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O f Credit and Business Conditions
V ol.







19 4 6

No. 7

During the course of the past month, all bank loans made
to facilitate the purchase of securities in the Victory Loan drive
and still outstanding became six months old or older. On
June 19, the volume of loans on Government securities to
others than brokers and dealers still totaled 1.6 billion dollars
among weekly reporting member banks, or nearly twice the
amount at the low point preceding the drive. Liquidation of
such loans since the Victory Loan has lagged considerably com­
pared with the rate of repayments following preceding War
Loans. As shown in the accompanying chart, liquidation has
been particularly slow in the weekly reporting banks in 100
cities outside New York, where only half the increase during
the drive had been paid off by June 19, in contrast to 74 per
cent for the reporting banks in New York City. On that
date, the outstanding loans of reporting banks in the 100
cities other than New York were still nearly 500 million
dollars greater than before the Victory Loan and only about
100 million dollars below the peak reached during the
Seventh War Loan; they exceeded the highest points reached
in all earlier War Loans. The loans of New York City banks
remained about 250 million greater than early last November,
but were well below earlier peaks.
Loans on Government Securities to Others than
Brokers and Dealers
W eekly Reporting Member Banks in N ew York City and 100 Other Cities

Although not all the outstanding bank loans on Government
securities were arranged during the Victory Loan, a very sub­
stantial proportion were made at that time, including a large
volume of loans to aid in the purchase of long term bonds.
While loans enabling bona fide investors to acquire bonds in
anticipation of investable income during the next few months
accounted for part of the credits arranged during the Victory
drive, the substantial volume still outstanding indicates con­
siderable use of bank credit for the speculative carrying o f
In order to curtail such use of bank credit in the Government
securities market, the Federal Reserve Banks have addressed
a circular letter to all the banks in their respective districts
requesting their cooperation in reducing the volume of bank
credit for the purpose of purchasing and carrying Government
securities. The letter sent to banks in this District reads in
part as follows:
During the Victory Loan Drive, a large amount of long-term
bonds was purchased with the aid of bank loans. It has been
reported that many such loans have not been repaid out of current
income and that bank credit has been used for speculative carrying
of Government securities. Reports have been received also of the
activities of money brokers and others seeking to arrange bank
loans on Government securities for customers without provision
for amortization and with margins and rates of interest which
emphasize high returns on small amounts of the borrower’s own
funds required for relatively large transactions. The same general
considerations which led to efforts to discourage speculative sub­
scriptions to Government securities during the war loan drives
clearly apply to this sort of loan.

The Treasury in this period is inviting the public to make
an investment in high living standards by augmenting its
purchases of Savings bonds. Citizens are urged to hold to
maturity the bonds they already own, as well as to continue
and, if possible, to add to their payroll deduction purchases.
Every dollar invested in Savings bonds at this time will mean
one dollar less competing for the consumers’ goods that are
not yet available and so will constitute the best kind of
safeguard for the value of the savings of the public.


Borrowing from banks creates an addition to the country s money
supply to the same extent as direct purchases of securities by banks.
The existing unprecedented supply of deposits and currency, in
the face of an inadequate supply of goods and services, is a danger­
ous inflationary potential. Therefore, every effort should be made
to reverse the wartime trend of increased borrowing for the purpose
of purchasing and carrying Government securities and to reduce as
much as possible the use of bank credit for that purpose.
It seems timely to ask your cooperation to this end, particularly
as loans made to facilitate purchases of Government securities in
the Victory Loan Drive, which are still unpaid, have now run for
more than six months. You will realize, of course, that nothing
will be accomplished if one bank makes a loan on Government
securities to enable a customer to comply with the request of
another bank to pay off a loan originally made to purchase
Government securities.
M e m b e r B a n k R eserve P o s it io n s

Treasury transactions related to public debt retirement,
interest payments on outstanding Treasury securities, and
quarterly income taxes dominated the money market during
the past month and generated substantial shifts of funds not
only between individual banks but also between New York
and other parts of the country. Demand for Federal Reserve
Bank credit fluctuated widely, increasing as the Treasury
accumulated funds with the Federal Reserve Banks prior to
the public debt redemptions of the first and middle of the
month and decreasing with the disbursement of the funds by
the Treasury. The net effect of the Treasury’s operations,
however, was a considerable demand for Federal Reserve
credit for the month as a whole, as the redemption of securities
held by the Federal Reserve System resulted in a loss of member
bank reserves, and there was an increase in member bank
reserve requirements owing to a shift from War Loan accounts
to privately owned deposits.
At one time during the month, on June 19, excess reserves
of all member banks dropped temporarily to 550 million
dollars, lowest since August 9, 1933, but that was of little
significance as it resulted mainly from a one-day deficiency
in the reserves of New York City banks which were adjusting
their positions following a large excess of reserves earlier in
the week. The distribution of reserves was uneven, and some
banks gaining funds were able to repurchase substantial
amounts of Treasury bills from Federal Reserve option accounts
and acquire short term Government obligations in the market,
while others in need of reserves sold such securities directly
and indirectly to the Federal Reserve System.
Redemption of 2 billion of a 4.8 billion dollar issue of
maturing certificates on June 1 was effected with but minor
disturbance to the money market since the securities were
redeemed partly with funds previously accumulated with the
Federal Reserve Banks. Some of the strain on member bank
reserves associated with the retirement operation therefore had
already occurred, and the banks had to some extent adjusted
their reserve positions in the week ended May 29. Treasury

