The full text on this page is automatically extracted from the file linked above and may contain errors and inconsistencies.
MONTHLY REVIEW
Of Credit and Business Conditions
FEDERAL
V olum e
RESERVE
35
J U N E
M O N E Y
OF
NEW
YORK
1953
M A R K E T
W hile bank reserves rem ained in generally tight supply
during May, the m oney m arket was relatively easier over m ost
of the last half of the m onth than it had been for some time.
Federal funds in N ew Y ork, w hich in preceding m onths had
been quoted alm ost continuously at or close to the 2 per cent
Federal Reserve discount rate, were generally available in the
m arket during the last half of M ay below that rate, and near
the close of the m onth the effective rate fell as low as Vi t0 Vi
per cent. However, at the m onth end. the rate on Federal
funds firm ed considerably. T he m arket gained reserves on bal
ance during M ay from m oderate purchases of G overnm ent
securities by the Federal Reserve System, while the level of
required reserves was reduced by a further decline in dem and
deposits at m em ber banks, w ith the result that the banks were
cible to reduce the average level of their indebtedness to the
Reserve Banks.
Y ields on short-term Treasury securities were below
end-of-A pril levels during m uch of the m onth, reflecting a
large nonbank dem and for this form of investm ent and a
reduced volum e of com m ercial bank liquidation. Treasury
bills dated M ay 21 and M ay 28 were aw arded at average rates
of 2.092 and 2.084 per cent, respectively, com pared w ith aver
age rates of 2.352 per cent and 2.271 per cent on the issues
dated M ay 7 and 14. T he yield decline occurred despite new
Treasury borrow ing of 600 m illion dollars through additions
to the weekly bill m aturities. Treasury bond prices, on the
other hand, m oved low er (yields high er) during the m onth,
particularly tow ard the close, extending the price decline that
has brought prices on these securities to successive lows during
the course of the past few m onths.
T he Treasury com pleted its spring refunding program dur
ing M ay w ith an offering of 2% per cent one-year certificates
of indebtedness in exchange for the approxim ately 5.0 billion
dollars o f 1 Vs per cent certificates m aturing on June 1 and the
725 m illion dollars of partially tax-exem pt 2 per cent bonds
called for redem ption on June 15. Subscription books were
open from M ay 20 through M ay 22, and holders of 4,411 m il
lion dollars of the m aturing certificates and 447 m illion of the
bonds elected to exercise their exchange options, indicating an
BANK
No. 6
IN
M A Y
over-all attrition of about 15 per cent. O n M ay 29, the Treas
ury offered for com petitive bids 800 m illion dollars of tax
anticipation bills to be dated June 3 and to m ature Septem ber
18, 1953. A ccepted bids for the issue were at an average
rate of discount of 2.383 per cent. D uring A pril and M ay the
Treasury borrow ed a total of 700 m illion dollars through addi
tions to some of the weekly bill offerings, and an additional
200 m illion dollars will be raised on the T reasury bills to be
dated June 4.
M em ber bank credit developm ents during M ay followed
the pattern established in previous m onths this year. Business
loans at the weekly reporting banks for the three weeks ended
M ay 20 were reduced by 168 m illion dollars, but the net repay
m ent of loans of this type was m ore than offset by a further
small expansion of consum er and real estate loans and by a
280 m illion dollar grow th in interbank loans, so that net loans
of the reporting banks increased by 248 m illion dollars for
the period. D uring these three weeks, how ever, the reporting
banks disposed of 427 m illion dollars of G overnm ent securi
ties and 105 m illion of other securities, w ith the result that
total loans and investm ents of these banks declined by 284
m illion dollars.
M ember Ba n k R eserve Balances
T otal excess reserves of m em ber banks had been only 32
m illion dollars at the close of the last statem ent week in April,
so that the largest part of the increase in m em ber bank dis
counting during the tw o weeks ended M ay 13, show n in the
CONTENTS
Money Market in M a y ........................................ .. .
The Changing Impact of the British Budget. . .
Consumer Price In d e x ................. ...........................
Revision of Consumer Credit Statistics.............
Selected Economic Indicators ..............................
Department Store T r a d e ........................................
81
84
90
90
92
93
MONTHLY REVIEW, JUNE 1953
82
W e e k ly Changes in Factors T ending to Increase or Decrease
M em ber B ank R eserves, M a y 1 9 5 3
(In m illions of d o lla rs; ( + ) denotes increase,
(— ) decrease in excess reserves)
M ay
6
M ay
13
M ay
20
M ay
27
Four
weeks
ended
M ay
27
Operating transactions
Treasury operations*..............................
Federal Reserve float..............................
Currency in circulation..........................
Gold and foreign account......................
Other deposits, e tc ...................................
+150
+ 66
- 76
0
+ 31
-2 1 3
+ 37
+ 18
-1 0 1
+
8
+289
+148
+ 50
+ 35
+ 83
-2 1 1
-1 8 7
- 30
+ 54
+ 48
+ 15
+ 64
- 38
- 12
+ 170
T otal............................................
+172
-2 4 9
+603
-3 2 5
+201
+
+
54
96
+ 19
+331
+ 43
-7 3 4
+ 166
+ 41
+282
-2 6 6
+150
+350
-6 9 1
+207
+
Statement weeks ended
Factor
Direct Federal Reserve credit transactions.
Government securities............................
Discounts and advances.........................
Total............................................
16
Total reserves...................................................
Effect of change in required reserves.........
+322
+ 24
+101
+141
-
88
56
-1 1 8
13
+217
+ 96
Ex ce ss reserves.................................................
+346
+242
-1 4 4
-1 3 1
+313
D aily average level of discounts.............
Daily average level of excess reserves. .
1 ,126
409
1 ,313
623
845
581
617
472
975
521
N ote: Because of rounding, figures do not necessarily add to totals.
* Includes changes in Treasury currency and cash.
accom panying table, was used to rebuild excess reserves to
m ore nearly norm al levels. Reserves were supplied to the
m em ber banks during this two-week period by a relatively
sm all increase in float and by net outlays from 'o th e r” accounts
m aintained w ith the Federal Reserve Banks. A t the same
tim e, required reserves declined by 165 m illion dollars, releas
ing that volum e of reserves. H ow ever, the Treasury added to
its balances at the Reserve Banks during the first two weeks
and currency in circulation increased, tending to reduce m em
ber bank reserves. A nd in the week ended M ay 13, foreign
official deposits at the Reserve Banks were increased, which
also appears in the table as a drain on bank reserve balances.
A lim ited am ount of funds was supplied to the m arket in
this period through purchases of short-term G overnm ent secur
ities by the Federal Reserve System. Federal Reserve security
operations continued throughout M ay and included both out
right purchases for the System O pen M arket A ccount and,
from tim e to tim e, acquisitions of securities under repurchase
arrangem ents w ith dealers.
Over the m iddle of May, substantial net disbursem ents from
Treasury balances at the Reserve Banks coincided w ith the
usual m idm onth increase in float and a net addition to
reserves from other sources. T he reserves accruing tem porarily
to the m arket were em ployed to reduce m em ber bank in
debtedness to the Reserve Banks, as shown in the table. O n
M ay 20, m em ber bank discounts totaled only 530 m illion
dollars. N ew Y ork City banks were in relatively easy condition
tow ard the close of the third statem ent week, and Federal
funds were readily available in the N ew Y ork money m arket
at that tim e at rates well below the 2 per cent rate on dis
counts at the Reserve Banks.
In the final statem ent week and the closing days in May,
reserves were w ithdraw n from the m arket by the customary
end-of-the-m onth contraction of float, an increase in Treasury
balances at the Reserve Banks, and an outflow of currency
prior to the M em orial D ay week end. H ow ever, a substantial
part of these drains was offset by continued System purchases
of G overnm ent securities. M em ber bank borrow ing by the
end of the fourth week had been increased to slightly higher
levels, but the relatively am ple supply of reserve balances
throughout the week as a w hole is indicated by the fact that
daily average borrow ing by banks was actually som ew hat
low er than it had been in the previous week. Reflecting the
accum ulation of excess reserves during the course of that
week, surplus funds tended to flow into the N ew Y ork money
m arket, and Federal funds w ere in abundant supply at a
nom inal charge by the end of the week. Over the full four
weeks in May, m em ber banks acquired about 480 m illion dol
lars in reserve balances (exclusive of changes in borrow ing
from the Reserve B anks), of w hich about 280 m illion repre
sented purchases of short-term securities by the Federal Reserve
System. Part of the increase in available reserves w ill probably
be needed to provide for the new T reasury deposits arising
from bank purchases of some part of the new tax anticipation
bills to be issued by the T reasury on June 3.
T reasury Finance an d the M arket for
G overnment Securities
T he realignm ent of prices and yields on interm ediate to
longer-term G overnm ent securities that had grow n out of the
influences im pinging upon the m arket during A pril was
extended in trading during the early part of M ay, and price
declines ranging up to % of a poin t w ere recorded. Subse
quently, prices advanced to slightly higher levels, w here they
fluctuated irregularly until the last week in May w hen a sharp
price decline brought prices on outstanding Treasury bonds
and notes to new lows for these issues. T he price weakness
that developed near the end of M ay appeared to reflect, p ri
marily, continuing uncertainty as to the im pact that expected
Treasury and private new m oney financing w ill have upon the
m arket rate structure. R edistribution of the new 3 Va per cent
long-term bonds continued in m oderate, two-way trading, and
the generally satisfactory perform ance of this key issue until
the last few days of the m onth helped offset underlying factors
of weakness and contributed some balance to the m arket dur
ing m ost of May. Price quotations on the new bonds fell to
alm ost Vi a point below par early in May, b u t prices recovered
thereafter and the issue traded over m ost of the balance of the
m onth at about Vs to V4 of a point discount from par on the
bid side. A t the end of the m onth, the price receded to m ore
than Ya of a point discount. T rading in other interm ediate
and longer-term G overnm ent securities, including some sw itch
ing into the 31/4 ’s, was desultory throughout May. A few
public and private pension funds purchased lim ited am ounts
of long-term bonds, w hich w ere supplied to the m arket by
dealers and by scattered bank and nonbank investors, and a
m oderate volum e of tax sw itching in interm ediate-term notes
was undertaken. G enerally, how ever, this m arket continued
thin, presum ably reflecting the above-m entioned uncertainty
as to the im pact of further borrow ing dem and upon interest
rates on public and private securities.
