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MONTHLY REVIEW
O f Credit and Business Conditions

FEDERAL
V

ol.

27

RESERVE
JUNE

BANK

OF

194 5

NEW

YORK
No. 6

MONEY MARKET IN MAY
The end’ of the war in Europe had remarkably little effect
on the money market. There was a temporary decline in the
volume of trading in Government securities and a slight reces­
sion in prices of Treasury obligations and other high grade
securities, but demand and supply factors affecting credit were
not materially altered and continuing wartime credit policy
gave assurance of stable conditions. W ith the passing of V-E
Day the emphasis is now on the heavy war burden still to be
carried in order to bring final victory. Immediate attention
is focused on the Seventh War Loan and on the need for con­
tinued financial participation by the public as a most impor­
tant form of insurance against inflationary tendencies during
the remainder of the war period and after the war.
Treasury transactions were again the dominant factor in the
money market during May. Just as Treasury operations had
involved a substantial drain on member bank reserves by
increasing Treasury deposits with the Reserve Banks some 555
million dollars during the five weeks ended April 25, so in the
following three weeks, ended' May 16, the Treasury restored
most of this sum by disbursing 549 million dollars more than
it received, reducing its deposits with the Reserve Banks by
a like amount. Expenditures were unexpectedly high during
this three-week period. On the other hand, although receipts
were relatively heavy as a result of quarterly collections of
withheld income and' social security taxes and increased cash
sales of Savings bonds and notes in the Seventh War Loan
drive, Treasury calls on War Loan account deposits were
sharply reduced, and total cash receipts were insufficient to
cover expenditures fully.
Nevertheless, reserve funds placed at the disposal of the
banks as a result of the Treasury’s operations fell somewhat
short of meeting the banks’ needs. These arose chiefly out of
a continuation of the public demand for currency and higher
reserve requirements due to the shift from War Loan deposits,
which are exempt from reserve requirements, to private deposit
accounts which are not. The effects of these transactions were
spread unevenly among the banks. Some institutions experi­
enced net gains of funds and were able either to add to their
excess reserves or to retire Reserve Bank credit by purchasing




Treasury bills or by reducing their borrowings from the
Reserve Banks. Other banks, which lost reserves, had' to call
on the Reserve Banks for additional credit. Thus, while
excess reserves rose from about 800 million on April 25 to
1,050 million on May 16, total Reserve Bank credit increased
277 million dollars. The expansion of Reserve credit took
the form chiefly of net purchases of certificates in the amount
of 286 million dollars. A substantial portion of these certifi­
cates reflected securities sold by member banks to adjust their
reserve positions, but some part undoubtedly represented cer­
tificates sold by nonbank investors.
In the week ended May 23, Treasury receipts were substan­
tially higher than disbursements, reversing the tendency of the
previous three weeks. Treasury balances in the Reserve Banks
rose from a little more than 100 million dollars on May 16
to 526 million on May 23. This heavy drain on member bank
resources, combined with further increases in currency circula­
tion and reserve requirements, forced many banks to seek
Federal Reserve credit. Member bank borrowing reached a
new wartime peak of 724 million dollars, 131 million above
the previous high record of 593 million on November 29,
1944, and the highest since March 15, 1933. Sales of Treas­
ury bills and certificates to the Reserve Banks (direct or
through the market) were likewise substantial, and excess
reserves declined 150 million dollars to about 900 million.
Although the bulk of the net withdrawals of funds from the
banks by the Treasury during April occurred in New York,
very little of the substantial amount of funds returned to the
banks as a result of net Treasury disbursements during the
three weeks ended May 16 came back to the New York banks.
A net outflow of commercial and financial funds from New
York to other parts of the country, partly in payment for Gov­
ernment securities sold in the New York market, was just
about offset by an inflow of banking funds in this period.
However, there were heavy offerings of Treasury certificates
of indebtedness in the market by banks and corporations,
which were absorbed partly by the Federal Reserve System,
and the funds thus placed’ in the money market were sufficient
not only to offset rising reserve requirements and public de­

42

MONTHLY REVIEW, JUNE 1945

mands for currency in the City, but also to ease the reserve posi­
tion of the New York City banks. In part, these funds were used
by some banks to reduce their borrowings from the Reserve
Bank, or to purchase Treasury bills, and in part they were used
by other banks to augment their holdings of Treasury bonds.
In the week ended May 23, Government disbursements in
New York fell about 260 million dollars short of Treasury
receipts, which included heavy withdrawals of War Loan depos­
its. Losses of reserves from other transactions came to another
100 million dollars and reserve requirements increased 36
million. To meet this substantial need for reserve funds, New
York City banks sold a large amount of bills and certificates,
and borrowed about 160 million dollars from the Reserve Bank.
M ember

