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O f Credit and Business Conditions

V o lu m e 31






JU N E1949

No. 6

The principal influences in the money market and Govern­

Over the entire period from April 29, when the reduction

ment bond market during the past month were related to

of reserve requirements was announced, through May 16, when
the repercussions of the announcement of the refunding terms

two developments in the spheres of Federal Reserve credit
policy and Treasury debt management. The first was the

took effect, the advance in the prices of the various medium-

lowering of the reserve requirements of member banks,

term bank eligible bonds ranged from 3 /3 2 for the nearer

announced by the Board of Governors of the Federal Reserve

maturities to one-half point for the 2 lA ’s of September 1956-

System on April 29. The second was the announcement on

59. Bank demand for the latter was particularly pronounced,

May 13 of the Treasury’s decision to refund both an issue of

and (as illustrated in the chart) the advance in the price of

lVs per cent certificates maturing June 1 and an issue of
2 per cent bonds called for redemption on June 15 with a

ble bonds (the IVzs of September 1967-72). Apparently the

this issue was greater than that of the longest-term bank eligi­

new issue of VA per cent certificates, rather than with inter­

commercial banks, at least the larger banks which did the bulk

mediate-term notes offering a somewhat higher interest rate,
which had been widely expected in the market, at least in

of the buying in this period, were unwilling to reach out for
the longest issue. Presumably it was felt that the spread in

exchange for the called bonds.

yield between a 7-year and an 18-year maturity (roughly
one half of 1 per cent) did not warrant so great a lengthening
of maturities.

D evelopm ents

in t h e

G o v e r n m e n t Bo n d M a rk et

The effect of these actions on the Government bond market
was to stimulate commercial bank demand for the medium
and longer-term issues which the banks are eligible to hold
and, indirectly, through nonbank investors’ reinvestment of
the proceeds of their sales of eligible bonds to the banks, to
stimulate the demand for ineligible issues. Commercial bank
purchases were made principally by the larger central reserve
and reserve city banks. Country banks remained relatively
inactive, at least in the early part of the month.
After an initial spurt during the trading on April 29, fol­
lowing the announcement of the lowering of member bank
reserve requirements, and to a lesser extent on May 2, prices

Restricted bonds in this period made somewhat more mod­
erate price advances, ranging from 1/32 to 9 /3 2 . Demand
for the restricted bonds originated mainly from savings banks
seeking to reinvest the proceeds of sales of bank-eligible bonds.
The most popular issues were those which will become eligi­
ble for commercial bank investment earliest and which thus
will first reflect the scarcity value characteristic of eligible
bonds. Consequently, those restricted issues which are callable
from 1959 through 1962, and particularly the 2 Vi’s of June
15, 1962-67, showed more sizable increases than the hitherto
more popular Victory and other longer-term “tap” issues.
As a result of the demand for Treasury bonds created by the
developments in the first half of the month, the Federal Reserve

of Treasury bonds moved irregularly upward until the middle
of the month. They then received further stimulus from the
Treasury’s announcement of the terms of its June refinancing.
In terms of prices this second stimulus was short-lived, but in
terms of continuing pressure of demand for medium and
longer-term bank-eligible securities it is likely to be a continu­
ing force.

After the Treasury announcement, prices of the

2 per cent bonds called for redemption on June 15 declined
sharply, as a sequel to the sizable advance which they had
made when a refunding issue more attractive to the market
was expected.

Money Market in May................................ .. . , . 61
Employment, Unemployment, and
the Labor Force........................................ ......... 63
Present Status of the ITO Proposals........ ........ 66
Department Store Trade...................................... 68


Prices of Selected Treasury Bonds*

from the banks. In both instances, considerable strain on the
banks’ reserve positions resulted.
The country member banks, on the other hand, tended to
add to their excess reserves a substantial portion of the funds
released by the reduction of their legal reserve requirements
(effective May 1 ). This prevented, -temporarily at least, the
easing of their reserve positions from being transmitted to the
rest of the banking system and so contributing to the reduction
of pressures that developed elsewhere.
The net effect of the lowering of member bank legal reserve
requirements was to bring about a sharp reduction of Federal
Reserve credit. In the aggregate the member banks had about
1.9 billion dollars of free reserves to invest during the four
weeks ended May 25. Of this amount, 1.3 billion became avail­
able through the reduction in required reserves, while the rest
represented net gains of reserves, mostly from net Treasury dis­
bursements. With these funds, the member banks sharply
increased their holdings of Government securities (principally
bills and bonds), reduced their borrowings from the Federal
Reserve Banks by 100 million dollars, net, and added about 300

System sold 465 million dollars of Government bonds in the

million dollars to their excess reserves, which had been abnor­

three weeks ended May 18. More than half of this amount

mally low toward the end of April. The Reserve System’s

was sold in the first week of especially strong bank buying.

holdings of Government securities declined about IV2 billion
dollars in this period.

Commercial bank purchases of Treasury bonds were reduced
as prices rose in the middle of the month and the higher prices

The aggregate figures, of course, conceal the alternation be­

for eligible bonds brought out fresh supplies of such issues

tween pressure and ease which developed in the market from
week to week, principally among the larger banks, and particu­

from nonbank investors. Consequently, the rise in prices of
most medium-term eligible issues leveled off in the latter part
of the month. Except in a few cases including the two longest

larly among the New York City institutions. In the week ended
May 4, the larger banks tended to anticipate the decline in

issues, however, quotations on restricted bonds continued to

their required reserves and made substantial additions to their

rise modestly, despite further sales out of Federal Reserve

holdings of Treasury securities. Such purchases were made,
through the market, partly from the Reserve System and partly
from nonbank investors. The latter in turn bought substan­

M e m b e r B a n k R eserve P o s it io n s

tial amounts of other types of Government issues, especially

Money market conditions during the past month were dom­
inated by the decline in reserve requirements and by the opera­
tions of member banks incident to their investing the "free”
reserves made available. The investment process was not

restricted bonds, a large portion of which came out of Federal
Reserve portfolios. The New York City banks were also called
ment security dealers.

entirely a smooth one; it led to considerable cross currents in

were under considerable pressure, and it became necessary for

the flow of funds through the money market, producing at one

them to borrow substantial amounts, temporarily, from the

time the rather anomalous situation of a falling rate on new

Reserve Bank.