FEDERAL RESERVE BANK OF NEW YORK
After firming slightly early in May, yields on short-term
Treasury securities tended to decline from the levels reached
at that time. During much of the last half of the month,
yields on most Treasury bill maturities were quoted on the
bid side at a 1.75 to 2.00 per cent range, by contrast with
a range of 2.10 to 2.35 per cent early in the month. Yield
quotations on the shorter-term certificates of indebtedness also
moved to lower levels, while the longer certificates and short
notes and bonds were largely unchanged in price until the
last week of the month. At that time, the gradually tightening
money market and the announcements of the scheduled new
Treasury borrowing through regular bills and tax bills resulted
in some firming of short-term yields.
The easier tone in the short-term security market during
the greater part of May reflected a combination of influences.
In part, it resulted from the easier conditions in the money
market and a somewhat reduced pressure of bank liquidation.
It also was affected by the continuing nonbank demand for
short-term Governments, part of which represented temporary
employment of funds pending clarification of the outlook for
longer-term issues. In addition, dealer positions in short-term
Governments had been allowed to run down during the period
of rate uncertainty in April and early May, and the dealers
were unable to meet the net demand out of their own port
folios. The conditions underlying the market for short-term
securities during the greater part of May, therefore, helped
provide for absorption of the 600 million dollars of new bor
rowing undertaken by the Treasury during the month through
200 million dollar additions to the bill issues dated May 7,
May 21, and May 28.
Announcement of the Treasury’s exchange offering of oneyear 2 Y8 per cent certificates for the maturing 1% per cent
certificates and called 2 per cent bonds was generally well
received, and the terms offered by the Treasury were viewed
as substantially in line with the market. A small premium was
established during the first day of ' rights” trading, but a mar
ket for the rights failed to develop at this price, and bids were
lowered to par or, in some cases, slightly below par. Selling
of rights originated principally with holders who considered
the one-year term of the new certificate too long to fit
their money requirements or who, because they are in an
excess-profits-tax bracket, found the after-tax yield on other
short-term securities now selling at a discount more attractive.
Some buying of the rights developed at or close to par, but
trading was not particularly active and many holders who
might have sold rights in a broader market presented their
securities for cash redemption at maturity. In "when-issued”
trading after the subscription books closed on May 22, the
new certificates were quoted at approximately par bid until
the general rate adjustment near the month end, when the
"when-issued” price of the new certificate sagged fractionally
below par.
The Treasury announced on May 11 that its Savings note
program had been revised, with a new Series B 1953 note
replacing the Series A obligations which have been offered
83
for the past two years. The new Savings notes offer a yield
of 2.47 per cent if held two years to maturity, by contrast with
a yield to maturity (three years) of 1.88 per cent on the
Series A notes. Increased yields on marketable securities fall
ing in the maturity range of the Savings notes have, during
the past two years, encouraged an increasing volume of re
demptions of Savings notes both for cash and for payment
of taxes. Between the fall of 1950 and the beginning of May
1953, Treasury Savings notes outstanding declined from about
9.0 billion dollars to 4.8 billion dollars. It is still too early to
determine the effect that this latest change in the Savings note
program will have upon investor interest in these securities.
M ember Bank Credit
In the three weeks between April 29 and May 20 this year,
total loans and investments of the member banks in leading
cities which report these statistics weekly were reduced by
284 million dollars, while in the similar period last year this
total increased by a small amount. For the year through
May 20, total earning assets of reporting banks were down by
almost 3.5 billion dollars; in the similar period last year the
decline was only 840 million dollars.
However, practically the entire contraction in earning assets
in 1952 could be accounted for by a net repayment of business
loans totaling more than 780 million dollars. This year, business
loans at the reporting banks have been reduced by 425 million
dollars. Total loans of all types at these banks had actually
increased by 581 million through May 20, 1953, in contrast
to a decline of 451 million dollars over the comparable period
in 1952. The seeming contradiction in these statistics, which
show a more rapid decline in total earning assets this year than
last, along with a small contraseasonal loan expansion this year,
is explained by the much more rapid liquidation of Govern
ment security holdings of the reporting banks in the past few
months. Government securities held by the weekly reporting
banks were reduced by about 650 million dollars in 1952
through May 21; they were reduced by 4,145 million dollars
in 1953 through May 20.
Weekly reporting New York City banks accounted for the
largest part of the total changes in loans at all reporting banks
during the three weeks between April 29 and May 20. As
indicated earlier, the increase of nearly 250 million dollars in
net loans at all reporting banks reflected primarily the 280
million dollar expansion in interbank loans; of this total,
nearly 260 million dollars represented loans by City banks.
Also, New York City banks were responsible for more than
four fifths of the 168 million dollar contraction in business
loans of reporting banks during this period. However, the
decline of 43 million dollars in total loans and investments at
the New York banks was proportionately less than that for all
reporting banks (284 million dollars), reflecting the fact that
liquidation of Government securities by the City banks was
only one quarter of the total 427 million dollar reduction in
this item for all reporting banks.
84
MONTHLY REVIEW, JUNE 1953
TH E
C H A N G IN G
IM P A C T
Chancellor Butler’s budget for 1953-54, presented to Parlia
ment on April 14, brought a welcome measure of tax relief
both to industry and to individuals. During the postwar years
major increases in government expenditure over prewar levels,
particularly for the social services and defense, have imposed
upon the British public an exceptionally heavy burden of taxa
tion. For much of the postwar period, moreover, the British
Government has been compelled to make even heavier taxa
tion demands upon the economy in order to provide a margin
of "public” saving via the budget as an offset to the deficiency
of private saving. Through this budgetary procedure, revenue
surpluses on current account have greatly assisted in offsetting
the inflationary implications of the heavy financing of new
capital investment, both public and private.
Such disinflationary budgetary policy has been increasingly
supplemented by various measures of monetary restraint, par
ticularly since November 1951. This combination of fiscal and
monetary measures has helped gradually to reduce the "excess”
private liquidity which had developed during the war when a
"cheap money” policy was pursued within a framework of
price controls, rationing, and other direct controls. By the end
of 1952, the potential of excessive money and spending power
constituted a much smaller threat to Britain’s internal stability
and external balance than at any time since the early stages of
the war. At the same time, there was a rise in private saving
during 1952 which, coupled with the notable decline in import
prices that had commenced in 1951, helped to offset the infla
tionary effects of an increase in defense expenditure and a rise
in wage rates. The interaction of these forces, once a restric
tive budget policy was reinforced by an increasingly restrictive
monetary policy, has resulted in the maintenance of reasonable
internal price stability in Britain since mid-1952.
In consequence, with Britain’s balance-of-payments position
much improved since the dollar crisis of 1951-52 and with
Table I
Central G overnm ent “ R evenue A c co u n t” D isb ursem en ts in B ritain
(A s a per cent of national incom e)
Item
Current expenditure on goods and services
Defense .................................................................
National Health Service...................................
Other.........................................................................
1946
1948
1950
1952
5 .0 e
1 8 .6
4 . 5e
4 .6
7 .2
1 .7
4 .3
7 .2
3 .7
3 .2
1 1 .0
3 .3
3 .3
1938
9 .5
2 3 .2
1 3.2
14.1
17 .6
Government “ transfer” payments
Grants to local authorities*.............................
Pensions and grants to individuals f ............
Grants to foreign countries..............................
Su bsidies.................................................................
National debt interest........................................
Transfers to private capital accounts..........
2 .7
2 .6
0 .2
0 .7
4 .4
0 .2
2 .9
6 .1
1 .2
4 .2
5 .5
6 .6
2 .9
3 .4
0 .3
5 .6
5 .2
2 .2
2 .8
3 .2
0 .4
4 .3
4 .7
1 .5
2 .9
3 .1
0 .4
3 .1
4 .7
0 .8
T otal.......................................................
1 0 .8
2 6 .8
1 9.6
1 6.9
1 5 .0
T otal.......................................................
e Estimated.
* Excludes loans for capital purposes.
t Excluding National Insurance benefits— covering mainly retirement, unemploy
ment, and sickness— which have been provided for from regular employeremployee contributions.
Source: Central Statistical Office, A n n u a l Abstract of Statistics {1952); P relim in ary
Estim ates of National Incom e and Ex p en d itu re, 1948 to 1952, Cmd. 8803.
O F
T H E
B R IT IS H
B U D G ET
productive capacity slightly underutilized, Chancellor Butler
decided it was possible to reduce the country’s heavy tax bur
den by a small but significant amount. Hence Britain, in its
taxation policy, has been able to turn somewhat from its pre
vious preoccupation with the problem of combating internal
inflation to the provision, through tax relief, of a helpful
stimulus to production and productivity. The major imme
diate effect of the tax concessions, particularly those in the
purchase tax, may be to stimulate consumption and perhaps
to bring about fuller utilization of existing productive capacity.
