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MONTHLY REVIEW ofCreditandBusinessConditions S e c o n d V o l. 25 F e d e r a l JUNE M O N E Y R e s e r v e 1, 19 43 M A R K E T The Second War Loan drive was brought to a close on May 1, and when the final tabulations were completed it appeared that a grand total of $18,500,000,000 of Government securities D is tr ic t IN No, 6 M A Y Nevertheless, War Loan account deposits at the end of May were still in the neighborhood of $11,000,000,000. On May 10 it was announced that the Treasury Department Funds continued to flow had decided to change the method of making calls from War into the Treasury from the drive through the first ten days of Loan depositaries, in order to lessen the work and inconveni May— it was on the 10th that banks made settlements for the ence caused by frequent, small-percentage calls and remittances were sold during the campaign.* $2,138,000,000 of 2 per cent bonds allotted to them— and the in banks where the working staffs are small. Treasury’s working balance was built up to a level in excess were divided into two groups, based upon the size of their Depositaries of $14,000,000,000. The corresponding maximum at the end of War Loan balances. For "Group A ” depositaries, those having the first War Loan drive was slightly short of $10,000,000,000. War Loan balances of $300,000 or less at the close of business The funds placed at the disposal of the Government as a May 11, a special schedule was established running through result of the campaign were of such magnitude as to cover the end of August, involving seven repayments of approxi projected cash requirements of the Treasury for a considerably mately equal size spaced at two and three week intervals. Calls longer period than had been anticipated, and it now appears that the next major War Loan drive will not be scheduled on depositaries having War Loan balances of more than before September. B”, will be issued in the same manner that calls have been made heretofore. While the Treasury will have to provide for a number of issues maturing or called for payment in June, $300,000 at the close of business May 11, classed in "Group July, and August, as well as to meet the heavy rate of expendi Member bank reserve requirements, which declined more tures involved in the prosecution of the war, these require than $1,300,000,000 over the period of the drive, as a result of heavy nonbank purchases of Government securities and the ments can be met through the combination of current tax revenues (which may, under new personal income tax legisla accompanying conversion of customers’ deposits into War tion, be both enlarged and more evenly distributed), continu ing receipts from sales of Savings bonds, Tax notes, and Treas ury bills, drafts upon the large War Loan account balances, and a restricted amount of interim market financing. Loan account deposits, reversed their direction after the close Treasury deposits with the Federal Reserve Banks, which amounted to $722,000,000 on May 5 were gradually drawn down during the remainder of May, reaching $345,000,000 on May 26. Inasmuch as only limited calls were made for repayment of funds accumulated with commercial banks in War Loan deposit accounts during the first half of the month, balances in these accounts continued to rise through the 15 th, reflecting book credit payments for Savings bonds and Tax notes sold after the termination of the drive, and reached a maximum of $12,790,000,000 on that date. In comparison with the $483,000,000 total of the first half of May, calls dur ing the second half of the month totaled $2,033,000,000. * The results of the Second War Loan drive are presented in detail in a separate section of this R ev iew , pp. 42-3. of the campaign, and between May 5 and May 26 increased $560,000,000. The rising tendency of reserve require ments may be expected to continue, as pointed out in last month’s issue of this Review, up to the time of the next War Loan drive, as War Loan account deposits, which are exempted from legal reserve requirements, are drawn down and, through Government expenditures, converted into deposits of business firms and individuals against which reserves must be carried, The effect of increasing reserve requirements, together with losses of reserve funds through a further expansion in currency circulation, in reducing member bank excess reserves, was only partly offset during May by net disbursements from Treasury deposits with the Federal Reserve Banks. Nevertheless, mem ber banks continued in general to enlarge their holdings of Government securities, by purchases from dealers or from other investors, by bidding for the weekly issues of Treasury bills, and, as their individual reserve positions permitted, by reacquiring bills previously sold to the Reserve Bank under MONTHLY REVIEW, JUNE 1, 1943 42 repurchase option. It was evident that the tendency for banks to keep their available reserve funds actively employed, which bills. Reversing the tendency apparent during the period of the Second War Loan drive, there was an inward movement had been apparent for a number of months in the larger metro of business funds from other sections of the country to New politan institutions, was becoming more widespread. York City during May, and inasmuch as this flow more than The active demand for Government securities during May counterbalanced losses of reserves through Treasury trans was apparent in the firm price quotations that prevailed and actions and net currency payments, as well as a rise in reserve in the premiums commanded by the new issues sold during the requirements, New York banks were enabled to show a net drive, in the reductions that occurred in dealers’ portfolios increase in their Treasury bill holdings, as well as in other (reflected in a drop from $1,031,000,000 on April 28 to types of Government securities, during the month. $560,000,000 on May 26 in New York banks’ loans to Purchases of the weekly Treasury bill offerings by the brokers and dealers for the purpose of purchasing or carrying smaller purchasers were simplified, in the interest of encourag Government securities), and in changes in