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O f Credit and Business Conditions

V o lu m e








1 949

No. 7

Treasury operations dominated the money market during
the past month and were chiefly responsible for the alternate
periods of ease and tightness in the market. In the first half
of June, Treasury disbursements, including interest payments
on the public debt and cash redemptions of maturing securi­
ties, were substantially in excess of receipts and resulted in
placing considerable amounts of additional funds at the dis­
posal of the banks. In the latter half of the month collections
of personal and corporation income taxes were in substantial
volume and exceeded Government disbursements, causing a
drain on the reserves of the banks and a tighter money market
Commercial banks, especially in the larger cities, continued
to undertake to keep their available funds rather fully
employed, except for a brief period at the middle of the month
when they increased their excess reserves substantially in
anticipation of the large tax collections as of June 15. In the
absence of active business demands for credit, they acquired
large amounts of Treasury securities during the first half of
the month, and continued to acquire Treasury bonds in the
latter half, although they found it necessary to sell some of
their short-term securities in order to offset the drain on their
reserves. At times they borrowed large amounts from the
Reserve Banks, temporarily, as an alternative to sales of secu-

S t a t e m e n t o f t h e F ederal O p e n M a r k e t C o m m it t e e

The following statement was issued on June 28, 1949, by the
Federal Open Market Committee of the Federal Reserve
“ The Federal Open Market Committee, after consulta­
tion with the Treasury, announced today that with a view to
increasing the supply of funds available in the market to
meet the needs of commerce, business, and agriculture it
will be the policy of the Committee to direct purchases,
sales, and exchanges of Government securities by the Fed­
eral Reserve Banks with primary regard to the general busi­
ness and credit situation. The policy of maintaining orderly
conditions in the Government security market and the con­
fidence of investors in Government bonds will be continued.
Under present conditions the maintenance of a relatively
fixed pattern of rates has the undesirable effect of absorbing
reserves from the market at a time when the availablity of
credit should be increased.”

rities, in order to maintain their reserves at the required levels.
The continued demand for medium and longer-term Gov­
ernment bonds reflected in part a persistent demand from
savings institutions, and in part an active demand from com­
mercial banks, apparently in anticipation of the further reduc­
tion in member bank reserve requirements at the end of June.
(The statement of the Board of Governors of the Federal
Reserve System concerning this reduction appears elsewhere
in this Review.) The supply of Treasury bonds available to
the market at existing prices was considerably short of the
demand, and substantial amounts of bonds were supplied by
the Federal Reserve System.
The sales by the Reserve System up to June 22 brought the
reduction in the Systems total holdings of Government secu­
rities since the end of 1948 to 4.2 billion dollars. A substan­
tial part of the reduction was in holdings of Treasury bonds,
reflecting the sharp reversal of conditions in the Government
bond market since the latter part of last year. A small part
of the reduction in the System’s holdings of Treasury bonds
was a result of exchanges of maturing bonds for Treasury
certificates in June, but most of it reflected sales in response
to market demands. The extent of these sales has indicated
the change in investors’ appraisal o f the prospect for bond
prices, to a considerable extent as a result of the decline in
business activity. The substantial shrinkage in bank loans
to business concerns has been accompanied by an increased
demand from the banks for the higher yielding Government

M oney Market in June ........................................


The Security M a rk e ts............................................. 76
Banking Developments in the Second District. 79
Department Store T r a d e ........................................ 81



T e r m in a t io n o f C o n s u m e r

C r e d it R e g u l a t i o n a n d

R e d u c t io n o f R ese r v e R e q u ir e m e n t s

The Board of Governors of the Federal Reserve System issued
the following statement on June 29, 1949:
“ The authority under which the Board of Governors of the
Federal Reserve System issued Regulation W, establishing
minimum down payments and maximum maturities for con­
sumer instalment credit, expires June 30, 1949 and the regu­
lation will not be effective after that date. Notice to this effect
is being sent to those who, in accordance with the regulation’s
provisions, have filed registration statements with a Federal
Reserve Bank.
“ The temporary authority granted by Congress for increased
reserves likewise expires June 30 and the Board has accord­
ingly revised the supplement to Regulation D, under which
the following reserve requirements will be effective with the
beginning of the next reserve period (June 30 for central
reserve city and reserve city member banks and July 1 for
other member banks) : Against net demand deposits— 24 per
cent for central reserve city member banks, 20 per cent for
reserve city member banks, and 14 per cent for other mem­
ber banks; against time deposits—6 per cent for member
banks of all classes. The changed requirements will result in a
reduction of approximately $800,000,000 in required reserves” .

securities, which has been accentuated by the actual and pro­
spective reductions in member bank reserve requirements.
Bank-eligible bonds to meet these demands have come partly
from other investing institutions, which, in turn, have increased
their demands for restricted Treasury bonds. In the absence of
adequate supplies from other sources, the demands for
restricted bonds have been met to a considerable extent by
sales from the Federal Open Market Account. In addition,
there has been a considerable demand also for the shorterterm Government securities from business corporations and
other investors seeking temporary employment for funds not
needed for business or other purposes, and from banks as
well at times when they had surplus funds at their disposal.
Most of the net reduction in the System’s holdings of shortterm Treasury securities, however, was a result of redemptions
by the Treasury in the first few months of the year.
Thus, aside from some redemptions of maturing securities
through the use by the Treasury of surplus revenues in the
first quarter of the year, the reduction in the System’s holdings
of Government securities during the first half of 1949 has
occurred mainly in response to active demands for such secu­
rities in the market, rather than as a result of aggressive selling
by the System. Nevertheless, the result has been to absorb much
of the excess reserves acquired by the commercial banks
through such factors as the seasonal return flow of currency
from circulation early in the year, a continuing though reduced
inflow of gold, net foreign expenditures in this country, sub­
stantial reductions in the required reserves of member banks
(both through action of the Board of Governors and as a
result of the first quarter shrinkage in bank deposits), and
net disbursements by the Treasury from its deposit balances
in the Reserve Banks. As the accompanying chart indicates,