Treasury bill issues and a rising rate for "Federal funds” in New

funds ruled at 1 7/16 per cent during most of the week.

upon to finance a considerable volume of purchases by Govern­
Their reserve positions consequently

The rate on immediately available Federal

York. At times there was considerable ease in the market and

The reduction of their reserve requirements, together with

at other times considerable strain, particularly in New York

smaller gains of funds from other sources during the week

City. For the most part, this pattern of turbulence was related

ended May 11, enabled the central reserve and reserve city

to the Government security operations of the larger central

banks to reduce their borrowings from the Reserve System

reserve and reserve city banks which, in pursuit of a policy of

considerably and to acquire large amounts of Treasury secu­

fully investing all surplus funds, increased their holdings of

rities. Excess reserves were practically unchanged in the week,

Government obligations in anticipation of the lowering of

despite the drop of about 900 million dollars in required

their required reserves on May 5, and of Government security
dealers who apparently overstocked in Treasury bills around

The anticipation of a large release of bank reserves stimu­

the middle of the month in expectation of further demands

lated bidding on May 2 for the new Treasury bills to be issued


on May 5. As a result, the commercial banks, particularly the
New York City banks, and the Government security dealers
obtained a substantial part of the new issue. The average rate
on new bills consequently fell to 1.147 per cent on May 5,
from 1.156 per cent on April 28.


More than two thirds of the increase in borrowing originated
in New York City, where the money market stringency was
particularly pronounced.
Excess reserves of all member banks increased 220 million
dollars to 1,080 million on May 18 as the New York banks

short-term securities, the Government security dealers were

built up surplus reserves toward the end of the week for the
purpose of averaging out their reserves against requirements

able to dispose of most of their allotments of the new bills as

over a week’s period. In the circumstances, however, the rise

well as previous accumulations of short-term Treasury obliga­

in excess reserves reflected a tight money market situation,
rather than the opposite, and the rate on Federal funds again
rose to 1 7/16 per cent.

In view of the favorable market for Treasury bills and other

tions. Consequently, the dealers reduced their borrowings from
the banks rather sharply in the week ended May 11—
285 million dollars in New York City, as indicated by the
weekly reporting member bank figures.
Through the Reserve System’s sales and redemptions of
securities, a large part of the funds released by the reduction
in reserve requirements of the central reserve and reserve city
banks was channeled into the Federal Reserve Banks, thus
limiting the impact of such funds on Treasury bond prices. In
the week ended May 11 the System redeemed or made net sales
of almost 710 million dollars of Government securities, con­
sisting of 427 million of bills, 175 million of certificates, 89
million of bonds, and a small amount of notes.
The decline in the Treasury bill rate and the ease with which
the previous issue of bills had been absorbed led the larger
banks and the Government security dealers to outbid the rest
of the market for the next bill issue, dated May 12. Since
the larger banks had already fully invested the "free” funds
gained through the reduction in their reserve requirements,

In view of the heavy supply of outstanding issues, bids for
the bill issue dated May 19 by the banks and dealers were
lowered. As a result, there was a better balanced participation
by the market as a whole, and the average rate rose from 1.148
per cent in the previous week to 1.157 per cent, approximately
the level prevailing late in the previous month.
In the week ended May 25, the initial high level of excess
reserves, together with further gains of funds, mainly through
Treasury operations, permitted the member banks to repay
the greater part of their borrowings from the Reserve Banks
and to add further to their holdings of Government obliga­
tions. A considerable part of the addition to Government
security holdings was supplied by dealers, who were thus able
to reduce their heavy accumulation of Treasury bills in the
previous week and to cut down their bank loans.
Toward the end of May, the money market was approxi­
mately in balance, transactions tending to contract reserves
being offset by those tending to expand them.

their subscriptions to the new bill issue presumably were made
in anticipation of further gains of funds. But these gains
failed to materialize, mainly because the current receipts of
the Treasury exceeded its disbursements in the week ended
May 18. The reserve positions of the larger institutions, espe­
cially in New York City, were therefore under considerable
strain temporarily.
The burden on reserve positions was made even heavier by
the inability of the Government security dealers to dispose of
a sizable proportion of their new bills. Dealers were com­
pelled to borrow from the commercial banks to pay for their
allotments, and their loans from the New York City weekly

Recent declines in production, prices, and employment have
high-lighted the problem of adequately measuring the extent
of changes in employment and unemployment. The wide­
spread reports of layoffs and increased claims for unemploy­
ment insurance would be difficult to evaluate without some
comprehensive measure of over-all employment to indicate
the extent to which these factors have been offset by rehirings
or plant expansion in other areas. The two principal employ­
ment indicators in common use are those of the U. S. Bureau of

reporting member banks rose 371 million dollars in the week

the Census and the U. S. Bureau of Labor Statistics. The Census

ended May 18. The result was a loss of a substantial amount

Bureau series gives data on the labor force, employment, and

of bank reserves, since a large portion of the funds loaned were

unemployment, while the B.L.S. series reports the number of

turned over to the Treasury in payment for the bills.

nonagricultural employees.