Far more fundamental, however, is the hope that over time
such tax relief may tend to strengthen savings incentives as
well, and thereby facilitate orderly and noninflationary financ
ing of the investment in technological development upon
which Britain’s external competitive position so heavily
depends.
R easons for H igh T a x a t io n
The burden of taxation in Britain is among the highest in
the world. Combined central and local government revenue
(excluding social insurance contributions) amounted to an
equivalent of about 40 per cent of the national income in
Britain in 1952, compared with a corresponding ratio of
approximately 30 per cent for the United States. The high
level of taxation in the postwar period is mainly a result of
the substantial increase over prewar in government expendi
ture on goods and services and in the central government’s
"transfer” payments to various sections of the community,
including local governments (see Table I).
Defense expenditure has, of course, constituted a major bur
den during most of the postwar period. After a drop from a
wartime peak of over 5,000 million pounds to 700 million in
1948, defense spending rose sharply after the Korean outbreak
to 1,415 million pounds in 1952, or to 11 per cent of the
national income compared with roughly 5 per cent in 1938.
Social service expenditures1 have likewise risen by a sizable
amount, compared with prewar. For instance, when taken
together, the central governments expenditure on the National
Health Service, its current grants to local authorities (used
largely to finance social services), and its pensions and grants
to individuals amounted to almost 1,200 million pounds in
1952, the equivalent of 9.3 per cent of the national income
compared with 5.3 per cent in 1938. The central government’s
“other” current expenditure—mainly the costs of administra
tion and general services—is relatively low; such expenditure
amounted to approximately 3.3 per cent of the national income
in 1952, against an equivalent ratio of about 2 per cent for
1
Excluding government housing expenditure and National Insur
ance benefits (mainly retirement, sickness, and unemployment benefits,
which have thus far been more than covered by employer and employee
contributions). These outlays have also risen substantially.
FEDERAL RESERVE BANK OF NEW YORK
comparable Federal Government expenditure in the United
States.
Other sizable central government payments that have added
to tax revenue requirements have been subsidies, national debt
interest, and "transfer” payments to private capital accounts.
Total central government subsidies—including production and
housing subsidies as well as food subsidies—reached a high of
542 million pounds in 1948, but later reductions brought this
total down to 397 million in 1952, or to the equivalent of 3.1
per cent of the national income. National debt interest pay
ments rose from 213 million pounds in 1938 to 481 million
in 1946, the large wartime expansion of the national debt
being offset in part by the lower interest charges resulting
from the government’s cheap money policy. The annual debt
burden, after remaining relatively stable in money terms from
1946 through 1950, rose by 100 million pounds to 602 million
in 1952. The increase resulted both from the debt service pay
ments, which began in 1951, on the United States and Cana
dian loans, and from the changes in the market rates of interest
which began in the same year following the abandonment of
a pegged short-term interest rate structure. In proportion to
national income, however, the annual debt burden was only
slightly greater than in 1938. Government "transfer” pay
ments to private capital account—chiefly war damage com
pensation, war gratuities, and postwar refunds of excess profits
taxes—have been of considerable, but rapidly diminishing,
importance during the postwar period, dropping from the
equivalent of 6.6 per cent of the national income in 1946 to
0.8 per cent in 1952.
In formulating its tax policy, the British Government has
attempted to do more than raise adequate revenue merely to
cover its current disbursements. Since the end of the war, it
has become fairly generally accepted that the Chancellor should
budget for whatever surplus or deficit would serve to equate
the expected gross national saving with the expected gross
national investment, with a view toward maintaining total
effective demand at a rate sufficient to provide a high level
of employment without at the same time producing an infla
tionary rise in prices. The objective, under the severely infla
tionary conditions that have prevailed for much of the postwar
period, was described by Chancellor Cripps in his budget
speech of April 6, 1948 as follows:
Government expenditure and revenue ought not to be
considered in isolation from their effects upon the general
economic prospects of the country . . . . The new task of
the Chancellor of the Exchequer is not merely to balance
the Budget; it is a much wider one—to match our re
sources against our needs . . . . [At present this requires]
. . . a real and substantial surplus, which more than pro
vides for all government expenditure, capital and current,
and leaves over a balance, to be used to counter the infla
tionary pressure . . . .
35
During the fiscal years 1948-49 through 1950-51, as will be
shown below, ordinary current account surpluses were more
than sufficient to offset the government’s capital expenditures,
thereby yielding "over-all” surpluses which were used largely
to retire short-term debt held by the banking system. For the
past two fiscal years, however, current account surpluses have
been adequate to finance only part of the central government’s
capital expenditures (mainly loans to local government author
ities for housebuilding), so that over-all deficits have been
realized. Nevertheless, given the postwar deficiency of private
saving, these current account surpluses have had a disinflation
ary impact in the sense that even the partial financing of the
governments capital outlays through taxation has averted some
inflationary expansion of bank credit. By helping to restrict
consumption and thereby to provide, in effect, a larger volume
of internal saving, the disinflationary impact of these budgets
has facilitated the gradual dismantling of the price, rationing,
and allocation controls that were carried over from wartime.
T he N eed for Saving
Britain was confronted after the war with a more serious
problem of containing inflation than the United States; the
war began for Britain two years earlier, mobilization was more
intensive, and productivity was impaired by a wartime reduc
tion in capital facilities caused in part by war losses and in
part by inadequate wartime replacement. In relative terms,
the volume of liquid assets that was built up during wartime
behind the dam of price controls and rationing was signifi
cantly larger in the United Kingdom, and the pent-up demands
of individuals and businesses for consumer and investment
goods were also much stronger.
After the war, moreover, Britain was faced with the need
for large structural shifts in its economy which required a
severe restraint upon consumption. In the first place, a very
substantial increase in the country’s physical volume of exports
was needed in order to offset such factors as the sharp dete
rioration in its terms of trade,2 the great reduction in its
real investment income from abroad, its significantly larger
government overseas expenditures, and its impaired capacity
for net earnings from shipping. Secondly, a high rate of invest
ment was required if Britain was to maintain a rate of techno
logical progress sufficient to keep its output competitive abroad
and to preserve living standards at home. Finally, additional
resources had to be made available in the postwar period for
very large increases over prewar in military expenditures and
for an expanded welfare program.
These postwar conditions, and the attendant danger of
severe inflation, were largely responsible for the government’s
decision after the war to retain essentially intact the principal
elements of the wartime stabilization program: price control
and cost-of-living subsidies, consumer rationing, raw material
2
That is, the relation between export and import prices (see chart
on page 87).
MONTHLY REVIEW, JUNE 1953
86
Table II
C om position of G ross N ational Expenditure in Britain
(In per cent of total)
1938
Item
Personal consumption............................................................................
Government expenditure on current goods and services.........
Gross domestic capital formation:
Fixed canital investment.................................................................
Inventory investment........................................................................
Balance on foreign transactions.........................................................
1946
7 2 .0
2 4 .2
7 7 .1
1 3 .5
-
Gross national expenditure at market prices...........................
1 0 .5
nil
1 .1
1947
-
10 0 .0
9 .5
1 .4
4 .3
1 00.0
1948
7 3 .8
1 7 .8
-
1 1 .6
2 .3
5 .5
100.0
-
1949
7 1 .3
1 5 .4
7 0 .3
16.1
1 2 .5
1 .2
0 .4
1 2 .8
0 .3
0 .5
100.0
100.0
1950
1951
7 0 .5
1 5 .8
-
1952
6 9 .3
1 7 .3
1 3 .0
1 .7
2 .4
-
100.0
1 3 .0
3 .2
2 .8
-
100.0
1948-52
average
6 7 .4
19.1
6 9 .8
1 6 .7
1 2 .9
0 .6
1 .2
1 2 .8
0 .5
0 .2
10 0 .0
10 0 .0
Sources: Central Statistical Office, A n n u a l Abstract of Statistics {1952); P relim in a ry Estim ates of N ational Incom e and E x p en d itu re, 1948 to 1952, Cmd. 8803.
allocation, investment goods and building licensing, capital
issues control, import and exchange control, qualitative bank
credit controls, and high taxation. Hence, in the postwar
period, private liquidity continued to be "excessive” in the
sense that both businesses and individual holders of cash bal
ances, savings accounts, and readily negotiable securities were
able and anxious to spend more than they were permitted to
by allocation, rationing, and licensing controls.
Britain’s accomplishment in effecting a shift in the utiliza
tion of its available resources away from consumption and into
investment, export, and government uses is reflected in
Table II. Whether enough actually was done has been widely
debated; but, in any event, a very substantial measure of suc
cess was in fact achieved.
During the 1946-47 period of postwar adjustment, when
production was relatively low, real consumption rose above
wartime levels, but remained well below prewar levels as a
proportion of gross national expenditure. On the other hand,
military and other government expenditure remained very high
and was an important factor limiting the amount of private
investment that could be undertaken and causing a large
balance-of-payments deficit.
The magnitude of Britain’s structural adjustment expresses
itself more clearly in the trends since 1948. The share of per
sonal consumption in gross national expenditure dropped from
77.1 per cent in 1938 to an average of 69.8 per cent for
1948-52. However, this relative decline was not attended by
any marked deterioration in living standards; what happened
rather was largely a curbing of improvement in these stand
ards in order to divert output increases to other more pressing
needs. As indicated in Table II, government expenditure, new
investment in fixed capital and inventories, and net foreign
transactions each absorbed a significantly greater share of total
resources than before the war. In 1952, the large improve
ment in the external balance and the increase in government
defense expenditure were made possible partly by an actual
reduction in investment, especially in inventories, and in
consumption.