disbursements in the week ended June 5, which included
payment of the redeemed securities, exceeded receipts by a
substantial margin and, as retirement of the certificates held by
the Federal Reserve Banks absorbed only a portion of these
expenditures, the commercial banks as a group had some net
gain of reserves. The June 1 certificate, however, was widely
held and its partial redemption, largely out of the proceeds of
War Loan withdrawals which exceeded 2.2 billion dollars,
effected a shift of funds into private deposit accounts and a
substantial rise in member bank reserve requirements.
The subsequent two weeks were practically a repetition of
the events of the previous two. As in the week ended May 29,
member bank reserve positions were under some pressure in
the week ended June 12 when Treasury receipts from taxes
(largely income taxes withheld currently at the source) and
limited War Loan withdrawals exceeded expenditures. Treas­
ury deposits with the Reserve Banks were increased more
than 450 million dollars in partial preparation for the redemp­
tion beginning on the 15 th of the month of the entire amount
of two bond issues totaling 1,855 million dollars and for
interest payments on the public debt of approximately 750
Treasury receipts in the week ended June 19 were very
heavy as they included 1.1 billion dollars of quarterly instal­
ments on income taxes and 1.6 billion in War Loan with­
drawals, but were substantially exceeded by disbursements,
including the redemption of called bonds and interest pay­
ments, as well as other expenditures. The entire amount of
the net expenditures did not reach the commercial banks,
however, since about 150 million dollars were absorbed in the
redemption of the called bonds held by the Federal Reserve
Banks. Furthermore, Treasury disbursements in excess of tax
receipts resulted in an expansion of about one quarter of a
billion dollars in reserve requirements, as reserve-free War
Loan deposits were converted into private deposits.
Treasury debt operations and quarterly income tax payments
also caused substantial shifts of funds between banks in New
York City and in other parts of the country. Since the New
York City institutions and their customers held a substantial
portion of the redeemed securities, the banks here received a
large share of the funds paid out by the Treasury in connection
with the debt retirement; their net receipts from this source and
interest payments amounted to 400 million and 1,100 million
dollars, respectively, in the weeks ended June 5 and 19. H ow­
ever, as banks in other parts of the country lost reserves
through Treasury operations, they financed their losses and
other needs for funds in large part by withdrawing the pro­
ceeds of redemptions of and interest payments on Government
securities held with their New York correspondents, and
through sales of short term securities in the New York market.
They also obtained funds from transfers out of New York by
commercial and financial concerns, apparently in part for the
payment of taxes in other parts of the country. For the four


weeks ended June 19, the aggregate withdrawal of funds from
New York by out-of-town banks and their customers came to
1,200 million dollars.
As the net result of Treasury operations and the outflow of
business and banking funds, reserve positions of the New
York banks experienced alternate periods of pressure and ease.
Consequently, these institutions alternately expanded or con­
tracted their use of Federal Reserve credit by considerable
amounts, chiefly through purchases of Treasury bills from or
sales to the New York Reserve Bank.
In the latter part o f the month, heavy income tax collections,
supplemented by small withdrawals of War Loan deposits,
resulted in a renewed increase in Treasury balances with the
Reserve Banks, which rose about 470 million dollars in the
week ended June 26 to 890 million. The resultant drain on
reserves necessitated large sales of short term Government
securities by the member banks, including Treasury bills and
certificates, many of which were absorbed by the Reserve
Banks. The heavy accumulation of Treasury deposits in the
Reserve Banks, however, enabled the Treasury to limit its
War Loan calls in connection with the retirement of 2 billion
(out of a 4.9 billion dollar issue) of 0.90 per cent Treasury
notes on July 1 and to make substantial net disbursements at
that time, which again will help to offset redemptions of the
notes in Reserve Bank portfolios and to facilitate adjustments
in the reserve positions of member banks.
The complex mechanism for the clearing and collection of
checks has reached its present state of efficiency only after a
long period of development through trial and error. Experi­
ence gained in the everyday operation of the system of ex­
changing checks revealed its deficiencies and indicated the
nature of the reforms or revision needed. As part of the
constant endeavor to perfect the clearing and collection process,
a new plan involving a routing symbol to be imprinted on
checks of all par clearance banks was introduced by the
American Bankers Association a year ago this past month.
The new device was developed by the Bank Management
Commission of the ABA and the Committee on Collections of
the Federal Reserve System 'after several years of study.
The aim of the new routing plan is to increase the efficiency
and speed of the collection of out-of-town checks by readily
identifying through a series of numbers the Reserve Bank or
branch at which checks on given banks are receivable for
collection ( that is, the Reserve Bank head or branch office in
the territory of which the commercial bank is located). For
this purpose, all par clearance banks have been assigned routing
symbols by the Federal Reserve Banks. Inasmuch as the
effectiveness of the new plan depends on its widest possible
adoption, all par banks have been urged to include the routing
symbols on their checks and to make every effort to obtain the


