have Outside New York such deposits of the report Since that date, while holdings ing member banks in 100 cities rose $1,165,000,000 to a increased by about 80 per cent and those of the other reporting level $388,000,000 above the April 14 point. banks have considerably more than doubled, the volume of Government security holdings of the reporting New York City banks were reduced to the extent of approximately $300,000,000 on June 15 through redemptions of the matured Treasury notes and called Treasury bonds and, over-all, Gov ernment securities held by these banks dropped $391,000,000 between May 12 and June 23, or since the close of the Second War Loan drive. Treasury bill holdings of the New York banks, fluctuating considerably from day to day and week to week, showed a net decline of $46,000,000 to $1,999,000,000 over this period. Moreover, while the New York banks had been adding to their holdings of other classes of Government securities, particularly bonds, through purchases in the open market before and during the drive, they tended to be sellers, on balance, during the six weeks following its close. In the 100 other cities, by way of contrast, Government security holdings of the weekly reporting member banks showed a net rise of $223,000,000 between May 12 and June 23. Treasury bill holdings of these banks decreased $105,000,000 net, but this reduction, together with the effect of the redemptions on June 15, was more than offset by net market purchases of other classes of Government securities. In recent weeks loans and investments other than Govern BILLIONS OFDOLLARS loans and other securities has fallen off steadily, and on June 23, 1943 such assets accounted for no more than 26 per cent of the total loans and investments of the New York City banks and 28 per cent for the banks in 100 other cities. As the accompanying charts indicate, commercial, industrial, and agricultural loans showed a substantial increase up to March, 1942, during the period of heavy production of con sumers* goods and earlier stages of the expansion in war production. Since that date such loans have declined rather steadily, as current and advance payments on war contracts, the availability of production facilities under Government ownership, the accumulation of large tax reserves, inventory liquidation, and other factors have limited business needs for bank loans and permitted the gradual retirement of outstand ing debt to banks. The decline in other types of loans, excepting loans for purchasing and carrying securities, has been in large part associated with the curtailment of personal loans. Holdings of securities, other than Government obliga tions, have also been considerably reduced, especially those of the New York City banks. On the other hand, loans for purchasing and carrying securities, largely concentrated in New York City, have shown a marked expansion at the time of the War Loan drives, and contraction afterwards. L O A N S FOR P URCHASING O R C A R R Y IN ^ :S E C U R ITIE S U sJ \ ^XX\XXX\X 1 ->UV*Vr\l 1IUJ v\\\XXv' X X X X 3 a A $ * ^ 5 6 6 ^ C O M M E R C I A L , IN D U S T R IA L a g r ic u l t u r a l 1941 1942 lo ans 1943 Loans and Investments Other Than U. S. Government Securities of Weekly Reporting Member Banks in New York City Loans and Investments Other Than U. S. Government Securities of Weekly Reporting Member Banks in 100 Leading Cities Outside New York City MONTHLY REVIEW, JULY 1, 1943 52 S U R VEY OF T H E D IS T R IB U T IO N O F D EM A N D D E P O S IT S During 1942 the volume of demand deposits of individuals, ber banks outside New York City where the most marked partnerships, and corporations in banks throughout the country p :centage increases in deposits have occurred, and found expanded $10,000,000,000 or by 27 per cent, and a consider that there was a considerable interest on the part of most banks able further increase has occurred this year. in information of this kind. The present volume of such deposits is twice as great as in 1939 and about In discussions with the banks it was found that very few of them made regular studies of the distribution by type of owner of all of their accounts, two and one-half times as great as in 1929. The expansion in bank deposits has been widespread but but that in a number of cases records are maintained making has not occurred evenly throughout the banking system. The possible the analysis in a fairly detailed way of the distribu rate of increase has been least in New York City, the money tion of the larger deposit accounts by class of depositor. Usually more than half of the total demand deposits of a bank market center of the country, and greatest in centers of war industry and in agricultural regions. Particularly marked increases have been evident in the San Francisco, Dallas, Kansas