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M ONTHLY R E V IE W of Credit and Business Conditions Second Federal Reserve District Federal ReserveBank, NewYork M o n e y M a r k e t in F e b r u a r y The aggregate reserve positionof all memberbanks inthecountryunderwentnoimportant changesduring thefirstthreeweeksof February, butinthesucceeding weektherewasadeclineof$580,000,000, whichreduced excessreservesto$2,880,000,000, thelowest figuresince September, 1938. Thisdeclinewaschieflytheresult of largepaymentsmadeintotheTreasuryaccountsat the ReserveBanksfor thenew$1,500,000,000 issueof 2% percentTreasurybondsof1952-55, offeredonFebruary 13, forwhichpayment wasduebyFebruary25. Bytheusualtermsoftheoffering, theTreasurybonds couldbepaidforbysubscribingbankseitherimmediately incash, orbytheestablishment of creditsonthebooks ofthebanksinfavoroftheTreasury. Totheextentof 47percentof thetotal, theFebruaryissueof Treasury bondswaspaidby“bookcredit,” ascomparedwith43 percentof theDecemberissuepaidforinthismanner. SecondDistrict member banks, whose excess reserves aresmallerinproportiontotheirreserverequirements thanthoseof othergroupsof banks, availedthemselves of thebookcredit methodof payment totheextent of 55percentof thesecuritiesallottedintheDistrict, the samepercentageasinthecaseoftheDecemberTreasury issue. Banks inother districts, intheaggregate, paid for39percentoftheallotmentstherebytheuseofbook credit, ascomparedwith32percentinDecember. AlthoughTreasurydepositsintheReserveBanks on February25wererelativelyhighbecauseof thefreshly receivedproceedsof thenewTreasurybondissue, and therefore member bankreserves were correspondingly low,this conditiondoes not explainthelower total of excessreservesthatwasreachedonFebruary25thanon December17, immediatelyafterthepaymentdateforthe lastpreviousTreasuryfinancingoperation. Asamatter offact, TreasurydepositsintheReserveBanksandcash holdings onFebruary25 were about $130,000,000 less than onDecember 17, and, except for other factors, excessreservesofmemberbankswouldhavebeencorre spondinglyhigher. Thelowerlevel of excess reserves onFebruary25thanonDecember17istobeexplained primarilybythepersistentriseinthevolumeofcurrency incirculation, whichfortheperiodfromDecember17 toFebruary25amountedto$400,000,000, and,secondly, March1,1942 byanincreaseof $235,000,000intherequiredreserves of thememberbanks. Thesefactors, andotherfactors absorbingcomparativelysmallamountsofreservefunds, considerablyexceededtheaforementionednet disburse mentsbytheTreasuryfortheperiod,aswellasareduc tionof $205,000,000inforeigndepositsintheReserve Banks, areductionof $133,000,000inothernonmember deposits, and other smaller factors tending to addto bankreserves. Followinganincreasefrom$890,000,000onDecember 17 to$1,210,000,000 onJanuary21, excess reserves of the NewYork City banks declined to $1,050,000,000 by February 18, andintheweekendedFebruary 25 were reduced to $885,000,000, or virtually the same amount as onDecember 17, as contrastedwithanet reductionof $205,000,000 inexcessreservesof member banks inotherparts of thecountrybetweenDecember 17 andFebruary 25. Thus, while excess reserves for thecountryasawholedroppedtoanewlowsinceSep tember, 1938 onFebruary 25, excess reserves inNew YorkCity remainedabout $110,000,000 above thelow point reachedlast November, just aftertheincreasein reserverequirement percentagesbecameeffective. The excessreservepositionof theNewYorkCitybankshas beenmaintainedbynet gainsof fundsthroughGovern ment disbursements, foreign account and gold transBIULIONS O F D O LLAR S 7 6 MEMBIER BA SIKS ALL 1 IN. U.S. 5 S. 'n A V — V , 4 OTHER dEMBt: r BANKS ^ .T 3 \ 2 1 O JAN w * INEW 1rORK CITY 11ANKS MAR APR MAY JUN JUL 1941 AUG \ \ \ FEB I SEP OCT Excess Reserves Held by Member Banks / • n. mS" .....N / NOV r * DEC JAN FEB 1942 18 MONTHLY REVIEW, MARCH 1, 1942 actions, Federal Reservesecuritypurchases, andmiscel laneous gains, which have counterbalanced losses of reserves throughaeduction inout-of-townbankbal ancesinNewYork, anoutflowofcommercial funds, and anincreaseincurrencyoutstanding,aswellasamoderate increaseintherequiredreserves of theNewYorkCity banks. The cashpayments for the newissue of Treasury bonds onFebruary25 raisedTreasurydeposits inthe Federal ReserveBanks toabout $800,000,000, but it is tobeexpectedthat these deposits will beconsiderably reduced by heavy Government expenditures for war purposes—andmember bank reserves correspondingly increased—in the period before the peak period for Marchincometax collections is reachedat the middle ofthemonth. Thepresentindicationsarethattheeffect onmemberbankreservesoftheheavyvolumeofincome taxcollections expectedfor Marchwill bemitigatedto alargeextent bytheusebyanumberof taxpayers of taxanticipationnotespreviouslyacquiredtopayincome taxes, andbyTreasurydisbursementsforinterestonthe public debt, the redemption of outstanding Treasury billsmaturingaroundthetaxdate, andbythecontinued highrateof warexpenditures. Consequently, theindi cationsnowarethatthequarterlytaxperiodwillimpose noheavystrainonthemoneymarket. M e m b e r B a n k C r ed it Reportingbanksinotherleadingcitieslikewiseshowed arenewedincreaseincommercial loans, andalsoafur therriseinUnitedStatesGovernmentsecurityholdings duringthefiveweeksendedFebruary25. TheTreasury bondholdingsofthesebanksrose$302,000,000, ofwhich $238,000,000 occurredintheweekendedFebruary25, and Treasury bill holdings rose by a net amount of $73,000,000. Totalloansandinvestmentsofthesebanks rose by$423,000,000 duringthefiveweeks. Money Rates in New York Feb. 28, 1941 Jan. 31, 1942 Feb. 28, 1942 Stock Exchange call loans....................... Stock Exchange 90 day loans................. Prime commercial paper— 4 to 6 months Bills— 90 day unindorsed......................... Yield on % per cent Treasury note due March 15, 1945 (tax exempt)............. Average yield on taxable Treasury notes (3-5 years)............................................... Average yield on tax exempt Treasury bonds (not callable within 12 years). . Average yield on taxable Treasury bonds (not callable within 12 years)............. Average rate on latest Treasury bill sale 91 day issue............................................ Federal Reserve Bank of New York dis- 1 1 Yz-Vs % % a 0.55 0.49 0.4 5 0.83 0.94 0.9 4 2.10 2.15 2.16 2.37 2.39 0.231 0.266 — 0.043 1 Federal Reserve Bank of New York buy ing rate for 90 day indorsed bills. . . . 1 *1X % % 1 1 X Y% * Nominal. G o v e r n m e n t S e c u r it ie s uringmostofFebruarypricesoflongtermTreasury Reflecting expansion of both commercial loans and boD n d generalcontinuedthetendencieswhichappeared Governmentsecurityholdings, thetotalloansandinvest Jasnin uary—adeclineinpricesof “taxexempt” issues ments of the weekly reporting member banks inNew ian ndsteadinessintaxableissues. Thus, theaverageyield YorkCityrose$309,000,000duringthefiveweeksended on long termpartially tax exempt Treasury bonds, February 25, toreachanewhighfigure $144,000,000 havin gmovedupirregularlyfrom2.03percentonJanu abovetheOctoberhigh. Thevolumeof commercial and ary10 o2.10onJanuary31, roseto2.18percent on industrialloans, whichhaddeclinedslightlyattheendof Februarty 8, the highest level reachedin 11 months. 1941, andrecoveredpartof thisdeclineinthefirstpart saresult1o ffirmingpriceslaterinFebruary, however, of January, showedafurther increaseof $135,000,000 tA h e n e t r i s e in yieldforthemonthasawholewasreduced inthefiveweeksendedFebruary25. Onthatdate, such loans bytheNewYork City banks were $745,000,000 to0.05percent. TheaverageyieldonlongtermtaxableTreasurybonds, greaterthanayearago. ontheotherhand,fluctuatedwithinanarrowrangedur ThetotalamountofUnitedStatesGovernmentsecuri in gFebruary, asaslightincreasearoundthemiddleof tiesheldbytheNewYorkCityreportingbanksshowed the onth was virtually erased subsequently. Little anet increaseof $165,000,000for thefiveweekperiod chanm yieldswasrecordedforthemonthasawhole. ended February 25, which was the net result of an Thegaeccin mpanying chart shows the narrowing of the increaseof $200,000,000inTreasurybondholdingsand spreadbo etweentheaverageyieldsonlongtermpartially ariseof$29,000,000inholdingsof Governmentguaran taxexem t andtaxableTreasurybondsduringthelast teedsecurities, partlyoffset byadeclineof $50,000,000 twomontp s. The spread, whichwas 0.33 per cent at inTreasurynoteholdingsandadecreaseof $14,000,000 theendoh inTreasurybill holdings. Virtuallyall ($188,000,000) February.f 1941, was only0.24 per cent at theendof of theincreaseinTreasurybondholdings, occurredin theweekendedFebruary25whenthenew2%percent AmongtheintermediatetermTreasurybonds, yields Treasurybonds of 1952-55 wereissued. of boththepartiallytaxexempt andthetaxableissues UnitedStatesGovernmentdepositsinNewYorkCity showedincreases during February. Market actionof reportingbanks, after having beenreducedby repay thetaxableissuesinthisgroupwasaffectedbytheTreas mentsof suchdepositsto$595,000,000onFebruary18, ury offering for cashsubscriptiononFebruary 13 of from$819,000,000 onJanuary21, roseto$833,000,000 $1,500,000,000 of taxable 2%per cent Treasurybonds onFebruary25, reflectingbookcredits establishedfor of1952-55datedFebruary25. Initspreferential treat thenewTreasurybondissue. Adjusteddemanddeposits mentof small investorsandrestrictions, aimedatcheck of NewYorkCitybanksweremaintainedinFebruary ingexcessivesubscriptions, thetermsofthenewoffering at ahigherlevel thaninJanuary, but remainedsom e wereidentical withthosefor theDecember, 1941 issue ofTreasurybonds. Despitetheconcomitanceofunfavor$900,000,000belowthe1941peak. 19 FEDERAL RESERVE BANK OF NEW YORK PCRCCNT A v e ra g e Y ield s on L o n g T e rm T reasu ry B onds (U n ited S ta tes T reasu ry D epartm en t d ata) ablewarnews,theofferingwasoversubscribedmorethan threetimes, allotmentsbeing32percentofsubscriptions. Subscriptions in amounts up to $5,000 for registered bonds deliverable 90 days after issuancewere allotted infull. Thenew2%percentbondswerequotedFebru ary14at 10022/32bidona“whenissued” basis, and showednonet changeattheendof themonth. TheaverageyieldonthreetofiveyeartaxableTreas urynotes, at0.94percentonFebruary28, showedlittle change for the month. The yield onthe tax exempt %percentTreasurynotedueMarch15, 1945declined from0.49 per cent onJanuary31to0.43 per cent on February6andmovednarrowlythereafter. Acceptedbidsonthefourweeklyissuesof Treasury billsduringFebruaryweretenderedonaverageinterest basesincreasingfrom0.220percent ontheFebruary4 issueto0.266percent ontheFebruary25issue. Each ofthefourissueswasintheamountof$150,000,000, the firsttwoissuesreplacingsimilarmaturities. Maturitieson February18and25wereintheamountof$200,000,000. All fourTreasurybillissuesinFebruarywereof91day maturity. B o r r o w in g to P a y $2,471,000,000bytheendof theyear. Theindications, however, arethat most of thenoteswerepurchasedby corporations, andonlyarelativelysmallamountbyindi viduals. Theover-all extent towhichtaxpayers madeadjust mentsintheirfinancialaffairslastyeartoprovideforthe taxes payable ontheir 1941 incomes is, of course, not known. But it wouldnot beinaccordwithoneof the purposesofincreasedtaxationduringthewarperiodfor taxpayers generallytoborrowfrombanks inorderto providefundstomaketaxpayments, norwoulditbein thebest interests of the taxpayers, inasmuchas taxes ontheirincomesfor1942andsubsequentwaryearsare expectedto be still heavier. Aside fromthe Govern ment’sneedfortaxreceiptstomeet warexpenditures, theincreaseintaxes enactedbythe Congresslast year andtheprobable further increase