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O f Credit and Business Conditions









No. 7

Although the final results of the Seventh War Loan drive
are not yet available, it is evident that the goal of 14 billion
dollars has been surpassed by a wide margin; total subscriptions
received through June 27 were about 21.2 billion dollars and
the Secretary of the Treasury predicted a larger sales total
than has been achieved in any previous loan. (The largest
sum heretofore raised in one drive was 21.6 billion dollars
in the Sixth War Loan.) How much of this enormous total
will represent actual nonbank investment and how much repre­
sents indirect bank purchases is not yet determinable, but it
appears certain that, despite special efforts to reduce to a
minimum the indirect use of banking funds in the drive, the
part played by bank credit has again been substantial.
Selling of outstanding Government obligations, by insurance
companies and savings banks in particular, was considerably
less in the weeks preceding the Seventh War Loan drive than
in those preceding the previous War Loan. As a consequence
the increase in aggregate holdings of Treasury securities by the
weekly reporting member banks and the Federal Reserve
Banks, through June 20, was considerably below that in the
corresponding period of the Sixth drive. As usual, the banks
bought a large volume of Government securities in the week
in which the heaviest corporation subscriptions were received
(June 14 to 2 0), but the increase in their holdings, other than
Treasury bills, in the seven weeks ended on June 20 was 17
per cent less than in the corresponding period prior to and
during the Sixth War Loan— 3,074 million, compared with
3,711 million.
This measure of success in reducing bank absorption of
securities prior to and during the drive appears to have been
offset, however, by a sharp expansion in bank loans, especially
to subscribers other than brokers and dealers, for the purpose
of financing purchases of drive issues. As the accompanying
chart shows, the increase in loans to subscribers other than
brokers and dealers in the week ended June 20 was greater
than in the corresponding week of any previous drive, and the
total volume of loans on Government securities, both to brokers
and dealers and to others, reached higher levels than ever
before. A substantial part of this increase undoubtedly repre­

sented bona fide investments by nonbank investors, such as
insurance companies, who intend to pay off the loans out of
future income within a short period; in fact, there is some
evidence to indicate that loans of this character have been
larger than in previous drives. The remainder reflects the
financing of speculative purchases of drive securities, presum­
ably for resale after the close of the campaign. Limitations on
subscriptions by brokers and dealers tend to restrict expansion
in their borrowing, but such borrowings started from a higher
level prior to the Seventh drive than prior to the Sixth drive,
as a result of security purchases in the market, and it is
expected that broker and dealer subscriptions to the new issues
will carry their portfolios and their borrowings to higher levels
before the close of the drive.
The growth of the Government security holdings of the
weekly reporting member banks since the initiation of War
Loan drives has assumed a staircase pattern with sharp increases
during War Loan drives and moderate reductions in between,
as shown in the chart on the next page. Treasury data for other
Loans for Purchasing or Carrying U. S. Government Securities
by Weekly Reporting Member Banks in 101 Cities



banks indicate the same pattern, except that in those banks no
declines have occurred in the interdrive periods. The Seventh
drive saw no deviation from this design, although the increase
thus far has been somewhat smaller than in the two preceding
During the war and particularly since 1942 the Federal
Reserve Banks have been acquiring securities steadily to supply
member banks with the reserve funds they need. As illustrated
in the chart, the effect of War Loan drives has been mainly to
slow up the rate of increase. Holdings have usually declined
for a week or two around the payment date for new drive
issues, when the reduction of member bank reserve require­
ments following the shift of deposits from private accounts to
War Loan accounts has enabled the banks to repurchase
Treasury bills previously sold to the Federal Reserve Bank
option accounts, and then have resumed the upward trend. In
the Seventh War Loan period, however, the Reserve Banks
made net purchases of Treasury bills during the week
which included the principal payment date for corporate sub­
scriptions to the drive issues. In view of the fact that holdings
of Treasury bills by the weekly reporting member banks also
increased substantially during that week, it appears that the
bills came from nonbank investors, particularly corporations
which had acquired them as temporary investments pending
more permanent investment of funds in drive securities.
The practice of subscribing for securities in localities other
than where deposits are held (thus resulting in unnecessary
transfers of funds and disturbance of bank reserve positions)
appears to have been renewed on a large scale during the
Seventh War Loan drive, despite the established procedures set
up by the Treasury, whereby credit for subscriptions may be
Government Security Holdings of Weekly Reporting
Member Banks and Federal Reserve Banks
o f d o lla r s


allocated to other localities without transfers of funds to pay
for them. The movement of funds out of New York City by
business corporations and others reached about 1,500 million
dollars in the four weeks ended June 20, as compared with
875 million in the corresponding period of the Sixth drive.
Part of this outward movement of funds reflected payment for
securities sold in the New York market by institutions in other
parts of the country, and part may have been related to
quarterly income tax payments in other localities by corpora­
tions with bank deposits in New York. These conditions,
however, were present also during the preceding two War Loan
drives when the movement of funds out of New York was
much smaller.
M e m b e r B a n k R e se rv e P o s itio n s

