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MONTHLY REVIEW
O f Credit and Business Conditions

FEDERAL

RESERVE

V o lum e 32

BANK

JULY

OF

NEW

YORK

1950

No. 7

MONEY MARKET IN JUNE
A number of developments coincided to make for easy
money conditions throughout the past month. Reserve posi­
tions of member banks are usually easy in the first half of
June, owing to reduced withdrawals of Treasury deposits in

ments to purchase an increased volume of new corporate
bond issues were also a factor. The increase in market sup­
plies of restricted Treasury bonds had its counterpart in re­
duced sales by the Federal Reserve System, particularly toward

anticipation of income tax collections later in the month, and

the end of the month.

owing to large Treasury disbursements of interest on the public
debt at the middle of the month. In the second half of the
month heavy tax collections normally tighten the money mar­

down temporarily after the invasion of South Korea, but in

ket. This June, however, the influence of tax collections was
offset, principally by an expansion of "float” (Federal Reserve

Dealers’ quotations were marked

the closing days of the month a moderate demand developed
for these bonds and prices recovered somewhat. Bank-eligible
Treasury issues held up comparatively well until the latter part
of the month when some sales pressure developed in the mar­

credit against checks not yet collected), and by open market
operations in support of the Treasury’s current refunding

ket; these issues and, more particularly, the partially tax-

offerings. Uncertainty as to the prospect for short and inter­
mediate-term interest rates resulted in substantial sales, indi­
rectly to the Federal Reserve System, of Treasury certificates

developments in Korea.

maturing on July 1 and of related Treasury notes, and these
open market purchases helped to ease the money position.

Easy money market conditions during the first two weeks
of June were related, as usual, to large Treasury disbursements,

Easier money conditions were reflected in the rate on immedi­
ately available Federal funds, which were offered at
per cent

Vi

and less during a large part of the month. The average dis­

exempt section of the list were unfavorably affected by the

M

em ber

B a n k R eserve P o s it io n s

which provided the banks with additional reserves. Govern­
ment expenditures are ordinarily larger in the first part of
each month than in the second, and in June, the last month

count on successive new issues of Treasury bills also declined

of the fiscal year, operating expenditures are frequently greater

slightly beginning with the issue of June 15. Neither the

than in other months because the authority to make expendi­

money market nor the Government security market was
shaken by the invasion of South Korea on June 25 and the
subsequent decision of the United States to take military

tures under certain programs lapses with the end of the fiscal
year. Treasury disbursements were also increased early in June by
cash redemptions of maturing certificates and of Savings notes.
Adding further to bank reserves during the first half of the
month were a return flow of currency from circulation and a

action in support of United Nations resistance to this unpro­
voked aggression.

substantial rise in the volume of credits granted by the ReG o v ern m e n t B ond M a r k e t

The decline in prices of long-term restricted Treasury bonds,
which had been a feature of the market for some time, con­

CONTENTS

tinued until the closing days of the month. Prices of the De­

Money Market in June........................................ 73

cember 2V i $, 1967-72 were moved down 5/3 2 in May and
15/32 in the three weeks ended June 21, with almost half of

Security Markets .................................................. 75

the decline occurring in the last of these weeks. The decline
in Victory bond prices through 101

Vi

(2.40 per cent basis),

a point considered by the market as a resistance level, was a
factor in the increase in the supply of such bonds coming into
the market and in the reduction of the demand for them.
Sales by nonbank investors to raise funds to finance commit­




Banking and Business Developments
in the Second District...................................... 78
The Rise in Foreign Gold and Dollar Assets.. . 79
The Inventory Situation...................................... 82
Department Store Trade...................................... 83

74

MONTHLY REVIEW, JULY 1950

serve Banks against uncollected checks, due in part to the cur­
tailment of postal services and the resultant slowing up of
mail deliveries. Transactions absorbing or otherwise immobi­
lizing reserve funds were only moderate in amount. In the

many lines and the advance in commodity prices during the

B a n k C r e d it

I n s t i t u t i o n a l Lo a n s
In v e s t m e n t s

and

and

The expansion of business activity to capacity output in

week ended June 7, when reserve positions were comfortable,

past few months have been achieved thus far with a relatively

large sales of short-term Treasury securities by the commercial
banks, particularly the notes issued in exchange for Treasury

small aggregate expansion of funds made available directly
to business. Business loans of the commercial banks, as indi­

certificates maturing June 1, merely served to add further to
money market ease. Thus, in the two weeks ended June 14,

cated by the figures of the weekly reporting member banks,
have declined seasonally during the first half of 1950, but
much less than a year ago. On the other hand, the net increase

the banks were able not only to retire a large part of their
indebtedness to the Reserve Banks ( mostly in the first week),

in life insurance company and mutual savings bank holdings

but also to add 400 million dollars to their excess reserves,
which amounted to 930 million dollars on June 14.

of corporate securities in the first half of this year was con­
siderably smaller than in the corresponding period of last year.
The sharp expansion of industrial activity, however, has

The Treasury balance with the Reserve Banks fell about
270 million dollars between May 31 and June 14, to 319 mil­
lion on the latter date, partly because of reduced Treasury
withdrawals from depositary banks. On June 15 it was prac­
tically exhausted when approximately 500 million dollars were
paid out in interest on the public debt, and excess reserves
rose another 400 million dollars on that day. In fact, the
Treasury financed its heavy interest and other payments in
part through the sale of 105 million dollars of special certifi­

been accompanied and stimulated by an expansion of credit,
particularly to home and other property owners and to con­
sumers, and to a lesser extent to investors and speculators in
Changes in Major Types of Assets Held by Leading
Financial Institutions
(Cumulated monthly from December 31, 1947)

cates of indebtedness to the Reserve Banks, which it retired
out of receipts the following day.
Despite the drain on bank reserves from heavy tax collec­
tions, a reduction in "float”, and net receipts in foreign ac­
counts with the Reserve Banks, as well as some net increase
in required reserves of the member banks, the money market
showed no appreciable tightening in the second half of the
month until the closing days. This was due not only to the
prior accumulation of a large volume of excess reserves, which
were drawn upon heavily, but also to the substantial further
net sales, in the last week of the month, of short-term Treasury
securities by the commercial banks, indirectly to the Reserve
System.
Easy conditions in the money market reflected a comfortable
reserve position of the New York City banks during most of
the past month. Net Treasury disbursements were particularly
large in the City (since a substantial portion of Government
interest payments and cash redemptions of securities were
made here), but a substantial outflow of funds over the month
as a whole more than offset the effect of net Treasury
disbursements.

However, the gains and losses of reserves

did not coincide in timing. In the week ended June 21, in
particular, when the outflow of funds was nominal in amount,
large net Treasury expenditures kept the money market easy.
But the chief source of ease came in the form of substantial
sales, during the weeks ended June 7 and 28, of short-term
Treasury securities by Government security dealers, other non­
bank investors, and the New York City banks. In the inter­
vening two weeks, the City banks made sizable purchases of
Treasury issues, most of which were bought from nonbank
investors and so had little effect on reserves.




* Data from Home Loan Bank Board and the Federal Savings and Loan
Insurance Corporation, cumulated quarterly; latest figures are for the first
quarter of 1950. Since holdings of all other loans and securities” of insured
savings and loan associations are nominal, changes in such holdings are not
shown in the chart.
t Data from National Association of Mutual Savings Banks; latest figures
are for May 31, 1950.
J Data from Institute of Life Insurance; latest figures, May 31, 1950,
estimated by the Federal Reserve Bank of New York. Data for mortgage
loans include ownership of income-producing real estate.
# Data for U. S. Government securities from Board of Governors of the
Federal Reserve System through April 30, 1950 ; latest figures, May 31, 1950,
as well as all data for mortgage loans and “ all other loans and securities” ,
estimated by the Federal Reserve Bank of New York.