this year are aimed atreducingthevolumeof incomewhichremainsatthe disposal of consumers for the purchase of consumers’ goods, theproductionof whichnecessarilymustbecur tailedbecauseofdiversionofplants, materials, andlabor to war purposes. To have the volume of purchasing powerthat is absorbedbyincreasedtaxes replacedon anygeneral scaleby extensionof bankcredit through individuals’ borrowingatbankswouldbetodefeat one of thepurposes of higher incometaxes. Therefore, it wouldappearthatbankloanstoindividualsforthepur poseof providingfunds tomakeincometaxpayments shouldbelimitedtoarole of aidinginthetransition toaperiodof highertaxation, wheretherearespecial circumstancesinvolved, andshouldnotbeof suchscope astoencourageavoidanceorpostponementof adesired result of higher taxation, which is curtailed buying powerof consumers. Borrowingfrombanks bysomebusiness concernsto meet tax payments may be unavoidable at this time, becauseof thenecessaryutilizationforworkingcapital purposes of cashrealizedfromoperations in1941 and precedingyears. Fundsobtainedthroughsuchborrow ingwouldnothavethesameeffectasborrowingbyindi viduals forthepurposeof payingincometaxes, but in general wouldrepresent merelyapostponement of bor rowingfor workingcapital purposesbythetemporary useof taxreserves. In co m e T a x e s Withtheapproachof thedate—March16—whenthe first quarterlypayment of the Federal incometax on 1941 incomeisdue, therehasbeengrowingrealization hefollowingstatementwasreleasedbytheBoardof ofthelargeincreaseintaxliabilitiesof individualsand GoT corporations that occurred in 1941 by reason of the vernorsforpublicationonFebruary21, 1942: Under Regulation D o f the Board o f Governors o f the changes made inFederal income tax rates andother Federal Reserve System, deficiencies in reserve balances o f income tax provisions by the Revenue Act of 1941. member banks in cities where Federal Reserve Banks or Ideally, provisionforincometaxespayableinthefollow branches thereof are located and in a few other reserve cities ingyearshouldbemadeat thetimetheincomeis re at present computed on the basis o f average daily net ceived,anditwasinordertofacilitatethisprocedurethat are deposit balances covering semiweekly periods. Such computa theTreasurybegan,inAugust, 1941, thesaleofTreasury tions by member banks in other reserve cities are made on a notesof thetaxserieswhichcouldbepurchasedout of weekly basis. income, asreceived,andhenceusedtoaccumulatefunds The Board has amended Regulation D, effective with the whichcouldbeusedtopayincometaxesinthefollowing reserve computation period beginning February 28, 1942, so year. A large amount of such notes was purchased as to provide that member banks in all central reserve and in 1941, the total purchased reaching approximately reserve cities shall make such computations on a weekly basis. A m e n d m e n t o f R e g u la tio n D — R eserves of M e m b e r B a n k s 20 MONTHLY REVIEW, MARCH 1, 1942 This change places banks in all these cities, including those in which Federal Reserve Banks or branches are located, on the same basis in this respect and has been made for the con venience o f member banks in these cities in adjusting their reserve positions. N ew F in a n c in g OwingtosharpdeclinesduringFebruaryinthevolume ofbothcorporateandmunicipalfinancing, thecombined total of newfinancing, at $87,000,000, wasthesmallest Country banks, i.e., those located outside o f central reserve or foranymonthinmorethanfouryears. Total corporate reserve cities, will continue as heretofore to compute deficien cies in reserve balances on a semimonthly basis. flotations, comprising $27,000,000 for newcapital and $18,000,000 for refunding purposes, were at the low est level since January, 1939. Two sizable issues, $15,000,000 SchenleyDistillers Corporationdebentures and$29,000,000Cityof Detroitbonds, originallysched Theannual compilationofoperatingratiosof member u banksintheSecondFederal EeserveDistrict for 1941 ledforofferingduringthemonth, werepostponed. hasbeencompletedandwill soonbereadyfordistribu Theprincipal corporatefinancingwastheofferingof tion. Thesedata, aspresentedinthecircular, will show $25,000,000 Panhandle Eastern Pipe Line Company theaverageearningandexpenseratios, andotherbank bonds andpreferredstock. Of theproceeds fromthis ingratios, ofmemberbanksinvariousgroupingsaccord sale, $15,000,000istobeusedfornewcapital purposes. ingtoamount of deposits andtheproportionof total The largest long termmunicipal award was that of assetsintheformof loans. Thefollowingtablegivesa $7,200,000 Milwaukee County, Wisconsin, relief bonds. number of the more important average ratios for all Temporary financing, not included inthe $87,000,000 total, amountedto$90,100,000andincluded$30,000,000 banksinthisDistrict. Federal IntermediateCreditBankand$26,000,000Fed eralHomeLoanBankdebentures. Amongtheissues indicatedfor thenear future are: $35,900,000 PennsylvaniaElectric Companybondsand preferred stock, scheduled to be publicly offered on March4; 150,000shares of convertiblepreferredstock of National Distillers Products Corporation; and $5,600,000 SouthernPacific Companyequipment trust certificates. M em ber B ank O p e r a tin g R a t io s fo r 1 9 4 1 Average Operating Ratios of All Member Banks in the Second Federal Reserve District 1939 1940 1941 745 744 772 Percentage of Total Capital Accounts Net current earnings........................... Net profits............................................. Cash dividends declared.................... 7.1 4 .0 1.9 6 .8 4 .3 1.9 7 .1 5 .5 1.9 Percentage o f Total Assets Total earnings...................................... Total expenses...................................... Net current earnings.......................... 