cooperation of those of their customers who have their own
checks printed likewise to include the routing symbols. The
benefits of the new procedure in reduced float, fewer sorting
or routing errors, and quicker return of unpaid items will
accrue to the general check writing public and to the banking
system as a whole, including the small country banks with
comparatively few items, as well as the larger banks with
thousands and hundreds of thousands of items deposited by
their customers and correspondent banks, and the Federal
Reserve Banks.
In the absence of the routing symbol, the proper Reserve
Bank or branch to which a check should be routed is not
always readily ascertainable from the face of the check, which
shows only the city and State of the drawee bank,1 because
many States lie in more than one Federal Reserve District
and most Reserve Banks have one or more branches. In sort­
ing items, transit clerks consequently have to rely on their
memories to a large extent. In doubtful cases where memory
is hazy, they have to resort to the time-consuming procedure
of looking up the proper Reserve Bank or branch in the
Federal Reserve Par List. W ith the substantial increase in the
volume of checks written during and after the war, the pressure
to 'get the checks out” has grown and there have been many
more "doubtful cases,” just when there has been a loss of
trained personnel and more rapid turnover of staffs. Missorting and misrouting of items have consequently increased during
and since the war despite efforts to minimize them. But the
problem is essentially a peacetime one which has merely been
aggravated by wartime conditions.
In general, the following three types of check sorting and
routing errors are more frequently made than others largely
because of the lack of ready identification on the checks face
of the appropriate Reserve Bank or branch at which the item
is collectible in the shortest possible time, and for other
1. Routing a check to a Federal Reserve office in a district
other than the one in which the item is collectible. This kind
of error occurs when the drawee bank is located in a State
which lies in two Federal Reserve Districts. In such a case, the
Federal Reserve Bank or branch receiving the check will
forward it to the proper Reserve office for collection, but the
time required to collect the item is lengthened unnecessarily.
2. Routing a check to the correct Federal Reserve District
but to a Federal Reserve office in a territory other than the
one in which the check is collectible in the shortest possible
time. Such an error can occur in States which lie wholly
within one Federal Reserve District, such as Texas. Thus, a
check on a commercial bank in Austin, Texas, may have been
routed to the branch office of the Dallas Reserve Bank in
El Paso even though Austin is situated in the San Antonio
branch territory and it should have been sent to that office.
xThe city and State of the drawee bank are indicated both by name
and by code in the form of the ABA transit number which appears on
all checks.



The El Paso branch would presumably forward the check to
San Antonio for collection. Check "travel-time” would there­
fore have been considerably longer than necessary.
Routing a check on a nonpar bank to a Federal Reserve
Bank or branch for collection. Since such items are not
collectible through the facilities of the Federal Reserve System,
they are returned to the banks presenting them. Widespread
use of the routing symbol will automatically eliminate this
type of error since only par banks have been given symbols.
The routing symbol eliminates all guesswork and leaves little
or nothing to memory, and thus tends substantially to quicken
the pace of sorting and to reduce the frequency of sorting
errors. The sorting clerk merely matches the routing symbol
on a check with one appearing over a cubicle in the sorting
rack. This also means that less training of new clerks is
The routing symbol itself is a three or four figure number,
the first digit or the first two digits indicating the number of
each Federal Reserve District from 1 to 12. The second digit
(or the third in case of a four digit symbol) designates the
head office of the Reserve Bank which is given the number 1
or the Reserve branches which are numbered 2, 3, 4, or 5
according to alphabetical order. Numbers 6-9 are reserved
for special collection arrangements. The last digit, when a
cipher ( 0 ) , indicates that the check is acceptable for immediate
credit if received in time to be cleared on the current day.
When the number is 1-9, it indicates that the item is receivable
for deferred credit in accordance with the time schedule of the
Reserve Bank or branch where deposited, and also serves to
identify the States within a Reserve district which are numbered
consecutively in alphabetical order, thereby facilitating the
sorting and collection of items within a district.
Thus, the routing symbol of a bank in Bridgeport, Con­
necticut is 211, the first digit indicating the Second or New
York Federal Reserve District, the second digit indicating
that the item is receivable for collection at the head office in
New York City, and the third figure showing that the item is
acceptable for deferred credit and that the drawee bank is
located in Connecticut. The routing symbol for checks drawn
on the Treasurer of the United States or by any of the Federal
Survey of Second District Banks Having Some Checks in Circulation
Carrying the Fractional Symbol*


Second District

New York

Northern New Jersey
and Fairfield County,

Per cent
Per cent
Per cent
of banks of all banks of banks of all banks of banks of all banks

December 13...............







January 16..................
February 26................
April 10......................
June 14.......................







* Only checks having the ABA transit numbers and routing symbols in the upper right corner
are included. Data cover all par commercial banks and industrial banks with checking
accounts and 7 agencies of foreign banks. All banks in the District pay their checks at par.