City, Minneapolis, and Atlanta Federal Reserve Dis are concentrated in a relatively small number of accounts, and it is therefore possible to obtain data on the distribution of a tricts, although in many communities in this District very large volume of deposits by analyzing only a small fraction of the total number of accounts. substantial expansion in bank deposits has been experienced. Information on the geographical distribution of the growth to relatively large accounts tends to overemphasize business in bank deposits is available in compilations of call report data, but little has been known of the character of the increase — the increase in deposits by types of depositor and the distri bution of deposits by size. The Federal Reserve Banks in collaboration with the Board of Governors recently sought to explore the possibilities of obtaining data from member banks on the distribution by It should be pointed out that the limitation of the analysis accounts (which are of larger average size than personal accounts) and may somewhat overstate increases in the deposits held by certain classes of depositors. Nevertheless, interpreted in the light of these qualifications, as well as in light of the qualification that the figures are based upon a "sampling” of banks rather than a complete coverage, it is believed that the analysis of the distribution of larger deposits type of owner and size of account of demand deposits of individuals, partnerships, and corporations. The Research Department of this bank accordingly made a survey of a supplements in an important way other available information limited number of the larger member banks, especially mem formulated for periodic re-surveys of a similar character. in respect to the expansion in bank deposits. Plans are being Table I— Growth in Demand Deposits of Individuals, Partnerships, and Corporations by Type of Owner (Dollar figures in thousands) New York City banks Dollar amount December 1941 Financial business March 1943 Per cent increase Banks outside New York City Percentage distribution of total increase in deposits Dollar amount December 1941 March 1943 Per cent increase Percentage distribution of total increase in deposits 293,070 446,469 52.3 15.5 24,367 54,524 123.8 Investment trusts and investment com panies ............................................................. Security brokers and dealers....................... Trust funds of banks..................................... All other............................................................ 15.3 69,254 57,097 31,435 70,771 61,447 47,946 32,321 69,062 — 11.3 — 16.0 — — 0 .9 — 2 .4 — 0.8 0.1 0.2 1,805 2,354 9,519 6,065 1,209 2,159 10,827 5,594 — 3 3.0 — 8 .3 13.7 — 7 .8 — 0 .3 — 0 .7 — Total...................................................... 521,627 657,245 26.0 13.7 44,110 74,313 68 .5 15.4 1,105,048 1,687,731 52.7 59.0 116,395 208,035 7 8.7 46.6 429,103 451,927 5 .3 2 .3 34,639 56,321 6 2.6 11.0 179,130 136,731 230,541 169,970 28.7 24.3 5 .2 3 .4 27,927 10,276 43,302 14,318 55.1 39.3 7 .8 " Total...................................................... 1,850,012 2,540,169 3 7.3 69.9 189,237 321,976 70.1 6 7 .5 Nonprofit associations, clubs, churches, etc___ 69,457 42,664 — 38.6 — 2 .7 7,202 10,044 3 9.5 1 .4 Personal..................................................................... 212,091 200,235 — 5 .6 — 1.2 23,376 25,519 9 .2 1.1 Total classified deposits*.......................... 2,653,187 3,440,313 29 .7 79.7 263,925 431,852 63.6 8 5.4 Total unclassified deposits....................... 1,574,638 1,774,769 12.7 20 .3 121,834 150,580 23.6 14.6 4,227,825 5,215,082 23.3 100.0 385,759 582,432 51.0 100.0 Nonfinancial business Manufacturing, mining, and construction. Public utilities, transportation, and com munications.................................................... Retail and wholesale trade and dealers in commodities................................................. All other............................................................ 2.8 Total demand deposits of individuals, partner- 0.1 0.2 2.1 * In New York City banks, all accounts over $250,000 in one bank, those over $100,000 in the second bank, and all accounts in the third bank; in banks outside New York City, all accounts over $10,000 except for one bank where accounts over $25,000 were classified. 53 FEDERAL RESERVE BANK OF NEW YORK Seco nd D istrict Ba n k s O utside N e w Y or k C it y Table I shows comparisons for the distribution of classi fied deposits between December, 1941 and March, 1943. As indicated in the right-hand section of the table, total deposits of individuals, partnerships, and corporations with Table II— Growth in Demand Deposits of Individuals, Partnerships, and Corpora tions by Size of Accounts* Banks in the Second District Outside New York City (Dollar figures in thousands) December, 1941 March, 1943 the cooperating group of banks outside New York City Size of account Number of accounts Dollar amount increased about $196,000,000, or 51 per cent over this period. (The group of banks covered accounted for over a quarter Less than $1,000............................... $1,000— $5,000.................................. $5,000— $25,000................................ $25,000— $100,000............................ $100,000— $500,000.......................... Over $500,000.................................... 102,190 15,015 4,775 1,227 330 54 23,630 32,637 48,099 57,296 64,949 94,643 112,948 18,240 5,854 1,606 458 29,677 39,501 60,226 75,177 91,327 187,495 Total........................................... 123,591 321,254 139,206 483,403 of the demand deposits of individuals, partnerships, and cor porations of all banks in the District outside New York City.) Of the deposits classified, those of concerns in the fields of manufacturing, mining, and construction accounted for 47 per cent of the total growth in deposits. This represented an increase of 79 per cent for this class over December, 1941. Number of accounts 100 Dollar amount * Data from some banks included in^thisftable^are not included in'.Table I; hence the total deposits in the two instances are not the same. half as large as was shown by the reporting banks in other cities of the District. The public utilities group accounted for 11 per cent of the But the distribution of the increase by type of owner, while total expansion; wholesale and retail trade and dealers in differing somewhat in detail, showed striking similarity in its commodities for about 8 per cent; insurance companies for general characteristics to the increase in reporting banks in 15 per cent. other cities of the District, as Table I indicates. * * Altogether, the increase in deposits of business Classified concerns accounted for 83 per cent of the total increase. The pronounced increase in the manufacturing and construc deposits represented about two thirds of the total dollar volume in the reporting New York City banks, and a slightly tion group probably represents to a considerable extent larger proportion in other reporting banks. enlarged working capital requirements associated with war nearly 70 per cent of the total increase in demand deposits of individuals, partnerships, and corporations was in the activities. In trade, inventory liquidation undoubtedly was a dominant factor. The indicated increases in public utility balances and some of the increases in other groups doubtless reflect accumulation of depreciation reserves which cannot at this time be used for replacements. Insurance company deposits reflected the accumulation of funds for investment during the Second War Loan campaign. Table II shows all accounts classified by size, for the same two dates, for a group of banks outside New York City. The number of accounts with these banks increased more than 15,000; the dollar amount increased $162,150,000, or 50 per cent. Fifty-seven per cent of this increase was registered in the few accounts over $500,000, and these large accounts increased 98 per cent over the earlier date, partly as a result of a considerable increase in the number of depositors whose balances reached that size between the two dates. N e w Y or k C it y B a n k s Reports from four large New York City banks concerning the character of the increase in their deposits between Decem ber, 1941 and March, 1943 confirmed the indications given by reports received from banks outside New York City. The accounts of "nonfinancial” businesses. In both cases The proportion of the total increase in deposits attributable to enlarged deposit balances of manufacturing, mining, and construction con cerns was somewhat greater in New York City than outside, while in other cities of the District deposits of public utilities and retail and wholesale businesses accounted for somewhat larger percentages of the increase in all deposits than in New York City. Insurance company deposits in each case accounted for about 15 per cent of the total increase. Large personal deposits and accounts of nonprofit associations, clubs, churches, etc., each accounted for only 1 per cent of the total increase in reporting banks outside New York City, and showed an actual reduction in the City.f An interesting feature of the situation in New York City is that most of the increase in deposits of individuals, partner ships, and corporations during the 15 month period occurred during the first quarter of 1943. That appears to have been true not only of the banks from which these reports were received, but of New York City banks generally. Published data for 16 weekly reporting New York City member banks showed an increase of only 7 per cent in