3 .5 2 .6 0 .9 3 .3 2 .4 0 .9 3 .3 2 .4 0 .9 Number of Banks. Percentage o f Total Earnings Interest and discount on loans. . . . . Interest and dividends on securities Service charges on deposit accounts All other earnings................................ Total earnings.................................. UnfavorablereportsfromtheFarEasternbattlefronts servedtodepressstockpricesduringmuchofFebruary. The Standard 90 stockprice index, after moving up 100.0 100.0 100.0 slightlyinthefirst threetradingsessionsof themonth, droppedalmost 6percent betweenFebruary4and25 t oerasepracticallyall of thegainsmadesincethe1941 2.1 lowwasreachedlateinDecember. Tradingduringthe 47.2 36.6 6 .3 9 .9 50.8 32.8 6 .9 9 .5 52.7 31.1 7 .2 9 .0 28.7 19.8 30.5 16.2 3 .5 24.2 23.8 29.8 18.2 3 .0 24.3 Total expenses.................................. Net current earnings........................... 74.4 25.6 75.3 24.7 74.4 25.6 Net charge-offs..................................... Net profits............................................. 9 .5 16.1 8 .3 16.4 5.1 20.5 Salaries and wages............................... Interest on time deposits................... Taxes other than real estate............. All other expenses............................... Theaveragepercentageof netprofitstocapital funds of SecondDistrict member banks increasedin1941 to 5.5percentfrom4.3percentin1940and4.0percent in1939. Theimprovementinnetprofitswaschieflythe resultof asmallerpercentageoflossesanddepreciation of assets, together withanincrease inthe amount of income derivedfromloans. The largest gains innet profits occurredat small andmediumsizedbanks; the NewYork City andother large banks inthe District hadonlysmall increases inprofits in1941. Dividend payments tostockholderswerenot increased, sothat a somewhat largerproportionof bankprofits was added tocapital accounts. S e c u r ity M a r k e ts Movement o f Stock Prices (Standard and P oor's 90 stock index; 1 9 2 6 = 1 0 0 per cent) FEDERAL RESERVE BANK OF NEW YORK 21 monthwasdesultory, thevolumeofsharestradedfalling tothelowestdailyratesinceAugust, 1940. The accompanying chart relates recent stock price movementstothoseduring1938-41. The90stockindex is nowat about the samelevel as prevailedafter the Germanabsorptionof AustriainMarch, 1938andis38 percentbelowthepeakoftherecoverymovementwhich followed the Munich agreement in September, 1938. Duringtheentireperiodofactualhostilities (savefora fewweeksaftertheoutbreakof war) sharepriceshave beeninanirregular downtrend, relievedbyonlyocca sional and relatively unimportant upward reactions. Aside fromthe influences of the conflict itself, stock prices duringthewarperiodhavebeenunderpressure asaresultofagenerallymoreconservativeappraisal of stockvalues, whichhasreflectedincreases incorporate taxes and other business expenses and a consequent expectation that business profits would be relatively restricted. These factors have apparently outweighed developmentofapremiumonthepesohasbeenpromoted thesupportingeffect, which, intimespast, asustained, bytheincreasedcostofimportingUnitedStatescurrency highlevel of business activityusuallyhas hadonthe into Cubaunder wartime conditions, this cost having stockmarket. The net decline inthe 90 stockindex risentoalevel correspondingcloselytothehighof the betweentheendof 1939andtheendof 1940amounted pesopremiumreachedonFebruary6. Sincethattime, to15percent. Lastyearthenetdeclinewas18percent. thedemandforthepesohassubsidedsomewhatandby eendof themonththepremiumhadbeenreducedto Pricesof domesticcorporationbondsdeclinedslightly tah b out per cent. inFebruary. Duringthelatterhalf of themonththe T e accompanying chart indicates that the recent averagepriceofhighgradecorporatebonds, thoserated streh n gthintheCubanpesohasbeentheculminationof AaabyMoody’sInvestorsService, movedslightlybelow astea yrecoverywhichbeganinAugust, 1940. At the the1941lowtothelowestlevelsinceAugust, 1940. For endod f 1939 thepesowasquotedat a12per cent dis themonthasawholetheAaabondswereoffabout%of count (a oughit hadwidenedtemporarilyto18per apoint. Meanwhile, themediumgradecorporatebonds, centinJltuh ly , 1939, asaresult of projectedlegislation— asmeasuredbyMoody’sindexof Baabonds, fluctuated soonabandon ed—toissueadditional silvercurrencyand withinanarrowrangeandendedthemonthofFebruary coininCuba). Ratherpronouncedstrengthdeveloped withanetlossof about half apoint. At thislevel the inFebruary, 1940andagaininthefollowingMay, but Baaindexwasabout%of apointbelowthe1941high. inbothcases theserecoveries provedtobeshort-lived. eAugust, 1940, however, therehavebeenfewinter Concernregardingthetaxstatus of outstanding, as Sinctio nsinthepeso’sappreciationintermsofthedollar. well as future, issues of municipal bonds continuedto rup W it h woexceptions, NewYorkrates for other affectquotationsforthistypeofsecurityduringFebru principalbuetxcth nges fluctuated between narrowlimits ary. Standard’saverageyieldonprimemunicipalbonds duringFebruaray hefreeratefortheVenezuelanboli movedupfrom2.28percentonJanuary21to2.63per var continuedto.riT s e steadilyfrom$0.2720 at theend cent (highestsinceJune, 1940) onFebruary18; subse ofJanuaryto$0.2825o nFebruary17, butreactedthere quentlyitrecededto2.58percentonFebruary25. afterto$0.2765. Thenoncontrolledratefor theUru guayanpeso, afterrising90pointsto$0.5340onFebru ary 6, alsoreactedsubsequentlytoshowanet gainof only25pointsforthemonthasawhole. Theoutstandingforeignexchangedevelopmentduring FebruarywasthecontinuedbriskdemandfortheCuban peso, whichbyFebruary6hadreachedapremiumof about 7 /spercent intermsof theUnitedStates dollar. DuringFebruarywar productionofficials calledfor Thestrengthofthepesoappearstohavebeenassociated increasingconversionof plants manufacturingcivilian largelywiththeexpansionof Cuba’sforeigntrade (due goods totheproductionof munitions. The