there has been little net change in the excess reserves of mem­
ber banks during the first half of the year, despite the large
amount of additional reserves which became available to them,
and the large reduction in their reserve requirements. The
gradual upward trend in excess reserves during the second
quarter of the year no more than offset the shrinkage in the
first quarter. There has been some increase in the banks’
holdings of secondary reserves in the form of Treasury bills
and certificates, but the greater part of the funds that have
become available to member banks appear to have been
invested in Treasury bonds.
The following table summarizes the principal factors that
have affected the reserve positions of member banks since the
end of 1948. In the first quarter of 1949, the seasonal reduc­
tion of more than 900 million dollars in the volume of cur­
rency in circulation and the reduction of about 675 million in
required reserves of member banks (which resulted chiefly
from the shrinkage in deposits incident to the heavy first
quarter tax collections) were the principal factors tending to
add to the excess reserves of the banks. After deducting some
increase in Treasury deposits in the Reserve Banks and other
minor factors, there was a net release to member banks of
nearly 1.2 billion dollars of reserves during the first quarter.
This was more than offset, however, by a reduction o f over
1.7 billion dollars in the amount of Federal Reserve credit
outstanding, so that excess reserves declined by more than 500
million dollars. In the second quarter, there was compara­
tively little net change in the amount o f currency in circula­
tion, but Treasury transactions resulted in net disbursements
from deposit balances in the Reserve Banks of nearly 1.2
Net Changes in Reserve Balances of All Member Banks
(Cumulated weekly from Dec. 29, 1948 through June 22, 1949)


billion dollars, and foreign account transactions added more
than 300 million dollars to the reserves of the banks. In addi­
tion, required reserves of member banks showed a further
decline of nearly 1.2 billion dollars as a result of the action
of the Board of Governors in reducing, early in May, the
percentages of reserves which member banks are required
to maintain against their deposits. Altogether, there was a
net release during this period (March 30 to June 22) of over
2.7 billion dollars of reserves. The reduction in Federal
Reserve credit outstanding in this period was less than 2.3
billion dollars, so that excess reserves of member banks showed
an increase of about 450 million dollars. Further additions to
the banks’ excess reserves resulted from the lowering at the
end of June of the percentages of reserves which member
banks (chiefly reserve city and "country” banks) are required
to maintain against their deposits. It is estimated that this
latest change released more than 800 million dollars of
N e t C hanges in F a ctors A ffectin g M em ber B an k R eserves

(In millions of dollars; ( + ) or (— ) indicates
effect on excess reserves)

Factors other than Federal
Reserve credit
Foreign account transactions* . . . .
Decrease in money in circulation . .
Treasury transactionst......................
Reduction in required reserves . . . .
All other...................................................

Dec. 29, 1948 Mar. 30, 1949 Dec. 29, 1948
Mar. 30, 1949 June 2 2 , 1949 June 22, 1949



+ 1 ,1 9 1
+ 1 ,1 6 3

+ 1 ,8 4 0

Total.............. ..................................

+ 1 ,1 9 3

+ 2 ,7 2 3

+ 3 ,9 1 6

Total Federal Reserve credit....................

-1 ,7 3 5

- 2 ,2 6 5

-4 ,0 0 0

Excess reserves...............................................







* Including net changes in monetary gold stock as well as changes in foreign de­
posits with the Federal Reserve Banks,
t Net changes in Treasury deposits with the Federal Reserve Banks and in Treas­
ury cash, less change in Treasury currency.

M em b er B a n k R e serv e P o s itio n s in J u n e

Treasury cash disbursements were substantially in excess of
receipts in the first half of June and this excess considerably
eased the reserve positions of the banks and, consequently,
the money market. To the usually heavy current operating
expenditures of the Treasury in the last month of the fiscal
year were added large interest payments due June 15 on the
public debt and redemptions of unexchanged bonds maturing
on the same date, as well as some redemptions of certificates
of indebtedness and of Savings notes which matured on the
first of the month.
Member banks tended to gain reserves also from other
transactions, including a decline in money in circulation, dis­
bursements from foreign accounts with the Reserve Banks,
and a modest increase in Federal Reserve "float.” As offsets to
these gains were small, member bank reserve positions tended
to be extremely easy. This condition was most marked on


June 15, when the Treasury’s disbursements, including interest
on the public debt, brought its balances with the Reserve
Banks down to 9 million dollars, despite the fact that the
Treasury had obtained funds temporarily from the Reserve
System through the sale to the Federal Reserve Banks o f 220
million dollars of special certificates of indebtedness.
Heavy quarterly income tax collections after the middle of
the month enabled the Treasury to increase its deposits in the
Reserve Banks by nearly 500 million dollars, as well as to
redeem the special certificates it had sold to the Reserve Banks
in the week ended June 22. The bulk o f Federal income tax
payments were received in this week, and caused a heavy drain
on bank reserves. Toward the close of the month, even after
tax collections had tapered off, money market conditions
remained comparatively tight, reflecting a month-end reduc­
tion of Federal Reserve float and an increase o f currency in
The ease in the money market in the first half o f the month
led to an active demand for both short and long-term Govern­
ment securities on the part of the commercial banks. Total
holdings of the weekly reporting member banks rose 832
million dollars in the two weeks ended June 15. A substantial
portion of this demand was met by Government security
dealers, whose borrowings from the banks dropped sharply in
the week ended June 8 . A part was met by nonbank investors,
who sold intermediate and long-term eligible Treasury bonds
and invested the proceeds in corporate securities or in restricted
Treasury bonds purchased through the market from the Fed­
eral -Reserve System and other sources. System sales in the
market of unrestricted bonds and o f short-term Treasury securi­
ties also provided a substantial portion of the supplies of securi­
ties sought by the commercial banks. Despite the large increase
in the banks’ holdings of Government securities, excess reserve
balances rose 460 million dollars in the two weeks ended June
15; the banks did not invest all their gains of reserves (a
large part of which occurred on the last day of the period),
since they expected to lose considerable amounts of reserves
almost immediately through tax collections.
Because a considerable proportion of the Treasury’s market­
able securities are held or traded in New York, the City banks
benefited particularly from the large Treasury disbursements
in connection with debt retirement and interest payments. As
a consequence, the increase in excess reserves during the first
half of June was divided almost evenly between the banks in
New York City and the rest of the country.
The comparatively high level of excess reserves enabled the
banks to meet part of their heavy losses in the succeeding two
weeks of tight money market conditions. Nevertheless, the
banks found it necessary to sell sizable amounts of securities
indirectly to the Reserve System and to borrow large amounts
from the Reserve Banks for short periods during the latter