their "adjusted” demand deposits during all of 1942, but an increase of about 20 per cent during the first quarter of 1943. relative magnitude of the increase in deposits in the City, however, was considerably less than in the remainder of the District. These four banks, which held slightly more than half of the total demand deposits of individuals, partnerships, and corporations in all New York City banks at the end of 1941, showed an increase during the fifteen months ended March, 1943 of approximately $1,300,000,000 or about 23 per cent in such deposits— a percentage increase less than ## Detailed classifications of deposits for December, 1941 and March, 1943, were received from only three of the New York City banks; it is the figures for these three banks that are shown in the table in comparison with figures for 14 other banks in the District which also reported comparative figures for the two months. Changes in the deposits of the fourth New York City bank appear to have shown much the same tendencies, however. f The lower limit of classified deposits in the New York City banks was considerably higher than in banks outside New York City, as the footnote below Table I indicates. MONTHLY REVIEW, JULY 1, 1943 54 W A R F IN A N C IN G Treasury borrowing from the public during June was Payment for the notes must be made by the issue date of July 12. confined to net weekly offerings of Treasury bills, and con tinued sales of Savings bonds and Tax notes. Receipts of about $2,300,000,000 from these sources were largely offset, S E C U R IT Y M A R K E T S Announcement early in the month of the forthcoming however, by redemption of $629,000,000 matured IVs per cent $2,500,000,000 offering on June 28 affected somewhat the Treasury notes, $454,000,000 called 3 Vs per cent bonds, and demand for Government securities in the market during June. about $1,100,000,000 Tax notes turned in for payment of Prices of taxable intermediate term bonds declined moderately taxes, so that virtually no net increase occurred in the public following the announcement that the new issue would have a debt during the month. maturity of not more than ten years. Treasury expenditures for war and Subsequently, however, other purposes were largely financed by income tax receipts a strong market developed for intermediate maturities on and calls upon War Loan deposit accounts. the supposition that the offering would take the form of a note Sales of Savings bonds are estimated at $850,000,000 during June, far short of the $1,480,000,000 and $1,340,000,000 totals reached in April and May as a result of the Second War Loan drive, but approximately 35 per cent greater than in June of last year. Redemptions approximated the $130,000,000 turned in during March and compared with slightly more than $100,000,000 monthly in April and May. Tax note sales continued at about the $450,000,000 level issue. Meanwhile, continued demand for intermediate and long term partially tax exempt bonds extended further the decline in yield on these issues, and the average yield on long term partially tax exempt issues reached a new low of 1.81 per cent near the end of the month. Certificates of indebted ness, particularly the longer maturities, were also in demand during June, representing in part a switching from other maturities. Domestic corporate bond prices remained firm in June obtaining in other months this year (excepting the period of the Second War Loan drive). Net receipts from Treasury owing principally to strength in the industrial group. bill sales were maintained at $200,000,000 weekly, since the new record low of 3.85 per cent was established on June 29 weekly offering was stepped up to $1,000,000,000 on June by the average yield on bonds rated Baa by Moody’s Investors 16 when maturities increased to $800,000,000. Service. Yields on the medium and lower grade railroad issues showed no net change for the month, however, in contrast to the declining tendency which had prevailed since last Decem During the fiscal year ended June 30, the Treasury borrowed from the public (including the banks) a net amount of slightly more than $60,000,000,000 to cover the deficit and to build up its working account balances. W ith the addition of $3,000,000,000 of issues to Government agencies and trust funds, the total debt (direct and guaranteed) increased from $77,000,000,000 on June 30, 1942 to about $140,000,000,000 on June 30, 1943. A large portion of this expansion in debt represented short term obligations; the outstanding volume of Treasury bills and certificates was increased by nearly $23,000,000,000. Only a moderate amount of Treasury notes was issued during the year, the increase amounting to about $2,500,000,000. The outstanding volume of Treasury bonds was increased by $19,500,000,000. Of ber. Another