In order to adjust their reserve positions, therefore, mem­

The Census Bureau makes monthly estimates of changes in

ber banks had to expand their use of Federal Reserve credit.

the employment status of the population of working age,

They sold substantial amounts of Treasury bills, most of which

based on personal interviews with a scientifically selected

were absorbed by the Federal Reserve System, and borrowed

national sample of households during a week in the early part

570 million dollars from the Reserve Banks. Total member
borrowings reached 773 million dollars on May 18, the high­

of each month. In April 1949, these estimates indicated total
employment of 57.8 million persons, somewhat more than

est figure for any weekly report date since November 1945.

during the first quarter of 1949, but about half a million less



than in April of last year. Total employment, as defined by
the Census Bureau, includes all those who worked either full
or part time for pay or profit, unpaid family workers on farms
or in businesses who worked 15 hours or more during the
week surveyed, and persons with a job but temporarily away
from it. Unemployment in April was about 3 million persons,
down somewhat from February’s postwar peak of 3.2 million.
Unemployed persons include those without jobs who are ac­
tively seeking work, plus a few categories of individuals
normally regarded as in the labor market but who, because of
illness, indefinite layoff, or unavailability of suitable work in
their community, are not looking for work. These two cate­

Changes in the Composition of the Labor Force*
( F i r s t f o u r m o n th s o f 1 9 4 9 c o m p a r e d w ith t h e f ir s t f o u r m o n th s
o f 1 9 4 8 , in t h o u s a n d s o f p e r s o n s )

Employment status


Total noninstitutional population, 14 years
of age and over.............................................. 109,244
Outside the labor fo rce ................................
T otal labor force...........................................
Armed services..........................................
Unem ployed...............................................
T otal em ployed.........................................
Nonagricultural industries.................

Average change Jan.-April
1948 to Jan.-April 1949


W omen

+ 199
+ 963
+ 255
+ 683
+ 211

- 51
+ 256
+56 8
-2 3 5
-3 1 5
+ 81

+ 62 5
+ 250
+11 5
+ 260
+ 129
+ 130

* Because of rounding, items may not add to the totals shown.
Source: U. S. Bureau of the Census.

gories, the employed and the unemployed, make up what is
known as the civilian labor force. When the armed forces are
also included, the total labor force is accounted for.
The labor force measured by currently published figures is
not a constant figure, nor does it expand solely with popula­
tion growth. Instead, the number of persons at work or seek­

1949. (The average of the first four months was chosen in
order to eliminate any distortion which weather, holidays,
labor conflicts, and similar factors might induce in a com­
parison of data for a single month in the two years.) The
population of working age has been increasing recently at an

tion. Seasonal workers, particularly in agriculture, often do

annual rate of nearly 1.2 million. Between 1948 and 1949
there was a net decrease of 250,000 in the number of veterans

not seek work after their season of employment, and many

in school or otherwise outside the labor force and a correspond­

ing jobs varies seasonally and with changes in the business situa­

students tend to look for work only during the summer and

ing rise in the civilian labor force. These changes in the

(in some cases) other vacation periods.

During the war

veteran population were more than offset, however, by in­

numerous women, youngsters, and older persons who would

creases in the numbers of nonveterans remaining in school,

not normally have been part of the labor force, took jobs in

of older persons retiring, and of women dropping out of the

order to help the war effort by offsetting the drain of men to
the armed services. After the war, while jobs remained plenti­
ful and wages high, many of these persons remained at work.

labor force to keep house. The net increase of 963,000 persons
in the total labor force between the first four months of 1948
and the similar period of 1949 reflects these shifts plus the

When gainful employment became less remunerative, how­

addition to the labor force that resulted from population

ever, they tended to drop out of the labor force and keep house,
resume schooling, or retire. In such times, though, there is also
a tendency for additional secondary wage earners— wives and
older children— to seek part-time or full-time employment
as family heads lose their jobs or suffer substantial cuts in
earnings. Altogether, it should be emphasized that the vol­
ume of unemployment is not solely dependent upon fluctua­
tions in employment; in fact, it has often happened that unem­
ployment and total employment both rose or both declined

growth. This gain was only partly offset by the addition of

during a given period.

255,000 to the armed forces and a net increase of 25,000 in
total civilian employment; as a result, unemployment rose by
683,000, or more than two thirds of the net increase in the
labor force. In similar fashion, unemployment could continue
to rise substantially during the coming year even if total em­
ployment remained at present levels or increased somewhat.
(These figures, of course, all represent net changes; the per­
sons who join the labor force are not necessarily the same ones
who become unemployed. A substantial labor turnover may

Part of the increase of 1.4 million persons in unemployment

be concealed by a small net change; for example, the Census

since last October (the month of lowest unemployment in

Bureau estimates that while between February and March 1949

1948) and of the drop of 2.3 million in total employment has

nonagricultural employment increased 80,000, net, 2,566,000

been seasonal, particularly where the farm labor force is con­

workers found new jobs while 2,486,000 workers were dis­

cerned. The accompanying chart illustrates the seasonal fluc­

missed or left their old jobs voluntarily.)

tuations of both employment and unemployment in recent

Although the total numbers of those employed or unem­
ployed are generally more widely publicized, the nature of

To some extent, the rise in unemployment compared with

employment, as indicated by the Census Bureau’s data, is like­

last year’s levels may be attributed not only to a decline in

wise a factor of prime importance. Thus, during the past year

the number of jobs but to the failure of employment oppor­

there seems to have been some shift from employment in non-

tunities to continue to expand as rapidly as the labor force.

agricultural industries to agricultural employment. Even more

The accompanying table shows to what extent this was true

noteworthy is the sharp growth in part-time work in nonagri­

between the first part of 1948 and the corresponding period of

cultural industries. In the early part of 1949, the number of


nonagricultural workers on a short work week (less than 35
hours per week) was nearly 1.2 million more than a year pre­
vious, and the number of full-time workers was correspond­
ingly reduced. In fact, the decrease in the number of women
working 35 hours or more per week was more than offset by
the increase in the number of women holding part-time jobs.