War Pro primarilytothewartimedemandsforsugar) andwith ductionBoardestimatedthat industrial facilitieswhich theprospectofExport-ImportBankcreditstoCuba. In last year produced $20,000,000,000 of goods will be connectionwiththegrindingofthelargest Cubansugar whollyorpartiallyconvertedtowarproduction. Pro crop in several years, Cuba’s need of currency with grams for industry-wide shifts to the manufacture of whichtomeetpayrollsandcertainotherobligationshas wargoodshavealreadybeeninauguratedintheautomo hadtobemetbytheimportationof UnitedStatescur bile, refrigerator, radio, typewriter, andwashing ma rency, whichis alsolegal tender inCuba. Therecent chineindustries. TheDirectorof IndustryOperations D isc ou n t or P rem iu m on Cuban P eso in T e rm s o f U nited S tates D ollar F o r e ig n E x c h a n g e s P r o d u c tio n and T rade 22 MONTHLY REVIEW, MARCH 1. 1942 Whilethegroupindexofproductionheldsteadyatits December level, there were againnoteworthy changes inthecompositionofthetotal. Productionofproducers’ goods continuedupwardinresponse to war demands, butamongconsumers’ goodsfurtherdeclineswereappar ent, asanumberofindustriesinthiscategoryprepared for completeorpartial conversionof their facilities to themanufactureofwarmaterials. Inthefieldofprivate housing, whereoperationshavebeencheckedbylimita tionsuponsupplies of materials, somefurther slacken inginactivitywasevident. MILLIONS OTKJLOWATT HOURS 500 400 300 200 1941 100 0 — 1----1— L 193 6 ] i i 193 7 i i i 1938 i i 1939 i i i i 1940 i i « 1941 f i i 1942 D aily A v e ra g e Production o f E lectric Pow er, A d ju s te d for Seasonal V ariation (F eb ru ary , 1 9 4 2 , figure estim ated ) 1942 Jan. Nov. Dec. Jan. Indexes of Production and Trade* (100 = estimated long term trend) Index of Production and Trade................ 103 Ill IlOp 112p Production.................................................. 106 117 118p 118p Producers’ goods— total...................... Producers’ durable goods............... Producers’ nondurable goods........ 110 114 106 130 139 120 132p 145p 119p 135p 146p 124p Consumers’ goods— total.................... Consumers’ durable goods............. Consumers’ nondurable goods. . . . 101 100 101 103 87 108 lOlp 74p IlOp 98p 70p 107p Durable goods— total.......................... Nondurable goods— total................... 110 103 123 113 123p 114p 123p 114p Primary distribution................................ Distribution to consumer....................... Miscellaneous services............................. 95 102 97 107 101 107 104p 97 p 108p 103p 104p 106p Cost o f Living, Bureau of Labor Statistics (100 = 1935-39 average)............................ 101 110 111 112 Wage Rates (100 — 1926 average).................................. 116 127 129p Velocity o f Demand Deposits* (100 = 1935-39 average) New York City............................................. Outside New York City.............................. 54 86 70 95 64 93 of the War Production Boardhas indicatedthat the conversionof Americanindustrytoawarbasiswill be largelyaccomplishedbylateautumnthisyear. Preliminary datafor Februaryindicate acontinua tionof thetendencies inproductiveactivitythat have beenevident inrecent months—steadilymountingpro ductionofwarmaterials, ontheonehand,anddwindling outputof consumers’ durablegoods, necessitatedbythe warprogram,ontheother. Thesteel millsagainoper atednear capacity despite continuedreports of scrap shortages. In an effort to relieve such shortages the Bureauof Industrial Conservationof theW. P. B. has undertakenanextensiveprogramtorecoverbetweentwo andthreemilliontonsofscrapfromautomobile‘4grave yards.’9Productionof electricpowerandtheoutput of bituminouscoal appeartohavedeclinedlessthanusual during February andoutput of crude petroleumcon tinuedat ahighlevel. Incompletefiguresindicatethat thedailyrateof railroadloadings of merchandiseand Inthe37EasternStatescoveredbythereportof the miscellaneous freight in February was approximately F. W. DodgeCorporationthemarkedcontractioninthe thesameasinJanuary, but thatthemovement of bulk volumeof constructioncontractawards, whichhasbeen freight averagedsomewhat lower. inprogresssincelast August, continuedthroughJanu ary. Contracts awarded for private construction de P T J creasedmorethanusualbetweenDecemberandJanuary, DuringJanuarythisbank’smonthlyindexofproduc and awards for public projects, though considerably tionandtraderosetwopointsto112per cent of esti largerthaninthesamemonthoflastyear, alsodropped matedlongtermtrend. ThefigureforJanuaryayear offfromtheDecembervolume. agowas 103. The gainover December was primarily omJuly, 1940until thesecondhalf of 1941almost associatedwithanunusuallyhighlevel of retail trade. allFtry es of constructionworkincreasedrapidlyalong In the field of production divergent tendencies were withp t h e general expansioninbusiness activity. But againconspicuous. d u r in g e latter part of 1941 curtailment of certain Prospects of future shortages and higher prices typesofth b ingbecamenecessaryinordertoconserve resultedinanotherwaveofconsumerbuyinginJanuary thesupplyuild o f itical materialsforusesessential tothe that affectedmany classes of goods. Sharp increases defenseeffort.crT heaccompanyingchart illustrates the insalesoveryearearlierlevelswerereportedbydepart effect of thedefen programontwodifferent typesof mentstores, varietychainstoresystems, andmail order building activity. seIn the case of residential building, houses. Theseincreases more thanoffset the effect on total retail distributionof thebanonretail salesof new apronouncedupwardmovement beganinthesummer of 1940andcontinuedthroughthefirst threequarters passengercars. p Preliminary. B u ild in g r o d u c t io n a n d r ad e i n anuary * Adjusted for seasonal variation. 