The strain on New York City bank reserves resulting from
the large-scale outflow of funds was offset in part by the ac­
cumulation of balances in the City by out-of-town banks and
by substantial purchases of Government securities in the open
market by the Federal Reserve System. Nevertheless, the net
outflow of funds, together with the absorption of substantial
amounts of Government securities, an increase in loans on
Government securities, and an increase in reserve requirements
in the three weeks ended June 13, forced the New York City
banks to seek Reserve Bank credit, through borrowing or sales
of Treasury bills and certificates of indebtedness. Although
Treasury disbursements were in excess of receipts throughout
the four weeks ended June 20, it was not until the last week
of this period, during which heavy interest payments on the
public debt were made, that such operations afforded any relief
to the reserve position of the New York City banks.
In that week a sharp decline in reserve requirements result­
ing from heavy subscriptions of drive issues by nonbank in­
vestors and the consequent shift of deposits to reserve-free War
Loan accounts also contributed to the easing of the reserve posi­
tion of the New York banks. As a result, the banks were able
to repay about 400 million dollars of their indebtedness to the
Reserve Banks and to make further substantial net purchases
of, and loans on, Government obligations. In the following
week, however, the drain on the reserves of the New York
banks was renewed, as a further transfer of business funds to
other parts of the country took place and Treasury receipts in
New York exceeded disbursements by a substantial margin.
Consequently, the New York banks were again compelled to
call upon Federal Reserve credit to restore their reserves to
required .levels.
The shift of funds out of New York considerably eased the
reserve positions of the member banks in other parts of the
country. These gains of funds, augmented by net Treasury ex­
penditures during the three weeks ended June 13, were more
than sufficient to cover an increase in reserve requirements
and the loss of reserves arising from a moderate increase in


currency in circulation. As a result, member banks in the rest
of the country were able to reduce their borrowings from the
Federal Reserve Banks in each of the four weeks ended June
20, increase their takings of Treasury bills, absorb substantial
amounts of other types of Government securities in the open
market, and at the same time build up their excess reserves
by about half a billion dollars.
Contrary to the experience of the New York banking institu­
tions, banks in the interior lost funds as a result of tax collec­
tions and other Treasury operations during the week of June
20, but this loss was more than offset by the decline in reserve
requirements and the continued transfers of funds from New
York. The gains, however, were used further to reduce mem­
ber bank borrowings by about 150 million dollars, rather than
to augment excess reserves.
An Act of Congress, approved by the President on June 12,
amended the Federal Reserve Act primarily by lowering the
percentage of reserves which Federal Reserve Banks are
required to maintain against their notes in circulation and
against their deposits. Whereas formerly the Reserve Banks
were required to maintain a reserve of 40 per cent in gold
certificates against their notes in circulation, and a reserve of
35 per cent in gold certificates or lawful money against their
deposits, the amendment establishes a uniform requirement
of 25 per cent reserve, in gold certificates only, against notes
and deposits alike. The legislation was occasioned by the rapid
fall in the ratio of reserves to note and deposit liabilities in
all Federal Reserve Banks during the past three years, which
has resulted mainly from the financing of the war.
The accompanying chart shows changes in the combined
reserve ratio of the twelve Federal Reserve Banks since the
beginning of 1933. From an average of 51 per cent in March
1933 (the bank holiday period), the ratio rose substantially and
with only minor interruptions until 1941, when it was above
90 per cent. At first the rise in the ratio was caused by the
surrender of gold and gold certificates by the public and by
a return flow of hoarded currency, and then for several years
it was carried forward by a flow of capital from foreign coun­
tries to the United States and an accompanying inflow of gold.
The early inflow of capital and gold followed the devaluation
of the dollar at the beginning of 1934, which led to expecta­
tions abroad of inflationary developments and opportunities
for speculative profits in this country and to fears of currency
devaluation in foreign countries. Subsequently, the political
developments in Europe leading up to the war caused a heavy
flight of foreign capital and gold to this country, which was
checked by wartime controls abroad, but was superseded dur­
ing the first two years of the war by official shipments of gold
to the United States in payment for war materiel. From less


Reserve Ratio of Federal Reserve Banks*

* M onthly averages of daily figures of the 12 Federal Reserve Banks
com bined; data for June 1945 based 011 first 25 days of the month.