Practically all of this decline was accounted for by manufactur­
ing, which (on a seasonally adjusted basis) employed fewer
workers in April than at any time since September 1946.
Despite the general decline, employment in construction, trade,
finance, and government still showed year-to-year increases.
The tendency toward shortened work weeks is also apparent in

For men, there was an over-all decline in nonagricultural jobs

the B.L.S. data; in April the average number of hours worked

(although the number of veterans at work increased) and an
increase in part-time work. Cuts in the average work week,

per week in factories was only 38.3, almost two hours per week
less than a year earlier, and the shortest work week since July

in effect, amount to concealed unemployment through spread­


ing a reduced amount of work among approximately the same

The data on unemployment published by the Census Bureau
are not directly comparable with figures on claims for unem­

number of workers. The data also indicate that there may
very well have been a shift by persons who lost jobs in indus­
try to part-time trade or service jobs or to agriculture, with a

ployment insurance published by the Federal Security Agency,
since the unemployment insurance program does not cover all

consequent drop in income and purchasing power.

branches of economic activity or all types of workers, and

It should be noted that, since the Census Bureau’s labor force
figures are based on sample surveys, they necessarily contain
errors of estimation which would have been avoided in a com­
plete census. These variations may amount to as much as 2 or

there are differences in the two agencies’ definitions of what
constitutes unemployment. Nevertheless, the unemployment
insurance data serve as a useful check on the level and direc­
tion of changes in the unemployment estimates.

3 per cent in the larger aggregates and somewhat more for the

The layoffs at factories and railroads and the net over-all

component figures. The reliability of month-to-month changes,

increases in unemployment have caused much discussion in
recent months. In most areas, however, the growing number
of job seekers has been so far much more in the nature of a
danger signal than an acute social problem such as it was dur­
ing the thirties. The accompanying chart shows that, despite
recent declines, civilian employment is still well above even

or percentage distributions of the data is, however, much
The other major source of current information on employ­
ment trends is the U. S. Bureau of Labor Statistics. The esti­
mates of total nonagricultural employment released by the
B.L.S. each month cover all wage and salary workers in pri­
vate and public establishments other than farms and are based
primarily upon reports from more than 110,000 business estab­
lishments, employing over 11 million workers.

Employment and Unemployment in the United States
(Annually from 1929 through 1945, monthly from

The esti­

mates cover civilian employees only; proprietors, self-em­
ployed persons, domestic servants, and unpaid family workers
are excluded from the B.L.S. estimates, although they are
covered by the Census Bureau data. If a person worked in
more than one establishment during the reporting period, he
would be counted by the B.L.S. more than once, but by the
Census Bureau only once. The Census Bureau, however, counts
as employed those persons who have a job but who are tem­
porarily absent from it because of illness, vacations, labor
disputes, or short-term layoffs; B.L.S. figures ordinarily exclude
such persons except where they are kept on the payrolls during
vacations or illness. The B.L.S. estimating methods permit a
much more detailed breakdown by industry and locality than
the Census Bureau surveys and are particularly useful for fol­
lowing the employment, payroll, and wage trends in particu­
lar industries.
In April 1949, the B.L.S. estimated nonagricultural employ­
ment at 43-9 million persons, about the same as in March
and about 400,000 less than in April of last year. After allow­
ance for seasonal variation (as computed by the Board of
Governors), this series declined in April for the sixth consec­
utive month and was 3 Vi per cent below its October peak.

* E xcluding the armed services.
S ource: 1919-39 estimated by U. S. Bureau of L abor Statistics; 1940 to
date, U. S. Bureau of the Census.



the wartime peaks, while unemployment is below the levels
prevailing in the defense production boom of the early forties,

administration of quota restrictions is prohibited unless re­
quired in order to support exchange controls permitted by the

not to mention the depressed thirties.

International Monetary Fund, or other regulatory measures
authorized by the ITO. Export subsidies are to be banned after


two years, except that member governments retain broad

In March 1948 at Havana, Cuba, fifty-four national delega­
tions to the United Nations Conference on Trade and Employ­

discretionary authority to subsidize exports of primary com­
modities. State trading enterprises are to be required to con­

ment accepted for submission to their respective governments

duct their operations in accordance with "commercial con­

the so-called Havana Charter for an International Trade
Organization. That Charter is the final revision of the draft

gins— comparable in effect to export or import duties—

proposals which were originally made by the United States

between the foreign and domestic prices of commodities

siderations”, and to negotiate reductions of any artificial mar­

Government in December 1945. It incorporates, of course,

traded by them. Emergency provisions permit the withdrawal

many changes which had to be made in the course of several

of tariff reductions or other concessions that prove damaging.
Members further agree to take appropriate action to elimi­

international conferences for the purpose of achieving agree­
ment among the negotiating governments.1 Actual establish­
ment of the ITO now waits upon ratification of the Charter

nate business practices on the part of their nationals (e.g.,
cartel arrangements) that, after investigation by the ITO,

by at least twenty of the signatories of the Havana Agree­

are proved to have a restrictive effect upon international trade.

ment. In this country, early action is sought by the Adminis­

The Organization is empowered to convene intergovern­

tration, which submitted the Charter to Congress on April

mental conferences for the regulation of certain primary
commodity markets when natural economic forces fail, or

28, 1949 in the form of a joint resolution requiring the ma­
jority approval of both houses. Of the foreign signatories, only

threaten to fail, to produce a satisfactory equilibrium. In all

Australia has ratified the Charter to date; most of the others

such agreements, the consuming countries are to have a voice

are expected to defer action until the United States position

equal to that of the producing countries.

becomes known.
The Charter is a complex document of sixty-six closely
printed pages which sets forth the projected role of the ITO
as an agency of international collaboration in the foreign trade

The principal organs of the ITO are to be a Conference;
an Executive Board; Commissions as may be required; and a
Secretariat. Unit voting by countries is to prevail within all of

field. The major provisions of the Charter may be briefly

members will include eight members of "chief economic im­

summarized as follows:
Full employment and rising "effective” demand are accepted
as necessary conditions for the expansion of international
trade. Each member country recognizes its responsibility for

portance”, in the determination of which particular regard is
to be paid to their shares in international trade. With respect

fulfilment of such conditions by measures "appropriate to its
political, economic, and social institutions”. The Charter fur­
ther recognizes that the development of economically retarded
countries will effectively contribute to international prosperity
and accepts the possibility that tariff and other protection of
promising infant industries may usefully serve such economic

these administrative organs. The Executive Board of eighteen

to trade disputes, members failing to reach agreement by
mutual consultation are to refer their differences to the Execu­
tive Board. Decisions or other actions of the Executive Board
may be appealed to the Conference and thereafter, under cer­
tain circumstances, to the International Court of Justice.
Although nothing in the Charter excludes any member from
maintaining economic relations with nonmembers, the Charter
prohibits agreements between members and nonmembers that

development. Members of the Organization agree to assist in

discriminate against other members of the Organization.