FEDERAL RESERVE BANK OF NEW YORK

75

five months of 1950 as compared with a somewhat smaller
increase in the corresponding months of 1949. Other earning
assets (exclusive of Government securities) rose 1.4 billion

industrial stock prices and large new security flotations. The
latter included a sharply expanded volume of new common
stock offerings. Stock prices, however, broke sharply toward
the end of this period following the start of hostilities in
South Korea. Corporate and municipal bond prices declined
slightly during the past six months in partial response to

dollars in the five months ended May 31, 1950, in contrast

declining prices of long-term restricted Treasury bonds. While

to a decline of 1.6 billion in the same period of 1949. The
expansion of these assets reflected a substantial gain in hold­

of high level business and rising commodity prices, the decline

common stocks, and to State and local governments. As shown
in the accompanying chart, net mortgage holdings of all com­
mercial banks rose an estimated 250 million dollars in the first

somewhat lower prices might be considered normal in a period

ings of securities other than those of the Federal Government

probably reflected the effects of the supply of Treasury bonds

(largely State and municipal issues) and in loans to consumers

made available to the market by the Reserve System at least as

and to brokers, dealers, and others on non-Government securi­

much as an increase in business demands for new long-term

ties. The increase in the banks* holdings of such securities
and loans more than offset a seasonal contraction in business

capital. Corporate financing in the capital markets was con­

borrowing.
A large part of the expansion in these various forms of
bank credit was offset, however, by sales of Government securi­
ties to nonbank investors (Federal Reserve System holdings
of bonds and other types of Government securities declined in

siderably larger than in the last six months of 1949, but sub­
stantially less than in the first half of that year, while the supply
of new funds available for investment showed a small increase.
Investors, particularly financial institutions, found uses outside
the security markets for sizable amounts of their funds, chiefly
in the form of a large volume of new residential mortgages.

the first five months of 1950). Thus, the commercial banks
have directed their funds into the real estate mortgage market,
consumer loans, and other forms of credit and investment,
while nonbank investors have increased their holdings of
Government securities substantially.
The operations of the life insurance companies in the mort­
gage field have increased only moderately over a year ago. The

St o c k M a r k e t

The past month rounded out a year of the bull market in
common stocks. From mid-June 1949 to mid-June 1950 the
Dow-Jones average of the prices of 30 industrial stocks ad­
vanced by more than two fifths and thus reached the highest
level since September 1930— a level about seven per cent

net increase in the mortgage holdings (together with owner­

above the previous postwar peak of May 1946. However,

ship of income-producing property) of all life insurance com­

because prices of railroad and utility shares rose more slowly
than industrial share quotations, the Dow-Jones composite

panies in the first five months of 1950 amounted to an esti­
mated one billion dollars, about 100 million more than in the
same months of last year. Since these companies also reported
making a much smaller volume of new funds available to
business corporations, and others, through security purchases

average of 65 stocks barely surpassed the 1946 peak. Measured
by Standard and Poor’s broader index of 416 stocks, prices at
the middle of June were still six per cent below the highest
postwar level. This reflected not only the lag in railroad and
utility stock prices, but also the fact that the low-priced indus­

(40 per cent less than in the first five months of 1949), their
(net) sales of Government securities this year through May
(145 million dollars) were sharply lower than last year (715
million) during the same five-month period.
The mutual savings banks and the insured savings and loan
associations have been particularly active in mortgage lending
this year. In the first five months of 1950 the mutual savings
banks reported an increase in holdings of mortgages outstand­
ing 70 per cent greater than last year, and in the first quarter
of this year mortgage holdings of the insured savings and loan

well sustained, with few setbacks until the invasion of South

associations rose at a rate double that of the rise in the first

Korea caused a sharp break late in June. The upswing was

trial and other shares had recovered only part of their very
large decline between 1946 and the middle of 1949. Thus,
while Standard and Poor’s index of 23 low-priced shares rose
more than 60 per cent in the past year, as compared with a
one-third increase for the composite index of 416 stocks, this
advance carried the index of low-priced shares to only about
60 per cent of its May 1946 peak.
The rise in stock prices during the first half of 1950 was

quarter of last year. The net increase in the volume of other

accompanied by an expanded volume of trading. Turnover

earning assets, except Government securities, was small for

of shares through the middle of June was double that for the

the mutual savings banks and nominal in the case of insured

corresponding period of 1949. Trading was heaviest in April,

savings and loan associations. Both types of institutions made

when an average of almost 2.3 million shares a day changed

small net purchases of Government securities in the early

hands. The volume of transactions also rose sharply during the

months of 1950 and of 1949.

break in prices following the start of hostilities in South Korea.

SE C U R IT Y M AR K E TS

the first half of 1950 were accompanied by a considerable

The enlarged trading volume and the rise in prices during
During the past six months the security markets responded

expansion in the volume of stock market credit. Customers’

to the stimulus of active business conditions with advancing

debit balances rose markedly from about 680 million dollars




76

MONTHLY REVIEW, JULY 1950

at the end of June 1949 to 1,175 million by May 31 of this
year, and in June a further rise probably took place prior to
the heavy liquidation of stocks toward the close of the month.

dend yields remained high, especially when compared with
long-term bond yields. Increased dividend payments during the
year held the decline, through the middle of June, in the aver­

Undoubtedly public participation in the market and, to a lesser

age yield on issues included in Standard and Poor’s daily index

degree, the volume of margin trading have been on the in­
crease. But although the total volume of transactions this year

of 50 industrial stocks to no more than 16 per cent. The aver­

through June reached the highest level since the corresponding

age yield on these stocks was still approximately 6 Vs per cent
in mid-June.

period of 1936, customer borrowings remained considerably
below the levels prevailing during a large part of the thirties.

fifths during the past year and several of the stock price aver­

The rate of advance in stock values generally in the first
half of 1950 was slower than in the preceding six months,
and prices of railroad and utility shares made little headway.
The rise in industrials reflected the high level of business
activity, spurred on by unprecedented automobile production,
record construction activity, particularly in new housing, and
the associated heavy consumer demand for household appli­

Although stock values advanced between a third and two
ages reached the highest points in almost 20 years, stock price
gains since the last full peacetime year (1938) have not done
much more, on the whole, than keep pace with the growth of
stockholders’ equity in corporate enterprise resulting from the
ploughing back of earnings, as illustrated in the accompany­
ing chart. Although an unusually large part of corporate earn­
ings have been accumulated and reinvested in the businesses in

ances, furniture, and furnishings. The industry groups that

the postwar years, these retained earnings have accrued to the

led in the advance of the stock market during the first six

benefit of stockholders in the form of enhanced net worth, and

months of the year were, therefore, chiefly in the consumer
durable goods— particularly the television shares, and the steel

have been accompanied over the period as a whole by increased
share values, i.e., in the form of unrealized capital gains.

industries. This was in contrast to the upswing in the previ­
ous six months, when the most marked rise occurred among

Bond M arket

the soft goods and associated industries, including the shares

Prices of high-grade bonds declined slightly, and yields rose

of rayon, drugs and cosmetics, soap, and beverage companies.
Stocks of automobile, paper, chemical, and leather corpora­

correspondingly, during the past six months. A drop from a

tions, however, showed sharp price increases in both periods.
Despite the advance in stock prices over the past year, divi-

year ago in corporate demand for capital was offset by the
development of alternative outlets for savings in the residen­
tial mortgage credit field and in financing the heavy demands
of State and local governments. The greatest decline in bond
prices was in long-term, restricted Government bonds, reflect­