T he M obilization
of
Savings
by the
Budget
In view of Britain’s large needs for nonconsumption pur
poses, the government has viewed "public” saving via the
budget as necessary to compensate for an inadequate volume
of personal and business savings. The combined current sur
plus of the central and local governments accounted for some
30 per cent of Britain’s gross national savings for the period
1948 through 1952, while savings of public and private cor
porations comprised approximately 65 per cent, and personal
savings were responsible for little more than 5 per cent of the
total. The potential for private saving has of course been
severely limited by high taxation, but such taxation has been
considered necessary in view of the probability that actual
private saving, had taxes been lower, would have still been
inadequate to meet Britain’s total savings requirements. The
magnitude of the central government surpluses that have been
achieved during the postwar fiscal years is indicated in
Table III.
The government, besides giving special attention to the size
of the over-all budget surplus or deficit, has adapted the budget
in other ways for restraining inflation. For instance, official
concern has been evident throughout the postwar period re
garding the possible adverse effects of the various kinds of
taxes on incentives and productivity. As a result mainly of
changes in the tax structure, the yield from indirect taxes,
which presumably discourage incentives less than do direct
income and profit taxes, was by 1951 the same as from direct
taxes, although in 1946 the yield had been only three quarters
as great. Similarly, one of the purposes behind the retention
of the food subsidies—although these were significantly cut
in 1952 because of their heavy cost—has been to help stabilize
Table III
P ostw ar B udget Trends in Britain
(In m illions of pounds)
“ Above-the-line” ac-counts*
Fiscal year ended
March 31
1 9 3 8 -3 9 ..........................
1946-47............................
1947-48............................
1948-49............................
1949-50............................
1950-51............................
1951-52............................
1952-53............................
1953-54 (estimated). .
Ordinary
revenue
927
3 ,3 4 1
3 ,8 4 5
4 ,0 0 7
3 ,9 2 4
3 ,9 7 8
4 ,4 3 3
4 ,4 3 9
4 ,3 6 8
Over-all
Surplus
“ Belowsurplus
( + ) or
( + ) or defi the-line”
cit ( —)
deficit ( — ) deficit ( —)
Ordinary
expendi
tures
940
3 ,9 1 0
3 ,2 1 0
3 ,1 7 6
3 ,3 7 5
3 ,2 5 7
4,054
4,3 5 1
4 ,2 5 9
!
!
- 13
-5 6 9
+635
+831
+549
+721
+379
+ 88
+109
- 13e
— 538e
-6 5 0
-4 8 9
-4 7 8
-4 7 3
-5 2 9
-5 2 4
-5 4 9
26e
-1 ,1 0 7 e
15
+
352
+
62
+
248
150
436
440
* The “ above-the-line” balance, based on Britain’s conventional method of
budgetary accounting, refers to “ ordinary” or current transactions, while
the “ below-the-line” items are generally of a capital nature,
e Estimated from official British statistics by the Federal Reserve Bank of New Yoi k .
Source: Fin a n cia l Statement of the Treasury, various years.
FEDERAL RESERVE BANK OF NEW YORK
the cost-of-living index, and thus to restrain wage demands
and a consequent wage-price inflation.
Following a large reduction in the peacetime carry-over of
military expenditure, substantial ordinary surpluses were rea
lized from 1947-48 through 1950-51. Approximate over-all
balance was attained in 1947-48, in the sense that the ordinary
surplus was almost sufficient to finance the government’s capi
tal expenditure without resort to new borrowing from the banks
or on the capital market, and actual over-all surpluses were
achieved in the following three years. Taken as a whole, the
postwar budgets through 1950-51 provided for some relatively
small personal-income-tax reductions (mainly affecting the
lower and middle-income groups, and designed to stimulate
work incentives, especially as regards overtime), an increase in
corporate profit taxes (partly as an offset to the elimination of
the wartime excess profits tax as of January 1, 1947), an
increase in death and estate duties, and an increase in indirect
taxes. On the disbursements side, the data in Table III suggest
that something of a plateau was reached and maintained
between 1947-48 and 1950-51.
By 1950, Britain’s progress toward internal stability held
the promise that the burden assumed by the budget in com
bating inflation might soon be reduced and that incentive tax
concessions might therefore become possible. The Economic
Survey for 1951 stated: "The evidence seems to show that by
the middle of 1950 steady adherence to the policy of disinfla
tion had brought about a fairly satisfactory balance between
total demand and total supply. Demand continued to run at a
high level, but not at so high a level as to cause any marked
symptoms of inflation”. It may be noted also that rationing and
allocation controls were by this time limited to a relatively
small number of goods and commodities; however, price con
trols remained rather generally in force. By the end of 1950,
consumer rationing was confined essentially to basic foodstuffs
and coal, although in addition housebuilding was controlled
and certain important consumer durables such as automobiles
remained subject to "unofficial” rationing. Allocation controls
over industrial raw materials were also very few, mainly over
coal, softwood, sheet steel, tin plate, cotton yarns, sulphur, jute,
and sisal.
This situation was markedly changed by the outbreak of war
in Korea. The rearmament program necessitated a sharp in
crease in government expenditure, which Chancellor Gaitskell
(who succeeded Chancellor Cripps) decided to cover to only
a moderate extent by increases in taxation, partly because of
the already burdensome level of taxes, and partly because
Britain’s improved internal and external position seemed to
permit some relaxation in the governments disinflationary
efforts. At the same time, however, a more extensive use
was made of direct controls, mainly as regards the allocation
of strategic raw materials. The actual budgetary outcome for
1951-52, compared with the anticipated over-all deficit of
about 450 million pounds, was a deficit of only 150 million,
87
* Average export prices divided by average import prices.
Sources: T h e T im e s R e v ie w o f In d u s tr y , “ London and Cambridge Economic
Service Bulletin” ; Central Statistical Office, M o n th ly D ig e st of S ta tis tic s ;
International Monetary Fund, In tern a tio n a l F in a n c ia l S ta tistics.
the result chiefly of revenue in excess of expectations and of
a retardation of military expenditures.
Chancellor Butler, who succeeded Chancellor Gaitskell upon
the change in governments in the autumn of 1951, attempted
to bring the following budget for 1952-53 into approximate
over-all balance, basing his estimates mainly on the expecta
tion that Britain’s terms of trade would improve and that
domestic production would increase.3 Because of the addi
tional burden to be imposed by larger defense expenditure, an
excess profits tax of 30 per cent was levied (offset in part by
a reduction in the ordinary corporate profit tax) and the tax
on petroleum products was increased. In addition, a 40 per
cent cut in the cost of food subsidies was accompanied by a
reduction in personal income taxes and an increase in family
allowances.
The actual budgetary result for 1952-53 was a large over-all
deficit of 436 million pounds, attributable in part to revenue
falling below expectations when profits and other incomes did
not rise as predicted, and in part to government expenditure
in excess of the original estimate. Yet Chancellor Butler was
able to assert that the deficit did not impair the broader objec
tives in view when the budget w^as originally formulated—
presumably the objectives of external balance, internal price
stability, resource flexibility, and a high level of domestic
employment. What happened was that the improvement in
the terms of trade was greater than anticipated (see chart), the
physical volume of exports declined unexpectedly, and—
perhaps partly because of the more restrictive monetary policy
—consumption expenditure and inventory investment tapered
3
For details of the new government’s economic program and subse
quent developments, see the May and December 1952 issues of this
Review.
88
MONTHLY REVIEW, JUNE 1953
off. Hence, the ordinary current surplus did not need to be
nearly so large as the Chancellor had originally calculated.
Britain’s progress toward greater internal stability is reflected
in the chart. Retail prices, after rising more or less gradually
throughout the postwar period, have remained relatively stable
since mid-1952. Industrial production, after a steady rise
through 1951, fell off slightly, mainly as the result of a reces
sion in both foreign and domestic demand for Britain’s manu
factures of clothing and textiles, but it has now recovered
approximately to the 1951 level. At the same time that better
internal balance was being achieved, the government under
took to relax its use of direct controls and to return a number
of commodity markets to the hands of private traders. On the
other hand, the danger of wage inflation continues to be a
problem; wage demands, which resulted in a moderate rise
in average weekly wage rates toward the end of 1952, are cur
rently being renewed in some quarters and, if effective, might
well tend to undermine the competitiveness of Britain’s prod
ucts abroad by pushing up internal costs.
The eased pressure of internal demand has made a signifi
cant contribution to Britain’s improved external balance by
curtailing import requirements and increasing the availability
of goods for export. Britain’s lengthy delivery dates for exports,
which have been a major factor preventing larger sales
of capital goods abroad, appear to have been considerably
shortened in 1952. Helped in addition by a substantial im
provement in the terms of trade, by direct import cuts, and by
a high level of economic activity in the dollar area, Britain
shifted from a balance-of-payments deficit on current account
(including MSA defense-support aid) of 398 million pounds
in 1951 to a surplus of 291 million in 1952.
rationing controls prevented individuals and business firms
from spending as much as they wished.
The money supply relative to current private outlays then
declined rather steadily over the postwar period, and by 1952
the ratio was slightly below that of 1938. In effect, disinfla
tionary budgeting, together with the existing monetary con
trols, served to restrain the growth of the money supply, while
a gradually rising domestic price level, expanding output, and
an import surplus through 1948 (financed by foreign grants
and loans, a drawing-down of foreign exchange reserves, and
sales of British holdings of foreign investments) contributed,
from the supply side, toward reducing excess liquidity. It may
be noted in particular that, upon being sold in exchange for
domestic sterling, the additional supply of imports afforded by
the United States and Canadian loans and by Marshall aid made
a significant contribution to the diminution of liquidity.