than 4 billion dollars in January 1934, the total reserves of
all Federal Reserve Banks rose to nearly 21 billion at the
end of 1941.
Since the United States entered the war, there has been
some reversal of the gold flow and total reserves of the Reserve
Banks have fallen gradually to a little over 18 billion dollars
at present, reflecting cash payments to foreign countries for
materials needed in the war and for the maintenance of our
troops abroad. Meanwhile, Federal Reserve notes in circula­
tion have risen from about 8 billion dollars to nearly 23 billion
dollars, and total deposits of the Federal Reserve Banks have
risen from about 15 billion dollars to nearly 175/2 billion.
The result has been that the combined reserve ratio of the
Federal Reserve Banks has fallen in this period from above
90 per cent to about half that figure; and the ratio is likely to
continue to decline as long as the wartime expansion of cur­
rency circulation and bank deposits continues.
The lowering of the required reserve against Federal Reserve
notes and deposits gives assurance that the Federal Reserve
Banks will be able to continue to give such support as is neces­
sary to the financing of the war, and will not be forced, because
of their reserve position, to adopt restrictive measures which
might interfere with war financing. On June 6, before the
enactment of this legislation, total reserves of the twelve
Reserve Banks were somewhat over 18 billion dollars, of
which more than 15 billion dollars was required as reserve
against the note and deposit liabilities of the Reserve Banks,
leaving a margin of reserves to meet further gold losses and
to cover further expansion of notes and deposits of a little
over 3 billion dollars. On June 13, after the legislation
became effective, total reserves had been reduced only slightly
by the deduction of cash other than gold certificates (lawful
money, such as silver certificates and United States notes, may



no longer be used as reserve against deposits), while required
reserves were reduced to a little over 10 billion dollars, leav­
ing a margin of 8 billion dollars for future requirements.
There can be little doubt but that this sum will be more than
adequate to cover any further losses of gold and any further
expansion in currency circulation and in the deposit liabilities
of Federal Reserve Banks which is likely to occur during the
remainder of the war period.
By the Act of June 12, the Federal Reserve Act was also
amended to continue without limit as to time the authority
to use direct obligations of the United States as collateral for
Federal Reserve notes. Earlier amendments of the Federal
Reserve Act had made provision for the use of such obliga­
tions for this purpose since 1932, but the authority had been
limited to specific periods which were extended from time
to time by Presidential proclamation or Congressional action.
The legislation also canceled the authority of Federal
Reserve Banks to issue Federal Reserve bank notes (a form
of currency requiring no reserve, similar to National bank
notes, which has been used only on a few occasions in the
past), and terminated the authority of the President and the
Secretary of the Treasury, given by the "Thomas Amendment”
of the Agricultural Adjustment Act of 1933, to issue up to 3
billion dollars of United States notes under certain specified
Trust departments of all member banks experienced their
most active year in 1944. Gross earnings from trust opera­
tions, the only available indicator of the over-all volume of
operations, reached a new peak of 104 million dollars last year
and were 8 per cent above the level of the previous peak of 96
million in 1943 and 30 per cent above the predepression high
point of 80 million in 1930.1 And, as illustrated in the accom­
panying chart, the 1930 gross earnings were twice those for
1925 (the first calendar year for which data are available).
Trust departments have been a growing source of bank
revenue. Not only did trust department earnings increase
faster than bank income from other sources during periods of
active or expanding (peacetime) business conditions, such as
1925-29 or 1933-37, but they fell much less drastically during
Owing to the difficulty or impossibility of finding a common
denominator of all trust functions, gross income from trust operations
has been adopted as the one over-all measure of the volume of
fiduciary operations of the member banks. Its weakness derives
from the fact that changes in earnings may reflect changes in fees
charged as well as in the volume of trust operations. Throughout
this article, trust earnings of member banks refer to gross earnings
from all the many services performed by trust departments including
corporate trust, personal estate and trust, agency, custodial, real estate,
and investment management functions. N o inference can be drawn
from these data as to the profitability of these operations, as data on
the cost of supplying the services are not available for all member

Gross Earnings of Member Banks from Trust Departments


fts /

................ ^


AL L . O T H E R



— —


X - — —










19 3 0





_ i ____ i____i____i____ —



i i



1 94 5

* Data for 1925 not available by districts.

the depression of the early thirties. Thus, trust operations have
accounted for an increasing proportion of gross earnings of the
member banks each year, rising from 2.1 per cent in 1925 to
7.3 per cent in 1937. In 1944, however, trust departments
contributed only 5.6 per cent of total bank income, owing to a
sharper rise in revenues from other sources, primarily interest
on Government securities.
But these figures are indicative only of the importance of
fiduciary activities in the banking system as a whole. A
little less than a third of all member banks operated trust
departments during 1944, and the importance of trust earn­
ings to such institutions was relatively much greater. And,
owing to the fact that the bulk of the trust business is done
by the larger banks— the New York central reserve city banks
alone accounted for over a third of total trust department
earnings of all member institutions last year— fiduciary activi­
ties are most significant for the largest institutions. The
tendency of fiduciary operations to increase in relative impor­
tance with the size of banks may be seen from the accom­
panying table, which relates only to those banks in the New
York District that reported trust earnings in 1944.
T ru st D e p a rtm e n t E arnings o f N ew Y o r k D is trict M e m b e r B an ks
b y Size o f B an k, 1944

Deposit size
(In millions of dollars)
Outside Greater New York CityUnder 2 ..................
2— 5 ............................................................................................
5— 2 0 ............................................................................................
20 and o v e r .................................................................................
Greater New York City
Under 1 0 0 ....................................................................................
100 and o v e r ...............................................................................