Federal Reserve Banks’ holdings of Government securities. In comparison ing the wider distributionof these securities, by a change, announced May 6, in the procedure for submitting and hand with their peak of $6,705,000,000 on April 14, and with ling bids. $6,347,000,000 on April 28, Federal Reserve holdings of for bills in amounts up to $100,000 from any one bidder at a Government securities dropped as low as $6,038,000,000 on fixed price of 99.905 (equivalent to a yield of about Ys per May 19. Despite a rise to $6,181,000,000 on May 26, as banks requiring additional reserve funds sold Treasury bills cent on an annual basis), were allotted in full, with the effect to Federal Reserve Banks under option accounts, a net reduc ing definite amounts of bills up to the $100,000 limit. Bills not tion of $166,000,000 was shown in total holdings for the sold under this provision are being allotted as formerly, on the four weeks ended May 26. basis of competitive bids. Of the $900,000,000 of bills offered Over this period Government Beginning with the issue dated May 12, tenders of creating a means whereby bidders could be certain of receiv bonds held by the Reserve Banks, which had run as high May 12,19, and 26, $81,000,000, $93,000,000, and $82,000,000, as $2,793,000,000 on January 6 of this year, were reduced respectively, were sold under the new provision for acceptance $274,000,000 further to $1,769,000,000. in full of fixed-price bids. There were net in creases of $41,000,000 in bills and $102,000,000 in certificates At the same time, on account of the increasing congestion of indebtedness, while note holdings decreased $36,000,000. Reflecting the net contraction in Federal Reserve Banks’ in communication facilities, a change was made in the maturity dating of Treasury bill issues so as to provide, beginning with holdings of Government securities, as well as the other factors the second weekly issue of August, three days instead of two tending to cut into the surplus funds of banks, excess reserves between the dates of the opening of Treasury bill bids and of all member banks declined from $2,220,000,000 on April the dates when payments by successful bidders are due. 28 to $1,500,000,000 on May 26. As the central reserve that time, payments will be due on Thursdays instead of on city banks of New York and Chicago continued to keep their funds actively employed and held only limited amounts of Wednesdays, while bids will continue to be opened on Mon days. Over the period of transition Treasury bill issues will excess reserves throughout the month, the contraction in the run for 92 days instead of 91, being issued and paid for on Wednesdays and maturing, thirteen weeks later, on Thursdays. excess reserves of all member banks was predominantly a reflection of reduced excess reserves at reserve city and "country” banks. New York City member banks continued to follow the practice of adjusting their reserve positions mainly through adjustments in their holdings of Treasury May 29, 1942 April 30,1943 May 28, 1943 Stock Exchange call loans...................... Stock Exchange 90 day loans................ Prime commercial paper-4 to months Bills— 90 day unindorsed....................... Average yield on tax exempt Treasury bonds (not callable within years). Average yield on taxable Treasury bonds (not callable within years).......... Average rate on latest Treasury bill sale 91 day issue.................................... Reserve Bank discount rates: On advances to member banks se cured by Government obligations callable or maturing in one year or 6 12 12 On other advances to member banks secured by Government obliga tions, and on rediscounts................ Reserve Bank buying rate for 90 day indorsed bills......................................... * Nominal t 92 days 1 *1H X A 7 The shift to Thursday payment dates will thus occur in August. RESULTS OF T H E SECOND W A R L O A N D R IV E On May 10, the Treasury announced that the final total for the Second War Loan drive reached $18,543,000,000. Money Rates in New York 1 At This compares with $12,947,000,000 raised during the first drive, in December, and with a total of approximately $17,000,000,000 1 *1H H-H 7 A *1H A -H B A 7 1.94 1.98 1.87 Of even more importance than the total amount raised 2.33 2.31 2.29 during the drive was the distribution between banking and 0.365 0.372 0.373f raised during the first four Liberty Loan campaigns of the first World War. nonbanking investors. Indications are that this drive was more successful than the previous one in increasing the net X X absorption of Government securities by nonbanking investors. As indicated in the table below, allotments to this group of 1 1 X 1 X $12,550,000,000 in the April drive were nearly double the X $6,822,000,000 realized in December. Allowance should be made, however, in both drives for a shift of previously out- 43 FEDERAL RESERVE BANK OF NEW Y ORK indicates that, in addition to $1,473,000,000 of Series E bonds, purchases by individuals, partnerships, and personal trust Distribution of Securities Sold in the First and Second War Loan Drives by Type of Investor _______________ (In millions of dollars)_______________________ __ United States April, 1943 Nonbanking investors* Individuals, partnerships, and per sonal trust accounts........................ Insurance companies........................... Savings banks....................................... Eleemosynary institutions................. State and local governments............. Other corporations and associations. Decem ber, 1942 Second Federal Reserve District April, 1943 Decem ber, 1942 on the two bond issues, while other corporations and associa 2,654 737 1,426 730 76 71 1,816 387 1,038 405 43 29 1,095 12,550 6,822 4,856 2,997 Banking sources........................................ 5,058 5,087 1,834 1,912 Other sources Dealers and brokers*.......................... U. S. Government agencies and trust 544 769 439 817 Total from all sources ........................ accounts consisted largely of $425,000,000 in Series F and G bonds and about $1,000,000,000 in the two new bond issues. Insurance companies and savings banks concentrated largely 3,290 2,408 1,195 117 503 5,038 1,593 1,699 620 57 200 tions subscribed most heavily for the certificates and Tax notes, although also purchasing nearly $1,300,000,000 of the two bond issues. Commercial banks were limited to allotments of $2,138,000,000 of the certificates and $2,110,000,000 of the 2 per cent bond issue, in addition to purchases of Treasury bill offerings. Bank subscriptions to each of the two new issues totaled nearly $10,000,000,000. 391 270 7 1 Of the $12,550,000,000 subscribed by nonbanking investors 18,543 12,947 7,136 5,727 throughout the country, $4,856,000,000 was credited by the Treasury to the Second Federal Reserve District. *For the April drive allotments to dealers earmarked for distribution to non banking investors have been credited to the appropriate classes of nonbanking investors. For the December drive allotments to dealers of the 2 H per cent bonds (which were not eligible for purchase by commercial banks) ha.ve been credited, to other corporations and associations, but no reclassification is available for tne other issues. standing securities from other investors to commercial banks before and during each drive. During November and Decem ber, commercial banks acquired in the market more than $1,500,000,000 of Government securities previously held by other investors. Even though the redistribution of already outstanding securities, from other investors to banks, was probably larger in March-April than in November-December, it is clear that the net absorption of Government securities by nonbanking investors was much greater in this campaign than during that of December. It should not be assumed, however, that the full increase in holdings of Government securities by nonbanking investors represents absorption of funds which might be used other wise to increase spending and contribute to inflation. A large portion of the amounts obtained in the drive represented accumulated funds which were not likely to be spent for consumers* goods and services. This is essentially the case with funds held by insurance companies, savings banks, and other corporations and associations. Although investment of these funds in Government securities is desirable, from the viewpoint of preventing inflation it is most important that the drives absorb the largest possible amounts from current incomes and temporarily idle funds which might be with drawn at any time to be spent for goods and services. Perhaps the best measure of the success of the drives from this view point is the amount purchased directly by individuals. In the Second War Loan drive a total of $3,290,000,000 was subscribed by individuals, partnerships, and personal trust accounts, compared with $1,593,000,000 in the December drive. Particularly encouraging was the fact that Series E bond sales in the most recent drive amounted to $1,473,000,000, slightly more than double the $726,000,000 sold in December. In addition, both drives brought about increased payroll deduc tions for the purchase of Savings bonds out of current income. Distribution of sales in the April drive by type of issue Sales to institutional investors and other corporations accounted for $4,119,000,000 of the nonbanking total raised in this Dis trict, with insurance companies and savings banks contributing a large portion. Individuals, partnerships, and personal trust accounts in this District were credited with subscriptions of $737,000,000, representing about 22 per cent of the nation wide total for this group of investors. In addition to the amount raised from nonbanking investors, brokers and dealers in this District were allotted $439,000,000 of securities not earmarked for distribution to nonbanking investors. Com mercial banks in this area received direct allotments of $665,000,000 of the % per cent certificates and $580,000,000 of the 2 per cent bonds, and in addition made net purchases of Treasury bills. On May 27, the Treasury issued the following statement in reference to plans for future war financing: As a result of the highly successful Second War Loan Drive which brought 181/2 billion dollars into the Treasury in three weeks, Secretary of the Treasury Henry Morgenthau, Jr., an nounced today that the method of selling bonds through volunteer salesmen would be "streamlined and amplified.” As the first step, according to Mr. Morgenthau, the existing Victory Fund Committees and War Savings Staffs in the various states will be combined into a single organization. This consolidated organization will function under the direc tion of state chairmen who will report directly to the Secretary of the Treasury and will be responsible for the continuing sale of War Savings Bonds through the voluntary payroll allotment and other regular purchase plans. These state organizations will also be in charge of War Loan drives and will concentrate on the sale of increasing amounts of bonds to individuals and to corporations. In order to facilitate the sale of issues of Government se curities to commercial banks, mutual savings banks, insurance companies and government bond dealers, Mr. Morgenthau has authorized the Federal Reserve Banks as fiscal agents of the Treasury to handle sales to these financial institutions separately. "W e arrived at this plan,” the Secretary said, "after consulta tion with the Board of Governors of the Federal Reserve System, and with the presidents of the 12 Federal Reserve Banks. I believe that this new arrangement makes the best possible use of what we learned in the first two War Loan Drives. "One of the chief considerations in setting up this improved plan was to make it possible for every one to concentrate on the sale of bonds to individuals. We are already making great progress, having sold twice as many bonds to individuals in the Second Drive as in the first, and having exceeded the quota we set for individuals in the Second War Loan Drive by nearly a billion dollars.0 MONTHLY REVIEW, JUNE 1, 1943 44 ments against War Loan account deposits and the shift of N E W SE C U R IT Y ISSUES Several offerings of corporate and municipal new security issues reached the market in May following the close of the Second War Loan drive; but the total