half o f the month. Most of the strain on reserve positions in
this period was felt in the week ended June 22, when tax payments were heaviest and member bank borrowings rose over
530 million dollars.
The New York City banks bore the brunt of the pressure,
for in addition to a large loss of reserves from Treasury opera­
tions, they experienced heavy withdrawals of funds by banks
and others, presumably in connection with income tax pay­
ments in other parts of the country. As a result, the New York
City institutions found it necessary to adjust their reserve posi­
tions by borrowing from the Reserve Bank, especially toward
the close of the week ended June 22, and by selling sizable
amounts of Government securities in the market, some of
which were taken up by the Reserve System.

to the high-grade bond market. On the other hand, foreign
developments continued to be an obstacle to active investment
in risk securities. Probably o f more immediate consequence
in the market for equities was the relatively large volume of
new public utility stocks offered, which may have had a
depressing effect on the prices of other shares, particularly the
industrial and railroad issues, since many investors are be­
lieved to have shifted some of their holdings from such types
of securities to the public utility issues.
St o c k M a r k e t

Despite cumulative evidence of a slowing down of the
pace of business, stock prices receded only moderately in the
first five months of the year. Standard and Poor’s weekly price
index of 416 stocks declined from a high of 1 2 2 .1 early in
to 115.9 on May 25, a decrease of 5 per cent. It was
not until June that the rate of decline accelerated, and stock
The current business readjustment has had varying reper­
prices fell below the range o f fluctuation which had persisted
cussions in the different sections of the security markets
since September 1946. On June 15 the index was down to
during recent months. Declining production, employment,
110.7 compared with the previous postwar low of 112,4
and income, and lower commodity prices have been accom­
which had been reached in February 1948. Some part of this
panied by advances in prices of high-grade bonds and by a
decline was, however, subsequently recovered. The volume
weakening of low-grade bonds and stocks. Security flotations
of trading, which had averaged less than 900,000 shares a day
have continued in very large volume.
in the first five months of the year, rose in June above the
The response of the security markets to less active indus­ million-share level on the days when prices declined most
trial and trade conditions has been in accordance with past rapidly and amounted to 1,340,000 shares on June 13, simul­
experience. Declining prices and employment have made
taneously with a new postwar low for stock quotations. How­
consumers cautious in their spending, and accumulations of
ever, trading never reached a volume that would indicate
savings in savings institutions have been maintained at a high general liquidation by the public.
level. At the same time, reduced business working capital
The decline in stock prices since the beginning of the year
requirements have resulted in a substantial decrease in bor­ has been an extension of the trend during the last six months
rowing from the banks, although new corporate security of 1948. The total decline over this twelve-month period
offerings have remained large. The demand for high-grade
amounted to 19 per cent. During the decline, and particu­
bonds, both new and outstanding issues, has risen, and bond
larly beginning in November 1948, the volume of shares
prices during the first half of this year reached the highest which had been sold short and had not yet been covered by
levels since 1947. The advance might well have been more
purchases (i.e., the short interest) rose by nearly 700,000
pronounced but for the extensive sales of Government bonds shares to about 1,630,000 shares on May 13, the highest short
by the Federal Reserve System which helped to meet demands
interest since February 1933. A month later, on June 15, the
in the market. On the other hand, the prospect of reduced short interest stood at 1,610,000 shares. The decline in prices
corporate earnings caused stock prices to fall somewhat
in the past twelve months has raised the yield on 200 leading
below the trading range of the past two years for a brief common stocks to over 7 per cent. (A t that level, based on
period in June. The reduction in margin requirements from
the current income tax law, the rate o f return after taxes is
75 to 50 per cent on March 30 apparently has had little over 4 per cent for married investors in the $25,000 income
effect upon the course of stock prices, although the volume of
tax bracket.)
credit extended by brokers against security collateral rose 130
During the past six months, the shares of durable goods
minion dollars, or about 25 per cent, between the end of
manufacturers (notably steels, automobile parts, rail equip­
March and the end of May.
ments, nonferrous metals, and agricultural machinery) led the
Other factors also have influenced the security markets. decline in prices. Stocks of the more stable industries, such as
The reduction of member bank reserve requirements and the the public utilities, foods, retail stores, tobaccos, drugs, and
continuation of the Treasury’s policy of refunding maturing the personal and instalment finance companies, tended to resist
bond issues with short-term securities have been stimulants
the decline and even to advance. But during the first half of


Yields on Long-term Bonds and Stocks
(January 1941-May 1949)


A v era g e Price D ecline of AH Com m on S tocks L isted on the
N ew Y o rk Stock E xch an ge, M a y 29, 1946- June 6, 1949

B y price class
Per cent

Per cent

Price class*

Number of issues Percentage decline

Under $ 1 0 ........................................
$10— 2 5 ....................................................................
$25— 5 0 ....................................................................
$50— 1 0 0 .................................................................
$100 and over........................................................


4 9 .0
4 9 .9
4 2 .1
4 0 .1
2 3 .9

T otal...........................................................



By rate of decline
Percentage decline

Number of issues

Per cent of total

Under 4 0 .............................................................
40— 5 0 ......................................................................
50 and over............................................................



T otal...........................................................



* Based on prices as of M ay 29, 1946.
Source: Compiled by the Federal Reserve Bank of New York from stock quo­
tations published in the N ew Y ork Tim es.