Municipal bond yields as measured by Standard and Poors index of 15 issues declined further from 2.10 per cent on May 26 to 2.05 per cent on June 23. The rise in stock prices which started in April of last year was extended in June, accompanying a decline in the rate of market activity. On June 5, Standard and Poors price index of 90 stocks reached 97.5 per cent of the 1926 average, the highest level since April, 1940. Following a decline of 3 per cent between June 5 and 14, the combined index re covered to 97.8 by the latter part of the month. EM PLO YM EN T AND PAYR O LLS the nonmarketable securities, the outstanding amount of The May estimates of the Bureau of the Census showed an Savings bonds increased by slightly more than $11,000,000,000 increase over April of 900,000 in the total civilian labor force, and Tax notes by about $4,500,000,000. Of the total of $60,000,000,000 borrowed from the public, about half was and little change in unemployment. The increase in the labor force and in employment was accounted for mainly by accounted for by increased holdings of commercial banks the entrance of students and housewives into agricultural and the Federal Reserve Banks. work. Secretary Morgenthau has set September 9 as the date for the start of the next major War Loan drive. In order to pro while the number of nonagricultural employees showed a vide additional funds to carry through until then, the Treasury defense program, was below the same month of the previous The number of farm workers increased by 1,200,000 decline and, for the first time since the inception of the offered on June 28 approximately $2,500,000,000 of 1 Vi year. per cent Treasury notes due September 15, 1947. Subscrip tions of $100,000 or less will be allotted in full, while larger principally to the drafting of men for military service and subscriptions will be allotted on an equal percentage basis. May estimates of nonagricultural employment reported a The reduction in nonagricultural employment was due transfers to farm jobs. The Bureau of Labor Statistics in its 55 FEDERAL RESERVE BANK OF NEW Y ORK decrease of 43,000 employees in manufacturing and of 103,000 in trade, as well as continued declines in construction and mining. Slight increases were recorded in the numbers of persons engaged in the transportation and public utility fields, and in civilian Government services. records by delivering 175 ships totaling 1,782,000 dead weight tons. Retail trade showed mixed tendencies during May. Mail order houses reported a sharp cut in sales, traceable to inven tory shortages and inability to offer substitutes on orders placed Responding to seasonal factors, curtailment in production by mail, and department store sales declined more than usual of some classes of nondurable goods, and to some extent, to ‘ cutbacks” of war production, New York State factory employ chains, on the other hand, showed some increase from reduced ment declined 0.7 per cent and payrolls 1.3 per cent between April levels. April and May. at this season of the year. Sales of variety chains and grocery Employment, nevertheless, exceeded the level During the month of June, further strikes in the coal mines of May, 1942 by 11 per cent and payrolls by 30 per cent. brought about losses of output in coal and, to some extent, New York City experienced the sharpest drops in both employ also in steel. ment and payrolls during the month, as expansion of per tion was checked during June, but electric power output sonnel in war plants and shipyards was much more than continued to rise. counterbalanced by seasonal contraction in the clothing June 9 extended its system of permits in order to speed ship In the Upstate area the Binghamton-Endicott- ments on the Great Lakes, which have been hampered by Johnson City district reported curtailment in both employ weather conditions, and to divert carriers to ore transportation. industry. ment and payrolls in the shoe industry and in the AlbanySchenectady-Troy area declines were reported by clothing factories as well as war plants. In other areas of the State, however, increased activity in war plants continued to be reflected in higher levels of employment and payrolls. The rising tendency of crude petroleum produc The Office of Defense Transportation on Scarcity of livestock in the market and conflicts over price regulations threatened to shut down many small packing establishments. A virtual stoppage of corn shipments as farmers diverted corn to stock feeding, also curtailed opera tions in corn processing plants. P R O D U C T IO N A N D T R A D E This banks index of production and trade declined one point further during May to 124 per cent of estimated long term trend. The group index of production was down two P R IC E C O N T R O L A N D R A T IO N IN G The problem