the development of the economically retarded countries, which

Members assume no obligation whatsoever to extend most-

in turn agree to subject their protectionist measures to a con­

favored-nation treatment to nonmember countries.

siderable measure of ITO control.
All ITO members undertake to negotiate most-favorednation tariff reductions, which are to operate automatically
# to reduce existing margins of tariff preferences. Quantitative
trade restrictions are barred, subject to numerous exceptions
among which balance-of-payments difficulties on the part of
individual member countries (as appraised by such individual

provide the broadest loophole.




A certain measure of practical application of the Charter
has already been secured in the form of the General Agree­
ment on Tariffs and Trade, signed at Geneva in 1947, which
incorporates the bulk of the commercial-policy provisions of
the Charter. Tariff concessions subsequently granted by the
twenty-three governments2 provisionally accepting the Gen­

Australia, Belgium, Brazil, Burma, Canada, Ceylon, Chile, China,
Cuba, Czechoslovakia, France, India, Lebanon, Luxembourg, the
The original draft proposals and the subsequent internationalNetherlands, New Zealand, Norway, Pakistan, Southern Rhodesia,
Syria, the Union of South Africa, the United Kingdom, and the United
negotiations were discussed in the January 1946, April 1947, and
May 1948 issues of this Review.


eral Agreement have reportedly covered approximately 50 per
cent of world trade.3 The United States tariff concessions,
granted under the Reciprocal Trade Agreements Act, are calcu­
lated to have reduced the average rate of duty on all dutiable
imports into the United States from 32 per cent to 25.4 Repre­


purposes of furthering economic development, full employ­
ment, and other governmental projects.
Import quotas for the protection of infant industries may
be imposed only with the approval of the ITO. Under special
circumstances, however, such as the protection of infant indus­

sentatives of the General Agreement countries are now engaged

tries established between January 1939 and the date of the

at Annecy, France, in the further negotiation of multilateral

Charter, the ITOs prior approval is rendered virtually auto­

concessions with eleven other countries seeking to participate

matic. Furthermore, ITO approval may be sought after, rather

in the Agreement.

than before, the introduction of protective measures if the

The General Agreement thus has already rendered con­

process of negotiation with the ITO threatens to create undue

spicuous service in reducing the tariff barriers to world trade,

speculation in the market concerned. Moreover, the prospec­

and may well continue to exert this beneficial influence even
if the ITO Charter fails of general acceptance. Provisions of

tive preponderance of undeveloped countries in the ITO

the General Agreement which permit the signatories to with­

membership may prove conducive to a liberal interpretation
of the Charter provisions.

hold tariff concessions from nonparticipating countries after
two years should exert considerable pressure upon nonmembers

Although the Charter prohibition of quantitative restrictions
is thus qualified by exemptions sufficient to permit their main­

to enter the pact. Failing widespread defection from the Gen­

tenance and even growth, authorized deviations from the rule

eral Agreement upon its formal termination in January 1951,

of nondiscrimination have been more closely limited. While

the Agreement is to be extended indefinitely.
Considerably more crucial to the expansion of world trade,
however, is international action to curtail the use of quantita­
tive restrictions. In this endeavor, the ITO is intended to con­
stitute the logical complement of the International Monetary
Fund, which is empowered to regulate the use of exchange
controls. Since exchange controls and quantitative restrictions
are largely alternative methods of regulating foreign trade,
it is evident that international action to remove exchange con­
trols should be accompanied by similar action to remove trade
restrictions; otherwise, relaxation of exchange controls may
well be nullified by a corresponding intensification of trade
In striking contrast to the Fund Agreement, however, the
Havana Charter fails to subject the use of quota restrictions in
all cases to the prior approval of the ITO. Thus, ITO members
retain extensive discretionary authority to maintain or reimpose quota restrictions in order: (a) to forestall the imminent
threat of, or to stop, a serious decline in the level of monetary
reserves; or (b ) in the case of a member with very low mone­
tary reserves, to achieve a reasonable rate of increase in its re­
serves. Opportunity for a highly elastic interpretation of such
"imminent threats” is afforded by another Charter provision
recognizing the need of members to safeguard their economies
against deflationary pressure in the event of a serious decline
of the effective demand of other countries. Moreover, the
Charter recognizes that such threats to monetary reserves may
legitimately arise not only from market forces, such as the
curtailment of exports by depression abroad, but also from
member countries’ deliberate expansion of imports for the
3 State Department Bulletin, Vol. X IX , No. 483, Oct. 3, 1948,
p. 445.
4 Clair Wilcox, "A Charter for World Trade,” p. 65.

a broad range of existing tariff preferences is temporarily
recognized, reductions in general tariff rates are to operate
automatically to reduce preference margins. Furthermore, no
preference margin may be increased. On the other hand, the
Charter’s acceptance, under specified circumstances, of quota
restrictions may well prove tantamount to acceptance of their
discriminatory administration.