* Fifteen years and over.
Source: U . S. Government bonds, Treasury Departm ent; 15 high-grade
noncallable preferred stocks, Standard & Poor’s Corporation; Aaa corporate
bonds, Baa corporate bonds, and 200 common stocks, M oody’s Investors

June, even these stocks, with the exception of a few drug
and utility issues, fell off in price.
The decline in stock prices to a new postwar low on June
13 reduced the Dow-Jones averages of industrial stock prices
to a level 24 per cent below the May 1946 peak of 212.5.
However, changes in the Dow-Jones averages (and in other
representative stock price indicators) have not fully reflected
the extent of the reaction of the market as a whole, and par­
ticularly of the lower-priced issues, since the "averages” are
usually composed of the better grades of common stocks. A
special tabulation of the percentage changes in the prices of
all shares listed on the New York Stock Exchange between
May 29, 1946 (the postwar peak) and June 6 , 1949 (the cut­
off date of the tabulation which was made by the Research
Department of this bank) shows this to be the case. As
shown in the accompanying table, most issues, particularly
the lower-priced stocks, have declined much more rapidly
than the averages. For the Dow-Jones composite average of 65
stocks, the drop was 26 per cent. Stocks in the two lowerpriced groups (stocks which on May 29, 1946 sold under
$ 1 0 and between $ 1 0 and $25) declined almost 50 per cent.1
Those selling between $25 and $50 and between $50 and
$100 declined, on the average, about 40 per cent.1 About 55
per cent of the 900 issues declined 40 per cent or more,
and 40 per cent fell 50 per cent or more. In interpreting these
data, however, it should be remembered that low-priced
1 These figures are unweighted averages of the percentage declines
of the prices of several hundred issues

shares rose more rapidly in the period prior to the spring of
1946, and that they ordinarily tend to experience wider price
swings than the higher-priced stocks.
Bond M arket

Reflecting reduced business demands for funds and a well
sustained supply of funds available for investment, prices of
Treasury bonds and of high and medium-grade corporate
bonds rose moderately (yields declined) early in the year
and remained firm during the subsequent months; prices rose
further late in June. For most bond issues the rise in prices
started shortly after the national elections in November, which
resulted in an abrupt change of expectations with respect to
future fiscal and monetary policies and a tendency of investors
to change their plans accordingly.
However, the major factor in the rise of bond prices was
commercial bank demand for intermediate and long-term
Treasury bonds. The slackened pace of business transactions,
resulting in substantial repayments of business borrowings
from the banks and also in Federal Reserve action further to
increase the availability o f bank credit through a reduction
in member bank legal reserve requirements and other mea­
sures, brought the banks into the bond market to bolster
their earnings. Bank purchases o f eligible Treasury issues
have made funds available for reinvestment in other Treasury
bonds as well as in corporate and municipal bonds, thus tend­
ing to increase the demand for all types of long-term bonds.
Part of the decline in business loans may be attributed to
sales of new corporate securities in the capital market for
the purpose of repaying bank loans. Sales of such issues,
therefore, have tended indirectly to stimulate purchases of
Government bonds by the banks, and thus to maintain a firm
bond market in which corporations could continue to sell



long-term securities for further refundings of their indebted­
ness to the banks.
Most of the decline in bond yields occurred between
November 1948 and February 1949, and the decrease was
small until the closing days of June. From the peak early in
November to mid-June, the return on long-term Government
bonds fell by 3 per cent (from an average of 2.45 to 2.37
per cent), as compared with a 6 per cent decline for the
two highest grades of corporate bonds and lesser declines for
the third and fourth grades. The fourth-grade bonds failed
to show the weakness usually associated with such issues
during past periods of decline in business activity and stock
prices, but lower-grade bond prices fell and their yields rose
in keeping with the decrease in stock prices. The decline in
high-grade municipal bond yields was somewhat more pro­
nounced (8 per cent in this period), but was also much more
irregular, reflecting from time to time the pressure of the large
volume of new municipal security offerings on prices of out­
standing issues. Toward the close of June, Treasury and
corporate bond prices had recovered to levels prevailing in
early November 1947.
The real strength in the bond market was evidenced most
clearly in the decline in yields offered on new corporate issues,
which receded more rapidly than did the yields on seasoned
bonds. Thus, the premium rate (over the yield on outstanding
bonds) that issuers paid on new offerings to assure favorable
investor reception narrowed perceptibly during the first half
of 1949. In the fourth quarter of 1948, the yields on new
corporate bonds had averaged 9 per cent above those on out­
standing issues, as measured by Moody’s average yields on new
and outstanding bonds. This differential fell to 5 per cent in
the first quarter of 1949, to 3 per cent in April, and to 2 per
cent in May. Strength in the new issue market came princi­
pally as a result of the insurance companies’ buying of publicly
offered issues as they worked off their commitments to pur­
chase securities directly from issuers.

the purpose of financing capital disbursements pending the
sale of new security issues, and thus may be classified as new
money issues. However, some of the proceeds of security
issues used for the repayment of bank loans apparently rep­
resented the conversion of borrowings of working capital into
more permanent form. This development points up a desire
of business concerns to reduce their current liabilities during
uncertain times. In the case of a few of the finance companies
which had expanded their bank borrowings heavily to finance
purchases of instalment and other consumer paper, sales of
new securities were for the purpose of bringing the com­
panies’ short-term borrowing into better alignment with their
long-term debt and net worth.
The capital market absorbed fairly smoothly most of the
corporate offerings, particularly in the second quarter of this
year. In that quarter, as already noted, the demand for publicly
offered bond issues strengthened as life insurance companies
actively entered the market for such securities. Prices of new
bond issues were bid up and dealer inventories were virtually
cleared of the few issues that had tended to be "sticky” earlier
in the year, when the life insurance companies had been busy
meeting their commitments to purchase securities privately.
On the surface it may appear rather surprising that the insur­
ance companies should have participated more actively in the
public issues market this year, since the total volume of new
corporate issues has remained practically unchanged from
the first half-year’s volume in 1948 and since the life insurance
companies’ additions to their mortgage holdings have been
considerably greater during the past six months than in the
same months of 1948. The answer apparently lies in the
Corporate Security Flotations for New Capital by Industries
(Semiannual totals, 1946 - first half o f 1949)