Ba n k

B o r r o w in g

Although total member bank borrowing from the Reserve
Banks has reached the highest level since March 1933, borrow­
ings in the New York District have not yet equaled the peak
of November 29, 1944, before the Sixth War Loan. In the
other eleven Federal Reserve Districts, they were far above
the previous wartime high point. Since the decline, in 1943,
of excess reserves to relatively small amounts, and the subse­
quent reduction of Treasury bill holdings which could be
readily used to adjust reserve positions, member banks have
come to rely more and more on borrowing from the Reserve
Banks as a means of meeting temporary needs for reserves.
Thus, although the increase in loans and discounts of the
Reserve Banks had its inception toward the middle of 1943
(prior to that time they had been nominal), the expansion
of member bank borrowing did not reach substantial propor­
tions until the middle of 1944, after IVz years of war financing.
The growth of member bank borrowing has been highly
irregular. Increases have been most pronounced prior to War
Loan drives when member bank reserve requirements are
highest and their bill holdings are lowest, and have been fol­
lowed by sharp declines during War Loans, as the banks utilize
the reserves freed by the transfer of deposits from private to
War Loan accounts to retire their indebtedness with the
Reserve Banks and to build up their Treasury bill portfolios.
The general level of member bank borrowings has risen,
nevertheless, reflecting the over-all increase in bank deposits
and reserve requirements during the war and the drain on their
reserves, caused chiefly by the persistent demand for currency.
As illustrated in the chart, the upward trend of member
bank borrowings in the eleven other Reserve Districts has been
more persistent than in the New York District. The more
pronounced fluctuations in New York reflect in large part
the fact that a major share of member bank borrowings in the
Second Federal Reserve District consists of borrowings by
large banks in New York City, Gains and losses of funds in
the New York money market are likely to affect a number of
these banks at the same time and in the same way, and owing




Member Bank Borrowings from the Reserve Banks*
M IL L IO N S
OF D O L L A R S

* W ednesday dates.

to the concentration of financial activities in New York, the
magnitude of the adjustments necessary to maintain reserves
or retire unneeded Reserve Bank credit is great. In other dis­
tricts where the number of member banks borrowing from the
Reserve Banks is substantial, the gains of reserve funds of
some banks are frequently offset by the losses of others. Con­
sequently, some member banks may be reducing their indebted­
ness to the Reserve Banks while other member banks are
increasing their borrowings, so that the general level fluctuates
less sharply than in New York.
M ember B a n k C redit
In general, changes in member bank credit in the four weeks
ended May 16 continued along the same lines as in previous
weeks. The rise in loans to brokers and dealers on Govern­
ment securities extended by reporting member banks in New
York City, which began in the second week of April, continued
through May 16 at an accelerated rate. The increase was
unusually rapid for a time so far in advance of the issue date
for War Loan securities, amounting to 307 million dollars in
this four-week period and 475 million since the low point
following the Sixth drive ( on April 4 ). It probably reflected
dealer accumulation of Treasury securities, particularly cer­
tificates, soon to be exchanged for new issues. Loans on
Government securities to other investors were further reduced
both in New York and out of town; the decline in New York
brought the level to a point slightly below the minimum out­
standing prior to the Sixth drive. Thus, all of the increase
in loans extended to other than brokers and dealers by New
York banks for the purpose of acquiring Government obliga­
tions in the Sixth War Loan had been liquidated by May 16.
Reflecting activity in the new issue market, loans to brokers
and dealers on non-Government securities rose 54 million

FEDERAL RESERVE BANK OF NEW YORK

dollars for all reporting member banks. Most of this increase
occurred among the New York banks. Commercial, industrial,
and agricultural loans continued to decline seasonally, reach­
ing the lowest levels since September 1943.
Banks both in New York and 100 other cities made sub­
stantial net sales of Treasury bills and certificates of indebted­
ness and smaller sales of Treasury notes, and added large
amounts of bonds to their portfolios. Net purchases of bonds
by New York banks were again substantial (141 million dol­
lars) in the week of May 23, and further net sales of other
types of Treasury issues were effected’. Bill holdings fell to
117 million dollars, the lowest since April 5, 1939.
G o v e r n m e n t Se c u r it y M a r k e t

The trend toward higher Treasury bond prices was inter­
rupted during the week of May 9- Following V-E Day, buyers
of Government securities retired from the market temporarily,
and prices receded moderately for a few days in light trading.
Most of the decline was subsequently made up in the week of
May 23. The commercial banks continued to expand their
holdings of the longer term 2 per cent bond's by selling Treas­
ury certificates, 0.90 per cent notes, and shorter term issues of
2s. Bank selling of certificates reflected adjustment of reserve
positions as well as adjustment of portfolios.

W A R T IM E RISE IN DEPOSITS
Despite efforts to raise as much of the required funds as
possible through taxes and sales of Government securities to
the public, the financing of the war has involved the use of
bank credit on a very large scale, which is reflected in the great
expansion in bank holdings of Government securities and in
the growth of deposits. The increase in demand deposits of
individuals, partnerships, and corporations* for all member
banks in the United States, between December 31, 1941,
shortly after Pearl Harbor, and March 20, 1945 amounted to
25.7 billion dollars, or 76.5 per cent.
The distribution of the deposit increase among the 12 Fed­
eral Reserve Districts, shown in Table I, has been determined
mainly by the geographic distribution of Government receipts
from taxes and security sales and the geographic distribution
of Government disbursements. The growth of bank deposits
has been retarded to some extent by withdrawals of deposits
in currency, and repayments of loans have also been a factor,
but to only a minor degree.
As the table indicates, this District has had the largest
growth of private demand deposits of any district, but the
percentage increase has been by far the smallest. At the end

43
Table I

Increase in D e m a n d D eposits of In d ivid u als, P artn ersh ip s, and
C orporation s of A ll M e m b e r B an k s b etw een
D ecem ber 31, 1941 an d M a rch 20, 1945

District
New Y o r k f .................................................