of controlling food prices and at the same time of insuring an adequate food supply has become an points as the continued sharp curtailment of construction issue of national importance. work and the reduced output of steel and coal resulting from recent work stoppages more than offset increased production at the end of May, especially the new uniform dollar-and-cents in other industries. food industry on the grounds that the classification of retailers On the other hand, shipyards broke all Retail price ceilings established ceilings, provoked severe criticism from members of the for pricing purposes according to gross annual volume was 1942 1943 producing serious inequities and would force many retailers out of business. To meet this situation the Office of Price May March April May = estimated long term trend) Index of Production and Trade................. 113 126 125p 124p Production.................................................. 121 136 135p 133p cations to provide relief for retailer-owned cooperatives, for Producers’ goods— total...................... Producers’ durable goods............... Producers’ nondurable goods......... 148 168 125 173 205 136 171p p 134p 202 169p 198p 134p large volume stores which buy through wholesalers, and for Consumers’ goods— total.................... Consumers’ durable goods............. Consumers’ nondurable goods----- 87 45 87 p 33p 105 p Administration held a two day conference on June 15-16 with Indexes of Production and Trade* (100 88 101 40 105 87p 37p 104p Durable goods— total.......................... Nondurable goods— total................... 132 111 157 117 154p 117p 150p 117p Primary distribution................................ Distribution to consumer....................... Miscellaneous services............................. 128 85 124 151 85 163 154p 81p 169p 156p 80p 170p 116 123 124 125 136 149 150p 62 78 83 89 Cost of Living, Bureau of Labor Statistics (100— 1935-39 average)............................. Wage Rates (100 — 1926 average)................................... A roll-back of a few important food prices with the aid of subsidy payments was begun early in the month. On June 10, the retail price of butter was reduced 5 to 6 cents per pound with provisions for subsidies of 5 cents per pound to be paid to processors by the Defense Supplies Corporation. Reductions averaging 3 cents per pound for all types of meats and payment of subsidies for the same amount to packers was 66 88 85 80 p Preliminary. * Adjusted for seasonal variation. Indexes for January and February have been revised. The revised figures are vailable upon request. large volume stores which offer extra services. except cured and processed pork became effective on June 21, Velocity of Demand Deposits* (100 = 1935-39 average) New York C ity............................................. Outside New York C ity.............................. members of the industry, and subsequently revised its classifi scheduled for July. The subsidy program met with consider able opposition. A bill passed by the House on June 25 would prohibit subsidy payments under the roll-back plan, and a bill passed by the Senate on June 26 would eliminate all but MONTHLY REVIEW, JULY 1, 1943 56 a few specific subsidies on canning crops and farm products. The cost of living continued to rise between April 15 and DEPARTMENT STORE TRADE May 15, according to the index of the Bureau of Labor department stores in this District were about 15 per cent Statistics. greater than in the corresponding period last year, while The increase was approximately 0.8 per cent, how During the four weeks ended June 26, sales of reporting ever, as contrasted with an increase of 1.1 per cent from mid- apparel stores for the three weeks ended June 19 exceeded March to mid-April, and food prices showed an increase of year ago sales by about 35 per cent. Sales of department stores 1.7 per cent which was somewhat smaller than the increases in June apparently increased from the May level by the usual of previous months. seasonal amount. F U R N IT U R E ST O R E T R A D E cent greater than in May, 1942. In May department store sales in this District were 11 per Furniture store sales in this District during May were 3 per cent above the corresponding period last year. This is the first year-to-year increase that has occurred since the compilation of these data was begun in May, 1942. Sales in On a seasonally adjusted basis, sales increased less than 1 per cent from April to May of this year. Sales of apparel stores in May were 30 per cent above sales a year before. that month, however, were low following the retail buying Department stores in this District had at the end of May stocks on hand, which, valued at retail prices, were 34 per wave during the first quarter of the year. cent lower