N e w I ssues

The volume of new corporate security issues held up sur­
prisingly well during the first half of 1949 in view of the
declining volume of production and trade. The volume of
refunding securities remained small, but flotations for new
capital amounted to an estimated 3.2 billion dollars, rising
to a new all-time record, slightly above the level for the first
half of 1948 and about a fourth above the total for the second
half of that year. Principally responsible for this large volume
was the need to finance heavy corporate capital expenditures
during the first half of 1949. Moreover, a considerable
amount of the proceeds of new issues was used (partly or
entirely) to repay bank loans. In most cases these issues
replaced bank loans which had originally been incurred for










Source: Com m ercial and F in a n c ia l C h ro n icle data classified by industries by
the Board of Governors of the Federal Reserve System. M ay and June 1949
estimated by the Federal Reserve Bank of N ew York.


changes that took place in the types of issues floated and in
the channels through which they were offered. During the
first six months of this year, total 'private placements”
amounted to about 920 million dollars or 29 per cent of all
corporate offerings, whereas in the same months of 1948,
privately placed issues amounted to 1.3 billion dollars or about
two fifths of all corporate offerings. About two thirds of
the total flotations during the first half of 1949 came in the
second quarter, and most of the second quarters issues were
public utility securities offered at competitive bidding to
investment bankers or directly to stockholders, and so were
predominantly public issues. Thus, in the second quarter, the
volume of privately placed securities fell to 25 per cent of
the total offerings, from 40 per cent in the first quarter.
In the first half of 1949, public utility corporations, par­
ticularly electric and gas utilities, floated 1.7 billion dollars
of securities for new capital, and their offerings accounted
for about 53 per cent of total new flotations, as against 47
per cent in the corresponding period of 1948. The increase
in the proportion (and amount) of such issues reflected the
large capital expansion program of the utilities industry.
Flotations of new railroad securities, mostly equipment trust
issues, amounted during the past six months to about 325
million dollars, about 65 million more than in the corre­
sponding period of last year. New security offerings in the
industrial group showed a small decrease.
Financing through stock issues during the first half of 1949
amounted to about 555 million dollars or 17 per cent of total
corporate financing. New equity security offerings in this
period were 10 per cent below the total for the corresponding
half of last year but about 75 per cent larger than the flotations
of the second six months of 1948. An increasing proportion
took the form of common stocks. The bulk of the stock flota­
tions were for new capital purposes. While most of the large
volume of new utility issues took the form of bonds, public
utility corporations (again principally the electric and gas
companies) were able to float a comparatively substantial
volume of common and preferred stocks in the first half of the
year, although slightly higher yields had to be offered to inves­
tors to assure their sale. The recent reduction of margin
requirements to 25 per cent on new security issues offered to
stockholders has tended to facilitate the sale of these and other
stock issues. Nevertheless, the market became increasingly
unfavorable to new stock issues, and in the latter half of June
one or two issues were withdrawn pending an improvement in
market conditions. Public utility shares ( both new capital and
refunding) totaled about 330 million dollars in the six months
ended June 30, 1949, or 59 per cent of all new corporate stock
issues, as compared with 2 2 1 million in the corresponding
period of 1948. Stock offerings of other classes of corporations
fell sharply.


The comparatively favorable reception of new gas and
electric utility stocks reflects the improving earnings position
of the industry in recent months resulting from a combina­
tion of two factors. The first has been the decline in prices
of the materials and supplies purchased by the utilities, whose
selling prices are, of course, relatively stable. The second has
been the decreased operating costs that have been achieved
through the installation of new equipment, not only because
of the greater efficiency of this new capacity but also because
the new facilities have enabled the utilities to retire high-cost,
obsolete equipment.
States and municipalities have continued to float new secu­
rities in large volume. In the first six months of this year,
approximately 1.4 billion dollars of new "municipal” issues
were offered in the capital market, an amount only about 200
million less than in the corresponding period o f 1948, when
a number of large veterans’ bonus issues were floated. From
time to time, the market gave evidence of difficulty in absorb­
ing this large volume of securities at the yields offered, partial-1
larly in May, when the volume of unsold securities on dealers'
"shelves” reached a record high of close to 180 million dollars.
Fairly sharp price declines were necessary to move these issues,
and toward the middle of June dealer inventories had been
reduced to 136 million dollars. This reduction in the supply of
securities overhanging the market was considerably aided on
May 25 by the withdrawal, prior to offering, of an issue of 54
million dollars by the Port o f New York Authority, and by
the completion in the early part of June of the distribution
of some relatively large new issues at attractive yields. Munic­
ipal bond men expect to offer more new issues in the second
half of this year than in the first, and new financing is
climbing steadily. New issues in May were the highest on
record for that month. For June they were also the highest
on record, except for June 1948. And voters throughout the
country are approving issuance of increasing amounts of bonds.
The monthly total of such approvals, after reaching 62 million
dollars in May, will show a substantial jump for June, when
North Carolina voters alone approved 200 million dollars of
rural road bonds and a 25 million dollar school bond issue.
If Congress passes the long-range low-cost housing and slum
clearance bill this year, the market will eventually be called
upon to absorb a further large volume o f new municipal
obligations; however, offerings of bonds to finance this pro­
gram are not expected in large volume for a year or two.
In the three months’ period ended May 31, 1949, repre­
sentatives of the Federal Reserve Bank of New York called
on banks in fifty-five counties in the Second Federal Reserve
District. They talked to hundreds of bankers in che vari­