Trust earnings as per
cent of total earnings*
3 1
2 .0
3 .0
4 .6
8 .2

*Data are averages of ratios of individual bank§; only those banks reporting
trust department earnings are included.


The increase in trust department earnings of the member
banks has not been as rapid in the New York Federal Reserve
District in recent years as in other parts of the country. For
although income from fiduciary operations rose during 1943
and 1944 among member banks in the Second District, as well
as in all other districts, the earnings of the Second District
members in 1944 ware still 7 per cent below the 1937 figure,
while those of the member banks in the eleven other districts
were 22 per cent higher. Up through 1937, the growth of
trust activity of the Second District members had kept pace
with that of the member banks as a whole, Second District
members accounting for 47 per cent of total trust department
income in both 1929 and’ 1937. In 1944, however, this ratio
was down to 41 per cent.
The recent decline in the relative position of the Second
District members with respect to trust department earnings
may well be transitory, owing to the nature of the trust busi­
ness in this District, a much larger proportion of which con­
sists of corporate trust and agency accounts than in the rest
of the country. This holds particularly true of the large New
York City banks which accounted for close to 90 per cent of
the District s trust department earnings last year. The income
from this type of trust business is derived primarily from
trusteeships under corporate bond indentures and from stock
transfer agencies and registrarships ( in connection with
changes of ownership of preferred and common stocks), and
so is to some extent dependent on the volume of new corpo­
rate and State and municipal issues floated, and on the volume
of stock trading. Activity in the capital markets, however,
fluctuates sharply and consequently imparts some instability
to the trust earnings of the Second District banks. Thus, the
relative decrease in the position of these banks after 1937 stems
from lesser activity in the security markets particularly from
1938 to 1942. In this connection, it is significant that the
predepression peak of trust department earnings of Second
District members occurred in 1929, whereas 1930 marked the
high point for all other member banks.
The trend of trust operations in the other eleven districts
has been strongly upward, apparently reflecting increasing
participation by banks in other cities in the corporate trust
business as well as a growing demand for estate and trust
services on the part of individuals, which in the Second District
is often obscured by the ups and downs of the corporate trust
The divergence in the earnings trends of the trust depart­
ments of member institutions in the New York and other
Federal Reserve Districts may also be related to some extent to
differences in rates charged by bank trustees in the various
States, particularly on personal trust business. Changes in the
statutory fees for trustees have been rather frequent in many
States outside of the District and the trustee rate structures in


such areas are comparatively up to date, having taken into
account more promptly the financial and economic develop­
ments in the country, particularly the decline in interest rates.
But in New York (which dominates this District) no revision
of such commissions was made for 20 years until September
1943. The statutory rates are the maximum permissible with­
out special agreement. But, as actual rates are subject to
negotiation and competition, they may be lower.
The over-all growth of the fiduciary activities of the mem­
ber banks may be traced to several developments.2 Prior to
1931, this expansion was particularly rapid, owing (apart
from the general economic prosperity of that period coupled
with a relatively low income and estate tax structure) in large
measure to the assumption of fiduciary functions by an increas­
ing number of national banks, which reported trust earnings
in 1930 four times those of 1925, in contrast to a doubling
of all member bank trust department earnings between those
years. Although the national banks had been empowered by
the Federal Reserve Act to engage in the trust business, their
progress in that field was slow at first. A Supreme Court deci­
sion in 1924, which forbade the States to prevent national
banks from engaging in the trust business when duly author­
ized to do so by the Federal Reserve Board, stimulated the
interest of these banks in fiduciary operations. Additional
impetus to their entrance into the field was given by the
passage, in February 1927, of the McFadden Act which
accorded the national banks indeterminate charters thus assur­
ing them that their corporate existence would not terminate by
expiration of their charters before trust functions undertaken
were fulfilled.
The resultant competition generated by the increased num­
ber of institutions engaged in fiduciary activities undoubtedly
developed more new business than might otherwise have been
the case. Some of this business, however, may have been
acquired at the expense of the individual trustee whose com­
petitive position may have deteriorated as opposed to that of
the corporate (bank) trustee with its perpetual charter and
staff of investment experts and accountants, although large law
firms remain active in the field. Competition among the banks,
on the other hand, effected some reduction in rates charged for
administering trusts, particularly personal trusts, in this period.
The expansion of the volume of trust operations of the
member banks in more recent years is, in some respects, even
more impressive than in the twenties, as it was achieved in
spite of the generally reduced volume of new capital issues
and security trading, and of the development of such unfavor­
able conditions as high income taxes which tended to reduce
individual accumulations of funds and thus ultimately the size
Among these is the fact that the member banks of the Federal
Reserve System comprised a larger proportion of commercial banking
assets in recent years than in the twenties. But this factor could not
have had much influence in view of the expansion of trust earnings
relative to total bank earnings.