Reserve Banks is 000. Such items are acceptable for immediate
credit at any Federal Reserve Bank or branch. The routing
symbols that have been assigned to banks in the Second Federal
Reserve District are shown in the accompanying list.
R o u t i n g S y m b o l s U se d i n t h e
Se c o n d F e d e r a l R e s e r v e D i s t r i c t

Head or Branch Office of
For checks collectible
the Federal Reserve Bank
through or drawn
of New York*
on banks in
Head office— New York City
Immediate credit
210 New York Clearing House
260 Manhattan, Bronx and
Brooklyn Collection
Arrangement #
260 City Collection Department,
New York Clearing
House #
270 Northern New Jersey
Clearing House #
Deferred credit
211 Connecticut ( Fairfield
212 New Jersey (12 northern­
most counties)
213 New York (entire State
except for 10 westernmost
Buffalo Branch— Buffalo,
New York
Immediate credit
220 City of Buffalo
Deferred credit
223 New York (10 westernmost
* A t which checks on Second District commercial banks are receivable for
# Special collection arrangements.

The routing symbol appears on checks as the denominator
or lower number of a fraction. The numerator or upper half
of the fraction is the ABA transit number first adopted as an
aid in collecting checks in 1911 before the establishment of
the Federal Reserve System. This number which also appears
on all checks is necessary to identify individual banks in con­
nection with local check clearings and intradistrict collections.
In order to promote uniformity and further facilitate sorting,
it has been recommended that transit numbers and routing
symbols in fractional form be placed in the upper right
corner of newly printed checks.
Since the introduction of the routing symbol about a year
ago, considerable progress has been made in securing its
adoption by the banks. A survey taken in February of this
year indicated that about half the par clearance banks in the
country had some checks in circulation carrying the routing
symbol. The progress in the New York Federal Reserve Dis­
trict where all commercial banks pay their checks at par has
been rapid. In December 1945, about one third of the banks
showed some checks in use with the routing symbol in the
approved location (upper right corner), and by April of this
year the proportion had grown to nearly three quarters. By
mid-June some 798 banks (or 83 per cent of the total) were
making some use of the symbol, as shown in the accompanying
table (the data include a few industrial banks and agencies
of foreign banks).
In actual volume, however, the proportion of checks carrying


the symbol was much smaller. Stocks of old checks are still
large owing to the heavy accumulation of inventories during
the war for fear of a paper shortage. Thus, many banks are
allowing their stocks of old checks to run off. Many others
have in circulation both new checks with the symbol and old
ones without it. In many cases, however, banking institutions
have had their routing symbols overprinted or stamped on the
old checks. This is likewise true, but to a lesser extent, of
bank customers who have their own checks printed privately.
According to a survey made by this bank, over 200 nationally
known corporations now have the routing symbols on their
checks. The difficulties in the way of widespread use of the
routing symbol have been gradually reduced as stocks of old
checks have run out and the end of the war has improved the
paper and printing situation, so that progress in the future
should be much more rapid than in the past.
Full-scale adoption of the new symbol by both banks and
their customers using custom-made checks is necessary to realize
the full economy of time and money possible under the new
plan. Reduction in sorting time, in sorting errors and misrouting, and in check "travel-time”, with consequent reduction
in operating costs and improvement of service to bank de­
positors, should be the eventual outcome of the complete use
of the new symbol. But before such results can be achieved
it will also be necessary for banks, depositors, and check manu­
facturers to cooperate further to promote uniformity in checks
including greater standardization of size as well as printing of
the transit number and routing symbol in fractional form in the
approved position on the checks.

On May 28 France received credits from the United States
totaling 1.4 billion dollars. Together with the 550 million
dollar Export-Import Bank loan granted last September, France
thus has obtained almost 2 billion dollars from the United
States since the end of hostilities. This figure represents about
one half of the aggregate postwar foreign lending of the
United States (excluding the 3,750 million dollar loan to the
United Kingdom still pending before the United States Con­
gress). The Export-Import Bank portion of the advances—
550 million dollars in September 1945 and 650 million dollars
on May 28— amounts to one third of the bank’s lending power.
This large-scale United States aid was granted in order to help
France implement a program of reconstruction and moderniza­
tion that "will facilitate the integration of Europe in the world
economy and enable France to resume her place as a great pro­
ducing and trading nation.”1
1All quotations in this article are from the statements jointly re­
leased on May 28 by the Government of the United States and the
Provisional Government of the French Republic.