Percentage
increase

Percentage
distribution
of total

M inneapolis.................................................
Kansas C it y ................................................
A tlanta.........................................................
San F rancisco.............................................
D a llas.....................................................

$5,135
1,145
1,291
2,144
4,035
1,290
1,064
638
1,539
1,537
4,160
1,741

38.0
57.3
68.2
84.8
87.7
97.3
99.3
104.4
141.1
143.9
149.7
151.3

20.0
4.4
5.0
8.3
15.7
5.0
4.1
2.5
6.0
6.0
16.2
6.8

$25,719

Philadelphia................................................
Cleveland.....................................................
C h ica go........................................................

76.5

100.0

t Adjusted for membership changes.

of 1941, the New York District had 40 per cent of the busi­
ness and personal demand deposits in the entire country but
by March 20, 1945 the percentage had receded' to 31 per cent,
the wartime rise of 38 per cent having been too small to
maintain the District’s prewar position. This situation is
accounted for by the relatively small growth of deposits in
New York City; the remainder of the District has had a
deposit growth at least as rapid as in the country as a whole.
Previous issues of this Review have drawn attention to the
fact that New York City, acting in its role of money market
center, has continually raised a larger amount of funds during
War Loan drives than the Treasury has subsequently disbursed
here. The same situation has evidently prevailed to a lesser
extent in the Boston and Philadelphia Districts, but all other
districts, notably the southern and western districts, have
enlarged their deposits more rapidly than the country as a
whole, showing gains ranging from 85 per cent to 151 per
cent during the elapsed portion of the war.
The second table shows the wartime increase in time
deposits of individuals, partnerships, and corporations (which
are composed primarily of savings deposits) for member banks
in each of the 12 Federal Reserve Districts. In this case the
T a b le II
Increase in T im e D eposits of In d ivid u als, P a rtn ersh ip s, an d
C orporation s o f A ll M e m b e r B an k s betw een
D ecem ber 31, 1941 an d M a rch 20, 1945

Philadelphia...............................................
Richm ond

.................................................

Kansas C it y ................................................

t A d ju ste d jo r membership changes.

Dollar
increase in
millions

Percentage
increase

Percentage
distribution
of total

$297
1,249
338
804
244
127
377
191
268
350
1,699
2,093

29.1
52.1
55.6
58.4
58.8
59.6
60.0
64.5
75.5
84.7
85.0
95.5

3.7
15.6
4.2
10.0
3.0
1.6
4.7
2.4
3.3
4.4
21.1
26.0

$8,037

District

San Francisco.............................................

* Further reference in this article to demand or time deposits
denotes demand or time deposits of individuals, partnerships, and
corporations.

Dollar
increase in
millions

67.5

100.0

44

MONTHLY REVIEW, JUNE 1945

increase in dollar volume in the New York District has not
been as large as in the Chicago and San Francisco Districts,
but its position relative to the country as a whole has not
changed as much during the war period as in the case of
demand deposits; the proportion of total time deposits in the
United States owned by Second District depositors receded
from 20 to 18 per cent. The relatively small growth of time
deposits, in dollar volume, in the New York District undoubt­
edly is explained by the much greater development of mutual
savings banks in this area than in most other sections of the
country. If gains in deposits of mutual savings banks were
taken into consideration, the New York District’s position
would in all probability compare more favorably with the rest
of the country.
D e p o s it C h a n g e s W i t h i n

the

Se c o n d

D is t r i c t

Wartime gains in business and personal demand deposits
for 812 identical member banks in the Second Federal Reserve
District have varied widely between individual banks,
although there have been no significant differences in the rates
of increase among the various geographic sections of the Dis­
trict, except for the much smaller increase in New York City
than in other sections. The differences that do exist appear to
be much the same between banks in communities of different
size as between large and small banks, since the size of banks
is generally determined by the size of the community it serves.
This conclusion substantiates the findings of this bank’s recent
survey of ownership of demand deposits, based on reports from
a substantial sampling of the banks of the District. This sur­
vey indicated that rates of gain in the small banks in the
smaller communities were greater than in large city banks, the
determining factor having been the proportion of total depos­
its represented by personal and trade accounts, which rose
sharply, compared with the proportion of industrial accounts,
which showed less increase.
Table III brings out the differences in the rates of wartime
increase in demand deposits in groups of cities of various
size and also shows the distribution between groups of the
total wartime rise of 5,135 million dollars. It will be noted
that percentage increases in demand deposits tend to vary
inversely with the size of the cities served by the banks.
Member banks in New York City had three quarters of the
District’s wartime gain in demand deposits, but these banks
in the aggregate showed a much smaller percentage rise than
banks in most other cities of the District. This is explained’ by
the importance in the City of large balances of large manufac­
turing, other non-trade accounts, and financial institutions, in
which gains have been relatively small. In the other groups of
cities, the percentage increases in deposits progressed steadily
upward, varying from an average of 68.9 per cent in cities of
over 100,000 population, to 82.6 per cent in cities with a popu­
lation of 25-50,000, and 95.3 per cent in the remainder of the




Table HI
Increase in Deposits of Individuals, Partnerships, and Corpora­
tions in 812 Member Banks in the Second Federal Reserve District,
between December 31, 1941 and March 20, 1945
(Dollar amounts in millions)
Time deposits

Demand deposits

Size of city,
by population

Dollar
increase

Percentage
Percentage distribution
of total
increase

Dollar
increase

Percentage
Percentage distribution
of total
increase

New York City...........