of estates, and high estate and gift taxes which in turn tended
to reduce the size of trusts administered by the banks. At the
same time, declining money rates reduced the earning power of
the investments held in trusts and so reduced fees collected
from their administration (where fees are based on a percentage
of the income from trust accounts). Thus, the volume of
trust operations appears to have increased even more rapidly
than the earnings from such operations shown in the chart.3
Offsetting these unfavorable developments has been the
expansion of several new sources of business. Notable among
these is the growth of pension trusts which have been estab­
lished by many corporations to supplement the retirement and
other benefits of the Social Security program. The expansion
of the pension trust business has been stimulated during the
war period by the imposition of excess profits taxes on busi­
ness and restrictions on salaries. Other expanding phases of
trust operations include the administration of small estates and
trusts (the latter made more economical through the develop­
ment of the common trust fund device), the offering of invest­
ment management services, and the handling of insurance
trusts and stock purchase agreements.
The efforts of the banks to expand their personal trust opera­
tions have been aided by the increased emphasis placed by indi­
vidual investors on safety of principal following the unfavorable
investment experience of the depression, and by the increased
complexity of the investment problem and of the estate and
inheritance tax situation. Both these developments led to a
growing appreciation and use of the specialized facilities
offered by bank trust departments.
Several factors point toward further growth in the fiduciary
activities of the member banks. Postwar financing of corporate
expenditures for reconversion and expansion through new
security issues may bring further expansion in the corporate
trust field. Continued growth may be anticipated in pension
trusts and other new sources of businesses including stock pur­
chase agreements and investment management accounts.
Furthermore, the marked increase in incomes (after taxes)
of individuals, particularly small businessmen, which has oc­
curred during the war provides the basis for increased personal
trust business, especially small estates and trusts. This develop­
ment may be especially propitious for the smaller banks which
have not been particularly active in this field in the past.
Surveys of the ownership of demand deposits conducted by
the Federal Reserve System indicate that personal accounts
and the accounts of small business enterprises (which in many
cases are tantamount to personal accounts of the owners of such
enterprises) have shown considerable expansion during the
war, and practically all dealings of the smaller banking institu­
tions are with individuals and small businesses.

New York offers the advantages of a large wholesale market
as does no other city in the United States. Location in a large
commercial center enables the wholesaler to keep in close
contact with changes in supply, demand, and prices, and with
his principal customers and sources of supply. Only a broad
market permits a high degree of specialization. In a large
city with numerous wholesale houses in each line of trade,
visiting buyers have the widest possible selection of merchan­
dise and an opportunity to shop around among several estab­
lishments before making their purchases. In 1939, the date
of the last Census of Business, the fourteen largest cities trans­
acted almost sixty per cent of the entire wholesale business
of the United States. New York City’s wholesale volume
alone amounted to 12.8 billion dollars or about one fourth of
the national total. Chicago, which ranked second to New
York, had a sales volume of 4.0 billion dollars; no other city
reached the 2 billion mark.
In some lines of trade the City’s wholesalers merely serve
retailers in and around New York City. In others they supply
smaller wholesalers, institutions, industrial users, department
stores, and other large retailers in all parts of the country. In
some branches of New York’s wholesale industry large firms
have achieved a very wide distribution of their merchandise by
featuring private brands or exclusive designs and styles. New
York City’s wholesale trade in 1939 furnished employment
for more than 250,000 persons, almost half as many jobs as
all manufacturing plants in the City.
One of the reasons for New York’s prominence in the
field of wholesale trade is the location in the City of the great
majority of firms which deal in goods that enter into foreign
trade. During the last prewar years, over a third of the
country’s export and import trade was handled through the
extensive natural harbor facilities of the Port of New York.
Importers and exporters accounted for more than 10 per cent
of New York’s wholesale business.
The job of moving goods from the factory and the farm
to retailers and industrial users involves the assembling of
goods, storage, delivery, and sometimes packaging and pack­
ing, granting credit, and other ancillary services. "Wholesale
trade” as defined here embraces a wide variety of firms rang­
ing from the traditional wholesale merchant, who usually per­
forms all these services and for whom the term "wholesaler”
is sometimes reserved, to agents and brokers who in some
cases merely solicit orders. The chart indicates that the
high sales figures for New York City reflect to some extent
business done by firms which do not render full wholesale
services and which, for that reason, can handle a rather large
dollar volume of trade with a relatively small staff. However,

1 Copies of a more extensive analysis made by this bank, upon
This is also true of the period of the twenties when keen com­
which this study is based, may be obtained upon request.
petition for trust business among banks introduced some rate-cutting.