Since the liberation France has made substantial progress
toward recovery. With the aid of her Allies, her communica­
tions have been restored, and alone among the European
countries she has succeeded in raising her coal production over
the prewar level. Nevertheless, France’s industry today is
producing at only about 60 per cent of the 1938 rate. This
is insufficient to sustain even a moderate level of consumption
and still leave an adequate margin for capital requirements.
Frances production must therefore be increased enough to
make possible the recouping of war losses of capital and the
replacing of obsolete equipment. As a first step, the French
plan to increase production to the 1938 level by the end of
1946 by utilizing their existing plant capacity; as a second step,
they propose so to expand their economic potential as to
support a production level as much as 25 per cent in excess
of the all-time 1929 peak. W ith these objectives in mind, the
French Government drew up an over-all plan for the modern­
ization and re-equipment of the French economy, which it
disclosed to the United States Government during the credit
The French program cannot be implemented without a large
and comprehensive import program. Because of these import
requirements, and because of the small volume of exports anti­
cipated during the initial reconstruction period, France’s
balance of payments will show a heavy deficit over the next
few years. To cover this deficit, the French contemplate using,
first of all, their own resources, official and private. How fast
the official gold holdings have recently been drawn upon is
shown by the successive transfers from the Bank of France
to the French Stabilization Fund, as a result of which the
French gold holdings have been reduced from 1,777 million
dollars in September 1945 to 797 million dollars on May 2,
1946. The French also contemplate liquidating almost all their
disposable private assets abroad. The remaining deficit is to
be covered mainly by the foreign credits.
The United States financial aid which France received on
May 28 "pending the time when the International Bank for
Reconstruction and Development will be in full operation”
includes: (a ) the direct loan of 650 million dollars from the
Export-Import Bank; (b ) a line of credit totaling 720 million
dollars for the payment of goods supplied to France by the
United States Government since the end of the war and for
the purchase of United States surplus property now in France
and in French overseas territories; and ( c ) an additional credit
for the purchase of approximately 750,000 tons of merchant
shipping owned by the United States Government. In addition
to extending these credits, the United States Government states
that it "will continue to assist France in securing an adequate
supply of coal from Germany.”
The Export-Import Bank line of credit reportedly carries
interest at 3 per cent and has a term of 25 years; however, no
repayments of principal are to be effected during the first five
years, the entire amortization of capital being made in the



remaining twenty. The 720 million dollar loan carries interest
at the rate of 2 per cent per annum, beginning July 1, 1946;
beginning on July 1, 1951 interest and principal are to be paid
in thirty equal annual instalments. Should the payment of any
instalment not be "in the joint interest of both governments
. . . because of extraordinary and adverse economic conditions
arising during the course of payment,” it may be postponed for
a period agreed upon by the two governments.
By extending credits to France, and by assisting her in secur­
ing an adequate and much needed supply of coal from
Germany, the United States proposes to assist in the recon­
struction and modernization of her economy so as to "make
possible full participation by France in cooperative achieve­
ment of an expanding world economy.” Before the war
France with her overseas territories, had a share in world pro­
duction and trade varying between 5V2 and 6 per cent, a
proportion not widely divergent from her share in world
population (5.2 per cent), and she was the fourth largest
exporting and importing nation, being surpassed only by the
United States, the United Kingdom, and Germany. The new
credits are expected to assist France in recovering her prewar
As a result of the negotiations, the two governments in
addition have found themselves in "full agreement on the
general principles which they desire to see established to
achieve the liberation and expansion of international trade.”
On the whole, the joint declaration on commercial policy
reiterates the general principles formulated in the Proposals
for Expansion of World Trade and Employment issued by
the United States Department of State at the close of the
Anglo-American loan negotiations. Likewise, the stipulation
providing for the conclusion of agreements "for the substantial
reduction of tariffs and other barriers to trade and for the
removal of discriminatory arrangements” prior to the World
Trade Conference restates similar proposals in the AngloAmerican joint statements.
However, while the Anglo-American loan agreement aimed,
in its commercial policy aspects, primarily at eliminating
exchange restrictions and ensuring convertibility of sterling
balances in general, the specific provisions of the FrenchAmerican agreement concern essentially the elaboration of a
new French tariff as a step precedent to the negotiation of
reciprocal tariff reductions, and in addition the elimination of
the French practices of quantitative trade restrictions and
export subsidies. The two governments have also reached
agreement on the return to private channels of trade between
France and the United States. On the other hand, various
measures were discussed during the negotiations with a view to
promoting French exports to the United States, inasmuch as
"the two governments have agreed that important benefits
would accrue to both countries from a substantial expansion of
French exports to the United States.”
The French reconstruction program, if it is successfully