$3,862

32.5

75.2

$326

40.0

26.1

Total for 12 cities
over 100,000 pop.
Jersey City..........

598

68.9

11.6

309

57.1

24.7

23
24
20
185
11
146
12
45
18
16
69
29

21.1
45.6
62.9
70.5
72.6
73.8
81.3
85.6
87.2
88.3
104.5
111.6

0.4
0.5
0.4
3.6
0.2
2.8
0.2
0.9
0.4
0.3
1.3
0.6

32
1
14
73
9
69
14
18
9
19
20
31

54.9
5.7
90.4
65.7
70.0
59.0
71.8
35.5
40.5
69.6
49.0
62.5

2.6
0.1
1.1
5.8
0.7
5.5
1.1
1.5
0.7
1.5
1.6
2.5

Total for 10 cities
50-100,000 pop.

78

70.3

1.5

63

53.5

5.1

Total for 23 cities
25-50,000 pop.

147

82.6

2.9

104

52.0

8.3

Remainder of District.
below 25,000 pop.

450

95.3

8.8

447

61.6

35.8

$5,135

38.0

100.0

$1,249

52.0

100.0

Bridgeport...........
Buffalo................
Elizabeth.............
Syracuse..............
Utica...................
Rochester............

Total for District

District comprising all centers with a population of less than
25,000. It must be emphasized, however, that within any one
of the groups of cities, deposit gains in individual cities show
an extremely wide range. For example, among the 12 cities
of more than 100,000 population (excluding New York C ity),
gains ranged from 21 per cent in the case of Jersey City to 112
per cent for Paterson. Plainly, therefore, there are important
exceptions to the general rule. Special factors must be taken
into consideration when comparisons between cities are made.
For instance, the small rise in Jersey City reflects the rather
small proportion of demand deposits in the form of personal
and trade accounts, in which deposit increases have been greater
than in other types of deposits. Albany also showed a rela­
tively small gain, presumably because of the large numbers of
State employees whose salaries have remained relatively fixed
during the war period and the absence of large war industries.
The wartime increase in time deposits, which consist mainly
of savings deposits, amounted to 1,249 million dollars, or 52
per cent. In contrast to the heavy concentration of demand
deposits in New York City banks, time deposits, and’ their
wartime increase, have been more evenly distributed through­
out the District— only 26 per cent of the total increase has
been in New York City, 25 per cent in other large cities of
over 100,000 population, and 49 per cent in the smaller cities.
With the exception of New York City and Albany where com­
petition by mutual savings banks is exceptionally keen, the
increases in time deposits at member banks since December
1941 appear to have been much more evenly distributed
among the various cities and sections of the District than the
increases in demand deposits.

FEDERAL RESERVE BANK OF NEW YORK

C A P IT A L PO SITIO N OF M EM BER BANKS
At the end of 1944 total capital funds of all member banks
exceeded the previous peak of 1929 for the first (time. Even
allowing for the fact that a larger proportion of all commercial
banks are now members of the Federal Reserve System than
was the case 15 years ago, and that approximately 275 million
dollars of capital funds supplied by the Reconstruction Finance
Corporation remain to be retired, it is li'kely that capital funds
owned by stockholders of member banks are not far from the
earlier peak. The accompanying chart traces the cumulative
changes in capital funds of all member banks and the principal
factors affecting the volume of such funds since 1923. As this
chart indicates, there was a very rapid expansion of member
bank capital between the end of 1923 and the end of 1929,
total capital accounts rising from 4.4 billion dollars to
6.7 billion dollars. A sizable factor in this expansion was
the accumulation of undistributed earnings, but there were
substantial additions to member bank capital funds through
sales of new stock issues, and a smaller factor may have been
the merger of nonmember banks with member banks in that
period of unusual merger activity.
Practically all of this growth in member bank capital
was eliminated by the heavy losses sustained during the
severe depression of the early thirties, and many banks found
it necessary to strengthen their capital position by selling pre­
ferred stock, capital notes, or debentures to the Reconstruc­
tion Finance Corporation. Since that time there has been a
steady growth in member bank capital funds, which has been
considerably accelerated during the war years as a result of
the retention of increased profits. Banks generally have fol­
lowed very conservative policies with respect to the payment
of dividends, and have retained a substantial part of their
net profits for the purpose of strengthening their capital posi­
tion and retiring capital supplied by the Reconstruction
Factors A ffecting Capital Funds o f M ember Banks
Cumulated since D ecem ber 31, 1923
B IL L IO N S
OF D O L L A R S