amounted to only about $86,000,000, somewhat lower than in each of the preceding two months. Corporate issues comprised the bulk of the financing with a total of about $70,000,000, $20,000,000 was classified as new capital. of which Municipal awards declined still further from the low level of the previous month customers’ deposits to War Loan deposits associated with the drive. In New York City another important factor contribu ting to the increase in loans and investments was the expan sion in loans to brokers and dealers for the purpose of purchasing or carrying Government securities. The accompanying charts illustrate the close correlation between changes in total loans and investments of banks, currently dominated by increases in their Government security holdings, and the movement of bank deposits. to about $16,000,000. During the First and Second War Loan drives there were especially large net increases in deposits as a result of bank purchases of new M E M B E R B A N K CR ED IT issues, while at other times deposits have tended to rise Between the middle of April and mid-May the expansion through purchases of Government securities by banks from in member bank earning assets exceeded in magnitude even other investors or through bank purchases of new offerings the increase which occurred last December. outside of the drives. In New York The drives, also, had the effect in each City total loans and investments of the weekly reporting mem case of shifting funds from deposits of individuals and busi ber banks rose $1,990,000,000 from April 14 to May 19 com ness concerns (adjusted demand deposits) to Government pared with a net rise of $1,798,000,000 during the five weeks deposits. After the drives, as the Treasury withdraws its funds ended December 30, 1942; in 100 cities outside New York from its War Loan account deposits and spends the proceeds, member banks reported an increase of $3,128,000,000 between adjusted demand deposits are built up again. mid-April and mid-May as against a rise of $1,732,000,000 in ferences between the geographical distributions of Govern the December period. Through dif ment receipts and expenditures, deposits may be rebuilt to Bank purchases of the Second War Loan issues of % per different degrees in various localities. For example, in New cent certificates of indebtedness and 2 per cent Treasury bonds York City, as the Treasury withdrew funds from its War Loan made up the bulk of the increase. However, as the allotment accounts after the December drive, a correspondingly large bases on the bank subscriptions to these new issues were low amount was not redeposited with banks in this City and the and as excess reserves were built up substantially during April, combined total of adjusted demand deposits and War Loan banks made large purchases of Government obligations already account deposits declined somewhat. outstanding, particularly Treasury bonds and bills, and added however, Government payments exceeded withdrawals and to their holdings of bills through purchases of the new weekly the combined total of adjusted demand and War Loan deposits offerings. The rising tendency of excess reserves during April continued to increase with only a temporary interruption over resulted primarily from legislation suspending reserve require- the March income tax payment period. Outside New York, BILLIONS OFDOLLARS 1942 1943 Loans and Investments, Demand Deposits Adjusted, and U. S. Government Deposits of Weekly Reporting Member Banks in New York City Government Deposits of Weekly Reporting Member Banks in 100 Cities Outside New York City 45 FEDERAL RESERVE BANK OF NEW YORK SE C U R IT Y M A R K E T S Employment within the various civil nonagricultural indus Continued demand, particularly from commercial banks, pushed prices of Government securities in May to new high levels for the year. The upward movement in the average price of the three longest term issues of "tax exempt” bonds, which has been in progress with little interruption since the latter part of March, reached a level near the end of May approximately V2 point below the record high in November, 1941. The average yield on these issues declined from 1.98 tries, as estimated by the Bureau of Labor Statistics, showed diverse movements between March and April. Employment in transportation rose seasonally, and trade, stimulated by the Easter buying activity, added nearly 100,000 workers. At the same time a sharp contraseasonal decrease occurred in con struction employment, and mining industries also employed fewer workers during the month. Manufacturing and civil government employment was little changed from March. Yields New York State factory employment declined slightly dur on long term and intermediate term taxable issues also declined ing April although payrolls and average weekly earnings during the month, although more moderately, reflecting continued to rise. demand from commercial banks following announcement of and by reduction in the volume of army contracts, while the low allotment basis on the new 2 per cent bonds. employment in the apparel industry declined because of sea per cent on April 30 to 1.87 per cent a month later. sonal influences. Yields on high grade corporate bonds, rated Aaa by Moody’s Investors Service, showed little change during the month, but the average of Baa bond yields continued the decline which Railroad bonds accounted for much of the per sistent gain. Municipal bonds were also strong as Standard and Poor’s index of prices of high grade municipal bonds reached the highest level since December, 1941. continued to rise because of overtime, wage rate increases, and the use of incentive payments in many war industries. The War Manpower Commission announced a new stabili zation plan for New York City effective May 27. Designed to promote the orderly transfer of labor within the area, it limits job changing out of essential industries to cases where workers have been employed less than full time, are competent to According to Standard and Poor’s combined index of 90 stocks, May saw a continuation of the persistent increases in stock prices which started in April, 1942. Thus additional hiring by