Corporate Retained Earnings and Changes in Stock Prices*
(Cumulated quarterly from 1938)

Dollars
per share

Dollars
per share

ing sales of such issues by the Federal Reserve Banks, in re­
sponse to investor demands, on a declining price scale. The
record-breaking volume of new municipal bond flotations had
but a limited effect on the prices of corporate and other taxable
bonds, since the financial institutions ( including those handling
pension funds) which are the chief buyers of such bonds,
gain little benefit from the tax-exempt feature of the loweryielding municipal securities.
The continued decline in prices of the longest-term restricted
Treasury bonds, the December 2V^’s of 1967-72, carried the
yield from 2.24 per cent at the end of 1949 to 2.42 per cent
late in June 1950. Yields on the longest-term, bank-eligible
Treasury bonds, the September 2V^’s of 1967-72, moved more
in line with those of other high-grade bonds, and rose from
2.09 per cent to 2.17 per cent over the past six months. In
the same period, the average yield on a representative group
of Aaa corporate bonds, as computed by Moody’s Investors
Service, rose from 2.58 per cent to 2.63 and that on a group
of Aaa municipal bonds (also computed by Moody’s), from
1.60 per cent to 1.67. Corporate and municipal bonds of lower
quality showed somewhat larger increases in yields.
As a result of the movement of bond yields in 1950, the

* Both retained earnings and price changes relate to the 125 industrial
companies included in Moody’s weighted average of 125 industrial stocks;
second quarter of 1950 estimated by the Federal Reserve Bank of New York.
Latest figure for stock price changes, June 22 .
Source: Moody’s Investors Service; retained earnings per share computed
by the Federal Reserve Bank of New York from Moody’s data.




differential between the yields on corporate and Treasury
bonds has narrowed considerably. This differential is narrow
even in the case of new corporate bond issues, on which the

FEDERAL RESERVE BANK OF NEW YORK

yield is somewhat more favorable than on seasoned issues.
Despite the demand for funds from State and local govern­
ments and from mortgage borrowers, yields on long-term,
bank-eligible Government and high-grade corporate and muni­
cipal bonds in the middle of 1950 were considerably below
those prevailing in the middle of 1949; the rate of return on
restricted Treasury bonds, on the other hand, was higher this
mid-year than a year ago.
N

ew

Se c u r it y I ssu es

77

more actively into the market for corporate securities than
they had been in preceding months.
In manufacturing, and particularly among corporations pro­
ducing durable goods, corporate financing of new capital needs
fell sharply in the first half of 1950 from the corresponding
months of 1949. A decline of about one fourth in new public
utility issues was attributable mainly to a decrease of about
50 per cent in telephone company financing. New issues of
the railroads held up well, and were practically unchanged

The volume of new capital issues rose in each successive

from the level of a year ago. Gas companies, principally natural

quarter following the low point in July-September 1949. Flo­
tations of corporate security issues for new capital, according
to data compiled by the Commercial and Financial Chronicle,

gas (including gas pipe lines), and finance companies sought
and obtained substantially more funds from the capital markets
in the first six months of this year than in either of the two
previous half-year periods.

amounted to about 2.4 billion dollars (partly estimated) in
the first six months of 1950, and were thus approximately a
third smaller than the total for the corresponding period of
1949. They were, however, considerably in excess of the 1.6
billion dollars offered during the second six months of last
year. Refunding issues were sizable for the first time since
the early part of 1947, and amounted to about one fourth of
the total of all issues. Reflecting the substantial further ad­

Conditions during the past twelve months became increas­
ingly favorable for the issuance of a large volume of refunding
securities, almost all of which were bonds. Yields on long­
term bonds had fallen considerably in the last six months of
1949 and had reached levels where, for the first time since the
early part of 1947, it again became possible on a sizable scale
for corporations to refund outstanding bond issues with new

vance in stock prices, public offerings of new common stock

obligations bearing lower coupons. More than 800 million

issues rose markedly. Sales of new preferred stocks were also
well above last year’s figures.

dollars of such bond issues, or three times the amount floated

The sharp reduction in corporate financing this year from
the level of the first half of 1949 can be traced in large part
to a reduction in business expenditures on plant and equip­
ment, to lower working capital needs, and to a decrease in
new issues to repay bank loans. The larger volume of cor­
porate financing so far in 1950 than in the second six months
of last year came in the face of a 10 per cent reduction in
capital expenditures and somewhat larger profits after taxes
and dividends. Apparently working capital needs as com­
pared with the second half of 1949 have increased, accom­
panying the higher levels of production and higher prices of
raw materials in 1950. Business inventories rose during the
first half of the year. Moreover, corporations needed addi­
tional funds to meet expanded payrolls, in many cases at
higher wage rates, and to finance increased credit sales. These
transactions absorbed substantial amounts of corporate liquid
assets during a period when business normally pays off part
of its indebtedness to the commercial banks. Although undis­

in the second half of 1949, were sold in the market during the
first half of 1950.
The entire decline in new capital issues came in the flotation
of bonds, which was reduced from 2.7 billion dollars in the
first half of 1949 to 1.6 billion in the first half of 1950. Bond
issues for new capital purposes, however, were more than 500
million dollars larger during the first half of 1950 than in the
last six months of 1949.
Corporations obtained in the first half of this year the larg­
est volume of equity capital since the first half of 1930.
Despite the fact that the cost of equity capital remained high,
corporations sold about 440 million dollars of new common
stock issues. Undoubtedly the higher current levels of stock
prices, in comparison with the low level of prices many cor­
porations would have obtained from the sale of stock only
twelve months previous, was a factor in many management
decisions to offer new shares in the market. The upward trend
of stock values had generated considerable investor optimism,
and most stock issues were well received. Low margin require­

tributed earnings in this period showed a small increase, cor­

ments (25 per cent) on the purchase of newly offered shares

porations had to seek new capital to a greater extent than in

also facilitated sales of new common stock issues. Although

the second half of 1949.
Nevertheless, the volume of security offerings was com­

light and power companies) comprised more than half the

the shares of the public utility industry (particularly electric

paratively low relative to the supply of investment funds seek­

total common share flotations, they nevertheless accounted

ing employment. Throughout the period there were some

for a smaller dollar amount than in the preceding six months.

"sticky” issues, but otherwise, especially when the pricing was

Sales of new equity shares by finance, chemical, and tobacco

realistic, offerings were readily purchased by ultimate investors.

companies accounted for most of the gain in new common

June was the most active month for corporate bond flota­

stock issues. Offerings of preferred stock issues also were larger

tions and an active period for new municipal bond offerings.
The more favorable pricing of some of the new corporate bond

in the first six months of this year than in either of the two
preceding half-year periods.

issues in June brought the larger life insurance companies

The volume of securities sold directly to life insurance com­




MONTHLY REVIEW, JULY 1950

78

panies and others showed no appreciable change between the
second half of last year and the first six months of 1950, and
was about one-third below the amount of directly negotiated

to field representatives of the Federal Reserve Bank of New
York in their visits to more than 600 banks during the past

issues in January-June 1949. Since the beginning of this year
a new financial device, involving the purchase and lease of

are again appearing in a few industries and that improvement
has been shown in the clothing and other soft-goods lines

freight cars to railroads by one of the large life insur­

which were working on shortened schedules earlier in the
year. Bank loans and deposits are also holding up well and

ance companies, was developed. This type of financing, in
effect, enables the railroads to buy rolling stock without any
down payment such as is necessary when financing through

three months. Bankers say that extra shifts and overtime work

bank earnings appear to be at rates equal to, or better than,
those of last year.