than in May of last year. Sales in May of this year were down 18 per cent in comparison with May, On a seasonally adjusted basis, however, stocks increased about 3 per cent from April 1941. to May of this year, the first month-to-month increase in Stocks on hand at the close of May were 23 per cent below those held one year earlier. They represented 5.2 months’ this index since July, 1942. supply at the current rate of sales against 6.9 months’ supply outstanding orders for merchandise purchased by the stores on May 31, 1942. Accounts receivable have declined 39 per cent during the but not yet delivered to them were 76 per cent above May, past year. Returns from a limited number of department stores in this District show that at the end of May 1942, and 25 per cent above those at the end of April, 1943. Collections during May against accounts outstand ing April 30 amounted to 15.5 per cent; the corresponding percentage last year was 11.3 per cent. Percentage change from a year earlier Department stores Percentage changes May, 1942 to May, 1943 May, 1943 Furniture stores Total sales Accounts receivable* Collec tions Stocks* on hand +12 — 38 — 14 — 45 — 44 — 33 — 44 — 38 — 32 — 44 — 38 — 37 — 41 — 37 — 4 — 18 — 19 — 18 — 23 — 27 — 29 — 26 — — 13 — 29 — 40 — 13 — 39 — New York City................................. Northern New Jersey...................... — 17 — 36 — 9 Other localities.............................. Westchester-Fairfield....................... Hudson River Valley....................... Central New York State................ Syracuse......................................... Other localities.............................. Western New York State............... Buffalo............................................ Rochester....................................... Other localities.............................. —10 — 18 + 5 +16 — 4 — 3 — 15 + +15 2 8 Total outside New York City — Total Second District........... + 3 Net sales —11 2 — 28 — 4 + — 14 8 —11 — 18 — 8 0 — — 28 —22 8 New York City........................................... Northern New Jersey................................ Westchester and Fairfield Counties___ Lower Hudson River Valley.................... Poughkeepsie.......................................... Upper Hudson River Valley................... Schenectady............................................ Central New York State.......................... Mohawk River Valley.......................... — 27 — 13 — Northern New York State....................... Southern New York State....................... Binghamton............................................. — 23 Western New York State......................... — 23 Niagara Falls.......................................... * End of month. +13 + + 7 — — 4 + 4 + 5 + 3 + + +14 +16 +1 6 +14 6 2 2 6 0 +15 +19 + +14 +17 6 All department stores................... +20 +10 +11 Apparel stores................................ +30 Stocks on Jan. through hand May, 1943 May 31, 1943 + — — — — — 37 — 39 — 39 — 24 — 27 — 17 — — — — 13 — 28 — 15 7 3 1 3 5 0 1 —12 + — 5 8 + 5 + 9 +11 +11 + 9 — 2 + 8 +11 — 2 +10 +11 — — 33 — — 13 — — — 24 —20 — 6 +34 + 7 — 32 + 5 — 34 +19 — 17 May, 1943 compared with May, 1942 Furniture stores Credit sales as per cent of total sales........................................... Stocks on hand, end of month, as ratio to month’s sales........ Collections, exclusive of down payments, as per cent of re ceivables, first of month........ Total District New York City Outside New York City May, 1942 May, 1943 May, 1942 May, 1943 May, 1942 May, 1943 85.2 83.1 86.1 8 3.4 84.2 82.7 6 .9 5 .2 7 .8 5 .6 5 .5 11.3 15.5 10.6 14.5 12.6 Indexes of Department Store Sales and Stocks, Second Federal Reserve District (1923-25 average = 100) 1942 1943 May March April May 4 .7 Sales (average daily), unadjusted................. Sales (average daily), seasonally adjusted... 99 106r 104 127 117 115 109 116 Stocks, unadjusted............................................ Stocks, seasonally adjusted............................ 160 159r 107 106 100 104 17.6 r Revised. 99 102 FEDERAL RESERVE BANK OF NEW YORK MONTHLY REVIEW, JULY 1, 1943 G en eral Business and F in a n cia l Conditions in the U nited States (Summarized by the Board of Governors of the Federal Reserve System) I activity and retail trade were maintained in large volume during May and the early part of June. Retail prices, particularly foods, increased further in May. NDUSTRIAL Pr o d u c t i o n Index of Physical Volume o f Industrial Produc tion, Adjusted for Seasonal Variation, 193539 A v e ra g e s 100 Per Cent (Subgroups shown are expressed in terms of points in the total index) Total volume of industrial production, as measured by the Board’s seasonally adjusted index, remained in May at the level reached in April. Activity in munitions