45

Finance Corporation. During the past five years member banks
have retained nearly 55 per cent of their net profits for that
purpose, and the proportion has risen with the growth in bank
earnings. In this District, for example, approximately two
thirds of the net profits of member banks in 1944 were added
to capital accounts. Although net profits have been nearly as
large in the past five years as in the five years ended with 1929,
dividend payments have been approximately one-third less.
Approximately two thirds of net profits were paid out in
dividends in the earlier period, and only one third added to
capital accounts.
Partly as a result of the losses of the depression and partly
as a result of the rather meager dividend disbursements of the
past twelve years or more, banks in general have been unable
to obtain new capital at all readily through sales of new stock
issues to the public; it is only recently that any sizable issues
of bank stock have again been sold. Most of the growth in
capital funds of member banks since 1934 has represented un­
distributed profits; in the past five years 88 per cent of the
increase in member bank capital funds was from that source.
A considerable part of the remainder doubtless reflects the
capital of banks which became members of the Federal Re­
serve System during that period, as there has been an unusually
rapid increase in membership in a number of districts.
Despite the accelerated rise in capital funds of member
banks during the war period, the ratio of capital to deposits
has declined steadily, as the growth in deposits has been con­
siderably more rapid than the growth in capital funds. The
ratio of capital accounts to deposits in all member banks
declined from 11.2 per cent at the end of 1939, to 6.3 per
cent at the end of 1944. Nevertheless, the capital posi­
tion of most banks may be considered satisfactory while
present conditions prevail since "risk assets” of the banks have
shown little, if any, growth during the war period (in fact,
in many banks they have declined substantially), and the
growth in deposits has been paralleled by a growth in Gov­
ernment security holdings, a considerable part of which is of
relatively short maturity. There are, of course, numerous ex­
ceptions to the general rule, including banks that are still far
short of completing the retirement of capital obtained from
the Reconstruction Finance Corporation and other banks
whose capital position is considered none too strong even
taking into account the present character of their assets.
However, it is chiefly with respect to the postwar period,
when the banks may be called upon to assume greater risks,
that questions as to the adequacy of bank capital have been
raised. It is expected that in the early postwar period bank
financing of business will, to a considerable extent, involve
the absorption of additional Government securities to release
funds now invested by business concerns in such securities.
Not all businesses are adequately supplied with liquid assets

46

MONTHLY REVIEW, JUNE 1945

in the form of cash or Government securities to meet their
anticipated postwar requirements, however, so that some
demand for bank loans may develop fairly soon, and such de­
mands may increase considerably if there is a vigorous expan­
sion of business activity following the initial reconversion
from wartime operations. It is expected that some bank loans
for that purpose will involve an appreciable degree of risk,
and for that reason many bankers as well as bank supervisory
authorities have felt that it would be desirable for the banks
to continue to build up their capital structures so that they
will be prepared adequately to finance the requirements of
their customers.
The most rapid declines in capital-deposit ratios have oc­
curred in war industry and military training centers, where
many banks have had extraordinary deposit increases, ranging
from 200 to 500 per cent or more since 1939. Most of such
banks have followed conservative policies with respect to the
employment of their funds and are well supplied with cash
assets and short term Government securities with which to
meet any losses of deposits that may occur after the war. To
the extent that they remain in a permanently expanded posi­
tion, they will need additional capital if they are to engage
in diversified credit operations. Pending clearer indication of
their long-run position, however, many banks are reluctant
to undertake major expansions of their capital stock, lest their
earnings later prove to be insufficient to support the enlarged
capitalization. For the present, therefore, the common ten­
dency of banks is to continue to add considerable portions of
their net profits to surplus and reserves, in preference to
offering new capital stock for public subscription.
EM PLO Y M E N T IN N EW Y O R K STATE
D U RIN G TH E W A R
In March 1940, the date of the last Census, approximately
5 million workers were gainfully employed in New York
State. More than 800,000 were then reported to be looking
for jobs and about 170,000 were provided with public emer­
gency employment. Manpower mobilization got under way
slowly with the inception of our defense program but gained
momentum in 1941. By the end of 1943, when the labor
force reached its wartime peak, the number of employed
workers had risen to about 6 million, in spite of a loss of
more than one million to the Armed Forces and some net out­
migration of workers to neighboring States and even to the
West Coast. It is not known to what extent the new workers
were women and young people who would not normally seek
employment, or retired persons who were again drawn into
the labor force, but it has been estimated that in November
1943 the number of women working in the State exceeded
the March 1940 figure of 1,500,000 by 500,000.
Labor stringencies did not make themselves felt in the New
York State labor market as early or as strongly as in many




other areas of the United States, but by the fall of 1940 the
States heavy industries had expanded sufficiently to create
labor shortages in some of the skilled metal manufacturing
trades. As incomes in the nation rose in 1940 and 1941,
consumers’ goods industries in the State prospered and
required many new workers. Shortages of semiskilled and
unskilled workers for munitions plants appeared first in 1942
in such war production centers as Buffalo and Elmira. Later
on they spread to other areas. At the peak of war production,
employment in New York State was roughly 20 per cent
higher than in March 1940. This wartime expansion was
somewhat smaller than for all urban areas in the United
States.
Shifts in employment, by industry, are reflected by data
collected for unemployment insurance purposes. While the
number of insured employees in manufacturing rose by almost
60 per cent between early 1940 and September 1943, when
manufacturing employment in New York State reached its
highest level, nonmanufacturing industries were unable to
increase their personnel appreciably. Employment in the con­
struction industry expanded rapidly until the fall of 1942, but
contracted when the major part of the war building program
was completed; it is now about one-third below the 1940 aver­
age. In practically every industrial area the number of insured
workers in other nonmanufacturing industries rose in 1940 and
1941, but declined as openings for inexperienced workers in
war plants became numerous.
The accompanying chart shows the expansion of manufac­
turing employment by industry groups during this period.
Establishments producing metals, machinery, and transporta­
tion equipment— working almost entirely on war contracts—
were responsible for more than two thirds of the wartime
increase in employment in the State. However, all other
major industry groups also added workers to their payrolls.
Military demand for such items as chemicals, uniforms, shoes,
optical goods, scientific instruments, and manufactured foods
together with growing consumer demand created a large
market for the products of light industries. Expansion of
their activities was limited only by inadequacy of labor and
materials.
Data on covered employment do not show the full expan­
sion of employment in New York State. For example, Federal
employees are not insured under the State unemployment com­
pensation system. Their number in the State rose from less
than 100,000 at the end of 1939 to 276,000 in October 1943
These figures partly reflect the large number of additional civil­
ian employees in navy yards, arsenals, and depots, and partly
the transfer of several Federal agencies to New York City.
State and local governments, however, were forced to curtail
their staffs during the war period. Another noteworthy rise in
employment took place in railroad transportation; in the nation