Distribution of Wholesale Sales by Type of Establishment,
1929 and 1939


S ource:

cen t





U . S. Census o f Business.

firms other than 'service” wholesale merchants account for
almost half of the wholesale trade employment in New York
City. During the last two or three decades distribution chan­
nels have become more and more diversified. Changes in
wholesaling techniques have affected the trade of some areas
more favorably than that of others. An attempt has been made,
therefore, to draw a comprehensive picture of the business of
all establishments which perform essentially wholesaling func­
tions, including service wholesalers, importers and exporters,
manufacturer-operated wholesale outlets, and agents and
It cannot be determined what portion of the country’s
annual output of raw materials and finished goods is handled
by New York City wholesalers, since some goods never enter
into wholesale trade and others are objects of several consecu­
tive wholesale transactions. Only the share of New York
firms in the total volume of business handled by wholesale
establishments of all types throughout the country can be
T y p e s o f O p e r a t io n

For years methods of distribution have been subject to
changes and adjustments. Census data on wholesale trade for
the years 1929 and 1939 show that, on the whole, recent devel­
opments have favored New York City. The portion of the
country’s wholesale business handled by New York firms was
slightly larger in 1939 than in 1929— 26.5 per cent compared
with 25.3 per cent 10 years earlier.
During the thirties, there was a decided trend away from
the independent wholesaler. Many producers have come to
feel that the independent wholesale merchant with a line of
related products is not sufficiently interested in promoting
sales of their particular products, in maintaining their prices,
and in creating customer good will for them and, therefore,

have turned to marketing through their own wholesale out­
lets. Since manufacturers often prefer New York for the
location of their sales offices, this trend has benefited the
City’s position as a center of wholesale trade. Large stores
have also gone a long way toward eliminating the independent
wholesaler. However, in recent years, stores which buy di­
rectly from the manufacturer have frequently established or
joined an organization which directs their purchasing activi­
ties. Such resident buying offices and purchasing offices
(classified with agents and brokers) in 1939 were located
almost exclusively in New York City; more recently some
large firms have established purchasing offices in Chicago,
St. Louis, and Los Angeles.
At the same time there was a marked tendency among
wholesalers, particularly among regular wholesale merchants,
to confine their operations to a rather limited territory as a
means of cutting their expense ratio. This tendency had an
adverse effect on New York’s position as a wholesale trade
center. However, the larger New York firms in many lines
of trade have come to act as middlemen between producers
and smaller wholesale organizations— many located out of
town— for whom the job of assembling a stock of merchandise
is thus greatly simplified.
Lin e s o f T r a d e

New York City’s wholesale trade is highly diversified.
More than two thirds of the country’s wholesale distribution
of dry goods and clothing and about 60 per cent of its jewelry
trade were handled in 1939 by wholesale organizations in
the metropolis. In the wholesale clothing as well as in the
wholesale dry goods trade the buyer visits the seller. The
location of so many apparel manufacturing concerns in New
York and the City’s leadership in style and fashion explain
its high share in the country’s dry goods and clothing trade.
Relatively small, highly specialized establishments predominate
in the wholesale dry goods field. The large houses usually
buy gray goods and have them finished and dyed on a com­
mission basis. This enables them to feature their own designs
and trademarks and to operate on a national scale.
W ith sales of over 2 billion dollars in 1939, the wholesale
grocery and food trade in New York City is second in im­
portance only to the dry goods and clothing business. How­
ever, in the food trade New York performs essentially a
regional function, although the area covered by New York
firms includes large parts of the Middle Atlantic region and
some sections of New England. Only about a dozen houses
do a large national business; they sell their private brands
and advertise them nationally. It may be estimated that in
1939 the City was a distributing center for approximately
one fifth of both the perishable and nonperishable foods
entering wholesale channels. As a result of direct buying
and selling by chains, supermarkets, and large food producers,
food wholesalers in New York lost ground during the thirties.



New York’s leadership is well established in many other
lines of trade. The City’s firms were responsible for at least
one fourth of the wholesale trade in furniture and house
furnishings, paper and paper products, chemicals and paints,
metals and metal work, petroleum products, drugs, and
tobacco products. In some lines the City leads because of
the concentration of related manufacturing industries in the
Middle Atlantic region and in New England. In other cases—
for instance, tobacco products— New York’s high sales figures
reflect merely the business done by sales offices of a few very
large manufacturing corporations, which sell the company’s
entire output to large retailers and independent wholesalers
all over the country.

Service wholesale houses in New York,

not being centrally situated, as for instance those in Chicago
or St. Louis, cannot economically handle trade in bulky and
heavy goods, unless the producer or purchaser is located near
the City. This is particularly true when these goods are
highly standardized as are automobiles, automobile parts, hard­
ware, construction materials, or plumbing and heating equip­

On the other hand, light and nonstandardized products

— fashion merchandise in particular— can be distributed
advantageously through New York’s wholesale houses. Indus­
trial machinery, equipment, and materials are often sold by
catalogue or sample.