Private liquidity, as more broadly defined, has steadily de
clined relative to gross private expenditure during the post
war period, although it still is greater than prewar. For
example, total holdings of Britain’s so-called "small savings”—
including National Savings Certificates, Defense bonds, and
deposits in post office and trustee savings banks—rose as a
ratio to gross private expenditure from about 30 per cent in
1938 to approximately 90 per cent in 1945, but had dropped
below 50 per cent by 1952; moreover, in actual volume these
savings have remained essentially unchanged since 1948. Some
other types of personal saving, such as contractual saving
through insurance and various kinds of welfare societies, may
be slightly higher relative to gross private expenditure than
before the war, but these are generally not of a highly liquid
nature. As regards the national debt, detailed ownership data
are unfortunately not available, but it may be noted that a sub
T he D ecline in "Excess” Private Liquidity
stantial portion is now more firmly lodged in the hands of gov
One of the reasons for the relatively lower level of domestic ernment departments, the Exchange Equalization Account, and
demand would appear to be that excess private liquidity, which large institutional investors. During the postwar period, large
has been an inflationary factor of gradually diminishing impor private holdings of government (and other) securities have
tance over the postwar years, was much reduced by 1952-53.
In addition, the large volume of sterling balances held abroad,
which had essentially constituted an external form of excess
liquidity, were also in 1952 more nearly approaching the
normal level necessary for working balances—notably those
of Australia and India—and this development was responsible
in great measure for the reduction during that year in Britain’s
physical volume of exports.
A very rough indication of the postwar trends in domestic
excess liquidity in Britain is provided in Table IV. Although
in the broad sense, a definition of liquid assets may include
such "near-moneys” as savings bank deposits, life insurance
equities, and government and other securities, liquidity more
narrowly defined may be taken as the aggregate money supply
in private hands. The money supply almost doubled between
1938 and 1945, while gross private expenditure rose only about
10 per cent, reflecting largely the fact that allocation and
Table IV
Postw ar Liqu idity Trends in B ritain
(In m illions of pounds)
Year
1938.........................................
1945.........................................
1947.........................................
1948.........................................
1949.........................................
1950.........................................
1952.........................................
Money
supply*
2 ,9 6 8
5 ,8 2 5
6 ,2 8 0
6 ,8 3 9
6 ,9 5 5
7 ,0 3 1
7 ,0 8 9
7 ,2 6 0
7 ,2 7 9
Gross private
expendituref
4 ,9 4 5
5 , 500e
7 ,5 0 9
8 ,7 7 4
9 ,9 5 2
1 0,538
10,990
11,864
12,549
Ratio of money
supply to private
expenditure
0 .6 0
1 .08
0 .8 4
0 .7 8
0 .7 0
0 .6 7
0 .6 5
0 .6 1
0 .5 8
* Annual averages of midmonth data. Excludes government deposits. Includes
bank notes in circulation and the “ net deposits” of the eleven London clearing
banks, and is roughly comparable to United States net demand and time de
posits plus currency in circulation,
t Gross national expenditure less government expenditure on current goods and
services. Includes public investment expenditure, but this comprises a rela
tively small part of the total,
e Rough estimate.
Sources: The Tim es Review of In d u stry , “ London and Cambridge Economic
Service Bulletin” ; Central Statistical Office, An n u al Abstract of Statistics
(1952); P relim in ary Estim ates of N ational Incom e and E x p en d itu re, 1948 to
1952, Cmd. 8803.
FEDERAL RESERVE BANK OF NEW YORK
been liquidated, partly by businesses in order to obtain needed
capital or to meet tax liabilities, but largely by individual
holders, usually for the purpose of maintaining customary
living standards in the face of high taxation.
The 1953-54 Budget
Chancellor Butler’s budget for 1953-54 was presented as
an "incentive budget” intended to stimulate productive effort.
His four main proposals, involving a revenue loss in the pres
ent fiscal year of 169 million pounds, were summarized as
" . . the restoration of the initial [depreciation] allowances
for plant and machinery, a lessening of the load of the
Purchase Tax, a prospect of the future ending of the E.P.L.
[i.e., the excess profits tax], and the reduction of the ... Income
Tax”. After allowing for these tax remissions, the Chancellor
anticipated for 1953-54 an ordinary surplus of 109 million
pounds, which when set against an expected "below-the-line”
deficit of 549 million, implies an over-all deficit (and hence
comparable public borrowing) of about 440 million, or
roughly the same as actually realized in 1952-53.
Despite these incentive tax concessions, Chancellor Butler
appears not to have departed from, the principle of compen
satory fiscal policy, as seems clear from his statement that:
"This year, my economic analysis has shown that [as in 1952]
the likely level of effective demand will still be less than our
productive capacity, so that again we shall not require savings
through the Budget of anything like the size of previous
years”. The distinctive feature of the Chancellor’s general
approach to economic policy has rather been his endorsement
of more positive monetary measures that are intended to
operate in conjunction with fiscal policy and to relieve the
budget of some of the heavy burden it has borne to date in
Britain’s fight against inflation.
Some use was made of monetary restraint measures, it is
true, following the abandonment in early 1947 of Chancellor
Dalton’s postwar attempt to depress interest rates further.
However, until the new monetary measures of late 1951
and early 1952, primary emphasis was placed upon qualitative
restraints over bank loans, exercised through intermittent Bank
of England instructions to the commercial banks as regards
lending criteria and, to a lesser extent, upon permitting
longer-term interest rates to rise freely in response to market
forces.
Since late 1951, however, the new monetary measures—the
raising of the Bank of England discount rate to 4 per cent, the
Bank of England’s resumption of the initiative in open market
operations, and several ancillary measures—have made a sig
nificant contribution to internal stability and to the improve
ment in Britain’s external accounts. In broader terms, how
ever, perhaps the most notable aspect of the new monetary
policy is that it reflects the British determination to use all
available measures that might help to maintain internal price
stability and thereby provide the confidence in sterling needed
to increase saving incentives at home and to encourage a more
favorable environment for foreign trade.
A further distinctive feature of Chancellor Butler’s program
is to be seen in the nature of his tax reductions. More stress
89
was placed on the incentive to invest in industry than in pre
vious postwar budgets, although the total benefits involved
will not accrue immediately. First, the excess profits tax is to
be eliminated, but only as of January 1, 1954. Second, the
special initial depreciation allowances for new investment have
been restored: 20 per cent for capital expenditure on plant
and machinery, 10 per cent for industrial buildings, and 40
per cent for new mining projects. Finally, about half of the
benefit from Chancellor Butler’s cut in the standard rate of
income tax from 9Vi to 9 shillings is expected to go to indus
try through its effect in reducing the tax rate on corporate
profits. As it affects personal incomes, the standard-rate reduc
tion may be expected to influence industry’s incentive to pro
duce but mainly by the indirect route of stimulating consumer
demand, as will also be true in the case of Chancellor Butler’s
25 per cent reduction in purchase-tax rates.
Concluding Co m m en t
Despite the recent tax concessions, the over-all burden of
British taxation remains very heavy. The scope for future tax
reductions will depend in significant measure not only upon the
course of international political developments but also upon a
continuation of efforts to reduce less essential government
expenditures, upon the effects of the new "incentive budget”
in stimulating productivity, and upon the extent to which the
recent and prospective tax remissions lead to increased private
savings and productive investment rather than to greater
consumption.
Britain’s need for greater saving and corresponding new
investment continues to be of vital importance. Given the
prospect of increased competition in the sale of its manufac
tures abroad, Britain’s future depends in part upon a continued
growth in the world market for manufactures and in part upon
the attainment of a satisfactory rate of industrial progress at
home. The British Economic Survey for 1953 emphasized
that: "There can be no question of the importance of main
taining a high level of productive investment in 1953 and
future years . . .” because ". . . if exports are to be raised to the
new plane required and maintained there throughout the years
ahead, there will be the need for the continuous develop
ment of new products and of new industries exploiting new
techniques”.
Against the background of a severe balance-of-payments
crisis, last year’s budget was inevitably concerned with the
short-run objective of attaining improved external balance and
internal stability. The successful progress toward these objec
tives during the past year has enabled Chancellor Butler, in his
new budget, to give more attention to the fundamental prob
lem of incentives, particularly as they bear on investment and
productivity, and hence on Britain’s present and future compe
titive position in international trade. There are of course risks,
as well as opportunities, in relaxing somewhat the severe
budget discipline of earlier years. The restoration of flexible
monetary policy to a position of greater influence provides one
possible means of helping to meet whatever problems may arise.
90
MONTHLY REVIEW, JUNE 1953
C O NSU M ER
The U. S. Bureau of Labor Statistics has recently completed
a thorough revision of the consumer price index, the first such
revision since 1940. This revision was undertaken in order to
provide better reflection in the index of the marked changes
in consumer buying patterns which have occurred as a result
of the substantial rise in real incomes and the introduction of
many new consumer products since the late thirties.