FEDERAL RESERVE BANK OF NEW YORK
Changes in Manufacturing Employment in New York State
between March 1940 and the Peak of September 1943

i 940
S ource: New Y ork State Department of
covered by unemployment insurance.

L abor

data on

1943
employment

the number of railroad workers increased by about 35 per cent
between January 1940 and the end of 1943. Among the
uninsured groups of workers there were others which did not
increase appreciably or which even contracted. This applies
particularly to firms employing fewer than four persons, a
category which consists almost entirely of retail stores and
service establishments. Agricultural and domestic employ­
ment declined after Pearl Harbor as many farm and domestic
workers took jobs in war plants.
Among the industrial areas of the State, New York City
has been the least affected by manpower shortages. It is the
only area in the State which the War Manpower Commission
classified throughout the war as "an area where a substantial
labor reserve will exist after six months.” The number of
workers in all covered establishments rose only 15 per cent
between 1940 and the wartime peak in November 1943.
This relatively small advance must be attributed to the pre­
dominance of consumers’ goods and service industries in the
City.
In contrast, the Buffalo industrial area, comprising Erie
and Niagara Counties, saw an expansion of 55 per cent in
covered employment during the same period. Large increases
occurred in the aircraft industry, and in the nonferrous metal
and machinery groups. Buffalo’s largest industry before the
war— the iron and steel industry— expanded until 1942, but
has been losing workers since then. The Buffalo area is the
only one in the State which was listed consistently as an area
of acute labor shortage by the War Manpower Commission.
Rochester, the third largest industrial area in the State,
experienced an increase of 36 per cent in covered employment.
The largest number of workers was added by firms producing
optical goods, photographic equipment, and scientific instru­
ments. Increases in employment were also sizable for




47

machinery and ordnance plants. Rochester’s apparel manufac­
turing establishments, mainly men’s clothing firms, lost
workers, while the New York branch of the industry was
able to maintain prewar employment levels.
In the Albany-Schenectady-Troy area the employment rise
in the electrical machinery industry accounted for the largest
part of the 39 per cent increase in covered jobs. The large
railroad repair yards in Albany and a Government arsenal
also added a considerable number of workers to their payrolls.
The maximum wartime rise in covered employment in
Syracuse was 32 per cent. Metals and machinery plants
provided more than half of all jobs in manufacturing in
Syracuse even before the war. Between 1940 ai\d November
1943 employment in this group nearly doubled, while employ­
ment in the group of other manufacturing industries and
nonmanufacturing remained practically unchanged.
W ith a gain of almost 75 per cent in covered employment
between 1940 and November 1943, Elmira ranked first
among the smaller industrial areas of the State in wartime
expansion. Heavy durable goods industries dominated the
economic life of that city before and during the war. In the
Utica area employment in covered establishments had
expanded by about 31 per cent by the summer of 1942.
Because shoe producers, who provided almost half of all
covered jobs in Binghamton in 1940, operated with fewer
employees than before the war, the region experienced the
smallest employment increase in insured industries among the
Upstate areas.
Although in the fall of 1943 total employment was at a peak
level in the State as a whole, in some areas— notably Buffalo,
Albany, Elmira, and Utica— the turning point was reached
earlier. Covered employment in Utica has already dropped
by about 20 per cent below its highest wartime level. Buffalo,
Albany, and Elmira have experienced declines ranging from
10 to 15 per cent; in other areas of the State the contraction
has been insignificant.
Lower employment levels reflect mainly scattered lay-offs
in certain areas of the State, the withdrawal of some emergency
workers from the labor market, and inductions into the armed
forces, which thus far have continued to exceed additions to the
labor force from the ranks of war veterans. In spite of some
decline in war output no extensive reconversion to peacetime
production has been possible yet. Within a few months the
labor situation will become easier. It is expected that after
July 1 manpower controls will be completely revoked in at
least half of the State’s labor market areas and will be eased
in others.
D E PA R TM E N T STORE T R A D E
During the first five months of this year the seasonally
adjusted index of department store sales for the Second Dis-

MONTHLY REVIEW, JUNE 1945

48

D e p a rtm e n t an d Ap parel Store Sales an d S tock s, S econd Federal
Reserve D istrict, P ercentage C h an g e fr o m th e P receding Y e ar

Net Sales
Locality
April 1945

Stocks on
hand
Jan. through
April 1945 April 30, 1945

Department stores, Second D istrict. . .
New York C ity ..........................................
Northern New Jersey...............................
N ew ark................................................
Westchester and Fairfield Counties. .
B ridgeport..........................................
Lower Hudson River V a lley...............
Poughkeepsie.....................................
Upper Hudson River V a lley...............
A lb a n y .................................................
Schenectady.......................................
Central New Y ork S ta te.....................
Mohawk River V a lle y .....................
U tica ................................................
Syracuse..............................................
Northern New Y ork S ta te..................
Southern New Y ork S ta te..................
B ingham ton........................................
E lm ira ..................................................
W estern New Y ork S ta te....................
B u ffa lo.................................................
Niagara F a lls.....................................
R ochester............................................