Since the sales and management activi­

ties of the country’s largest industrial corporations are centered
in New York, it is not surprising that a large portion of the

Consumers purchased an exceptionally large dollar volume
of merchandise in department stores during June. Unusually
warm weather during the latter half of the month produced
a heavy demand for summer merchandise, and trade sources
indicate that stocks were well maintained because of advance
deliveries of merchandise on order. Second District depart­
ment store sales during June were approximately 20 per cent
above those a year earlier, when sales were somewhat affected
by war news. The seasonally adjusted index for June increased
sharply over that of May, and was not far below the all-time
high reached last March.
The dollar value of department store stocks on May 31 was
12 per cent above that one year earlier and the largest since
the close of 1942. Compared with the peak reached during
the summer of 1942, however, stocks were 25 per cent lower.
Merchandise received by the stores has exceeded sales every
month this year, and stocks have increased steadily, despite
shortages in a number of lines of goods. Outstanding orders
increased during January and February, but since that time
most of the two months’ rise has been eliminated. At the
close of May they were 25 per cent above the year earlier level
and more than twice the 1942 dollar volume.
Department and Apparel Store Sales and Stocks. Second Federal
Reserve District, Percentage Change from the Preceding Year
Net fjales

nation’s wholesale trade in industrial equipment and materials

M ay 1945

is also handled by New York wholesale firms.
Department stores, Second D istrict. . . .
New Y ork C ity ......................................
Northern New Jersey...........................

Indexes of Business


Industrial production*, 1935-39 = 1 0 0 .........
0Board o f Governors, Federal Reserve

M ay



M ay





S ystem )

Electric power output*, 1935-39 = 100f. . . .
(.Federal Reserve B ank o f N ew




249 p



176 p




152 p






















Sales of all retail stores*, 1935-39 = 1 0 0 . ...
(Departm ent o f Commerce)

Factory employment
United States, 1939 = 1 0 0 ...........................
(B ureau o f Labor Statistics)

New Y ork State, 1935-39 = 1 0 0 ................
(N e w

Central New Y ork S ta te.....................
Mohawk River V a lle y .....................


Ton-miles of railway freight*, 1935-39 =100
(Federal Reserve B a n k o f N ew


Westchester and Fairfield Counties. .
B ridgeport..........................................
Lower Hudson River V alley...............
Upper Hudson River V alley...............

York State D ept, o f Labor)

F actory payrolls
United States, 1 9 3 9 = 1 0 0 ...........................

Northern New Y ork S ta te..................
Southern New Y ork S ta te..................
B ingham ton.......................................
E lm ira .................................................
Western New York S ta te....................
B u ffa lo.................................................
Niagara F a lls.....................................
Apparel stores (chiefly New Y ork C ity ).

Stocks on
M ay 1945 M ay 31, 1945


+ 14
+ 13
+ 14
+ 9
+ 6
+ 15
+ 11
+ 4
+ 2
+ 21
+ 13
+ 16
+ 7
+ 9
+ 7
+ 9




+ 5
+ 3
+ 3
- 2
+ 15
- 1
+ 2
+ 23
+ 2
+ 1
+ 7
-1 0
+ 11

(B ureau o f Labor Statistics)

New York State, 1935-39 = 1 0 0 ................
(N ew

26 8p

Indexes of Department Store Sales and Stocks
Second Federal Reserve District
(1935-39 average =100 per cent)

York State D ept, o f Labor)

Income payments*, 1935-39 = 1 0 0 ................
(Departm ent o f Commerce)

Wage rates, 1926 = 1 0 0 ....................................
(Federal Reserve B a n k o f N e w


Cost of living, 1935-39 = 1 0 0 ..........................



128 p

(Bureau o f Labor Statistics)


M ay



M ay

Sales (average daily), unadjusted.................
Sales (average daily), seasonally ad justed ..





Stocks, unadjusted...........................................
Stocks, seasonally ad justed ............................





Velocity of demand deposits* 1935-39 =100
(Federal Reserve B a nk o f N e w


New York C it y .............................................
Outside New Y ork C it y ..............................





♦Adjusted for seasonal variation.
p Preliminary.
r Revised.
fSeries revised to exclude production b y railway and railroad and New York
C ity Transit System plants.

r Revised.



General Business and Financial Conditions in the United States
(Summarized by the Board of Governors of the Federal Reserve System)
NDUSTRIAL activity and factory employment continued to decline slightly in May.
Value of department store sales increased in May and the early part of June, following
the sharp decline in April.