Foreign governments intent

upon discriminating would not be seriously constrained by
the provision that import and export quotas must be allocated
solely on the basis of the geographical distribution of the same
exports or imports in an earlier representative period (subject
to any special factors affecting the market). It is evident that
choice of the "representative period” and appraisal of "special
factors” will afford ample opportunity for more or less dis­
guised discrimination. State trading monopolies, subject only
to the vague rule of "commercial considerations”, will retain
an even greater degree of freedom to pursue discriminatory



As an instrument of international supervision of the use of
trade restrictions, the ITO blueprinted by the Havana Charter
obviously leaves much to be desired. The Charter has en­
countered widespread criticism on the grounds that it is so
riddled with exceptions as to render it almost valueless as a
means of restoring multilateral and nondiscriminatory trade.
In so far as such current criticism rests on the assumption
that the primary solution to the world trade problem lies in a
thoroughgoing elimination of exchange and trade restrictions,
and that our immediate need is for an international agency
endowed with sufficient authority to compel the removal of
such trade barriers, it oversimplifies the problem. In recent
years, it has become increasingly clear that the disequilibrium
of world trade, particularly the dollar scarcity, is attributable



in large part to other and deeper causes such as wartime losses
of invisible earnings, the lag of European productivity behind
that of the United States, discrepancies in international cost
and price levels, and other basic difficulties.

Sa l e s T r e n d s i n M a j o r D e p a r t m e n t s

The most significant recent development in department
store trade— the contractioii in sales of housefurnishings and
appliances— conforms, in a sense, to a familiar pattern. In the

So long as these root causes of disequilibrium remain un­

prewar years, when aggregate consumer demand rose, sales of

corrected, many foreign countries may well find themselves

durable goods usually rose faster than sales in most other
lines and, conversely, during a period of generally lessening

unable to dispense with quantitative and discriminatory restric­
tion of their foreign trade. Restrictive measures currently in
force cannot be suddenly swept away without causing painful
transitional effects and quite possibly retarding, rather than
advancing, progress toward trade equilibrium.
As part of an over-all effort to restore a balanced pattern of
international trade, however, reduction of trade barriers can
contribute significantly to a successful solution. Thus, lack of
foreign markets rather than inadequate output may soon ap­

demand they declined more sharply. The relatively sharper
changes in durable goods sales occurred partly because the high
unit price of durables renders them especially sensitive to
changes in income and in consumer expectations, and partly
because durable goods, by their very character, need not be
purchased with the same regularity as the more perishable
lines of merchandise or those which are more subject to shortrun changes in style. During the past year or so, moreover,

pear as a limiting factor in the recovery of Western Europe.

department stores have probably lost some business to neigh­

Action to secure a closer integration of national economies will
require careful planning, however, and, inevitably, protracted

borhood stores which have given discounts on standard brand
appliances (frequently by making overgenerous trade-in al­

consultation and negotiation among the various nations con­

lowances). However, the numerous price reductions at the
manufacturers’ level and the rapid introduction of lower

In general, therefore, it would seem that our immediate need

priced, less elaborate models in many durable goods lines are

is for an international instrument of planning and negotiating

symptomatic of an over-all easing of consumer demand.
During the first fiscal quarter of 1949 (February, March,
and April), consumer dollar outlay for housefurnishings in
Second District department stores was about one-tenth smaller
than in the corresponding period of 1948. But, as the accom­
panying chart shows, housefurnishings sales had been excep­
tionally large during the first fiscal quarter of 1948 and, indeed,
had shown a greater increase over the corresponding quarter

reductions of trade barriers rather than an instrument for
compelling their elimination. The serious
national trade policies that emerged during
the Charter would inevitably have dominated
negotiations of most countries, implicitly if

divergencies of
the drafting of
the future trade
not openly. By

clarifying these issues, the Charter has contributed substan­
tially to mutual understanding of the obstacles to be overcome
in future negotiations. The International Trade Organization
itself could provide the international machinery for such

During May, consumer purchasing at Second District depart­
ment stores, after adjustment for the usual post-Easter dip,
remained close to the April level, according to a preliminary

of 1940 (also a period of very good housefurnishings busi­
ness) than any other major category of department store trade.
While a part of the dollar volume decline from 1948 resulted
from lower prices, some part reflected reduced unit volume.
Despite the year-to-year decrease, dollar sales of housefurnish­
ings in the first fiscal quarter of 1949 were still somewhat more
than two and one-half times those of 1940.
In a few housefurnishings departments, because of special

estimate. A comparison with the exceptionally good business

circumstances, sales increased contrary to the general down­
ward trend. For example, the Oriental rug department actually

of last May, however, indicates a year-to-year decline of per­

gained almost 50 per cent from last year’s first quarter, an

haps 8 or 9 per cent in dollar volume. In view of generally

improvement probably not matched by any other department.

lower prices than last year’s, the decrease in physical terms was

This gain, however, was made against a period when, owing

undoubtedly less than that showed by the dollar amounts.

to consumer price resistance, sales of Oriental rugs were lag­

Partly because of the relatively unfavorable level of business

ging markedly. Although specific data are not available, first

as compared with last year, and partly because of lower valua­

quarter sales of television sets, stimulated by aggressive special

tions, the retail value of inventories at the end of April was

sales and price reductions, were apparently good.

6 per cent lower than a year previous. The value of outstand­

The sharpest declines occurred in refrigerators and other

ing orders declined seasonally during April and was one-third

appliances, the drop in refrigerator sales amounting to more

less in value than in the year before. The stores have main­

than 50 per cent. These declines, following the lag in sales

tained this year-to-year ratio rather consistently since the first

which began late in the fall season, have caused not only com­

of the year. The dollar volume of new orders placed during

petitive price reductions but also shifts in production sched­

April, however, about equaled that of April 1948.

ules in favor of lower-priced models. It is noteworthy that


Department Store Sales, Second Federal Reserve District, First Fiscal Quarter* of Selected Years
(In dex numbers, first fiscal quarter of 1940=100 per cent)

Per cent



300 1-----



2 00


15 0









f //

1 9 4 0 * 4 5 *48 ’4 9

G ra n d
to ta l

1 940*45 M 8 ’4 9

M a in
sto re

f 9 4 0 ,4 5 ’ 4 8 »49

1940M 5M 8M 9


Women’ s
wea r

1 9 4 0 ’ 4 5 * 4 8 ’4 9

w ear

1 9 4 0 * 4 5 *48 *49

Housefurnish in g s

* February, March, April.