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

+ 15
+ 17
+ 16
+ 16
+12
+ 8
+ 17
+ 17
+14
+17
+ 12
+ 13
+ 8
+ 7
+ 16
+ 26
+ 15
+ 18
+10
+11
+ 8
+ 11
+ 14

Apparel stores (chiefly New York C it y ).

+ 5

+ 22

+ 12
+ 15
+ 12
+13
+11
- 2
- 4

—

+ 3
- 5
+ 7
- 6
— 5
+ 13

—

- 8
- 6
- 9
+ 6
+ 4
-1 1
+ 11
+ 9

Indexes of D e p a rtm e n t Store Sales an d Stocks
Second Federal Reserve D istrict
(1935-39 average = 100 per cen t)

1944

1945

Item

April

Feb.

Mar.

Apr.

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

137r
141

137
166

176
189

143
150

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

142
140

145
152

155
154

164
162

r Revised.

trict averaged 9 per cent above the 1944 yearly average. Vir­
tually the entire gain took place in February and March when
sales were stimulated by fears of impending shortages and by
the increased tendency to purchase higher priced merchandise.
Sales in April dropped sharply to the January level; during
May the adjusted index is estimated to have increased
moderately.

cent from 1939 to 1941, and are now slightly below the 1939
level. The merchandise composition of sales varies consider­
ably for these two types of retailers, however. Furniture
accounts for about one third of all homefurnishing sales in the
department stores and three fifths of total furniture store sales.
An analysis of these figures shows that department store sales
of furniture have not differed appreciably from total home­
furnishing sales.
The explanation for the relatively unfavorable showing of
the furniture stores may lie partly in the greater proportion
of instalment sales in furniture stores than in department stores
and the effects o f , instalment credit restrictions during the
war, and partly in the greater success of department stores
in obtaining merchandise. During the summer of 1942,
department store stocks of homefurnishings expanded more
sharply than furniture store stocks. Although the merchandise
on hand is now substantially below the 1942 peak, the dollar
value of homefurnishing stocks at the department stores is 12
per cent above that at the close of 1939, compared with an
increase of only 5 per cent for the furniture stores.
Total women’s and men’s wear sales in department stores
have increased 50 per cent since 1939 while apparel store
sales rose 60 per cent during this period. Although the trends
in sales of women’s and men’s wear have differed considerably,
men’s wear accounts for a small part of the total in both types
of stores. The total dollar volume of stocks of women’s and
men’s wear for both the department and apparel stores has
increased about 75 per cent since 1939Indexes of B usiness

Index

1944

1945
March

April
Industrial production*, 1935-39 = 1 0 0 .........

Feb.

239

236

235

231 p

208r

206r

205r

206p

243

231

238 p

170

195

196 p

April

{Board o f Governors, Federal Reserve
System )

Electric power output*, 1935-39 = 1 0 0 t. . . •
(.Federal Reserve B a nk o f N ew York)

The dollar volume of sales so far this year is 60 per cent
above the 1939 level. Based on 1939 census data, one quarter
of consumers’ purchases of department store type merchandise
during that year were made in department stores. Apparel
stores sold 21 per cent and furniture stores 7 per cent. The
remaining 47 per cent was divided among the small specialty
line stores. Using data compiled from the apparel and furni­
ture stores reporting to this bank together with the department
store data by departments (as an indication of the trend of
sales for each particular type of specialty store), it is estimated
that furniture and specialty stores have each lost 2 per cent of
their prewar share of the business, and' the department and
apparel stores have shared equally in the gain.
Homefurnishing sales in department stores increased 25 per
cent from 1939 to 1941, but are now a little below the 1941
peak. Furniture store sales, however, increased only 15 per




Ton-miles of railway freight*, 1935-39 =100
(.Federal Reserve B ank o f N ew York)

Sales of all retail stores*, 1935-39 = 100. . . .
(.Department o f Commerce)

Factory employment
United States, 1939 = 1 0 0 ..........................

169

160

158

155p

152

143

143

141p

335

329

326p

286

290

294

231

245

245p

163

169

169p

125

127

127

73
76

85
74

76
75

(.Bureau o f Labor Statistics)

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

York State Dept, o f Labor)

Factory payrolls
United States, 1939 = 1 0 0 ..........................
(.Bureau o f Labor Statistics)

New Y ork State, 1935-39 = 1 0 0 ................

284p

( N ew York State Dept, o f Labor)

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

Wage rates, 192 6 = 10 0 ....................................
(.Federal Reserve Bank o f N ew York)

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

127p

(.Bureau o f Labor Statistics)

Velocity of demand deposits*, 1935-39 =100
(.Federal Preserve B ank o f N ew York)

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

76
73

* Adjusted for seasonal variation.
p Preliminary.
r Revised.
fSeries revised to exclude production by railway and railroad and New York
City Transit System plants.