63 89 FEDERAL RESERVE BANK OF NEW YORK of these, about onequarterwereannouncedmthepast month. All existingpricescheduleshavebeenbrought intoconformitywiththerequirementsof thenewEmer gencyPriceControl Actandhavetheforceofmaximum priceregulationsunderthatlaw. Priceceilingsbecame effectiveduringFebruaryonanumberofimportantcon sumers’ goods, including, inthe durable goods group, passengercars, washingandironingmachines, mechan ical refrigerators, radios andphonographs, and, inthe nondurablegroup, bedlinen. Several ofthenewsched ulesweredesignedtolowercurrentprices. Ontheother hand, someupwardrevisions occurredinexistingceil ings. Inthecaseof lard, anincreasewasnecessitated byanadvanceinhogpriceswhichreachedanewhigh since 1937, and, inthe case of certaintypes of wool, higher maxima resulted fromadjustments to comply withthenewpricecontrollaw. MILLIONS United States Bureau of Labor Statistics Weekly Indexes of Wholesale Commodity Prices of 1941. Public projects suchas barracks at military cantonments andhomesfor civilianworkersindefense areascontributedinlargeparttotherise. Privateresi dential buildingalsoincreasedsubstantiallyduringthis period. Inrecentmonths,however,therateofresidential building has dropped off, primarily as the result of restrictions onhousingconstruction. Industrial build ing,ontheotherhand,hasincreasedalmostcontinuously fromtherelativelydepressedlevels of thefirst part of 1940totherecordhighsof recent months. Becauseof thefundamentalimportanceofincreasingmanufacturing facilitiesfortheproductionof warmaterials, therehas beenno curtailment recently inthis type of building activity. IntheNewYorkStateandNorthernNewJerseyarea, constructioncontractawardsdeclinedmorethanseason allyduringJanuaryandwereslightlybelowthetotal forthesamemonthof last year. Thedecreaseinresi dential buildinghas beenparticularly markedinthis region. ContractawardsforsuchpurposesinJanuary werealmost 60percent belowJanuary, 1941. Despite aDecembertoJanuarydecline, total awards for other types of constructionremainedabove the year earlier levels. Index Percentage change Feb. 21, February 1942 compared with 21,1942 (1926 = 100) Jan. 24, 1942 Feb. 22, 1941 Textile products......................................... Chemicals and allied products............... Housefurnishing goods.............................. Hides and leather products..................... Building materials................................... .. Fuel and lighting materials..................... Metals and metal products..................... Miscellaneous.............................................. Farm products............................................ 101.9 94.8 93.7 96.9 104.1 116.1 109.7 78.5 103.6 89.1 + 1 .6 + 1 .3 + 1 .1 + 0 .4 + 1 .4 + 0 .3 + 0 .2 —0 .5 0 + 1 .1 + 4 5 .2 + 2 9 .5 + 2 3 .9 + 2 3 .4 + 1 5 .4 + 1 3 .9 + 1 0 .5 + 8 .0 + 5 .8 + 1 6 .2 All commodities................................. 96.5 + 1 .0 + 2 0 .0 Raw materials............................................ Semimanufactured articles...................... Manufactured products........................... 97.2 91.9 97.1 + 1 .8 + 0 .1 + 0 .8 + 3 1 .9 + 1 2 .9 + 1 6 .0 E m p lo y m e n t a n d P a y r o lls DuringJanuary, workingforces at NewYorkState factoriesdeclined1%Per fromtheDecemberlevel, whilewagepaymentsrose2percentinthesameperiod, reflectinglongerworkinghours, overtimepayments, and wagerateincreases. Warindustriestookonadditional employeesduringthemonth, butthesegainsweremore thancounterbalancedbylosses, partlyseasonal inchar acter, inmostindustriesproducingciviliangoods. The largest layoffs occurred in the manufacture of food products,men’sandwomen’sclothing,andtextiles. Com paredwithJanuary, 1941, factoryemployment was 18 percentgreaterandpayrollswere45%percentlarger. Unsettlingwarnewsappearstohavebeenanimportant (ThesefiguresarebasedontheNewYorkStateDepart factorduringFebruaryincheckingtheadvanceinprices mentof Laborindexesof factoryemploymentandpay whichhadcharacterizedthe commoditymarkets since rolls, whichhave recentlybeenrevised. The Depart themiddleof October. Quotationsgenerallyfluctuated mentnowemploysanewindustrialclassification,excludes withinanarrowrangeandtheBureauofLaborStatistics factoryofficeworkers, andcomputesindexesona1935-39 comprehensiveweeklyindexof wholesalepricesshowed base.) acomparativelysmallincreaseforthemonthasawhole. Expansion at plants producing war materials was A rise in quotations for farmproducts accompanied responsibleforemployment gainsintheUtica, Buffalo, Congressional movestopreventthesale, atpricesbelow andAlbany-Scheneetady-TroydistrictsduringJanuary; parity, of Government-held agricultural commodities. inotherindustrial centers of the Stateworkingforces Priceregulationshavehadanincreasinginfluenceon decreased. Payrolls, however, were greater than in marketlevels. Overonehundredpriceceilingschedules Decemberinall areasexcept theBinghamton-Endicottwereissuedduringthefirst yearof pricecontrol, and, JohnsonCitydistrict. C o m m o d ity P r ic e s 24 MONTHLY REVIEW, MARCH 1, 1942 IntheUnitedStatesasawhole, asinNewYorkState, factoryemploymentdecreased1%percentduringJanu ary, whilepayrolls rose2percent. Factories engaged intheproductionof warmaterialscontinuedtoexpand theirworkingforces, butmorethanoffsettingthisexpan sionwere layoffs inother lines, resulting partly from seasonal factorsandpartlyfrommaterial shortagesand Government measures curtailing production. In the latter case, especially sharp decreases in employment occurredintheautomobileandrubber industries. In Januarytotal manufacturingemploymentwas14y2per cent above the January, 1941 level andpayrolls were up43y2percent. AccordingtoestimatesbytheUnitedStates Bureau ofLaborStatistics, 1,200,000fewerpersonswereengaged inall civil nonagricultural pursuitsinJanuarythanin