aircraft plants, shipyards, and other war plants was more than offset. Payrolls began last December and reached a new low of 3.89 per cent on May 26. Food processors were affected by shortages handle more highly skilled jobs, or are receiving less than standard wages as defined by the War Labor Board. On May 6 this index reached 95.1, the highest level since May, 1940. A 2 Industrial disputes broke out in several industries during May. Nearly 480,000 bituminous and anthracite coal miners point drop on the next day was followed by an irregular recovery which brought the index to a new high toward the had walked out by May 1, but returned to work May 3 and 4 pending further negotiations. A strike affecting 24,000 close of the month. workers in the Chrysler Corporation’s Detroit plants ended The volume of transactions on the New York Stock Exchange increased quite sharply during the first half of the month. On May 4, more than 2,800,000 shares exchanged hands, the largest volume since December 29, 1941. Daily average transactions for the month were well over 1,000,000 shares. There were six days when the number of shares traded exceeded 2,000,000. E M P L O Y M E N T A N D P A YR O LLS May 24 after a four day stoppage. Operations of large Akron rubber factories were temporarily interrupted as 50,000 struck in protest against a wage award of the War Labor Board, but following an "ultimatum” from President Roosevelt workers returned on May 27. M IL L IO N S OF 60 50 An estimated 200,000 workers were added to total employ ment in the United States during April as seasonal demand for 40 agricultural labor drew additional men from the ranks of the unemployed and from the groups of younger workers just entering the labor force. 30 The narrowing gap between the total civilian labor force and total employment indicates that 20 replacements for men going into the armed forces must come increasingly from sources outside the normal labor force, especially from the large reserve of women. The proportion 10 of women employed increased from 20 per cent of the total number of workers in April, 1941 to 30 per cent in April, 1943 but may go much higher if special problems of child care and shopping can be solved. 0 Estimates of the Total Labor Force in the United States, Classified as to Nonagricultural and Agricultural Employment, and Unemployment (Department of Commerce data) 46 MONTHLY REVIEW, JUNE 1, 1943 B U IL D IN G The spectacular rise in construction activity during 1941 The reduction in total awards noted earlier resulted from a and 1942 has been followed, in recent months, by an equally sharp falling off of public construction, since private build pronounced decline. After attaining the highest level recorded, ing had already declined to a low level. the volume of construction contracts awarded has been falling projects made up only about 10 per cent of all contracts Awards for private off since last autumn, as the war expansion program neared awarded in the 37 States in the first four months of the completion and the War Production Board curtailed the current year, compared with about 60 per cent in 1940. amount of materials allotted to new building. The volume of increased proportion of public ownership of new construction construction contract awards in 37 States in the first four has been due principally to the financing of industrial expan The months of this year was 25 per cent below that of the same sion by the Defense Plant Corporation and the War and period last year according to the F. W . Dodge Corporation Navy Departments and the erection of military cantonments, reports; the volume of industrial contract awards, the chief airports, etc. In New York and Northern New Jersey awards During 1942 for private construction projects decreased from two thirds of industrial plant facilities were greatly expanded to accom the total for this area in 1940 to slightly over 15 per cent in the early months of this year. factor in the rise, showed a 37 per cent drop. modate the war needs, and many new airports, army camps, The War Depart Residential building was curtailed in October, 1941 by an ment has announced that, having completed 90 per cent of order restricting the use of strategic materials in construction, and other military facilities were created. its $10,000,000,000 building program, it now expects con and has been contracting since then. struction for the armed forces to taper off. months of 1943 awards for private residential building in the Since October the During the first four War Production Board has been curtailing further construc 37 States amounted to less than one third of the volume tion and up to May 21 had halted work on projects evaluated awarded in the same period of 1942, while awards for public at $1,350,000,000. On May 12, the War Production Board, projects in the residential classification, including barracks at stating that industrial facilities were now sufficiently expanded, military encampments and housing for workers in war indus ordered review of over $5,000,000,000 worth of construction tries, were only slightly below the year earlier level. contracts and forbade new projects unless it could be proved conclusively that existing facilities were not sufficient. smaller amounts of building materials being allotted to con In the Second Federal Reserve District, expansion in construc tion in 1942 never was so marked as in other sections of the country, and the volume of construction contract awards fell in the first four months of this year to a level lower than that for any comparable period since 1935. This District possessed in dustrial and residential facilities adequate to accommodate a With struction and nonessential building virtually stopped, residen tial building activity is being increasingly concentrated upon the conversion and repair of already existing structures. In his request for an additional $400,000,000 appropriation for war housing on May 13, the President stated that three fifths of the housing needs of war workers were being met by con sizable increase in production, and important sections of the version, repair, and the more effective use of existing struc District