appliance sales were lower in each month of the quarter than
in the corresponding month of 1948. In practically all other
housefurnishings lines, year-to-year gains were made in at
least one month, even though for the quarter as a whole sales
showed a drop. In fact, a few departments did so well in March
that the year-to-year decline for that month in the housefur­
nishings group was the narrowest in the entire store (one per
cent, against 11 per cent for the store as a whole).
Furniture sales were about 4 per cent below the dollar vol­
ume of the first fiscal quarter of 1948. There is some likeli­
hood, however, that the physical volume of upholstered furni­
ture sales was at least as large as last year’s. Sales of upholstered
lines have held up better than other types of furniture, par­
ticularly bedding, in part because in the initial postwar period,

decline in sales of women’s and misses’ apparel. In the Second
District, a larger share of apparel sales is handled by specialty
stores than in the rest of the United States. For the first
four calendar months of 1949, a group of the larger District
apparel stores, located chiefly in New York City and specializ­
ing in women’s lines, also reported a sales decline (6 per
cent) from 1948.
Women’s suits have continued to be very popular in 1949.
Dollar sales in that department during the first quarter were
16 per cent greater than one year previous. The gain was par­
ticularly large in April, in part because of the later Easter
this year, but even in March it was very substantial. Other
women’s apparel departments declined sufficiently to more

when customers had had to postpone all but the most urgent

than offset the increased buying of suits. In dress lines, all of
which showed decreases, the decline was greater for the higher

demands for other furniture, bedding had been readily avail­

priced lines than for the inexpensive ones, in a way parallel­

able. The domestic rugs, carpets, and linoleum department,

ing the 1948 experience when gains had been sharper for the

partly because of neighborhood store competition, sold about

inexpensive lines. Furs showed a further decline.

14 per cent less than in February-April of 1948. In other

Sales of almost every type of accessory, in dollar terms, failed

housefurnishings departments, declines were less marked; sales

to improve from 1948. Even hosiery, which a year ago was

of lamps and shades, for instance, were only one per cent below

among the stores’ best selling items, showed no improvement.

the 1948 dollar volume.

The impact on hosiery of new styles and colors has apparently

In ready-to-wear departments, the outstanding development
during the first quarter of the store year was a year-to-year

waned with the filling of consumers’ stocks.
As the chart shows, sales of all types of women’s wear taken



together had reached an exceptionally large dollar volume

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

by the first quarter of 1945, more than double that of 1940;
Net sales

the relative growth up to that time was far greater than for
the store as a whole. Between 1945 and 1948, despite the
retirement of many women from the labor market and the
renewed availability of many other kinds of merchandise which
had been practically unobtainable during the war, women con­
tinued to increase their purchases of ready-to-wear considerably.
In the first fiscal quarter of this year, the decline in sales of
women’s wear from the 1948 first quarter was on the whole
fairly moderate. First quarter sales in 1949 stand best of the
three major groups of department store merchandise relative
to 1940.
Basement stores also showed a sales decline from the first
quarter of last year, but it was smaller than in the main store.
Hardly any individual basement department made better sales
than a year ago. It is not surprising that basement sales
declined along with the aggregate. The chart shows that in
the first quarter of 1948 basement sales, relative to those of


Stocks on
Jan. through
April 1949 April 30, 1949

Department stores, Second D istrict... .






New York C ity ......................................
Northern New Jersey...........................

- 3
+ 1
+ 1
- 1
- 4
+ 4
+ 5
+ 8
+ 6







Westchester C ounty.............................
Fairfield C o u n ty ....................................
B ridgeport...........................................
Lower Hudson River V alley...............
Upper Hudson River V alley...............

Northern New Y ork State..................
Southern New Y ork State...................
Bingham ton........................................


Western New Y ork State....................

+ 6

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

+ 7
- 5
+ 6


Apparel stores (chiefly New York C ity ).

+ 7


Central New Y ork S tate.....................
Mohawk River V alley .....................









- 9
- 9
-1 4
-1 6



- 8




- 7
- 7
-1 3

- 9
-1 3
- 6
- 8



-1 1



1940, had had a greater growth than the main store sales
( which account by far for the bulk of total transactions). The

est declines from 1948. Stocks of womens accessories were

growth of basement sales since 1945, particularly in 1947, is

reduced somewhat more than stocks of apparel. A large part

especially noteworthy.

of the reduction in stocks reflects revaluation at lower prices,
but some part of it results from the drastic cuts in outstand­

Department Store Sales and Stocks
Second Federal Reserve District
(Percentage change from preceding year)

ing orders initiated towards the end of 1948.


Indexes of Business

Departmental group
FebruaryApril 1948
M a in store ....................................................

+ 5

W om en’s apparel...................................
W om en’s accessories.............................
Piece goods and household textiles. . .
Small wares.............................................
M en’s wear..............................................
Miscellaneous merchandise.................

+ 8

Basement store ............................................

+ 4
+ 2




FebruaryApril 1949

April 30, 1949



Industrial production*, 1935-39 = 100.........
(Board o f Governors , Federal Reserve
S ystem )
Electric power output*, 1935-39 = 1 0 0 . . . .



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



-1 1






— 4
- 1
- 3
- 4
-1 3
- 1
- 1
-2 3



















332 p








113 p























(Federal Reserve B ank o f N ew York)

(Federal Reserve B ank o f N e w York)

Sales of all retail stores*, 1935-39 = 100-----

The accompanying table illustrates the cuts in stocks which

( Department o f Commerce)

merchants have made as sales prospects weakened. Stocks in

Factory employment
United States, 1939 = 100..........................

all major departmental groups at the end of April were lower

New York State, 1935-39 = 100................

than a year previous. This was notably true of piece goods and

Factory payrolls
United States, 1939 = 100..........................

household textiles and of miscellaneous merchandise: in these
two departmental groups, first quarter sales showed the sharp-

(Bureau o f Labor Statistics)
( N Y S D iv. o f Placement and Unem p. In s.)