During World War II the consumer price index had gained
new importance as a tool of Government policy-making in
addition to its significance as a business indicator and a yard
stick in private wage negotiations. This index was used to
estimate the effectiveness of price controls at the consumer
level and to aid in the formulation of wage stabilization poli
cies. Controversy over the significance and reliability of the
index resulted in endorsement of the Bureaus work by a
Presidential commission of leading statisticians but revealed
the necessity for improving and bringing up to date some of
the techniques used. About three years ago a comprehensive
revision was undertaken. However, because of the need for
an improved measure of the price rises resulting from the
outbreak of the Korean war, particularly since there had been
increasingly widespread use of the index in the "escalator”
clauses of many wage contracts, the Bureau published an
interim revision of the index in March 1951 (beginning with
the January 1951 index) to serve until the revision could be
completed.1 This interim index proved to be a reasonably
close approximation of the one which emerged from the
more comprehensive revision.
As indicated by its full (but seldom used) title, "Index of
Change in Prices of Goods and Services Purchased by City
Wage-Earner and Clerical-Worker Families to Maintain Their
Level of Living”, the index is a measure of price change. It
does not attempt to show any changes from month to month
in the quality and quantity of goods and services bought or
in the total amount spent for living. Its main purpose is to
measure the purchasing power of disposable income in terms
of a pattern of expenditures. Income taxes are regarded as a
deduction from income rather than the price of a particular
service. Savings also are excluded from the index.
Several times in its history the index has been brought up
to date to reflect the changes in the public’s buying habits. The
first "market basket” was based on a survey of expenditures
by consumers in 1917-19, and the next major study was made
for the years 1934-36. Minor adjustments were made to allow
for the unavailability of some items during World War II.
Subsequently, when the interim index was introduced, the
effects of postwar changes, as shown by experimental surveys
in 1947-49, were taken into account. The 1952 revision is
1 An article describing the index and the interim revision appeared
in the April 1951 issue of this Monthly Review, pp. 55-57.
P R IC E
IN D E X
based on the Survey of Consumer Expenditures that was made
as of 1950 in 91 cities by the Bureau of Labor Statistics; these
data have been adjusted to reflect changes in buying habits up
to 1952. "Weights” are derived to reflect the importance of
each commodity in the "market basket”. These weights, which
are different for each city, are then used to combine price data
into group indexes for that city; these city indexes are com
bined into a national index on the basis of population weights.
The revised index is a direct continuation of the "interim
adjusted series” and is linked to indexes that are continuous
back to 1913. The preservation of the "historical continuity” is
possible because the index is essentially the same in purpose and
design; the technical improvements have not changed the basic
index structure. The January 1953 revised index has been linked
directly to the December 1952 interim index. The Bureau had
planned to end publication of the "old series” in December
1952. It had been carried forward, despite the introduction
of the interim adjusted series in 1951, in order to smooth
over the transitional adjustment to the interim series for users
of these data. However, President Eisenhower ordered the
old series to be computed for another six months to allow time
for those labor unions and businesses whose contracts still
made reference to this series to shift their contracts to the
revised index base.
Several major improvements have been made in the new
index. In addition to the change in the weighting schedule
already described, the revision improved geographical coverage
and increased the variety of commodities priced. A change
was also made in the base period, which was shifted from the
1935-39 average to the 1947-49 average.
R E V IS IO N O F C O N S U M E R C R E D IT S T A T IS T IC S
The Board of Governors of the Federal Reserve System has
recently completed an extensive revision of its consumer credit
statistics involving both conceptual changes in the composition of
the series and the incorporation into the series of new statistical
information which has recently become available. The figures
included in the table of Selected Economic Indicators, published
on p. 92 in this Review, are on the revised basis.
The series has been revised monthly back to December 1939.
Although data were not available to carry a complete revision
through earlier years, the major components of the old series for
the period 1929-39 have been adjusted upward to the level of the
revised series on the basis of the relationship between the new and
old estimates for the end of 1939.
A detailed description of the changes and the revised figures
were published in the April 1953 issue of the Federal Reserve
Bulletin. A reprint of the article may be obtained free of charge
by writing to the Division of Administrative Services, Board of
Governors of the Federal Reserve System, Washington 25, D. C.
FEDERAL RESERVE RANK OF NEW YORK
For the first time since its inception, the index includes
data for medium-sized and small cities as well as for large
cities. The present list of cities ranges in size from New York
City down to towns of 2,500 population and is thus more
representative of all urban areas. While the old index was
based on prices in 34 large cities, the new national index is
based on samples of prices in 46 cities, only 20 of which are
classified as large cities. Separate indexes are published only
for the 20 largest cities. In the case of small and medium-sized
cities, the weights assigned to each city reflect the relative
importance of all cities of similar size, climate, and income in
the United States.
Prices of items in the "market basket” used for the index
are collected at regular intervals, and the price changes are
determined by comparison of successive prices. Detailed speci
fications are drawn up for each item in the index to minimize
the effect of changes in style or quality. The frequency of the
pricing of commodities in the cities varies. Prices of all sample
commodities and services are collected monthly in the five
largest cities. In all other cities, prices are collected monthly
for foods, rents, and fuels. All other goods and services are
priced quarterly in the 25 other large and medium-sized cities
and every four months in the 16 small cities. Furthermore,
pricing dates in those cities which are priced every three or
four months are staggered, so that, for example, goods priced
in January, April, July, and October in one group of cities are
priced in February, May, August, and November in another
group of cities.
The number of commodities and services priced for the new
index has been increased to more than 300 from about 200 in
the old series and about 225 in the interim index. The 300
items selected for pricing are those which are relatively impor
tant in family spending. They are sensitive to price movements
and are representative of price trends of groups of related
items. The increase from the old series in the number of items
priced reflects changes in both technology and buying habits
( covering such items as frozen foods, canned baby foods, deter
gents, and television sets) and in statistical pricing techniques.
The number of food items was increased substantially to 90,
compared with 51 and 60 items, respectively, in the old series
and the interim index; additional items have also been
included in the clothing, housefurnishings, and miscellaneous
goods categories. For the first time, direct measures of the
effect of price changes on costs of home ownership and main
tenance have been incorporated into the index. The obligations
undertaken in the purchases of homes, including interest, are
now treated as consumption items; the purchase price of new
homes and maintenance costs are directly priced instead of
imputed as in the former indexes. Costs of restaurant meals
are now included, and used cars are priced directly rather
than imputed on the basis of the price movement of new cars.
Important changes have been made in the major groups for
91
which separate indexes are published. The new index consists
of eight major groups: food, housing, apparel, transportation,
medical care, personal care, reading and recreation, and other
goods and services. As shown in the accompanying table, the
relative importance of these groups in the total differs some
what from the relative importance assigned to similar groups
or subgroups in the interim index. For example, food, which
wras the most important single component in both the old
series and the interim index, having a relative importance in
1952 of 43 per cent and 35 per cent, respectively, accounts
for 30 per cent of the revised index and is no longer the most
important component. Housing, accounting for 32 per cent of
the revised index, is the most important of the eight groups.
This major group includes the subgroups of rent, housefurnish
ings, and fuels, which were listed as major groups in the
former indexes, and the two additional subgroups of other
shelter and household operation. Because repair and mainte
nance costs are now listed separately (in the other shelter
category) rather than imputed to rent, the relative importance
of the rent component has been reduced from 11 to 5 per cent.
The remaining major groups in the revised index (other than
apparel which was also a major group in the old index) were
formerly included in the miscellaneous goods and services
category.
In addition to the improvements which have been made in
the monthly indexes, there will be an increase in the precision
of the annual indexes, particularly in pricing items for which
changes can be measured more accurately on a yearly than on
a monthly basis. Although no satisfactory way has been found
to measure precisely the seasonal changes of prices of such
items as fresh fruits and vegetables in a monthly comparison,
variations can be compared over a yearly period. The pricing
of houses is also carried out more accurately on an annual basis.
R elative Im portance of V arious T y p es of E xpenditures
in the Old and N ew Consum er Price Indexes
Old index
New index
Relative importance
1952
Group
Group
Old
series
Interim
series
4 3 .4
34 .9
1 3 .3
1 1 .3
Fuel, electricity,
refrigeration . . . .
Housefurnishings. .
5 .2
4 .6
3 .4
5 .6
1 1 .8
1 2 .4
Miscellaneous
goods and services
2 1 .7
3 2 .4
1 00.0
100.0
F o o d .................................
H o u s in g .................................
R e n t .....................
Other sh elter...................
Gas and electricity . . . .
Solid fuels and fuel oil. .
H ousefurnishings..........
Household operation . . .
Apparel.................................
Medical care..........................
Personal ca re........................
Reading and recreation . .
Transportation...................
Other goods and services .
All item s........................
Relative
importance
1952
30. 1
5 .3
I t .0
I .0
t .3
0 .0
5 .0
•». 7
4 .7
o il
11.0
5 .0
100.1)
Source: Computed at the Federal Reserve Bank of New York from U. S. Bureau
of Labor Statistics data.
MONTHLY REVIEW, JUNE 1953
92
In conformance with the suggestion made by the Bureau of
the Budget that Federal agencies use a postwar base for their
economic index numbers, the revised index is published on the
1947-49 base. Figures are available on this base back to 1913
from the Bureau of Labor Statistics of the U. S. Department
of Labor (Washington 25, D. C.) for the all items, food, rent,
and apparel categories; indexes for other groups are available
beginning with January 1947. For the first time the Bureau
of Labor Statistics’ three price indexes— basic commodity,
wholesale, and consumer— have the same base period.
It has been of interest to observe, over the period for which
both the old and the new indexes have been prepared, that the
movement of the two has diverged significantly. Between
November 1952 and April 1953 the old series declined 3.3
points on the 1935-39 base, while the new index, when
adjusted to the same base for purposes of comparability, only
declined by 1.0 in percentage points. The difference resulted
mainly because the greatest price drops over this period were
in the food category, which had a greater relative importance
in the old series. One consequence of this divergence was that
the wages of those unions whose contracts remained tied to
the old series were reduced by a larger amount than they would
have been had the contracts been based on the new index.