December. Forthemostpartthedeclinewasduetosea sonalinfluences. Thelargestlayoffsoccurredatwholesale andretail tradeestablishments; othersizablereductions inworkingforcesweremadebyfactoriesandconstruc tionfirms. Total civil nonagricultural employmentwas estimatedat 39,800,000 persons inJanuary, againof 2.700.000overthesamemonthlastyear. InNewYorkState, employeesincivilnonagricultural pursuits in January totaled 4,180,000, according to BureauofLaborStatisticsestimates. Thiswasadecline of120,000fromthepreviousmonth,butagainofnearly 300.000overJanuary, 1941. Thesefiguresdonotinclude employers, casual workers, or domestic servants, esti matesforwhichareincludedinthetotalforthecountry asawhole. waslowerthaninJanuary, whereasinrecent yearsan increasebetweenthesetwomonthshasusuallyoccurred. InJanuary, total sales of thereporting department storesinthis District were35percent higher thanin January, 1941, and average daily sales declined con siderablylessthanusual fromtheDecemberlevel. De partment storesinall localities throughout theDistrict reportedsubstantial year-to-yearincreasesinsales, and sales of agroupof leadingapparel stores inthis Dis trict were 26 per cent greater thaninJanuary, 1941. Thepercentageincreasesindepartmentstoresalesfor thetwelvemonthsendedJanuary, 1942, comparedwith thetwelvemonths endedJanuary, 1940, areshownin theaccompanyingdiagramfortheSecondDistrict and forsixlargecitieswithintheDistrict. Thegainsrange from16percentforNewYorkCityto41percentfor Bridgeport, whilefortheDistrict asawholetherewas ariseof20percent. Retail stocks of merchandise onhandinthedepart ment stores at theendof January continuedsubstan tially higher than a year previous, and this bank’s seasonallyadjustedindexofdepartmentstorestocksrose three points to 110 per cent of the 1923-25 average. Eeturnsfromalimitednumberof departmentstoresin this District indicate that outstandingorders for mer chandisepurchasedbythestores, butnotyet delivered, wereover twice as largeas thoseat the endof Janu ary, 1941. Percentage changes from a year ago Department stores Department StoreTrade During February there was some slackening inthe briskrateofretailbuyingwhichprevailedduringJanu ary. ForthefourweeksendedFebruary28, total sales of thereportingdepartment stores inthis District are estimatedtohaveincreasedbyabout 16per cent over thecorresponding1941period,butthedailyrateofsales New York City............................................................. Northern New Jersey................................................. Westchester and Fairfield Counties......................... Lower Hudson River Valley..................................... Poughkeepsie............................................................ Upper Hudson River Valiev..................................... Central New York State............................................ Mohawk River Valley............................................ Northern New York State........................................ Southern New York State......................................... B R ID G E P O R T Western New York State.......................................... Niagara Falls............................................................ B U FFA LO SYRACUSE Net Sales January, 1942 Stock on hand end of month January, 1942 + 31 +38 +37 +40 +42 +40 +47 +44 +41 +51 +69 +46 +34 +52 +52 +56 +46 +51 +59 +40 +33 +41 +41 +1 7 +28 +28 — +27 — + 41 +49 +38 — +28 — — +33 +39 +26 +2 7 All department stores.................................... +35 +34 Apparel stores.................................................. +26 +2 8 RO CH ESTER Indexes of Department Store Sales and Stocks, Second Federal Reserve District (1923-25 average = 100) N E W AR K 1941 N E W YO RK C IT Y SECO ND Jan. Nov. Dec. Jan. Sales (average daily), unadjusted................. Sales (average daily), seasonally adjusted.. 78r 98r 130 109 194 107 104 132 Stocks, unadjusted............................................ Stocks, seasonally adjusted............................ 74r 82r 132 111 105 107 99 110 D IS T R IC T 0 102 20 % 30% 40% 50% Percentage Increases in D ollar V o lu m e o f Sales o f R eporting D epart m en t Stores in Second Federal R eserve D istrict and in S elected C ities, Y e a r Ended January 3 1 , 1 9 4 2 , Com pared w ith Y e a r Ended Jan uary 3 1 , 1 9 4 0 1942 r Revised. MONTHLY REVIEW, MARCH 1, 1942 General Business and Financial Conditions in the United States (Summarized by tlie Board of Governors of the Federal Eeserve System) Index o f P h ysical V o lu m e of Industrial Produc tion, A d ju ste d for Seasonal Variation ( 1 9 3 5 19 3 9 a v e r a g e s 1 0 0 per cen t) Indexes of V alu e o f D epartm en t Store Sales and Stocks, A d ju sted for Seasonal V ariation ( 1 9 2 3 -1 9 2 5 a v e ra g e — 1 0 0 per cent) CLOTHING _ RENT _____________ ..••V ^ ...................... FOOD 1936 1937 1938 1939 1940 1941 1942 U . S . Bureau o f L abor S ta tistic s Indexes o f the C ost o f L iv in g ( 1 9 3 5 -1 9 3 9 a v e r a g e s 1 0 0 per cen t) U. s. GOVT OBLIGATIONS c IUI LUAM . / " ___ s '* COMM1ERCIAL LOANS 1937 1938 1939 1940 1941 1942 W ednesday Figures for Reporting Member Banks in 101 Leading Cities (Latest figures are for February 11) D istribution In January retail trade was stimulated considerably by widespread antici patory buying of many products resulting from announcements that distribu tion of new tires and tubes, new automobiles, and sugar would henceforth be rationed and that the amount of materials available fo r use in various other goods would be restricted. Sales at department stores, variety stores, and general merchandise stores declined much less than is usual after the Christmas season, while sales of tires and tubes were restricted to essential uses and sales of automobiles