In d u s t r ia l Pr o d u c t io n

Index of Physical Volume of Industrial Production,
Adjusted for Seasonal Variation (1935-39
average = 1 0 0 per cent)

As a result of further decreases in activity at munitions plants, the Board’s seasonally
adjusted index of industrial production declined in May to 227 per cent of the 1935-39
average as compared with 231 in April.
A further reduction in operations at shipyards accounted for most of the decrease in
activity at munitions plants, although there were small decreases in activity in the machinery
and aircraft and other transportation equipment industries. The decline in aircraft was in
accordance with reductions in schedules made prior to VE day. At the end of May the Army
Air Forces announced a cutback in procurement which will reduce total military aircraft
production in the last quarter of the year to a level 30 per cent below that of March.
Steel production was maintained at a high level in May but declined somewhat during
the first three weeks of June. Production of nonferrous metal products showed a sharp
drop in May following a large rise earlier this year. In June brass mill products and
aluminum were made available for general civilian use and after July 1 some steel also
will be released.
Production of textile, leather, paper, chemical, and petroleum products showed little
change in May and total output of nondurable goods was at a level 3 per cent above that
of a year ago.
Coal production declined 8 per cent in May as anthracite output dropped sharply owing
to interruptions in mine operations in the first three weeks of the month. In the early part
of June, production of both anthracite and bituminous coal increased to about the level that
prevailed earlier in the year but was still somewhat below the rate of output in June 1944.
Output of crude petroleum was maintained in record volume in May and the early part
of June.
D is t r ib u t io n

Indexes of Value of Department Store Sales and
Stocks, Adjusted for Seasonal Variation
(1935-39 average = 100 per cent)

Department store sales, which had declined sharply in April, increased in May and the
first half of June, after allowance is made for the usual seasonal change. In May sales were
4 per cent larger than in May 1944, while sales during the first two weeks of June were 16
per cent greater than in the corresponding period last year.
Most classes of freight carloadings showed seasonal increases in May and the early part
of June and remained at a level slightly above last year’s high level. Railroad shipments of
manufactured goods, which reached a record volume in March of this year, have declined
only slightly since that time.
C o m m o d it y Prices

Wholesale prices of consumer goods continued to advance from the middle of May to
the middle of June. Anthracite was raised $1 a ton, food prices increased somewhat further,
and various miscellaneous products were higher. On the other hand, it was announced
that maximum prices on used cars would be reduced 4 per cent on July 1 and additional
new regulations have been issued recendy covering prices of clothing, automobile repairs,
and some consumer durable goods.
A g r icu ltu r e

Prospects for major crops have deteriorated somewhat in the past month, but still
compare favorably with the past three years of generally abundant harvests. A record wheat
crop of over a billion bushels was indicated by June 1 conditions; cold, wet weather in
May has delayed most other crops.
Milk production was at a record level in May and 6 per cent larger than last year,
while marketings of meat animals and poultry products were in smaller volume.
B a n k C r edit
Indexes of Wholesale Prices Compiled by Bureau
of Labor Statistics (1926 averages 100
per cent; latest figures are for
week ended June 16)

Government Security Holdings of Banks in Leading
Cities. Guaranteed Securities Excluded. Data
not Available Prior to February 8, 1939;
Certificates First Reported on April
15, 1942 (Latest figures are for
June 13)

During the four weeks ended June 13, covering the period of intensified sales of securi­
ties to individuals in the Seventh War Loan, loans and investments at reporting banks in
leading cities increased by close to 1.7 billion dollars. Loans for purchasing and carrying
Government securities rose by 620 million dollars, as investors adjusted their portfolios in
anticipation of security purchases. Advances to brokers and dealers accounted for 360 million
of the increase and loans to others for 260 million. Government security holdings of
reporting banks rose by 825 million dollars, reflecting continued purchases of bonds.
Deposits of individuals and businesses at weekly reporting banks increased by about 1.3
billion dollars during the first four weeks of the drive. U. S. Government deposits at these
banks declined by 300 million dollars. The time deposit expansion slackened, presumably
owing to the War Loan drive. As a result of these developments the weekly average level
of required reserves at all member banks increased by around 200 million dollars during
the first four weeks of the drive.
Reserve funds to meet the increase in required reserves and a reduced currency drain
of 160 million dollars were supplied through an increase of 435 million in the Government
security portfolios of Reserve Banks and by substantial member bank borrowing from the
Reserve Banks shortly prior to and early in the drive. Borrowing from the Reserve Banks
rose in early June to over 900 million dollars outstanding, the largest amount since the
spring of 1933. The total increase in Reserve Bank credit more than offset reserve needs
and the average level of excess reserves rose by about 350 million dollars to close to 1.4
billion outstanding in mid-June.
In the week ended June 20, when large payments were made by corporations and
others for securities purchased in the drive, there was a shift of deposits from private
accounts to reserve free War Loan accounts and a consequent reduction of 440 million
dollars in required reserves of member banks. Member bank borrowings declined in the
week by nearly 550 million dollars. Reserve Bank holdings of Government securities,
however, increased further.