implemented, should enable France to balance both her domestic
economy and her international accounts. W ith the impetus
provided by the addition of imported resources, the develop­
ment of production in France should proceed at a rate fast
enough to enable her to participate in common efforts to
liberate and expand world trade. The French-American
agreement is therefore to be regarded as an integral part of a
broad program, inaugurated by the Anglo-American agreement,
for reviving international trade between the three largest
exporting and importing nations in the world.
Building construction in the Second Federal Reserve Dis­
trict fell sharply during the war years and at a much faster
rate than in the country as a whole. In 1939 building con­
tracts awarded in the District represented 20 per cent of the
total for 37 Eastern States; by 1943 the proportion had fallen
to 8 per cent. There was a small gain in the next two years,
and the annual rate of awards in the first four months of 1946
showed a marked upturn to 15 per cent. Contract awards
for nonresidential building in the Second District from
January to April 1946, the last month for which District data
are available, were four times as large as in the corresponding
period of 1945, and 17 per cent above the 1942 wartime peak.
Residential building, which dropped to 9 per cent of the
District’s total contract awards in 1944, has gained steadily and
estimates for 1946 indicate that it has resumed its prewar
importance with 44 per cent of the aggregate dollar value of
building contracts in this District.
The present tight housing situation in the Second District
is a direct result of the extremely low level of building activity
during the 1930’s, followed by the construction of a very
limited number of new dwelling units during the war years.
In Bridgeport, Connecticut, Nassau County, Long Island, and
the Buffalo-Niagara Metropolitan area, the condition has been
aggravated by an influx of population which more than offset
out-migration and losses of civilian residents to the Armed
Forces. Other cities which experienced net losses in popula­
tion during the war, in particular New York City, are also
feeling the pressure of inadequate housing facilities as return­
ing servicemen again swell their civilian population. The
higher average level o f income has intensified demand for
better living quarters and many families who have been
"doubling up” are now seeking separate living quarters. At
the same time, the rapid reconversion of war plants to civilian
production has encouraged some migrant war workers not to
return to their original homes. For the Second District as a
whole daily average residential building contract awards, as
reported by the F. W . Dodge Corporation, have experienced
an almost uninterrupted rise since August 1945, the only
decline occurring between December and January. In April,
District contract awards achieved the highest rate since the
building boom in the 1920’s.
The accompanying table indicates that the residential con­
struction volume in all major metropolitan areas in the
Second District except New York City followed closely similar

Residential Building Contracts Awarded in Second District Cities
(In millions of dollars)
New Y o r k ...........................................................
Newark-Jersey C ity
A lbany.................................................................
U tica....................................................................

4 6.0
4 .0
3 .5
3 .2



6 .3
5 .0#
4 .3 #
6 .4 #

3 .8
6 .6
1 .0

2 .2
3 .3

* Estimated annual rate, based on first four months, seasonally adjusted.
# Data are for 1942, peak wartime year.
t Less than $100,000.
Source: F. W . Dodge Corporation; 1946 estimated by Federal Reserve Bank of
New York.

patterns over the war period. The small volume of building
in the prewar decade was followed in a number of commun­
ities by a rise from 1939 to 1941 or 1942 to provide homes
for war workers, and to replace substandard housing areas.
In New York City, however, residential building reached a
relatively high point in 1939 and fell steadily for the next five
years to a wartime low of 4 million dollars in 1944. In other
urban areas expansion of residential building reached top
volume in 1941 or 1942. Completion of emergency war
housing and the wartime restrictions which directed supplies
and labor into other fields resulted in sharp declines in the
volume of contracts awarded through 1944. Residential
building in the District turned sharply upward in 1945 in
all metropolitan areas except Utica, and data for the first
four months of 1946 indicate that this trend is continuing
at an increasing rate under the impetus of the emergency
housing program.
The demand for more housing is pressing in practically
all urban centers of the District. The critical need for housing
in New York City is reflected in the City’s abnormally low
vacancy ratio, estimated by the Department of Housing and
Buildings at less than 2 per cent in 1945, against 6 per cent
in 1940. This decline in vacancies has been accompanied by
a rise in the number of dwelling units available as fewer units
were demolished in each successive wartime year, and the
number of boarded-up units declined by 25 per cent over the
five-year period. In addition to the substandard dwellings
brought into use by the war emergency, some 3,500 publicly
financed permanent dwellings were made available in New
York City during the war, more than twice the number added
in the entire Upstate area. Public and private housing projects
which had to be shelved temporarily at the peak of the war
effort have now been resumed, and plans for State-aided
projects call for a total of close to 19,000 additional dwelling
units in 18 separate projects in the New York Metropolitan
area. Land has been acquired for five projects contemplated
in Westchester County. State loans for three of the New
York City projects have been recently approved; demolition
has started on three others in Manhattan. Foundations are
being laid at one Brooklyn project, and bids are being taken
on another. N o completion date has been announced for any
of these developments. Among the major privately financed
housing projects the three being built by the Metropolitan