(Bureau o f Labor Statistics)

New Y ork State, 1935-39 = 100................

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

258 p

( N Y S D iv. o f Placement and U nem p. In s.)

Personal income*, 1935-39 = 100..................
(Department o f Commerce)

Composite index of wages and salaries*J,
1939 = 100......................................................
(Federal Reserve B a nk o f N e w York)


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



(Bureau o f Labor Statistics)

Velocity of demand deposits*, 1935-39 = 100





Sales (average daily), unadjusted.................
Sales (average daily), seasonally ad ju sted ...





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





r Revised.

(Federal Reserve B ank o f N ew York)

New York C ity .............................................
Outside New York C ity ..............................


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



(Summarized by the Board of Governors of the Federal Reserve System, May 26, 1949)
Industrial output declined further in April and the early part of
May. Prices of industrial commodities were reduced further, while
prices of farm and food products continued to show little change.
Construction awards showed a marked seasonal expansion. Value of
department store sales increased to close to the advanced level pre­
vailing a year ago.
Industrial Production
Industrial production, as measured by the Board’s seasonally
adjusted index, declined further in April to 179 per cent of the 193539 average as compared with 184 per cent in March and 195 per
cent in November 1948. Present indications are that in May manu­
facturing has continued downward and that there has also been some
decline in output of minerals, which had increased in April.

ton consumption declined 8 per cent in April. Activity at paper mills
decreased about 5 per cent, while paperboard production was main­
tained at the reduced March level. Newsprint consumption increased
slightly, and output of manufactured foods was maintained at the
March level.
Minerals production advanced about 8 per cent in April, reflect­
ing chiefly the ending of the work stoppages at coal mines. Iron ore
production was in exceptionally large volume for this season. Crude
petroleum output, however, was curtailed further by about 4 per cent.
Value of construction contracts awarded in April, according to the
F. W . Dodge Corporation, was one-eighth larger than in March, reflect­
ing increases for private residential building and public works and
utilities. Private awards continued considerably smaller than a year
ago, while public awards were about one-third larger. The number of
permanent residential units started ia April, as estimated by the Bureau
of Labor Statistics, rose from 62,000 to 86,000 but was still consid­
erably below the postwar peak of 100,000 units in April and May

Open hearth steel production declined 3 per cent in April from
the record March level and output at electric furnaces, which accounts
for only a small part of total steel output, was curtailed by 23 per
cent to the lowest rate since January 1948. Activity at steel mills
has continued to decline in May. Assembly of passenger automobiles
increased sharply in April to the highest rate of the postwar period;
a strike at plants of one major producer, however, has curtailed ac­
tivity in May. Output of most types of machinery in April declined
considerably further. Deliveries of nonferrous metals to fabricators
were sharply reduced, as prices and private purchases dropped; refinery
output of most nonferrous metals, however, was maintained at a
high level, reflecting in part Government demands for stockpiling.
Output of most building materials, after allowance for usual seasonal
changes, decreased somewhat further.

Employment in nonagricultural establishments continued to decline
in April, after allowance for seasonal changes, owing mainly to
further reductions in most manufacturing industries. The average
work week in manufacturing was also reduced further. Construction
employment, which had lagged in March, rose somewhat more than
seasonally in April. Employment in most other nonagricultural lines
showed little change.

Nondurable goods output declined about 4 per cent in April reflect­
ing mainly further marked reductions in the textile, paper, and chem­
ical industries, as a result in part of seasonal influences not currently
allowed for in the Board’s adjusted indexes. Rayon production and
deliveries to textile mills decreased sharply, and, according to trade
reports, activity in the wool textile industry was reduced further. Cot­

Value of department store sales increased more than seasonally in
April and the first half of May. Allowing for the later date of Easter
this year, sales in this period were only about 3 per cent below the
high level in the corresponding period last year. Since retail prices

Em ploym en t

D istribution




\* I '
Vw "

Federal Reserve indexes. M onthly figures; latest shown are for April.



F. W . D odge Corporation data for 37 Eastern States.
latest shown are for April.

M onthly figures;



were moderately lower than a year earlier, little change in over-all unit
sales at department stores was indicated.
Carloadings of railroad freight were in larger volume in April and
the early part of May, mainly because of the recovery in coal shipments
from the reduced March rate. Loadings of most other classes of freight
declined somewhat further, after allowance for seasonal changes.

C o m m o d it y Prices

Prices of agricultural commodities continued to show little change
from mid-April to the third week of May, while prices of industrial
commodities generally declined further. Prices of scrap metals continued
to weaken and refined copper was cut from 23.5 cents per pound to
below 18 cents. Prices of some other industrial materials, however,
like burlap, hides, and wool tops, were quite stable in this period.
The consumers’ price index showed little change in April as further
small advances in rents and in prices of meats and miscellaneous items
were largely offset by declines in prices of most other groups of goods
and services.

B a n k C redit

Required reserves of all member banks were decreased by about
1.2 billion dollars in early May when the reduction in reserve require­
ments announced by the Board of Governors in late April became
effective. Banks used most of the released funds to purchase both short­
term and longer-term Government securities. Reserve Bank hold­
ings of Government securities declined by about 1.5 billion dollars
during the first three weeks of May. The market for Treasury bonds
continued active and System sales of these issues amounted to about
500 million dollars.
Business loans declined by 1 billion dollars at banks in leading
cities during April and the first half of May; somewhat over half the
decline occurred at banks in New York and Chicago. Real estate and
consumer loans showed little change.
Se c u r it y M a r ke ts

Prices of common stocks fluctuated within a narrow range and
high-grade corporate bonds changed little in the first three weeks of




















|V .
j l











: for
Department of Commerce estimates. M onthly figu res; latest shown
March. Total includes “ other labor incom e” , such as employer contributions
to private pension funds, not shown separately. Employee contributions for
social insurance are included in wage and salary disbursements but not in total.




1 94 6





Excludes loans to banks. W ednesday figures; latest shown are for M ay 18.