have not received war contracts in large enough volume to require expansion proportionate to that in other parts of the country with less extensive facilities and larger war contracts. MILLIONS MILLIONS OFDOLLARS OFDOLLARS tures; one fifth of the remainder was being met by privately Average Daily Value of Construction, Contract Awards in 37 States and in Second Federal Reserve District (6 month moving averages of F .W . Dodge Corporation data* adjusted for seasonal variation) Average Daily Value of Construction Contract Awards for Public and Private Ownership in 37 States (6 month moving averages of F. W . Dodge Corporation data, adjusted for seasonal variation) financed construction and the rest by the Governments war housing program. MILLIONS OFDOLLARS FEDERAL RESERVE BANK OF NEW YORK 47 even bigger month in merchant shipbuilding than April, when COST OF L IV IN G O V E R T H E W A R PERIO D For a year and a half after the outbreak of the war, the cost of living in this country showed very little change. Price a record total of 157 vessels was delivered. For the month of April, the seasonally adjusted index of movements were diverse and generally of small amplitude. According to published indexes, a slight decline in the cost production and trade computed at this bank showed a further decline of two points to 124 per cent of estimated long term of housefurnishings offset small increases in food and fuel trend. As in the previous month, the index was influenced by prices. Early in 1941, however, the character of price move ments changed to a steady and general rise which communi slackening in the volume of retail trade. Department stores and variety chains reported increases in sales over March, but cated itself to nearly all types of consumer goods and has per the advances were much smaller than those that have occurred sisted until the present date. Between January, 1941 and May, 1942 the cost of living index of the Bureau of Labor in most other years when Easter has fallen late in April. Mail order house sales rose by about the usual seasonal amount, Statistics rose 15 per cent, an average increase of nearly 1 while sales by grocery chain stores dropped off under the impact of further rationing controls. per cent a month, resulting primarily from the rapid advance May, 1942, when most prices were placed under general There was a two point recession in the production index during April, attributable to further rapid contraction in both ceilings, the over-all increase has been at an average monthly residential and nonresidential building, as the war construc rate of 0.6 per cent. tion program neared completion. in the prices of food, clothing, and housefurnishings. Since This is a somewhat smaller monthly change than prevailed in the earlier period, but in March, 1943, the index still showed no tendency to level off. Retail food prices have been the major factor in this con tinued rise. 1941. They have advanced steadily since early in Last month the problem of further increases in the In many lines of industry — steel, cotton goods, and petroleum producing— there was little change in rates of activity between March and April, while mining of anthracite and bituminous coal was reduced by work stoppages, and meatpacking and flour production declined. On the other hand, output of planes, ships, and cost of living and especially in food prices occupied the atten other war material continued to mount in April. tion of several Government agencies. The Bureau of Labor to the record delivery of 1,606,600 tons of merchant shipping, Statistics further revised its index of living costs to reflect the changed consumer buying patterns resulting from ration new records were also set for the delivery of naval aircraft and ing and the disappearance or substitution of certain commodi a new high of somewhat less than 7,000 planes, exceeding the ties. Several additional foods were included in the index, and adjustments made in the weighting to provide a more accurate yardstick for the application of price and wage con trols. Meanwhile, the Office of Price Administration, in order to facilitate the enforcement of price maximums, converted In addition the completion of combat vessels. Airplane production was at March total of 6,200. However, Donald Nelson, Chairman of the W.P.B., has warned that we are nearing top capacity, and the rapid rate of increase made in munitions production during the past year cannot be sustained for many months longer. its system of markups to uniform dollar-and-cents ceilings on well known food brands, applicable to all stores of a given class in each community. These community ceilings, known alike to buyers and sellers, can be checked by consumer price 1942 1943 April Feb. March April 124p Indexes of Production and Trade* 100 A plan to roll back prices ( “ estimated long term trend) Index of Production and Trade................. 114 128 126p of a few important foods such as meats, butter, and coffee has been announced for June 1. The O.P.A. would accomplish Production.................................................. 121 136 136p 134p Producers’ goods— to ta l.................... Producers’ durable goods.............. Producers’ nondurable goods........ 146 163 126 174 207 136 173p 205p 136p 171p 203p 135p Consumers’ goods— tota l................... Consumers’ durable goods............. Consumers’ nondurable goods___ 89 47 103 41 104 p 39p 104p 88 p 36p 103p Durable goods— total.......................... Nondurable goods— total................... 129 112 158 117 156p 117p 154p 116p Primary distribution............................... Distribution to consumer...................... Miscellaneous services............................ 