Life Insurance Company are furthest advanced. Demolition
and construction are being carried on simultaneously, and upon
completion, the three projects will contain over 12,000 apart­
ments. They are expected to be ready for the first occupants
in the fall of 1947.
A survey by the Niagara Frontier Planning Association
reveals that between 1930 and 1945 only 7,442 houses were
built in the Niagara-Buffalo area compared with estimated
minimum requirements of 45,000. There are at present over
60,000 improved lots available in Niagara and Erie Counties,
and Buffalo banks are prepared to make mortgage loans in
1946-47 aggregating upwards of 40 million dollars. Materials
present a bottleneck, however, with the local lumber supply
amounting to only 15 per cent of the 1941 average. In the
Niagara Frontier area local builders expect to construct only
1,632 houses this year; their maximum capacity with a normal
flow of supplies would be about 11,000 units. The influx of
war workers heightened the seriousness of the housing short­
age in this area, and as a result slum clearance has been delayed.
The work will be undertaken as soon as homes can be found
for the present occupants who will be displaced when demoli­
tion is begun.
Local housing authorities have been established in most
cities in New York State, primarily for the purpose of replac­
ing slum areas with new low-rent housing projects. The
New Rochelle Municipal Housing Authority, for example,
plans to demolish 51 houses as soon as tenants can be relocated.
On the site of this slum area the Authority will erect the
Winy ah Gardens houses. This development, together with a
second State-aided project, Huguenot Gardens, will provide
living quarters for 565 low-income families in New Rochelle.
In Mount Vernon a project to be jointly financed by the State
and City of Mount Vernon will provide 650 dwelling units;
the Elmira Housing Authority plans a low-rent project of 125
dwelling units. Projects of State and local housing authorities
in New York State will be supplemented to a considerable
extent by the privately financed housing projects contem­
plated by the larger insurance companies and savings banks.
The State housing program centers around removal of slum
areas and provision of housing facilities at rents which lowincome groups can pay. In addition, the State has recently
been obliged to provide temporary emergency housing for
veterans without diverting undue amounts of material or
labor from permanent building construction. These public
efforts in the field of housing are designed not to compete with
private enterprise, but rather to supplement it in lines where
private building cannot economically meet the need. The
Coast Guard Base in Brooklyn, and the Fox Hills Terminal in
Staten Island have both been opened up to veterans and
together will ultimately provide 1,600 apartments. Other
military installations to be used for temporary housing are
Fort Niagara, Syracuse Air Base, Fort Tilden (Queens
County), Miller Field and the Staten Island Terminal (both
on Staten Island), Fort Schuyler (Bronx), and Fort Slocum
(New Rochelle). Camp Shanks (Orangeburg) and the
Sampson Naval Training Base (Geneva) are also being



Department store sales in the Second Federal Reserve Dis­
trict during June again reached an estimated total of about
100 million dollars for the month. This represents an increase
of 40 per cent over sales in June 1945.
Stocks of Second District department stores at the end of
May are estimated at 234 million dollars, an increase of 16
per cent over the value of stocks a year ago. Since the first of
the year stocks of yard goods, women’s underwear and shoes,
and mens wear have been fairly consistently lower than during
the corresponding period in 1945, but increases in stocks of
linens and bedding, other women’s wear, and especially home­
furnishings, have more than compensated for shortages in
other departments, so that the seasonally adjusted index of
stocks has risen steadily since the end of December. As shown
by the accompanying chart, department store stocks in the
Second Federal Reserve District have not been maintained
since 1942 at as high a level as in the United States as a whole.
The increase in sales was even smaller relatively (a similar
chart for sales was published in the June issue of the Monthly
Review) so that the ratio of stocks to sales was higher than
in the other Federal Reserve Districts combined. Revised
indexes of department store stocks from 1919 to date, which
were published by this bank in November 1945 for the Second
District, have recently been completed for the United States;
indexes for each Federal Reserve District, and for the United
States, together with a description of the revision were pub­
lished in the Federal Reserve Bulletin for June 1946.
Outstanding orders of department stores in this District
were about 4 per cent higher at the end of May than at the

end of April, and more than a third higher than on the corre­
sponding date of last year.
Department and Apparel Store Sales and Stocks, Second Federal Reserve
District, Percentage Change from the Preceding Year
Net sales
M ay 1946
Department stores, Second D istrict___
New Y ork C ity ......................................
Northern New Jersey...........................

Stocks on
Jan. through
M ay 1946 M ay 31, 1946
+ 21
+ 27

+ 8
+ 5
+ 7

Niagara Falls......................................

+ 41
+ 51
+ 26

Apparel stores (chiefly New Y ork C ity ).




Westchester and Fairfield C ounties..
B ridgeport...........................................
Lower Hudson River V alley...............
Upper Hudson River V alley...............
Central New Y ork S tate.....................
M ohawk River V alley.....................
Northern New Y ork State..................
Southern New Y ork State...................
B ingham ton........................................
Western New Y ork State....................

+ 8
+ 7

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


M ay



M ay

Sales (average daily), unadjusted.................
Sales (average daily), seasonally a d ju ste d ..





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









Indexes of Business

Indexes of Department Store Stocks, United States and
Second Federal Reserve District*
(1935-39 monthly average=100 per cent; adjusted for
seasonal variation)









* Plotted on ratio scale to show proportionate changes. Indexes fo r U nited
States revised from 1919 to date, published in the June 1946 Federal R eserve
B ulletin; M ay 1946 preliminary.


M ay

Industrial production*, 1935-39 = 100.........
( Board o f Governors, Federal Reserve
Electric power output*, 1935-39 = 100........
(Federal Reserve Bank of New York)
Ton-miles of railway freight*, 1935-39 = 100
(Federal Reserve Bank o f New York)
Sales of all retail stores*, 1935-39 = 100........
(Department o f Commerce)
Factory employment
United States, 1939 = 100...........................
(Bureau o f Labor Statistics)
New Y ork State, 1935-39 = 100................
(New York State Dept, of Labor)
F actory payrolls
United States, 1939 = 100..........................
(Bureau of Labor Statistics)
New York State, 1935-39 = 100................
(New York State Dept, o f Labor)
Incom e payments*, 1935-39 = 100...............
(Department o f Commerce)
W age rates, 1926 = 100...................................
( Federal Reserve Bank of New York)
Consumers’ prices, 1935-39 = 100.................
(Bureau o f Labor Statistics)
V elocity of demand deposits*!, 1935-39 = 100
(Federal Reserve Bank o f New York)
New Y ork C it y .............................................
Outside New Y ork C it y ..............................