ous parts of the District outside New York City and Buffalo.
The following is a summary of their impressions of current
trends in business conditions and bank policies, gathered in
the course of these visits.
General business conditions in this area have taken an
unfavorable turn in this period which has been reflected in
reduced industrial activity and employment. Many industrial
communities have been adversely affected by layoffs or by a
reduction of working hours. Retail sales volume has been
affected to some extent by diminished incomes, and resistance
to high prices has been common.
The decline in business activity, however, has been far from
uniform, varying with the degree of diversification and the
type of industry in the individual areas. In some of the larger
communities, retail trade was reported to be 5 to 15 per cent
below 1948 levels, and in many other places it was character­
ized as 'spotty”. Some comment was heard with respect to
slower collections of retail accounts. A few instances of high
inventories were cited and it was assumed that liquidation of
such inventories would involve some losses. Generally speak­
ing, however, the inventory position at the retail and whole­
sale level appears to be under control.
In the agricultural areas, conditions vary but, on the whole,
are still fairly stable. Lower feed costs and higher spring yields
are said to have largely offset the drop in the price of milk.
In the residential real estate field, there are further signs of
softening of activity and values. There has been little evidence
of the usual sharp seasonal upturn in building. Most builders
are working on a limited number of units and on a hand-tomouth basis, but some fairly substantial apartment house and
garden-type multiple dwelling projects are in progress in
New York City and in the suburban areas. Houses priced
for sale at more than $ 10,000 are moving very slowly, and in
several localities it is reported that homes in the $2 0 ,000 $40,000 class, built last fall, still remain unsold despite fairly
substantial reductions in the asking price in some cases.
Mortgage delinquencies have increased somewhat, although
not alarmingly, and collection requires more effort, particu­
larly in those areas where a considerable amount of indus­
trial unemployment has developed.
In the agricultural areas, as a result of seasonal borrowings,
most banks have shown an upswing in their loan totals in
recent months. Generally speaking, however, the seasonal
increase has been in somewhat smaller amounts than last
year. Loans to farmers have been largely for the purchase
of seed, farm equipment, and other production needs. Among
the dairy farmers who predominate in much of the Second
District the demand for credit this spring has varied widely
between localities and among banks. In some localities the
dairy farmers are still actively purchasing farm equipment,
much of it readily available for the first time in many years.

There has been also some borrowing of a fairly steady nature
for the replacement of dairy herds, but some of the banks
have been cautious about lending to their customers for the
purchase of cows at high prices in the face o f falling milk
prices. In the potato farming areas, the acreage restriction
features o f the price support program have acted to reduce
somewhat the credit needs of the farmers. On the other
hand, there are indications that farmers who have not bor­
rowed in recent years are now seeking loans. Generally speak­
ing, most banks in the agricultural areas seem disposed to
continue to take care of the legitimate credit needs of their
In the resort areas also, loans have shown a seasonal increase
but have not reached their usual levels as bankers have fol­
lowed more cautious lending policies. Elsewhere in the
District outside New York City the trend is mixed and recent
changes in the loan totals of many of the banks have been
relatively small in amount. Such increases as have been
reported were usually concentrated in the mortgage account
or in personal and consumer credit loans, although banks
generally did not liberalize their terms to the extent permitted
by the April modification of Regulation W , except with
respect to new automobiles.
Banks generally continue to be cautious in their mortgage
lending policies; they are endeavoring to maintain rather
than to expand their mortgage accounts. Some have discon­
tinued making mortgage loans, either because they are at or
close to their legal limit or because of a tightened real estate
appraisal policy. Savings banks are still looking for good
mortgages, however, and FHA insured loans still command
a premium. Construction money is apparently still available
in amounts sufficient to take care of the reduced building
activity although, here again, lending policies appear to be
more selective.
Only a few banks report an increase in commercial loans.
Declines in business loans have been heavily concentrated in
New York City banks and are attributed primarily to inven­
tory adjustments and to a reported reluctance on the part of
many businesses to make new commitments for expansion at
this time. Inventory adjustments are continuing, but are not
assuming major proportions. Reports of difficulty with loan
collections are becoming more common and there are indi­
cations that the amount of past-due paper is increasing.
Bankers and businessmen seem to be pursuing a policy of
watchful waiting in the belief that there will be a pick-up
when prices become stabilized.
Investment portfolios in most banks have shown relatively
little change in recent months. In the nonagricultural areas,
funds freed by the recent reduction in reserve requirements
have found their way into Government bond portfolios. In
the agricultural and resort areas, lower reserve requirements



have enabled banks to reduce their normal seasonal borrow­
ings, or to reduce the amount of short-term Government
securities which they normally sell or redeem at maturity to
be able to take care of seasonal needs of their customers.
The trend of deposits in recent months appears to follow
no uniform pattern. Banks located in the agricultural and
resort areas report the usual seasonal decline in demand as
well as time deposits. This downward movement in some of
the banks is said to have started earlier and to have been
more rapid than usual. In other areas visited, particularly
where local industry has not experienced any material reces­
sion, demand deposits continue to rise. Time deposit totals
in most banks are holding about even or showing small gains.
Deposits in the savings banks that pay 2 per cent interest
have risen more steadily than have time deposits in other
banks, but there has been little evidence of any substantial
transfer of savings deposits from commercial banks paying
lower rates to savings banks. Among the savings banks the
shift to the 2 per cent rate continues. The commercial banks,
however, with but one or two exceptions, show little inclina­
tion to change the rates which they are paying currently.
The average banker in this District looks for a continuance
of the current decline in business activity and a further shrink­
age in loan volume. He continues to be apprehensive of
declining deposits and continued high costs. He feels, how­
ever, that the current recession will not broaden and deepen
into a severe business contraction. He believes that this is a
good time to be just a little mote cautious in his investment
and lending policies. Nevertheless, while not aggressively
soliciting new loan business, he is taking care of the reasona­
ble requirements of his customers and is not averse to taking
on some good new loan business.
Sales in Second District department stores during June
continued substantially below last year’s figures. According
to preliminary information, dollar volume was off about 8 to
10 per cent, compared with an average decline of 6 per cent
for the preceding 5 months. However, this year-to-year com­
parison is affected by the fact that trade in June of last year
was exceptionally good, having been maintained at the record
level reached in May 1948. On a seasonally adjusted basis,
this June’s sales were probably only slightly less than in May,
if at all.
Business in the Albany-Schenectady, Buffalo, and West­
chester areas ran contrary to the over-all District trend in
the first 5 months of this year (see table, page 82). In April
(latest month available), manufacturing payrolls in the
Albany-Schenectady area were less than 1 per cent and in
Buffalo no more than 3 per cent below those of April 1948, in
contrast to an 8 per cent drop for New York State as a whole.