FEDERAL RESERVE BANK OF NEW YORK
MONTHLY REVIEW, JUNE 1945

General Business and Financial Conditions in the United States
(Summarized by the Board of Governors of the Federal Reserve System)
and
at factories declined
April. Department store
O UTPUTshowedemployment decline and wholesale somewhat inprices continued to advance
sales
a marked
commodity
slightly.
In d u s t r ia l

Index of Physical Volume of Industrial Production,
Adjusted for Seasonal Variation, 1935-39 Average
— 100' Per Cent (Groups shown are expressed
in terms of points in the total index)
BILLIONS OF DOLLARS

Billions op o

Income Payments to Individuals, Based on Depart­
ment of Commerce Estimates. Wages and
Salaries Include Military Pay. Monthly
Figures Raised to Annual Rates

Pr o d u c t io n

Industrial production, which had advanced earlier this year, declined in April to the
same general level that prevailed during the last half of 1944. The Board’s seasonally
adjusted index was 231 per cent of the 1935-39 average as compared with 235 in the first
quarter.
Activity in the machinery and transportation equipment industries declined about 3 per
cent in April, reflecting curtailed munitions production; the largest part of the decrease
was accounted for by a further reduction in operations at shipyards. As a result of the
decline in shipbuilding during the last 12 months, activity in the transportation equipment
industries in April was 10 per cent below a year ago.
Steel production was maintained at the March level as a decline in output at open hearth
furnaces was offset by a further rise in steel produced in electric furnaces. Production of
nonferrous metals, which had increased somewhat during the first quarter of this year, showed
little change in April. Output of stone, clay, and glass products was maintained at the first
quarter level, while lumber production continued to decline.
Production of textiles and manufactured food products declined slightly in April and
was at the level of a year ago. Cotton consumption showed a decrease of 5 per cent from
March but rayon shipments rose further to a record level. Activity at meatpacking establish­
ments, which had shown little change during the first quarter after allowing for seasonal
fluctuations, declined 10 per cent in April. Output of rubber products decreased as the
shortage of carbon black continued to limit production despite measures to stretch available
supplies. Production of most other nondurable goods showed little change.
Bituminous coal production recovered in the latter part of April from a substantial
decline earlier in the month due to work interruptions accompanying contract negotiations.
Output for the month was 8 per cent below that of March and in the first two weeks of May
continued at this lower rate. Anthracite production in April was 14 per cent higher than
in the preceding month but declined sharply in May prior to agreement on a new wage
contract on May 19. Output of crude petroleum has been maintained at record levels and
iron ore production has shown an exceptionally large increase this Spring due to early
opening of the navigation season on the Greak Lakes.
D is t r ib u t io n

Department store sales declined sharply in April and the Board’s seasonally adjusted
index was 181 per cent of the 1935-39 average as compared with an average of 211 in the
first quarter and with 172 in April 1944. Sales in the first half of May were only slightly
larger than in the corresponding period a year ago. Owing to unseasonably warm weather
and expectations of shortages, much Spring shopping, which would usually be done in April
and May, occurred this year in February and March. In mid-April many stores were closed
immediately following the death of President Roosevelt. Also, in particular cities part of
the recent decrease in sales appears to have been associated with actual or anticipated
income declines resulting from cutbacks in war production.
Freight carloadings of most manufactured products were maintained at a high level
in April and the early part of May and were above the same period a year ago. Shipments
of coal and lumber, however, were in smaller volume, reflecting reductions in output of
these commodities.
C o m m o d it y Prices
1937

1938

1939

1940

1941

1942

1943

1944

1945

Indexes of the Cost of Living as Compiled by Bureau
of Labor Statistics. Last Month in Each Calen­
dar Quarter through September 1940, Monthly
Thereafter (1935-39 average=lO0 per cent)

Wholesale prices of farm products advanced in April and then showed little change in
the first 3 weeks of May. Maximum prices for coal, steel products, and various other indus­
trial commodities have been raised somewhat in recent weeks.
Retail price changes for foods and other commodities apparently have continued to
be small in April and the early part of May.
Ba n k

Member Bank Reserves and Related Items
(Latest figures are for May 23)




Credit

During the four weeks ended May 16 total deposit and currency holdings of businesses
and individuals increased by nearly 3 billion dollars. Increases of about 300 million in
currency and of over 400 million in reserves required to be held against expanding deposits
at member banks resulted in an increased demand for reserve funds by member banks.
This demand was supplied largely by an increase of about 500 millions of dollars in Reserve
Bank holdings of Government securities, mostly bills and certificates, and in part by a
temporary decline in Treasury deposits at the Reserve Banks. Excess reserves rose slightly
to around a billion dollars.
In the 5 months between War Loan drives, December 20 to May 16, reporting banks
in 101 cities reduced their holdings of short term Government securities by around 2.3
billion dollars in order to maintain adequate reserve balances. But during the same period
bond holdings of these banks were increased by 1.6 billion dollars.
Loans to brokers and dealers for purchasing or carrying Government securities, which
had declined in early April to a level comparable with that reached before the Sixth War
Loan drive, rose substantially during the three weeks immediately preceding the Seventh
War Loan drive. Commercial loans declined during the interdrive period, reaching a level
about 500 million dollars lower than that prevailing just before the Sixth War Loan drive.