131 89 118 145 96 157 149p 85 p 160p 151p 80p 163p 115 121 123 134 148 14 9p 57 85 69 75 panels organized in each locality. this roll-back with the aid of subsidies paid to processors who find themselves unable to operate under lower prices. PRO D U CTIO N A N D T R A D E According to preliminary indications, manufacturing activity in May was maintained close to the April level. Steel mills operated at a slightly lower rate than in April, while output of crude petroleum and electric power ran somewhat higher. Cost of Living, Bureau of Labor Statistics (100*1935-39 average)............................... Bituminous coal mining was affected by work stoppages in Wage rates the first part of the month, but subsequently recovered to the Velocity of Demand Deposits* high level prevailing in previous weeks. Munitions produc tion continued at a high rate, and Rear Admiral Vickery of the Maritime Commission predicted that May would be an (100=1926 average)..................................... (100=1935-39 average) New York C i t y ............................................ Outside New York C ity.............................. p Preliminary. 88 * Adjusted for seasonal variation. 62 78 86 83 89 MONTHLY REVIEW, JUNE 1, 1943 48 F U R N ITU R E STORE TR A D E D E P A R T M E N T STORE T R A D E Sales of furniture stores in this District during April were During the three weeks ended May 22, sales of reporting 5 per cent below the corresponding period last year, on the department stores in this District were about 11 per cent basis of data submitted to this bank by approximately 60 greater than in the corresponding period last year, while cooperating stores. Year-to-year percentage declines have apparel stores exceeded year ago sales by about 34 per cent. been experienced every month since May, 1942, when the Sales of department stores in May apparently declined from compilations of furniture store figures began. the April level by less than the seasonal amount. The decline of 5 per cent for April, however, was the smallest year-to-year In April department store sales in this District were 8 drop in dollar sales recorded over this period; in the com per cent greater than in April, 1942, an increase that appears parison of August, 1942 with August, 1941 (when a general to have been largely accounted for by the lateness of the date wave of retail buying had appeared), the decline amounted to of Easter this year (April 25, compared with April 5 last 31 per cent. Furniture is sold predominantly on credit, although, through year). On a seasonally adjusted basis, sales declined about 9 per cent from March to April of this year. the effect of consumer credit regulations, cash sales have been Stocks on hand of department stores in this District at the accounting for an increasing proportion of total sales during end of April were 32 per cent lower at retail valuations than the past year, and at the same time the average period over in April of last year, and the seasonally adjusted index of which credit has been extended has been shortened. stocks reached the lowest level since July, 1941. In April 85 per cent of sales were made on credit, compared with 88 per cent in April, 1942. Collections during April against accounts outstanding March 31 amounted to 14 V2 per cent this year; the corresponding percentage last year was 11. Accounts receivable of the cooperating furniture stores in this Returns from a limited number of department stores in this District show that at the end of April outstanding orders for mer chandise purchased by the stores but not yet delivered to them were 15 per cent above April, 1942, and 14 per cent above those at the end of March, 1943. District declined 39 per cent during the year ended April 30. Stocks on hand at the close of April represented 5.7 months’ Percentage changes from a year earlier supply at the current rate of sales against 6.4 months’ supply one year earlier. The dollar value of stocks on hand declined Department stores Net sales 14 per cent during this period. April, 1943 New York C ity ..................................... Northern New Jersey.............................. Percentage changes April, 1942 to April, 1943 Furniture stores Total sales Accounts receivable* Collec tions Stocks* on hand - 4 -2 5 -1 5 -1 5 - 9 -1 4 - 9 + -1 9 -1 6 - 3 + -3 8 -4 5 -4 7 -4 4 -3 3 -4 5 -3 8 -3 2 -4 4 -3 9 -3 7 -4 2 -4 0 -2 5 -1 9 -2 3 - 7 + -1 4 -1 3 -1 9 - Total outside New York City -1 3 -4 0 -1 5 Total Second District........... - -3 9 - New York C ity................................. Northern New Jersey..................... Newark........................................... Other localities............................. Westchester-Fairfield...................... Hudson River Valley...................... Central New York State................ Syracuse......................................... Other localities............................. Western New York State.............. Buffalo............................................ Rochester....................................... Other localities............................. 0 -2 3 -2 6 -22 8 2 5 — 2 8 2 8 -22 -1 3 + 6 + 2 Westchester and Fairfield Counties . .. Bridgeport............................................ Lower Hudson River Valley................. Poughkeepsie........................................ Upper Hudson River Valley................. Schenectady.......................................... Central New York State....................... Mohawk River Valley........................ -1 9 — -1 6 -1 6 -20 - 8 — -1 3 -1 4 ♦End of month. Northern New York State..................... Southern New York State..................... Binghamton.......................................... Western New York State....................... Niagara Falls........................................ All department stores................ Apparel stores.............................. +10 2 + + 5 + 3 + + + + 2 2 1 1 —10 + 18 +12 + 15 + 17 + + + + 10 1 6 10 —10 + 10 +11 +37 + 7 8 +20 + Stocks on Jan. through hand April, 1943 April 30,1943 + — — — — — 5 5 3 4 5 — 36 — 37 — 38 — 25 — 26 — 15 — 7 — 16 + 5 + + — 7 2 0 — 13 — 27 — 17 8 11 + — + + — + — 31 7 3 7 9 4 9 —12 — — 18 +10 +34 + 6 —12 — 6 + 4 — 32 +17 — 18 — 27 April, 1943 compared with April, 1942 Furniture stores Outside Total District New York City New York City Credit sales as per cent of total sales April, 1943......................................... April, 1942......................................... Stocks on hand, end of month, as ratio to month’s sales April, 1943................ ......................... April, 1942......................................... Collections, exclusive of down pay ments, as per cent of receivables, first of month April, 1943......................................... April, 1942......................................... 84.6 87.5 84.2 87.5 85.2 87.5 5.7 6.4 5.8 6.9 5.6 5.5 14.5 14.0 10.5 15.9 11.0 Indexes of Department Store Sales and Stocks, Second Federal Reserve District (1923-25 average = 100) 1942 1943 April Feb. March April Sales (average daily), unadjusted................. Sales (average daily), seasonally adjusted.. 106 112 138 104 127 117 115 Stocks, unadjusted .......................................... Stocks, seasonally adjusted............................ 152 150r 105 lllr 107 106 100 12.1 r— Revised. 110 99 FEDERAL RESERVE BANK OF NEW YORK M O NTHLY REVIEW, JUNE 1, 1943 General Business and Financial Conditions in the United States (Summarized by the Board of Governors of the Federal Reserve System) I NDUSTRIAL activity in April and the early part of May increased somewhat further, and retail trade was maintained in large volume. In d u s t r i a l P r o d u c t i o n Index of Physical Volume of Industrial Produc tion, Adjusted for Seasonal Variation (1 9 35 -3 9 average — 100 per cent) Indexes of Value of Department Store Sales and Stocks, Adjusted for Seasonal Variation (19 23 -2 5 average — 100 per cent) The Board’s index of total industrial output rose slightly in April, reflecting further increases in activity in war industries, while output in most other lines showed little change. Production of armaments in the machinery and transportation equipment industries rose to new high levels. Activity at steel mills increased somewhat further. Lumber production showed the usual seasonal rise in April and was at a level about 10. per cent less than a year ago, when problems of maintaining an adequate labor supply in the industry began to develop. In the cement industry, where production usually advances sharply during the spring months, production has shown little change this year, reflecting chiefly the restricted volume of current construction activity. Total output of manufactured foods in April continued below the seasonally adjusted peak level reached at the end of last year. Meatpacking and flour production showed decreases in April, while output of dairy products and other manufactured food products was main tained. Volume of output in chemical plants continued to gain. Production of other non durable manufactures showed little change. There was a decline in bituminous coal production in the last week of April, following the breaking off of negotiations for a new wage contract, but output increased in the early part of May. Production of coal in March had been at an exceptionally high level. Stocks on May 1 were considerably higher than a year ago and for bituminous coal were estimated to be equivalent to 55 days’ supply for industrial purposes. In May the Government took over the bituminous coal mines. Value of construction contracts awarded declined in April, reflecting reductions in con tracts for Federal work, according to the F. W . Dodge Corporation. Total residential awards in March and April were at the lowest levels for these months in a number of years. D is t r ib u t io n Sales at department and variety stores increased in April, but the rise was less than usually occurs when Easter falls late in the month. Mail-order sales, principally to persons in small towns and rural areas, showed about the usual seasonal rise. Value of sales in April continued at a level substantially higher than a year ago but, with prices higher, the physical volume of goods sold was probably about the same as in the corresponding period last year. Carloadings of revenue freight were maintained in large volume in April and the first week of May. Ore shipments showed a seasonal rise beginning in the last half of April, a month later than in 1942 when the movement was unusually early. C o m m o d i t y P r ic e s Indexes of the Cost of Living as Compiled by Bureau of Labor Statistics (April figures are estimates of the Board of Governors; 1935-39 average= 100 per cent) Wholesale prices of most commodities showed little change from the middle of April to the middle of May. Retail food prices continued to advance sharply in the latter part of March and the early part of April and the indexes showed increases of 6 per cent as compared with January. Retail prices of most other items in the cost of living showed smaller increases in that period. Plans for more effective enforcement of price ceilings have been announced. B a n k C r e d it TOTAt M s ^ ■ n V S - .V 4 J ***** r\ J A - -'-A v REQUIRED RESERVES J ^4 N 1 E;<CESS RESERVE!s ______________ - J i iV i/ ' Wednesday Figures of Total Member Bank Re serve Balances at Federal Reserve Banks, with Estimates of Required and Excess Reserves (Latest figures are for May 12) During May, as the Treasury made disbursements out of war loan accounts, which had been built up during the recent drive, there was a growth of bank deposits subject to reserve requirements and a decrease in member bank excess reserves. Continued withdrawals of cur rency also reduced bank reserves. Nevertheless, the reserves of member banks were sufficient to enable them to make substantial repurchases of bills which had been sold to the Reserve Banks under option. In addition, the Federal Reserve System sold some bonds in response to a market demand. Government security holdings at reporting member banks in 101 leading cities increased by 4.3 billion dollars in the four weeks ended May 12. These increases reflected purchases of new issues during the War Loan drive, as well as substantial market purchases. In New York City, loans to brokers and dealers for purchasing or carrying securities increased by 860 million dollars during the three weeks of the War Loan drive, and subse quently declined in the first three weeks of May; these changes reflected almost entirely activity in loans for purchasing or carrying Government securities, which on May 19 amounted to 580 million dollars of the total 1,020 million dollars outstanding; other loans to brokers and dealers by New York City banks rose by 90 million dollars from the end of March to May 19-