G ross T ra n sa ction s and N et D olla r Sales, N ew Y o r k C ity
D epartm ent and A p pa rel S to re s, J a n u a ry -M a y 1949
(P e rce n ta g e ch an ge fro m p reced in g y e a r)
Apparel stores

Department stores

Five-month total..........





- 6 .2
-4 .6
-6 .9
+ 2 .1
- 4 .4

— 5 .6
- 7 .1
-1 0 .3
- 3 .0
- 1 0 .0

- 5 .4
- 6 .9
- 1 2 .0
+ 1 2 .4
+ 0 .8

- 3 .6
- 1 2 .0
-1 4 .2
+ 6 .7
- 9 .1

- 4 .0




7 .3

2 .1

6 .4

Department store stocks in this District, as valued at cur­
rent retail prices and adjusted for the usual seasonal changes,
declined during May from 230 per cent of the 1935-39
average to 224 per cent. In the 12 months ended May 31,
19 4 9 , the decline in the value of stocks aggregated 8 per cent.
In no major locality were stocks on May 31 of this year
greater than one year previous.
Despite the gradual liquidation of stocks, the value of new
orders placed during May by a group of the larger stores was
practically one-fourth less than in the preceding May, and, for
the first time in 1949, less than in the corresponding month
of 1947 as well. On May 31 of this year, the reporting group
of stores were carrying a dollar volume of outstanding orders
fully 40 per cent less than one year before. The dollar amount
of incoming merchandise during the month of May was about
20 per cent less than in 1948, and also less than for the same
month of 1947.
There are some indications that the decline in the physical
volume of sales has been smaller than the loss in dollar volume.
During the first five months of 1949, the dollar volume of
sales in a group of the large New York City department
stores declined 7 per cent from the level of the corresponding
period a year ago, but the number of transactions, measured by
the number of separate sales checks written, declined 4 per
cent only. The amount of the average sales check was 3 per
cent below last year’s average amount. Similarly, dollar sales
in a group of the large New York City apparel stores declined
6 per cent while the number of transactions declined 2 per
cent only; the drop in the average sales check for this group
of stores was 4 per cent. Up to the fall of 1948, the amount
of the average transaction had been larger than a year earlier
in the case of both department and apparel stores. The sub­
sequent drop from year-ago levels seems to have been gaining
momentum in both cases.
To a certain extent, the decline in the average sales check
represents factors other than price cuts. Thus, a certain amount
of "trading down” may have taken place. Also, with incomes
and prices declining, consumers are likely to limit their pur­
chases, and consequently the number o f multiple-item checks
may have been smaller than a year ago. In any case, the
decline in the amount of the average transaction has been



Estimated Value of Average Sales Check of New York City
Department and Apparel Stores*
(July 1947-May 1949)

lowing the new showings which take place at the beginning
of the spring and fall apparel seasons. In department stores,
offsetting sales patterns for other types of goods produce a
more even seasonal pattern.


D epartm ent and Apparel Store Sales and S tock s, Second Federal R eserve
D istrict, Percentage C hange from th e Preceding Y e a r

Net sales
M ay

Department stores, Second District___
New York C ity ..........................................
Northern New Jersey..............................
Westchester C ounty.................................
Fairfield C ou n ty........................................
Lower Hudson River V alley................
Upper Hudson River V alley................
A lbany.......................................................
Central New York State.......................
Mohawk River V alley........................
Northern New York State....................
Southern New York State.....................
Western New York State ....................
Niagara Falls.........................................
Apparel stores (chiefly New York C ity ) .


Stocks on
M ay 1949 M ay 31, 1949






-1 0
-1 0
-1 2
+ 3
-1 4
-1 6
- 7
- 7
- 4
- 5
- 4
- 5
-1 1
- 9
- 3
- 2
- 9
-1 2
- 7
- 4
- 1
+ 6
- 7








- 2
- 3
- 4
- 6
- 7
-1 3
-1 7
- 7
- 6







- 2
+ 1
- 1
- 5

- 6
- 4
-1 5
-1 0
-1 0
-1 2
- 5
- 6
- 7
- 3



-1 6






Computed by dividing net dollar sales by gross number of transactions.
Because transactions are reported gross whereas sales are reported net after
deductions for returned merchandise, etc., the chart understates somewhat the
net value per sale.
Indexes o f B u sin ess

larger than the estimated drop in prices applicable to the two
types of stores.
The chart clearly shows the greater magnitude of the
average sale in apparel stores. Although one might expect
that department stores, because of sales of "big ticket” house­
furnishings and appliances, would show a larger average sale,
the very large number of low-priced items in certain depart­
ments has a more than offsetting influence. In neither type
of store was there a clear-cut relation between the individual
store’s total sales and the average size of its transactions.
The much greater seasonal variation in the average size of
apparel store sales shown on the chart reflects a more pro­
nounced emphasis on style merchandise in these specialty
stores. Women tend to concentrate their purchases of the
more expensive garments and accessories in the periods fol-


Industrial production*, 1935-39 = 100.........


Electric power output*, 1935-39 = 100.........

(Federal Reserve Bank of New York)
Ton-miles of railway freight*, 1935-39 = 100


M ay


















144 p




110 p



337 p

(Department o f Commerce)
Factory employment
United States, 1939 = 100.............................

(Bureau of Labor Statistics)
New York State, 1935-39 = 100..................

(N Y S Div. of Placement and Unemp. Ins.)
Factory payrolls
United States, 1939 = 100............... „ ...........

(Bureau o f Labor Statistics)
New York State, 1935-39 = 100.................
(N Y S Div. o f Placement and Unemp. Jns.)


279 p

258 p






197 p









(Department of Commerce)

251 p

(Federal Reserve Bank of New York)
Consumers’ prices, 1935-39 = 1 00...................