This was, of course, a fortuitous result; had the concentration
of recent price changes been in other types of commodities,
the relative declines of the two series might have been reversed.
The aim in developing the new series was to provide a better,
more comprehensive measure of the changes in retail prices
paid by urban families. It would appear from the analysis of
the new series presented above that the Bureau of Labor
Statistics has come as near to fulfilling that objective as the
limits of statistical accuracy permit.
SELECTED ECONOMIC INDICATORS
United States and Second Federal Reserve District
Percentage change
1953
Item
Unit
April
U N I T E D ST A T E S
1952
March
February
April
Latest month Latest month
from previous
from year
month
earlier
j
Production and trade
Industrial production*............................................................................
Electric power output*............................................................................
Ton-miles of railway freigh t*!.............................................................
Manufacturers’ sales*...............................................................................
Manufacturers’ inventories*.................................................................
Manufacturers’ new orders, total*.....................................................
Manufacturers’ new orders, durable goods*...................................
Retail sales*................................................................................................
Residential construction contracts*...................................................
Nonresidential construction contracts*............................................
P ric e s, wages, and employment
Basic commodity pricesf........................................................................
Wholesale pricesf.......................................................................................
C o n su m e r pricesf...........................................................................
Personal income (annual rate)*...........................................................
Composite index of wages and salaries*...........................................
Nonagricultural employment*..............................................................
Manufacturing employment*................................................................
Average hours worked per week, manufacturingf.........................
B anking and finance
Total investments of all commercial banks....................................
Total loans of all commercial banks..................................................
Total demand deposits adjusted..........................................................
Currency outside the Treasury and Federal Reserve B an k s*.
Bank debits (U. S. outside New York C ity )* § .............................
Velocity of demand deposits (U. S. outside New York C ity)*.
Consumer instalment credit outstandingftt..................................
United States Government finance (other than borrowing)
Cash income.................................................................................................
Cash outgo...................................................................................................
National defense expenditures.............................................................. i
1935-39 =
1947-49 =
1947 -49 =
billions of
billions of
billions of
billions of
billions of
1 9 47 -49 =
1947 -49 =
100
100
100
$
$
$
$
$
100
100
242p
159
—
2 6 .9p
4 4 .3 p
26. Op
1 2 .8 p
1 4 .4p
181p
179p
1 9 47 -49 = 100
1947-49 - 100
1947 -49 = 100
billions of $
19 3 9 = 100
thousands
thousands
hours
thousands
8 8 .0
1 0 9 .4p
113.7
—
—
4 9 ,Q55p
1 7 ,198p
4 0 .8p
1,582
9 0 .1
110.0
1 13.6
2 8 2 .5p !
245p
49,091
17,171
4 1 .1
1 ,674
8 8 .7
109.6
1 13.4
28 0 .9
244
4 9 , 112r
17,049r
4 0 .9
1,788
9 8 .0
1 11.8
112.9
2 6 2 .5
233
| 47,624
! 16,143
1
3 9 .8
1,612
millions of $
millions of $
millions of $
millions of $
millions of $
1947 -49 = 100
millions of $
7 3 , 120p
6 5 ,3 3 0 p
98,000p
30,022p
9 6,299
n.a.
19,666p
7 4,780p
6 5 ,2 2 0 p
97,370p
2 9,962
9 5 ,3 2 3
n.a.
19,267
76,030p
6 4 , 070p
9 8 ,340p
29,867
9 4 ,1 2 4
n.a.
1 8 ,860r
millions of $
millions of $
millions of $
3,215p
6,447p
4,470p
243
159
102p
2 5 .7
4 4 .1
2 4 .8
1 2.2
1 4 .4
176
178
11,042
6 ,9 7 0
4 ,5 0 3
SE C O N D F E D E R A L R E S E R V E D IS T R IC T
Electric power output (New York and New Jersey)*.....................
Residential construction contracts*}.....................................................
Nonresidential construction contracts*}..............................................
Consumer prices (New York C ity )f............................................
Nonagricultural em ploym ent*}................................................................
Manufacturing em ploym ent*}..................................................................
Bank debits (New York C ity )* § ..............................................................
Bank debits (Second District excluding New York C ity )*§. . . .
Velocity of demand deposits (New York C it y )* ...............................
240
155
100
2 5 .4
4 3 . 8r
2 5 .7 r
1 3 .4
1 4 .5r
182
167
6 ,2 6 7
5,7 5 4
4 ,0 1 2
216
141
101
2 3 .5
4 3 .4
2 4 .3
1 2 .4
1 3 .4
189
158
#
#
3
5
#
+ 5
+ 5
#
+ 3
4- 1
+ 12
+13
— 5
+ 14
+ 2
+ 7
+ 3
+ 7
- 4
+ 13
-
2
1
#
+ 1
#
#
#
- 1
— 5
-1 0
_ 2
+ 1
+ 8
+ 5
+ 3
+ 7
+ 3
- 2
74,120
5 8,220
95,120
28,689
86,831
n.a.
14,731
— 2
#
+ 1
#
+ 1
- 1
+ 12
+ 3
+ 5
+ 11
2
+34
4,6 8 9
5,972
4,227
-7 1
- 8
- 1
-3 1
+ 8
+ 6
#
+ 4
+ 13
#
#
#
+ 5
#
—
+ 10
- 1
- 1
#
+ 2
+ 4
+ 5
+ 12
+
+
+
1
1947-49 = 100
1947 -49 = 100
1947 -49 = 100
1947 -49 = 100
thousands
thousands
millions of $
millions of $
1947-40= 100
140
—
—
111.1
—
2 ,8 0 1 .6p
53,100
4 ,3 4 3
n.a.
139
180p
197p
111.2
7 , 6 2 7 .3p
2 ,8 0 5 .4
5 0,372
4 ,3 4 4
n.a.
!
1
1
137
174
175
111.1
|
7 ,6 1 9 .5
!
2 ,7 8 5 .0
j 5 0,832
S 4 ,1 4 1
‘
n.a.
127
197
165
110.9
7 ,4 7 0 .3
2 ,6 9 6 .7
50,760
3 ,8 6 8
n.a.
Note: Latest data available as of noon, June 1.
p Preliminary.
# Change of less than 0.5 per cent,
t Seasonal variations believed to be minor; no adjustr Revised.
merit made,
§ Revised series.
n.a. N ot available. Series in process of revision.
} The seasonal adjustment factors for this series have
} } Revised series. Back data available from the Board
* Adjusted for seasonal variation.
been revised.
of Governors of the Federal Reserve System.
Source: A description of these series and their sources is available from the Domestic Research Division, Federal Reserve Bank of New York, on request.
FEDERAL RESERVE BANK OF NEW YORK
93
D E P A R T M E N T ST O R E T R A D E
Final figures indicate that Second District department store
sales were 3 per cent larger during the combined months of
March and April than during the corresponding period a year
ago. This marked the first time since the latter part of 1951
that seasonally adjusted sales were above those of the previous
year for two consecutive months. The higher sales reflected
greater consumer interest in most major lines of merchandise,
as compared with last year. The largest gains were recorded in
the ready-to-wear apparel groups; sales of mens clothing in
creased at the same rate as womens and misses’ apparel and
accessories. Total sales of homefurnishing lines for these two
months were the only exception to the upward pattern; the
aggregate volume in March and April this year was just equal
to that of last year. Nonetheless, this represented a revival of
consumer demand since department store sales of homefurnish
ings have shown year-to-year declines since June 1951.
It is expected that total dollar volume for May will not
match sales of a year earlier, owing to the fact that there was
one less shopping day during the calendar month this year
than last. However, after adjustment for this irregularity,
District sales are estimated to be 2 per cent greater than in
May 1952.
With sales for the first quarter (February-April) of the
fiscal year equal to comparable year-ago figures, and with
strength shown in the early weeks of May, Second District
retailers apparently are looking forward to a more favorable
spring season than previously had been expected. Reflecting
Indexes of Department Store Sales and Stocks
Second Federal Reserve District
the revised expectations, new orders for additional merchan
dise placed by District stores in April were 8 per cent greater
than those of the previous year, pushing the month’s ratio of
new orders to sales, on a seasonally adjusted basis, to the high
est point for that month in several years. Total orders for
additional merchandise outstanding at the end of the first quar
ter were 9 per cent above the April 30 level of last year. The
rise of 4 per cent in the value of seasonally adjusted month-end
stocks in April, the largest month-to-month gain since March
1951, is a further indication of the optimism felt by depart
ment store merchandisers. This increase placed month-end
inventories above the level maintained in the preceding two
months and above the year-earlier figure. The aggregate value
of stocks and outstanding orders at the end of the first fiscal
quarter rose 5 per cent above a year ago.
Department, and Apparel Store Sales and Stocks, Second Federal Reserve
District, Percentage Change from the Preceding Year
Net sales
Locality
Apr.
1953
Department stores, Second District...........
New York— Northeastern New Jersey
Metropolitan Area............................
New York City*....................................
Nassau County......................................
Westchester County..............................
Northern New Jersey..........................
Fairfield County........................................
Bridgeport..............................................
Lower Hudson River Valley....................
Poughkeepsie..........................................
Upper Hudson River Valley....................
Albany....................................................
Schenectady...........................................
Central New York State..........................
Mohawk River Valley..........................
( 1 9 4 7 -4 9 a v e ra g e = :1 0 0 per cent)
1953
1952
Item
Apr.