equipment trust issues. However, banks and insurance com­
panies have for many years been financing carrier purchases

Despite these signs of prosperity, however, bankers through­
out the District are voicing a good deal of concern about the

of railroad equipment in some instances with no down pay­

future. There is a feeling that the average wage earner is over­
extended. The rather spotty situation in retail trade and the

ment. Only recently, a commercial bank and a life insurance
company cooperated in such an agreement with a railroad, with
the commercial bank taking the first five annual maturities of
the loan.
Another new development in the new issue market has been
the private sale of new common stock to several open-end

decline in soft goods are generally explained on the grounds
that many people have committed so large a portion of their
incomes to monthly payments on mortgages and instalment
loans for the purchase of durable goods that they have little
left over for new clothing. Bankers say that, while loan

investment companies. Unlike private placements of bonds, it

demand is active, it has deteriorated in quality. They point

is doubtful whether this type of development will go beyond

also to the lower incomes of farmers, particularly of dairymen

the sale of shares of companies already listed on a security

and poultry farmers. This situation, it is said, has led to some
tightening of credit and to more careful selection of risks.

exchange, since the open-end companies are dependent upon
market quotations in their operations.
State and local government demands upon the capital market
during the past six months continued to break all previous
records. The total raised through the sale of tax-exempt obli­
gations (1.9 billion dollars) was almost two thirds the amount
sold in all of 1949 and 450 million more than in the corre­
sponding half of 1949. Several large issues helped swell the
total, and one State bonus issue for 375 million dollars brought
the volume of veterans’ aid bond offerings to over 500 million
dollars, or almost twice the volume for the entire year 1949For the most part, however, the large volume of municipal
financing reflects large State and local government construc­
tion programs.
Considering the record-breaking volume of offerings, the
market was able to absorb these issues rather well, although
some difficulties arose. In a number of cases, underwriters had
to cut offering prices to dispose of new issues, and in at least

Over-all, however, bank loans continue to increase. This
increase has been accentuated during the past two months by
the seasonal loan increases in the agricultural and summer
resort areas and by the boom in the home construction indus­
try, particularly in the New York metropolitan area and the
suburbs of other large industrial cities. Mortgage loans and
consumer credit loans have paced the advance and the demand
for credit remains active.
There has been a slow but perceptible liberalization of
instalment credit terms. On auto loans a one-third down paymen is still generally required, but terms up to 36 months are
increasingly common. In the durable goods field, some of the
more aggressive lenders are financing sales with a down pay­
ment of only 10 per cent, or even without any down payment.
Delinquencies and repossessions, however, are still reported
to be nominal.
Total commercial bank deposits in the Second District de­

one instance even the dropping of prices did not stimulate

clined early in the spring, but this decline occurred almost

sales enough to permit the syndicate to dissolve and close out

entirely in New York City. Outside of New York City most

the account. Although the Blue List compilation of offerings

banks reported gains in demand deposits, with time deposits

of ‘ municipals” on dealers’ shelves reached the record-breaking

showing only small changes one way or the other. Even those

high of 202 million dollars toward the end of May 1950, that

country banks whose demand deposits usually turn down sea­

inventory was worked down to about 180 million in the middle

sonally in the spring have reported that the seasonal down­

of June, only to rise again to 197 million toward the end of the

swing has been less marked this year. In recent weeks, deposits

month. On balance, dealers’ inventories, as reflected in the

in all sections are reported to be increasing.
During the first four months of this year, the growth of

Blue List, have risen 43 million dollars in the last six months.

deposits in savings banks continued at a more rapid rate than
B A N K IN G AN D BUSINESS D EVELO PM EN TS

was the case with savings deposits in commercial banks. In

IN T H E SECOND D IST R IC T

May, however, commercial banks made a somewhat more

Business conditions in the Second Federal Reserve District
are good and banks are prospering, but farmers’ income is be­

continue to be a matter of concern to the commercial banks.

low that of last year. This is the general tenor of reports made

The savings banks generally pay dividends of 2 per cent now




favorable showing. Interest rates on savings bank deposits

FEDERAL RESERVE BANK OF NEW YORK

and many have been actively advertising this rate. Competing
commercial banks, paying materially lower rates, have experi­
enced some loss of deposits because of transfers to the savings
institutions.
Business conditions are reported to be generally favorable
throughout the District. Most manufacturing establishments
outside New York City are working full time, and reports of

79

Foreign Gold Reserves and Short-Term Dollar Balances

large backlogs of future orders are occasionally heard. Weak
spots still exist, particularly in the soft goods lines, but even
here some improvement has been shown in recent weeks. In
the dairy farming sections of the District, farm income is
reported to be substantially lower, as farmers are being
squeezed between lower milk prices and continued high prices
for the things they buy. Competent farmers, however, are said
still to have a margin of profit, although this has been con­
siderably reduced. One reflection of this condition is a backing
up of inventory in the hands of farm equipment dealers.
In addition to residential construction, which continues at
high levels, a number of large industrial and civic projects
are also under way in various parts of the District. Reports
indicate that, in the next few years, very substantial sums will
be spent on new schools, hospitals, and roads.

* Excluding gold holdings, but including dollar balances, of the USSR.
International institutions are excluded.
t Except the United Kingdom and Switzerland.
# Including the United Kingdom but excluding Eire and Iceland.
t Excluding sterling, French-franc, and Dutch-guilder areas.

T H E RISE IN F O R E IG N GOLD AN D
D O LL A R ASSETS1
In the first six months after the currency devaluations of

ing 15.0 billion dollars in March 1949. In the second and
third quarters of 1949, however, they declined again to 14.6

last September the gold reserves of foreign central banks and

billion under the impact of a moderate recession in foreign

governments and the short-term dollar balances held in the

merchandise exports to the dollar area and of the sterling

United States on official and private foreign account rose

crisis that led to devaluation of the pound sterling and numerous
other currencies in September.

more than 1 billion dollars to a total of about 15.7 billion.
This improvement, which was partly but by no means exclu­
sively related to the September currency realignments, was in
sharp contrast with the decline of about 330 million dollars
in foreign gold and dollar holdings in the six months preceding

Following the currency readjustments, aggregate foreign gold
and dollar assets increased 570 million dollars in the last quarter
of 1949 and 470 million in the first quarter of 1950. Totaling
15.7 billion dollars as of the end of March, foreign countries’

the devaluations; furthermore, it appears to have continued
during the second quarter of 1950.
In the accompanying chart, the recent rise in foreign gold
and dollar assets is shown against its postwar background.

gold and dollar holdings were 8 per cent higher than at the
June 1948 low point; but they still were 23 per cent lower than
they had been at the end of 1945, before such countries started
to draw upon them on a large scale.