(Bureau o f Labor Statistics)
Velocity of demand deposits*, 1935-39 = 100


M ay

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





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





M ay



(Federal Reserve Bank of New York)
Sales of all retail stores*, 1935-39 = 100___

Composite index of wages and salaries*t,
1939 = 100............................................................


r Revised.

M ay

(Board of Governors, Federal Reserve

Personal income*, 1935-39 = 100....................
Indexes o f D epartm en t Store Sales and Stocks
Second Federal R eserve D istrict
(1 9 3 5 -3 9 a v e r a g e = 1 0 0 per cent)




(Federal Reserve Bank o f New York)
New York C ity ..................................................
Outside New York C ity .................................

* Adjusted for seasonal variation.
p Preliminary.
r Revised,
t A monthly release showing the 15 component indexes of hourly and weekly
earnings in nonagricultural industries computed by this bank will be sent upon
request. Tabulations of the monthly indexes, 1938 to date, may also be pro­
cured from the Research Department, Domestic Research Division.



(Summarized by the Board of Governors of the Federal Reserve System, June 28, 1949)

Production at factories and mines declined further in May
and June. Construction activity increased somewhat and
employment in most other lines was maintained. Prices of
industrial commodities continued downward and prices of
farm products and foods declined in June following some
advance in May. Department store sales were maintained at
relatively high levels.
I n d u s t r ia l P r o d u c t io n

The Board s seasonally adjusted index of industrial produc­
tion declined 5 points in May to 174 per cent of the 1935-39
average and, according to present indications, may show a
similar decrease in June. The May decline reflected mainly
a further substantial reduction in activity in industries manu­
facturing durable goods. Output o f nondurable goods and of
minerals, which earlier had declined more than output of
durable goods, showed only slight decreases in May.
Activity in the iron and steel, machinery, and nonferrous
metals industries showed marked declines in May, reflecting
a reduced volume of orders. Steel production averaged 93
per cent of capacity and since then has declined further to a
scheduled rate of 84 per cent of capacity during the week
beginning June 20, as compared with the peak of 103 in
March. Machinery production has declined about one fifth
since the end of last year. Output of passenger cars was
temporarily curtailed in May as a result o f a major work
stoppage, but by mid-June increased to new record postwar
rates. Activity in most other industries manufacturing durable
goods declined slightly in May.


1935 - 3 9 * 1 0 0

Value of construction contracts awarded, according to the
F. W . Dodge Corporation, rose slightly in May reflecting
further increases in awards for public construction. Private
awards were slightly smaller than in April and continued
considerably below a year ago. The number of new housing
units started increased further in May and was close to the
peak level of 100,000 units a year ago, according to estimates
of the Department of Labor.
D is t r ib u t io n

Value of department store sales in May showed little change
from April, after allowance is made for the usual seasonal
fluctuation. Sales in the first half of June were 7 per cent


Federal Reserve index. Monthly figures; latest figure shown is for May.

C o n s t r u c t io n



Activity in the cotton and rayon industries decreased fur­
ther. Output of wool textiles, however, increased from the
exceptionally low April rate, which was about 40 per cent
below peak postwar levels. Cotton consumption in May was
at the lowest rate since 1939. Petroleum refining activity
showed a slight gain in May, and newsprint consumption
rose further to a new record rate. Activity in most other
nondurable goods industries showed little change.
Minerals output was slightly smaller in May. Activity at
nonferrous metal mines was substantially curtailed and iron
ore output, after allowance for seasonal changes, was slightly
below the exceptionally high April level. Crude petroleum
production showed little change. Coal output increased some­
what in May, but has been curtailed sharply in June.

F. W . Dodge Corporation data for 37 Eastern States.
latest shown are for May.

Monthly figures;



below tthe high level of the corresponding period in 1948,
reflecting in part lower retail prices for apparel and house­
Shipments of railroad freight declined in May and early
June, reflecting mainly a marked reduction in loadings of
miscellaneous products. Total carloadings, after allowance for
seasonal changes, have declined about 1 2 per cent since last
C o m m o d i t y P r ic e s

The general level of wholesale commodity prices declined 2
per cent from the middle of May to the third week of
June. Meat and livestock prices showed small net change, as
decreases in mid-June followed advances in the latter part of
May. Cash wheat prices declined about 10 per cent as mar­
ketings of another large crop commenced. Prices of industrial
commodities, especially textiles, paper, metals, and building
materials, continued downward from May to June.

B a n k C r e d it

Business loans at banks in leading cities declined substan­
tially during May and by somewhat smaller amounts during
the first half of June. Real estate and consumer loans increased
slightly. Banks purchased about 2 billion dollars of Govern­
ment securities of both long and short maturities, in part
out of reserve funds released by the reduction in reserve
requirements effective in early May.
Treasury expenditures were considerably greater than
receipts in the first half of June, and Treasury deposits at the
Reserve Banks declined substantially. This supplied banks
with reserve funds and banks bought Government securities
from the Federal Reserve System and increased their excess
reserve balances. Subsequently banks lost reserve funds as
Treasury balances at the Reserve Banks were built up by
quarterly income tax payments. Reserve System holdings of
Government bonds declined further during June.
Se c u r it y M a r k e t s

In May retail prices of most groups of consumers’ goods
were somewhat lower than in April. The B.L.S. index for all
items, including rents and other services, was 169.2 as com­
pared with 169-7 in April and the recent low point of 169.0
in February.

Common stock prices decreased about 9 per cent, with a
moderate volume of trading, in the four weeks ended June
13 and recovered part of the decline in the following 10 days.
Prices of high-grade corporate bonds changed little.



— "—












r j^ ,.


— •
~ ----— U. . O'DVERNMENT ..........

1 Aoo



a r s an d o v e r


Bureau of Labor Statistics’ indexes. Weekly figures; latest shown are for
week ended June 14.








Common stock prices, Standard & Poor’s Corporation; corporate bond
yields, Moody’s Investors Service; U. S. Government bond yields, U. S.
Treasury Department. Weekly figures; latest shown are for week ended
June 18.