M ar.
Feb.
Apr.
Sales (average daily), unadjusted...................
Sales (average daily), seasonally ad ju sted..
93
98
91
100
79
96
94
96
Stocks, unadjusted................................................
Stocks, seasonally adjusted...............................
119
114
115
110
107
110
llo r
llOr
Syracuse Metropolitan Area................
Northern New York State.......................
Southern New York State........................
Binghamton Metropolitan Area..........
Elmira.....................................................
Western New York State.........................
Buffalo Metropolitan Area...................
Niagara Falls......................................
Rochester Metropolitan Area..............
Apparel stores (chiefly New York City)...
Jan.through Feb. through
Apr. 1953
Apr. 1953
-1
-
-1
-2
+7
-1
0
0
-2
-2
-2
0
+1
+5
-2
-1
-1
0
-1
+5
-2
—2
-3
0
+2
+2
+4
-3
— 2
- 4 ( -2 )
—
+ 4
+ 3
+ 1
+ 3
+ 3
+ 5
+ 6
-f 1
+ 2
+ 1
+ 6
+ 4
+ 3
+ 7
+11
+ 1
+ 1
+ 4
+ 4
+ 4
+ 3
+ 5
+ 4
-1
1 +
r Revised.
1
0
-1
- 3 (-1 )
Stocks
on hand
Apr. 30,
1953
+
4
2
+ 1
+18
+ 5
-1- 4
+ 2
+11
+5
+4
+2
+5
+5
+5
+6
+2
+3
+1
+4
+2
+3
+5
+9
+1
+1
+3
+3
+3
+3
+4
+3
+ 5
-4- 5
+ 10
+10
+ 9
+ 4
+ 11
+12
4- 1
+ 10
+ 4
+ 4
5
+ 6
+ 6
+ 6
—
+ 7
+2
+
8
1
* The year-to-year comparisons given in parentheses exclude the data of a Brooklyn department,
store that closed early in 1952.
94
MONTHLY REVIEW, JUNE 1953
N A T IO N A L S U M M A R Y O F B U S IN E S S C O N D IT IO N S
(Summarized by the Board of Governors of the Federal Reserve System, May 29, 1953)
Industrial production leveled off in April and May following
earlier marked expansion, and construction activity continued
in near record volume. Retail sales were maintained at the
high level of other recent months and were substantially above
a year ago. Prices generally changed little. Private demands
for bank credit continued strong for this time of the year.
Yields on long-term government and private bonds rose
further.
In d u s t r ia l
somewhat but remained substantially above year-ago levels.
Output of paper, chemicals, and rubber products was main
tained at peak rates for the postwar period.
Coal production has increased in April and May as earlier
marked output curtailments led to a substantial reduction in
inventories, and in May crude petroleum output has also turned
up. Iron ore mining increased sharply in April as the Great
Lakes were opened for shipments earlier this year than usual.
Pr o d u c t io n
The Board’s industrial production index in April was 242
per cent of the 1935-39 average as compared with 243 in
March. In May, output has apparently been maintained at the
April rate and is 15 per cent above the reduced level of May
1952.
Output in durable goods industries was maintained in April
at the advanced March level. Passenger automobile assembly
rose further, and in April and the first half of May was at an
annual rate of 7.2 million units; in the latter part of May,
however, output was considerably curtailed by scattered work
stoppages. Output of household durables declined in April
as major appliance production was reduced and television set
production declined substantially further from the record levels
of last winter. Activity in industrial and military equipment
lines generally held steady in April. Steel mill operations in
May have been scheduled at about rated capacity, up somewhat
from April but still below the record March rate. Lumber pro
duction in April and May has increased less than seasonally
from the exceptionally high first-quarter levels.
Production of nondurable goods was at an unusually high
level in April though down slightly from the record March
rate. Activity in the textile and leather industries declined
INDUSTRIAL PRODUCTION
C o n s t r u c t io n
Value of contract awards increased substantially in April,
reflecting in part large Federal awards for atomic energy
projects. The number of housing units started was 110,000 in
April— up from 97,000 in March and also from 106,000 in
April 1952. Value of new construction work put in place
continued close to record levels after allowance for seasonal
variation.
Em plo ym en t
Seasonally adjusted employment in nonagricultural establish
ments in April continued at the record of 49.1 million reached
in February. The average factory work week, at 40.8 hours,
was down seasonally but was one hour above a year ago; aver
age hourly earnings at factories were unchanged from March
at $1.75, or 10 cents more than in April 1952. The number
unemployed continued to decline seasonally and at 1.6 million
was unchanged from a year ago.
D is t r ib u t io n
Total retail sales in April and May continued substantially
above year-ago levels. At department stores, sales slackened
CONSTRUCTION CONTRACTS AWARDED
Millions of Collar;
Federal Reserve indexes.
Monthly figures, latest shown are for April.
F. W . Dodge Corporation data for 37 Eastern States.
shown are for April.
Monthly figures, latest
95
FEDERAL RESERVE BANK OF NEW YORK
somewhat in April but rose considerably in the first three
weeks of May to a level 7 per cent larger than in the corre
sponding period a year ago; sales for the entire month after
allowance for seasonal changes are likely to return to the high
levels reached at the end of the last year. According to pre
liminary figures, stocks at department stores at the end of
April were 6 per cent larger than a year ago and on a season
ally adjusted basis slightly higher than at the end of March.
Commodity Prices
The general level of wholesale commodity prices changed
little from mid-April to the latter part of May. Hog prices
rose substantially further, and cattle prices firmed despite con
tinued heavy marketings. After mid-May winter wheat prices
declined sharply, and on May 27 were about 10 per cent below
Federal support levels. Prices of lead and finished steel were
raised, while steel scrap eased further. Some additional makes
of motor vehicles were reduced.
The consumer price index advanced slightly from midMarch to mid-April, reflecting chiefly increases in rents and
various services. Since mid-April retail prices of foods have
risen slightly, reflecting mainly increases in pork and fresh
fruits and vegetables.
Bank Credit
and
Reserves
Total loans and investments outstanding at banks in leading
cities declined further in late April and early May. The decline
was due in the main to a further reduction in holdings of U. S.
Government securities. There were also moderate decreases
in other security investments and in total loans. Food proces
sors and commodity dealers continued to repay seasonal debt
at banks, but metal manufacturers, public utilities, and trade
concerns increased their borrowing. Real estate and other loans
(largely consumer) rose further.
Member bank reserve positions remained generally tight
until about mid-May but eased considerably thereafter, owing
to the usual midmonth increase in Reserve Bank float and a
sharp reduction in Treasury balances with the Reserve Banks.
Banks were able to reduce substantially their indebtedness to
the Federal Reserve.
Security M arkets
Yields on Treasury bills moved sharply lower during most
of May, while yields on long-term issues reached new peaks.
On May 11 the Treasury announced the offering of a new series
of Savings notes yielding 2.47 per cent if held to maturity of
two years. On May 20 the Treasury offered a 2 Ys per cent
certificate maturing June 1, 1954 to holders of the certificates
maturing June 1 and to holders of the bonds called for pay
ment June 15.
Yields on corporate bonds advanced appreciably during the
first two weeks of May and then leveled off at a new postwar
high. Prices of common stocks increased moderately during
the same period.
PfilCES AND TRADE
.....1.......I.......I,...... 80 .......... ...... 11mI1111[!1n;ii;i’l.uLuxinil11111III.UIAI1949
1950
1951
1952
1953
1949
1950
1951
1952
1953
Seasonally adjusted series except for prices. Wholesale and_ consumer prices,
Bureau of Labor Statistics indexes. Total sales and disposable personal
income, Federal Reseive indexes based on Department of Commerce data.
Department store trade, Federal Reserve indexes.
Data for selected industries reported by over 200 of the largest weekly report
ing member banks. Metals includes metal products, machinery, and trans
portation equipment. Foods (combined with commodity dealers) includes
liquor and tobacco.
Petroleum includes coal, chemicals, and rubber.
Wednesday figures, latest shown are for May 13.
stLieutenant
LloydL.Burke
MedalofHonor
1
U. S. A r m y
T.
H E r e d K O R E A N strongpoint had stalled o ur attack;
L ieutenant B urke saw th at a breakthrough m ust be m ade.
R allying 35 m en, he crept close to the enem y bunkers. He
laid dow n a grenade barrag e. T hen he ran forw ard to an
exposed knoll and opened a one-m an pitched battle. H e
tu rn ed a light m achine gun into the R ed position. He
caught live enem y grenades in m id-air and threw them
back. Once he killed three m en w ith his pistol. Before
sunset L ieutenant B urke and 35 m en had defeated 300.
T he lieutenant says:
“ E very day, m en who fought in K orea are com ing hom e.
T hey’re finding jo b s —p artly because they and you and I
own nearly 50 billion d o llars’ w orth of Defense Bonds.
F o r B ond saving s—w hich protect our own fam ilies —are
also building a great backlog of n a tio n a l prosperity. R ea
son enough for investing in B onds—don’t you a g re e ? ”
★
★
★
Now E Bonds earn more! 1) All Series E Bonds bought after
May 1, 1952 average 3% interest, compounded semiannually! In
terest now starts after 6 months and is higher in the early years.
2 ) All maturing E Bonds automatically go on earning after matu
rity—and at the new higher interest! Today, start investing in
better-paying Series E Bonds through the Payroll Savings Plan.
P e a c e is fo r th e s t r o n g !
F or p e a c e a n d p r o s p e r ity s a v e w ith U . S . D e f e n s e B o n d s !
@FedFRASER