Such foreign holdings declined from 20.5 billion dollars at the
end of 1945 to 15.1 billion at the end of 1947, but the rate of
decrease greatly slackened toward the middle of 1948. In June
of that year, three months after the beginning of the European

The postdevaluation rise in foreign gold and dollar assets,
however, has been very unevenly distributed as between coun­
tries; the general pattern can be seen from the chart, while
Table I gives details for the six-month periods immediately

Recovery Program, foreign gold and dollar assets stood at

preceding and following the currency adjustments. The gold

14.6 billion dollars, the postwar low. They recovered somewhat

and dollar assets of the combined sterling area, which had

in the latter part of 1948 and the first quarter of 1949, reach-

shrunk about 460 million dollars during the six months ended
last September, rose some 570 million during the following

1 Unless otherwise stated, foreign gold and dollar assets, as here
used, comprise the gold reserves and dollar balances held by foreign six months to 3.0 billion dollars at the end of March 1950.
central banks and governments, and in addition the dollar balances The gold and official dollar holdings of the United Kingdom
held on private foreign account. The gold reserve of the USSR is
excluded, but its dollar balances are included. Gold data are based, as alone2 stood in March 1950 at 1,984 million dollars, as against
a rule, on central bank statem
ents, but in a few cases other holdings
1,425 million at the end of September 1949.
made public in various foreign countries have also been included.
Where published data are incomplete or unavailable, figures have been
2 These official British figures, as released by the Chancellor of the
partly estimated. Data on foreign balances in the United States are Exchequer, differ in coverage from those given in Table I for the
drawn from the statistics of the United States Treasury, and cover all sterling area as a whole, inasmuch as official British holdings of
short-term assets (i. e., deposits, short-term commercial paper, Treas­ Canadian dollars are included in the Chancellor’s figures, while private
ury bills, etc.) held for foreign residents by banks in the United States.
United States-dollar holdings are excluded.




MONTHLY REVIEW, JULY 1950

80

Table I
Foreign Gold Reserves and Short-Term Dollar Balances
Millions of dollars
March 1949

Per cent change in
total holdings

September 1949

March 1950®

Area and country
Dollar
balances

Dollar
balances

Dollar
balances

March 1949
to
September
September
1949 to
1949
March 1950p

Total

Gold

Total

Gold

415

871

1,286

460

827

1,287

511

857

1,368

2,212

693

2,905

1,777

670

2,447

j 2,130

890

3,020

-1 6

+23

665
571

202

193

166
191
280
194
62
509
382

906
736
538
373
132
1,994
1,058

707
545
258
255
69
1,527

688

162
182
266
203
106
576
436

869
727
524
458
175
2,103
1,124

+
+
+

668

740
545
258
179
70
1,485
676

I
:

184
80
1,408

858
773
495
334
131
1,913
1,137

6

393
150
51
505
469

+ 4
- 7

- 4
- 1
- 3
+23
+33
+ 5
+ 6

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

3,678

1,963

5,641

3,953

1,784

5,737

4,049

1,931

5,980

+ 2

+ 4

Other Continental Europe*............................

532

125

657

499

102

601

487

98

585

-

-

3

141
317
323
700

225
98
113
804

366
415
436
1,504

164
317
373
726

222

145
99
819

386
462
472
1,545

216
317
373
789

217
141
883

433
458
483
1,672

+ 5

110

+
+
+

12
1
2
8

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

1,481

1,240

2,721

1,580

1,285

2,865

1,695

1,351

3,046

Asia:|
Philippine Republic.....................................

+ 5

+ 6

1

721

414
517

415
1,238

1

703

348
521

349
1,224

1

695

288
545

289
1,240

-1 6
- 1

-1 7
+ 1

722

931

1,653

704

869

1,573

696

833

1,529

-

-

55

65

120

55

85

140

82

80

162

9,095

5,888

14,983

9,028

5,622

14,650

9,650

6,040

15,690

Gold

ERP countries (other than United Kingdom):
Belgium-Luxembourg (and Belgian Congo)
Netherlands (and Netherlands West Indies)
Switzerland...................................................
Other ERP countries**...............................

Latin America: J

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

Grand total...........................

102

j

Total

0

5
9

12

4- 1
9

+ 11
+ 8

+ 3

!

5

+ 6

3

+ 17

+ 16

2

+ 7

-

p Preliminary.
# Including the United Kingdom but excluding Eire and Iceland, which are included under “Other ERP countries.”
** The data for this group of countries include gold to be distributed, as restitution by Germany, by the Tripartite Commission to European countries (including some
non-ERP countries).
* Including the short-term dollar balances, but not the gold reserves, of the USSR,
t Excluding sterling, French-franc, and Dutch-guilder areas.
Note: The table covers reported gold reserves of central banks and governments (excluding the USSR) and official and private short-term dollar balances held by for­
eigners in the United States (including the USSR). Gold and dollar holdings of the International Monetary Fund, the International Bank for Reconstruction and
Development, and the Bank for International Settlements are excluded. Gold figures are partly estimated.

The gold and dollar assets of countries other than the United

tries had sold gold to this country in the amount of 290 million

Kingdom that are participating in the European Recovery
Program increased some 240 million dollars in the six months
ended March 1950; of this increase, Switzerland accounted

dollars. In 1949 as a whole, net United States purchases of
gold from foreign countries amounted to 230 million dollars;
in 1948 they had reached 1.5 billion dollars and in 1947
no less than 2.8 billion dollars.

for 109 million dollars, the Netherlands (including depen­
dencies) 85 million, and Sweden 43 million. On the other
hand, gold and dollar holdings of Belgium-Luxembourg (in­
cluding the Belgian Congo) declined by 37 million, largely
because of gold transfers to Switzerland and the repurchase
from the International Monetary Fund of 20.6 million dollars’
worth of Belgian francs.

Gold from the United Kingdom to the amount of 446
million dollars, and from the Union of South Africa to the
amount of 104 million dollars, accounted almost entirely for
the United States purchases during the six months ended
September 1949- On the other hand, Italy bought 114 million
dollars from the United States during that period, while Bel­

Latin American gold and dollar assets rose 180 million dol­

gium, Switzerland, and Latin America also acquired sizable

lars between September 1949 and March 1950, but this rise

amounts. During the six months immediately following de­

merely continued the replenishment of Latin American gold

valuation Western European countries and Latin America

and dollar holdings that had begun early last year. Canada

continued buying gold from the United States; the United

likewise continued to accumulate both gold and dollars, but

Kingdom bought 80 million dollars’ worth, while Thailand and

the Philippine Republic drew heavily on its reserves.

Egypt likewise purchased sizable amounts.

Of the one billion dollar rise in foreign gold and dollar

Foreign countries as a whole (excluding the USSR) in­

assets, in the six months ended March 1950, about 600 million

creased their gold stocks in the six months ended March 1950

was in the form of gold and some 400 million in the form of

by some 600 million dollars to about 9-7 billion. Of this, about

dollar balances. As can be seen from Table II, the United States

270 million was accumulated in 1949— a development con­

made net sales of gold amounting to 331 million dollars to

trasting sharply with the countries’ net loss of 1.2 billion in

foreign countries during the six months ended March 1950,

1948 and 2.4 billion in 1947 (exclusive of their contribu­

while in the immediately preceding six mpnths foreign coun­

tions to the International Monetary Fund).




FEDERAL RESERVE BANK OF NEW YORK
Table II
United States Gold Transactions with Foreign Countries
(Net purchases ( + ) or net sales (— ) ; in millions of dollars)

Area and country

March 1949
to
September
1949

September
1949 to
March 1950

81

abroad but also the shifting of foreigners’ purchases to non­
dollar sources of supply, to some extent because the currency
devaluations have made dollar goods and services relatively
more expensive, but primarily because many countries have
tightened their import and exchange restrictions. Prior to
sterling devaluation, the sterling area, for example, cut its

United Kingdom........................................................................

+446

-

Union of South Africa....................................................

+ 104

+ 24

0

0

The rise in imports reflects the resumption of large-scale
purchases of raw materials by the United States, particularly
from the sterling area and Latin America. By the end of 1949,

Canada..........................................................................
ERP countries (other than United Kingdom):
Belgium (and Belgian Congo)...................................
Ttalj1
,...........................................................................
Netherlands (and Netherlands West Indies)...........
Switzerland.................................................................
Other ERP countries.................................................

purchases from the dollar area by 25 per cent.

33
— 114
0
- 30
+ 1

-

32
0
38
18
4

-1 7 6

-

92

United States; and in the first quarter of 1950 the sterling area

Other Europe..................................................................