M ay








189 p










137 p




124 p
















132 p





* Adjusted for seasonal variation.
p Preliminary.
t Series revised beginning 1941; available upon request.

r Revised,



National Summary o f Business Conditions
(Summarized by the Board of Governors of the Federal Reserve System)
declined somewhat further in May but advanced considerably in the early
I part of June,output
reflecting chiefly the settlement of the coal strike. Department store trade was

maintained in record volume for this season of the year.
markets continued to advance.

Prices in both wholesale and retail

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

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

Indexes of the Cost of Living as Compiled by
Bureau of Labor Statistics. Last Month
in Each Calendar Quarter through
September 1940, Monthly There­
after (1935-39 average= 10 0
per cent)

The Board’s seasonally adjusted index of industrial production was 160 per cent of the
1935-39 average in May as compared with 165 in April and 168 in March. Since the resumption
of bituminous coal mining and the settlement of various other wage disputes in the latter part
of May, industrial production has expanded considerably and indications are that the Board’s
index in June will surpass the March level.
Output of iron and steel was especially affected by the coal shutdown and in May steel
ingot production averaged only 52 per cent of capacity as compared with 78 per cent in the
previous month. Steel production, however, rose rapidly in June, reaching a scheduled rate of
87 per cent of capacity during the current week. Activity in other durable goods industries was
generally maintained in May at about the April level.
Output of nondurable goods continued to show a slight decline in May, after allowance for
seasonal changes, largely due to further reductions in output of flour and cereal products and of
meats. Despite these declines production in recent months of most nondurable goods, including
many manufactured foods, cigarettes, textiles, shoes, gasoline, chemicals, and rubber and paper
products, has been considerably larger than the volume produced for civilian use a year ago and
also than the 1939-40 level of output.
Output of minerals rose 12 per cent in May, reflecting largely the resumption of bituminous
coal production around the middle of the month. In the first two weeks of June bituminous
coal output increased sharply to a level close to the pre-strike rate. Anthracite production was
maintained at an exceptionally high level during most of May, and after a work stoppage during
the first week of June, was resumed in large volume. Output of crude petroleum continued to
advance in May and the early part of June. Metals production showed much less than the
usual seasonal rise in May, reflecting chiefly wage disputes in iron ore mines which were largely
settled by the end of the month.
Value of construction contracts awarded, as reported by the F. W . Dodge Corporation,
continued to rise sharply in May, reflecting increases in awards for most types of construction.
Residential building awards were at a new record level, one-fourth higher than in April. Awards
for nonresidential construction advanced in May, after a drop in April. Awards for manufactur­
ing plant and public works permitted by Federal authorities showed sharp increases.
Em p l o y m


Nonagricultural employment showed a further substantial gain in May, reflecting increases
at factories and mines due to termination of work stoppages and a continued large advance in
construction employment. The number of persons unemployed remained unchanged at the
April level of 2.3 million.
C o m m o d i t y P r ic e s

The general level of wholesale commodity prices continued to advance from the middle of
May to the third week of June. There were important increases in prices of milk, bread, coal,
cotton, leather, copper, and of a number of miscellaneous products.
From the middle of April to the middle of May the consumer price index advanced another
one-half per cent and since that time additional increases have occurred in retail prices.








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


is t r ib u t io n

Department store sales in May and the first half of June were maintained at the high level
reached earlier in the spring. Value of sales was about 35 per cent larger than in the correspond­
ing period last year, reflecting largely a considerable expansion in the volume of goods sold.
Department store stocks continued to rise sharply in May and, after allowing for seasonal
changes, the value of stocks held on May 30 was one-fourth larger than at the beginning of the
year, although still comparatively low relative to the value of sales.
Freight carloadings during May were slightly below the April rate as increased shipments
of coal and grain were more than offset by declines in loadings of most other classes of revenue
freight due chiefly to the railroad strike. During the first three weeks of June carloadings
increased sharply and in the week ended June 22 were as high as in the same period a year ago.
Ba n

Member Banks in Leading Cities.
Deposits (Adjusted) Exclude U. S. Govern­
ment and Interbank Deposits and Collec­
tion Items.
Government Securities
Include Direct and Guaranteed Issues
(Latest figures are for June 19)


C r e d it

Deposits subject to reserve requirements increased further in May and the first three weeks of
June, reflecting primarily a shift of about 3.5 billion dollars from Treasury War Loan accounts
to accounts held by businesses and individuals, and average required reserves increased about
500 million dollars. Reserve balances increased considerably less than required reserves and
excess reserves declined.
At member banks loans for purchasing and carrying Government securities were further
reduced in May and the first half of June. Real estate and commercial and industrial loans
continued to increase at banks outside New York City. Bank holdings of Treasury certificates
and bonds declined largely as a result of Treasury debt retirement operations.