industries con tinued to rise, while production of some industrial materials and foods declined slightly. Aircraft factories established a new record in producing 7,000 planes in May. In most nondurable goods industries there were small increases or little change in activity. Meat production, however, reached a record high level for May reflecting a sharp advance in hog slaughtering. Seasonally adjusted output of other manufactured foods continued to decline. Newsprint consumption showed little change, and publishers’ stocks declined further to a 50-day supply on May 31. Consumption for the first five months of 1943 was only 5 per cent below the same period in 1941, whereas a reduction of 10 per cent had been planned. The temporary stoppage of work in the coal mines at the beginning of May brought pro duction of bituminous coal and anthracite down somewhat for the month. Iron ore shipments on the Great Lakes continued to lag in May behind the corresponding month of 1942. The value of contracts awarded for construction continued to decline in May, according to reports of the F. W. Dodge Corporation. Total awards were about 65 per cent smaller than in May a year ago. D is t r i b u t io n Indexes o f W holesale Prices Compiled by Bureau of Labor Statistics (Latest figures are for June 12; 1926 a v e r a g e s 100 per cent) During May the value of sales at department stores decreased more than seasonally, and the Board’s adjusted index declined 5 per cent. Sales, however, were about 15 per cent above a year ago, and during the first five months of this year showed an increase of 13 per cent over last year. In general, the greatest percentage increases in sales have occurred in the Western and Southern sections of the country where increases in income payments have been sharper than elsewhere. Freight-car loadings advanced seasonally in May but declined sharply in the first week in June, as coal shipments dropped 75 per cent from their previous level, and then recovered in the second week of June as coal production was resumed. C o m m o d i t y P r ic e s Prices of farm products, particularly fruits and vegetables, advanced during May and the early part of June, while wholesale prices of most other commodities showed little change. Retail food prices showed further advances from the middle of April to the middle of May. On June 10 maximum prices for butter were reduced by 10 per cent and on the 21st of the month retail prices of meats were similarly reduced, with Federal subsidy payments being made to processors. A g r ic u l t u r e Member Banks in Leading Cities. Demand De posits (A djusted) Exclude U. S. Government and Interbank Deposits and Collection Items. Government Securities Include Direct and Guaranteed Issues (Latest figures are for June 16) Yields on U. S. Government Securities (Latest figures are for June 19) Prospects for major crops, according to the Department of Agriculture, declined during May while output of livestock products continued in large volume, as compared with earlier years. Indications are that acreage of crops may not be much below last year but that yields per acre will be reduced from the unusually high level of last season. B a n k C r e d it Excess reserves at all member banks declined from 2 billion dollars in early May to 1.5 billion in the latter part of the month and remained at that general level through the first half of June. As the Treasury expended funds out of war loan accounts which require no reserves, the volume of deposits subject to reserve requirements increased and the level of required reserves rose by 600 million dollars in the four weeks ended June 16, while continued growth of money in circulation resulted in a drain on bank reserves of 400 million dollars. These reserve needs were met in part by Treasury expenditures from balances at the Reserve Banks and in part by Federal Reserve purchases of Treasury bills. Reserve Banks continued to reduce their holdings of Treasury bonds and notes in response to a market demand for these issues. During the four weeks ended June 16, Treasury bill holdings at member banks in 101 leading cities fluctuated widely, reflecting primarily sales and repurchases on option account by New York City banks in adjusting their reserve positions. Holdings of bonds and notes declined somewhat while certificate holdings increased. Loans to brokers and dealers in securi ties declined sharply during the period, as repayments were made on funds advanced for pur chasing or carrying Government securities during the April War Loan Drive. Commercial loans continued to decline. Government security prices advanced during May following the close of the Second War Loan Drive, but in the early part of June there were small declines.
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