-

-

3

also attained a small current-account surplus with the dollar

Latin America:
Argentina....................................................................
Mexico......................................................................
Venezuela...................................................................
Other Latin America..................................................

0
— 3
- 50
- 19

- 50
— 31
0
- 29

-

72

-1 1 0

-

-

0
10

-

10

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

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

Asia:
Thailand.....................................................................
Other Asia...................................................................
T otal....................................................
Egypt............................................................................
Grand total*.......................................

-

80

2

-

most Latin American countries had export surpluses with the

area, even without counting ECA aid. In both cases, the sur­

-

40
3

-

43

o

— 27

+290

-3 3 1

* Excluding net sales of 34 million dollars to the Bank for International Settle­
ments from March 1949 to March 1950.

Gold output outside the United States and the USSR is
currently running at an annual rate of about 800 million
dollars. Apparently a much larger part of the newly mined
gold than in recent years is now being added to official
monetary reserves, as a result of the sharp drop in gold prices
and the consequent heavy decline in the amount of gold dis­
appearing in the free and black markets. In fact, in countries
where sizable amounts of the metal are held in private hoards,
some gold has reportedly been dishoarded as a result of the

pluses were largely the result of sales of raw materials to the
United States at rising prices. While the increase in United
States primary commodity imports appears to have represented
in part additions to inventories, most of it reflected the in­
creased consumption of such commodities resulting from the
rise in business activity in this country. United States imports
of manufactured goods from Western Europe, however, have
not yet expanded in volume sufficiently to yield more dollars
than before devaluation.
The rise in the gold reserves of the United Kingdom is also
attributable in part to the cessation, largely under the impact
of the sterling devaluation, of gold losses to Belgium, Switzer­
land, and Iran. A further, special factor in the improvement
of Britain’s reserve position has been the agreement reached
last year with the South African Union under which essen­
tial imports into the Union were to be paid for in gold.
It is by no means clear, however, how long the over-all
reversal of trend in foreign gold and dollar assets will continue.

drop in prices that began in the latter part of 1949.

Large areas in Western Europe and in the Far East are still

During the first few months after the currency adjustments,
the increase in foreign gold and dollar assets seems to have

running sizable dollar deficits, and even the countries that are
gradually improving their dollar position have not by any
means achieved a dependable equilibrium in their international

reflected largely the nonrecurrent aftereffects of devaluation,

financial relations.

but these factors diminished in importance in the early months
of 1950. The reconstitution of the monetary reserves of many
foreign countries now appears to reflect to a growing extent a
basic improvement in their balances of international payments.
This improvement in turn reflects the current decline in the

The current trend towards the replenishment of foreign
monetary reserves depends to an important degree on the main­
tenance of the present level of United States imports from the
primary producing countries at comparatively high prices

United States’ surplus of exports of goods and services. Dur­

Moreover, despite their recent rise, foreign gold and dollar

ing the first quarter of 1950, this surplus was running at an

holdings are still too small to provide a reasonable margin of

annual rate of only 2.6 billion dollars, as against a 12.7 billion

safety for nondollar countries.

dollar rate in the second quarter of 1947, the postwar peak.

The replenishment of monetary reserves to more adequate

The reduction in the United States’ surplus resulted mainly

levels greatly reinforces public confidence in the national

from a decline in the annual rate of exports of goods and

currencies concerned. Without such confidence, which further­

services by about 8.3 billion dollars; a second factor was the

more is intimately related to the pursuance of sound mone­

increase of 1.7 billion dollars in the annual rate of United
States imports of goods and services.

tary, fiscal, and economic policies in the respective coun­
tries, there can be no relaxation of exchange controls. The

The drop in United States exports of goods and services

strengthening in foreign monetary reserves that has thus far

from the abnormally high level of three years ago reflects

taken place will contribute to the creation of conditions pro­

not only the recovery of agricultural and industrial production

pitious for the reestablishment of multilateral trading. It has




82

MONTHLY REVIEW, JULY 1950

already provided a cushion against possible fluctuations in the
dollar receipts of foreign countries and, if it continues, will
be an important factor in the restoration of general currency
convertibility.

Chart I
Gross National Product, 1947-First Quarter of 1950*
Before and After Change in Inventories
Billions
of dollars

B illions
o f d o lla rs

Now that a high level of production has been attained in
the ERP countries, the building up of foreign monetary re­
serves appears a desirable objective. While there is no room
for complacency, the current progress toward this objective
may fairly be regarded as encouraging.

THE IN V E N T O R Y S IT U A T IO N
Changes in the stocks of goods on hand play a highly im­
portant role in business fluctuations, and this has been particu­
larly true during the past two years. To a considerable extent,
the recent rise in production has been intensified by a switch
from inventory liquidation to inventory accumulation.
As shown in Chart I, the fluctuations in the over-all output
of goods and services since the latter half of 1948 would have
been relatively minor had it not been for the sharp changes
in business inventories. Over-all production, as measured by
the gross national product, declined from a seasonally adjusted

* Quarterly data at seasonally adjusted annual rates.
Source: U. S Department of Commerce.

annual rate of 270 billion dollars in the fourth quarter of

plies of a commodity become tight in an active market and
prices rise, businessmen attempt to protect themselves against

1948 to 255 billion dollars in the third quarter of 1949. Yet,
if we eliminate changes in inventories to obtain the value

longer delivery schedules and further price advances by in­
creasing stocks.

of goods and services purchased by individuals and govern­
ment bodies and of business investment in plant and equip­
ment, the change between the two periods amounted to less

Conversely, when business declines, inventories which not so
long before were barely adequate can quickly become exces­
sive in relation to the reduced volume of production or sales.

than one per cent. On the other hand, while inventories were
being added to in the fourth quarter of 1948 at the rate of 9
billion dollars a year, by the third quarter of 1949 they were
being drawn down at an annual rate of 5 billion dollars. In
the first quarter of 1950, this movement was reversed again
and inventories once more began to be accumulated, at the
rate of nearly 2 billion dollars per year. Thus, approximately
three fourths of the rise in national output between the third

At such times, as was the case in 1949, the cut in inventories
is often sharper than the decline in sales, not only relatively,

quarter of 1949 and the first quarter of this year appears to
have been attributable to the change in inventory policy. Dur­

Needless to say, the actual movements in inventories are
not always closely geared to the volume of sales. A period of

ing most of 1949 we were consuming goods at a more rapid

very high demand may temporarily deplete inventories, while

but also in absolute dollar amounts. While inventories on
hand are being used up or sold, new orders may be cut almost
to the vanishing point, with a cumulative effect upon suppliers'
and manufacturers’ sales and stocks. Declining prices like­
wise encourage the reduction of inventories with a view to
minimizing losses.

rate than we were producing them, whereas now, as in 1948,

a lag in sales may result in an involuntary accumulation of

we are producing more than is being consumed currently.

stocks.

The chart makes evident the importance of inventory devel­

The great importance of business inventory movements in

opments in intensifying the expansion and contraction of busi­

recent years is illustrated by Chart II. These figures (estimated

ness in recent years. In a period of expanding activity, like

monthly by the U. S. Department of Commerce) represent the

the present, many lines of business find it desirable or even

combined book value of manufacturers’, wholesalers’, and

necessary to increase their stocks of goods on hand. The re­
tailer or wholesaler, who normally attempts to maintain a

retailers’ stocks, and are somewhat less inclusive than the
quarterly data used in Chart I. The quarterly figures (com­

certain relationship between his sales and his stocks, tends

piled as part of the estimates of gross national product) also

to expand his inventory when sales start rising. When the

include changes in stocks on hand at farms, mines, and vari­

manufacturer, in turn, responds to an increase in orders by

ous other establishments and are adjusted for profits or losses

increasing production, he increases his inventories of goods

arising from changes in the value of inventories on hand at

in process and his stock of raw materials needed to meet the

the start of the period. Nevertheless, the bulk of inventories

higher production schedules. Frequently, moreover, when sup-

is held by manufacturers, wholesalers, and retailers and it is




FEDERAL RESERVE BANK OF NEW YORK
Chart II

Total Business Inventories, 1948-April 1950
(Adjusted for seasonal variation)
B illio n s
of d o ll a r s

B illio n s
o f d o lla r s

83

up inventories close to year-earlier levels. Many of them have
been increasing their stocks since the first of the year, notable
exceptions being the producers of chemicals, cotton textiles,
and petroleum products. At the end of April sales for the
group as a whole showed a slight year-to-year increase, while
stocks showed a slight decrease.
At wholesale dealers and retail stores, sales of durables have
increased in the past year while inventories have become
smaller. This tendency was particularly evident in the first
four months of this year; automobile sales, in particular,
reached unprecedentedly high levels and by the beginning of
May had drawn dealers’ stocks down to the lowest level in
more than two years. For nondurable goods distributors, the
situation has been quite the reverse; sales have been running
behind a year ago, while stocks have continued to accumulate.
The United States Department of Commerce recently made
a study of the long-term relationship between sales and in­

J

F

M

A

M

J

J

A

5 0

N D

Source: U. S Department of Commerce.

ventories.1 The study shows that, despite the recent rise in
inventories, manufacturers’ stocks are still lower than might
be expected on the basis of sales volume, primarily in the non­
durable goods industries. Wholesalers’ sales and stocks are
pretty much in line, but retailers’ stocks are well below the
level indicated by the long-term relationship. To a consider­

in their inventory policies that the most significant changes

able extent, the divergence of stocks and sales at retail stores

occur.

indicates the stores’ increased efficiency in the use of stocks,
particularly at high sales volume. It also reflects the tendency

Two thirds of the decline in manufacturers’ inventories
during 1949 was in durable goods. In the course of the year,
factory stocks of durable goods dropped 14 per cent, compared
with a reduction of only 5 per cent in nondurable goods in­
ventories. Over the same period, sales by durable goods manu­
facturers dropped 17 per cent, but sales of nondurables were
off only 8 per cent. Despite the rise in sales of durable goods
this spring, there w relatively little recovery in the durable
_as
goods stocks during the first four months of 1950. At the
end of April, practically every industry in the durable goods
group reported higher sales and lower stocks than a year earlier.
This has sharply lowered the ratio of stocks to sales in many
cases. For the durable goods group as a whole, the year-to-year
increase in sales was 7 per cent and the decline in stocks was
15 per cent. These divergent movements reflect in part the
natural lag in adjusting inventories to sales situations; a year
ago, when sales had fallen markedly, stocks were still close to
their postwar peak. The decline in durable goods stocks since

of retailers in recent years to order cautiously because of price
uncertainties.
1 Survey of Current Business, June 1950, pp. 3-4.

D E P A R TM E N T STORE T R A D E
Sales in Second District department stores during June
showed the first year-to-year gain in dollar volume since De­
cember 1948. On an average daily basis, June sales were esti­
mated to be about 2 per cent above those of June 1949. Be­
cause sales increased contraseasonally, this bank’s seasonally
adjusted index of department store sales rose to about 242,
the highest level attained since April 1949, at which time
excellent spring apparel sales had raised the adjusted index to
244 per cent of the 1935-39 average.
R ecent Changes In Forward B uying

a year ago also reflects the relative shortage of steel, nonferrous

The shortened forward buying position which the larger

metals, lumber, and other durable materials at the current

Second District department stores maintained during 1949

high level of operations. This is borne out by the decline of

has not been continued into 1950 with the same degree of

300 million dollars in the value of purchased materials on

severity which marked the inventory curtailment policy of

hand at durable goods plants during the first four months

1949. Although the net dollar volume of sales from January

of 1950, at the same time that goods in process (which reflect

through May ran about 6 per cent under that of a year earlier,

the rate of production) rose 500 million dollars. Because of
the steady demand, finished merchandise stocks in the durable

the District’s department stores that report outstanding orders
to this bank showed a tendency toward expanding inventories.

goods lines remained unchanged during the first four months

Each month the dollar amount of orders from this group of

of 1950.

stores on the books of manufacturers and suppliers showed a

Nondurable goods factories during the same months built




year-to-year increase of ever-widening proportions. By the end

84

MONTHLY REVIEW, JULY 1950
Orders and Sales of Second District Department Stores*
Percentage change from
1949 to 1950

Department and Apparel Store Sales and Stocks, Second Federal Reserve
District, Percentage Change from the Preceding Year

Outstanding orders as a
percentage of sales

Net sales
Locality

Month

Outstanding
orders

Net e

0

January.
February
March. .
April.. . .
May-----

+ 5

+ 8
+16
+18

-

2

-11

132
154

May 1950

1950

121

- 7

1949
136
89
66

- 1

59

70

* For a group of stores whose 1949 sales equaled more than half of the estimated
Second District total. Outstanding orders are end-of-month data, sales are
monthly totals.

of May, the amount of outstanding orders was fully 18 per cent
above that of a year ago, although still almost 30 per cent
behind the level of May 1948, when seasonally adjusted de­
partment store sales were close to an all-time high.
For the first five months of 1950 the retail value of end-ofmonth stocks remained virtually unchanged and receipts of
merchandise were slightly lower compared with the correspond­
ing periods in 1949. These facts, considered in the light of the

Department stores, Second District....

0

New York City...................................
Northern New Jersey.........................
Newark............................................
Westchester County...........................
Fairfield County.................................
Bridgeport.......................................
Lower Hudson River Valley..............
Poughkeepsie...................................
Upper Hudson River Valley..............
Albany.............................................
Schenectady.....................................
Central New York State...................
Mohawk River Valley....................

- 1
+ 3
+ 3

Syracuse...........................................
Northern New York State.................
Southern New York State.................
Binghamton.....................................
Elmira..............................................
Western New York State..................
Buffalo.............................................
Niagara Falls...................................
Rochester.........................................

—

Stocks on
Jan.through
hand
May 1950 May 31, 1950

Apparel stores (chiefly New York City).

-

+
+
+
+
+
+
+
+
+
-

1
6

7

2
2

3
4
3

1
6

7

1
1

5

6

7

1

- 4
- 1
+ 4

-

4

+ 1

—
—
-

5

1

—
—

5
5
7
9

—
—
+
-

3
5

4

6
1
2

+
+
+
+
—
—
—
—
+
+
+
+
+
+
+
+
+
+

-

6

+10

—
-

2

3
3

1
1

8
2
0
0
— 2

0

6
2

3
5
3
5
4

2
2

3
3
5
3
3

8

3

1

4
5
5
3

1
6
9

year-to-year increases in outstanding orders, suggest that the
bulk of the unfilled orders are for the durable or "big ticket”
lines, for which demand is strong and deliveries are slower
than in other merchandise lines. However, the belief held by

are calculated to bolster fall sales to a point well beyond the
sales volume of the disappointing 1949 fall season.

many retailers that sales of the ready-to-wear lines will be as
good next fall as they were poor last spring is likely to affect

Indexes of Business

the composition of future orders. This optimism is reflected
in the heavy influx of out-of-town buyers into New York City
in recent weeks. The dollar amount of confirmed orders in
the apparel lines for early fall delivery is expected to surpass

1950

1949
Index
Industrial production*, 1935-39 = 100........

May

March

April

May

174

187

190

193p

253

284p

(Board of Governors, Federal Reserve
System)

the 1949 rate by a substantial margin.
As a result of the lower sales volume and the increase in
outstanding orders from last years levels, outstanding orders
expressed as a percentage of sales, in each month thus far in
1950, have exceeded markedly the level of the comparable
periods of last year. Store executives in this District apparently
feel that in the light of the presently active condition of the
general economy, a moderate inventory expansion is a worth­

280

284

Ton-miles of railway freight*, 1935-39 — 100

179

177

188p

Sales of all retail stores*, 1935-39 = 100....
(Department of Commerce)
Factory employment
United States, 1939 = 100........................

334

345

344

349p

Electric power output*, 1935-39 = 100.......
(Federal Reserve Bank of New York)
(Federal Reserve Bank of New York)

141

142

144p

115p

113p

113p

313

333

337p

345e

251 p

275p

266p

269p

Personal income*, 1935-39 = 100.................

306r

325

316p

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

while risk. A complete assortment of all lines coupled with
attractive merchandising and well-planned promotional efforts

138
llOp

200

205

205p

169

167

167

169

107
89

103

111

112

88

92

93

(Bureau of Labor Statistics)

New York State, 1935-39 = 100...............
(NYS Div. of Placement and Unemp. Ins.)

Factory payrolls
United States, 1939 = 100........................
(Bureau of Labor Statistics)

New York State, 1935-39 = 100...............
(NYS Div. of Placement and Unemp. Ins.)
(Department of Commerce)

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

(Federal Reserve Bank of New York)

Consumers’ prices, 1935-39 = 100................

Item

(Bureau of Labor Statistics)

1950

1949

Velocity of demand deposits*, 1935-39 = 100
(Federal Reserve Bank of New York)

May

March

April

May

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

231r
236r

208
217

225
235

221

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

229r
226r

237
231

237
230

231
228

r

Revised.




New York City..........................................
Outside New York Citv.......................

226
* Adjusted for seasonal variation.
p Preliminary.
r Revised
e Estimated by the Board of Governors of the Federal Reserve System.
J 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.

N A T IO N A L S U M M A R Y OF BUSINESS CO NDITIONS
(Summarized by the Board of Governors of the Federal Reserve System, June 28, 1950)

Industrial output rose further in May and June. Production
of passenger cars and residential construction activity far
exceeded earlier record levels. Retail sales were maintained at
advanced levels with increases in the dollar volume in some

Following a small decline in textile production in the early
part of the year, output increased slightly in May owing in

cases reflecting higher prices. Consumer incomes were some­

part to continued expansion in demands for industrial uses.

what below peak levels reached earlier when heavy veterans’

Output of rubber and petroleum products reached the highest

industries was augmented by large Government purchases for
stockpiling purposes.

insurance payments were being made. On June 26, following

levels of the year. Production of most paper and chemical

news of war in Korea, prices of common stocks dropped sharply

products was maintained at capacity levels.

and commodities rose.

Bituminous coal output declined further in May but stabil­
ized in June, while crude oil production increased steadily in

I n d u s t r ia l P r o d u c t i o n

The Board’s production index rose 3 points in May to 193
per cent of the 1935-1939 average reflecting chiefly further

May and June. Iron ore output rose considerably following the
latest opening of the Great Lakes shipping season in many
years.

increases in output of durable goods. Preliminary indications

Em p l o y m e n t

are that the index for June will equal or slightly exceed the

Nonagricultural employment, seasonally adjusted, expanded
further by 300,000 in May, reflecting substantial increases in

former postwar record level of 195.
Steel production was at a new high in May and has been

durable goods manufacturing and in construction; the total—

scheduled at about the same rate in June— 101 per cent of this

43.5 million— was the highest figure in 15 months. Unemploy­

year’s larger capacity. Activity in most steel consuming indus­
tries continued to advance in May. Automobile assemblies

ment declined further to 3.1 million persons in early May

increased considerably, following settlement of a 100-day indus­
trial dispute at the plants of a major producer. In mid-June

which was about one-quarter million less than in the same
period a year ago.
Co n s t r u c t io n

assemblies were close to 200,000 units per week and nearly

Value of construction contracts awarded in May continued

45 per cent greater than in April. Machinery production rose
in May for the sixth successive month with increases indicated

at the very high April total. The number of new houses and

for both consumer and producer equipment. For certain types

apartment units started rose considerably further to 140,000 in
May, as compared with 126,000 in April and 95,000 in May

of machinery, howT
ever, there were indications of some seasonal
slackening in activity. In response to strong demands from

1949- Most other types of construction activity also expanded.

the construction industry, output of cement, clay, glass, and

D is t r ib u t io n

lumber products was close to current capacity levels. Demand

Department store sales in May and the first half of June

for nonferrous metals from the construction and machinery

have been at advanced levels reflecting some recovery in apparel

IN D U STR IA L PRODUCTION

CONSTRUCTION CONTRACTS AWARDED

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




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

Monthly figures;

sales. Sales of housefurnishings have increased less than sea­
sonally from the exceptionally high level reached in the first

Real estate and consumer loans showed their most substan­

quarter. Stocks of these goods have apparently risen further,
although April figures indicated that they were still not as

tial increases of the year at banks in leading cities during May
and the first half of June. Strong demands for business credit

large relative to sales as during the first half of last year.

were reflected in increased borrowings during early June. Bank

Sales of most other retail outlets showed little change in
May except for a sharp further increase in sales by building
material dealers, reflecting in part a marked rise in prices.
Automotive sales showed a somewhat more than seasonal ex­
pansion from the record levels prevailing earlier this year.
C o m m o d i t y Prices

B a n k C r e d it

holdings of U. S. Government securities expanded during May
and the first half of June. Holdings of corporate and municipal
securities also increased in June.
A reduction in Treasury balances at the Reserve Banks and
an inflow of currency from circulation supplied reserve funds
during the first half of June. Member banks reduced borrow­

The general level of wholesale prices was higher in the latter

ings at the Reserve Banks and increased reserve balances. Sub­

part of June than in mid-May despite some decline in the
second week. Increases in prices of farm products and foods

sequently, banks lost reserve funds as Treasury deposits at the

largely reflected advances in livestock, meats, and imported

collections. The Federal Reserve continued to sell Treasury

foods. Prices of some other foodstuffs declined moderately,

bonds in response to market demand, but purchased a larger

influenced by seasonal increases in supplies.
Prices of industrial materials generally advanced further by

amount of short-term issues.

Reserve Banks were built up through quarterly income tax

S e c u r it y M a r k e t s

the fourth week of June and prices of some finished industrial
products were raised, while television sets were reduced sub­

Common stock prices declined sharply in the latter part of

stantially.
The consumers’ price index rose 0.8 per cent in May and

June, after a marked further rise in the first two weeks, and

some further increase is indicated in June owing chiefly to the

term Treasury bonds declined moderately in June and a lesser

higher level of retail meat prices.

decline occurred in prices of corporate bonds.

W HOLESALE COMMODITY P R IC ES

on June 26 closed at the level of early April. Prices of long­

LOANS AND INVESTMENTS AT MEMBER BANKS IN LEADING C ITIES
OTHER THAN U . S . GOVERNMENT SECURITIES
BILLIONS CF DOLLARS

BILLIONS OF DOLLARS

6

Bureau of Labor Statistics’ indexes. Weekly figures; latest shown are for
veek ended June 20.




Commercial loans include commercial, industrial, and agricultural loans.
Wednesday figures; latest shown are for June 14.