ceased pending the establishment of a rationing system. In the first half o f February department store sales decreased somewhat from the high level reached in mid-January. Total car loadings of revenue freight, which usually decline in January, showed little change this year and the Board’s seasonally adjusted index advanced from 137 to 140 per cent of the 1935-39 average. Loadings of grain and forest products rose to unusually high levels fo r this time of year and coal shipments also increased, following a decline in December. Shipments of miscellaneous freight, which include most manufactured products, declined less than seasonally. Commodity P rices Prices of commodities and services continued to advance sharply in January and the first ha lf of February. The Emergency Price Control A ct of 1942 became a law on January 30 and former Federal maximum price schedules— approximately 100 in number—remained in effect under its terms. About one half of these schedules were issued following the United States 1 entry into the war. In this period, price controls were extended to a number of finished consumers9 goods and covered mainly items fo r which output fo r civilian use had been sharply curtailed or prohibited by Federal order. Retail prices of foods and textile products, which are not subject to direct control, showed exceptionally large increases from December 15 to January 15 and, according to preliminary indications, have continued to advance since that time. B a n k Credit Since the beginning of the year loans and investments at banks in leading cities have increased, reflecting purchases of Government securities by city banks outside New York and increases in commercial loans by banks in New York. Demand deposits and currency in circulation have risen sharply. Member bank reserves have shown little change in recent weeks, and excess reserves have continued close to 3 ^ billion dollars. - - 1936 I n d u s tria l activity rose further in January and the first h a lf of February, reflecting continued sharp advances in output of m ilitary products. Retail trade was unusually active and prices, particularly of unregulated com modities, advanced. P roduction Volume of industrial production increased in January, although usually there is some decline at this season, and the Board’s adjusted index rose further to 170 per cent of the 1935-39 average. Continued rapid increases in activity were reported in the machinery and armament industries and pro duction of chemicals likewise rose sharply. A c tiv ity at cotton textile mills reached a new high level, following some decline in December. In the meat packing industry, where activity had risen to record levels in December, there was a further advance in January and output of most other manufactured food products was maintained in large volume fo r this time of year. Production of steel and nonferrous metals continued near capacity in January and lumber production, which usually declines at this season, was sustained. In the automobile industry output of passenger cars and lig h t trucks continued at about the December ra te ; in February, however, production of cars and trucks fo r civilian use was halted and the plants were shut down fo r conversion to armament production. Coal production increased in January, following a decline in December when demand was curtailed somewhat by unusually warm weather, and output of crude petroleum was maintained at record levels. Value of construction contracts awarded in January was some two-fifths below the level of the last quarter of 1941, according to figures of the F. W. Dodge Corporation. Declines were reported in all classes o f construction; the decrease in residential building being usual at this season. Total awards in January were slightly larger than last year, but public projects accounted fo r a much larger proportion of the total than a year ago. U nited States Government Security P rices Prices of United States Government bonds declined somewhat in the first half of February, following little change during the previous month, while prices of short term securities, which had risen in January, were steady. FEDERAL RESERVE BANK OF NEW YORK S o m e A s p e c t s o f th e S a v in g s B o n d P r o g r a m Since May, 1941, when the current United States Savings Bond program commenced, a total of more than $4,000,000,000 of the three series of Savings Bonds has been sold and that amount of funds has flowed into the Treasury to aid in meeting the large defense and war expenditures of the Gov ernment. In part, these Savings Bonds have been purchased by the use of funds previously held in savings or other accounts in banks, and in part by the use by subscribers of some of their current income, i.e., the setting aside of a definite amount of money received as salaries, wages, or other income. The investment in Savings Bonds of current income received by individuals has been facili tated by the establishment of payroll savings plans by thousands of business concerns all over the country, by means of which money is accumulated for the account of employees toward the purchase of Savings Bonds. Purchases of Savings Bonds out of current income constitute the most important contribution of this character to the over-all war effort, both from the viewpoint of the financing of the war, and from the viewpoint of the economic effects which flow from this type of purchase. Purchases of Savings Bonds out of current income represent an addition to the total amount of funds available for invest ment in Government securities. Money withdrawn from savings accounts in banks and invested in Savings Bonds may merely result in a purchase by the individual withdrawing the funds instead of by the bank in which the funds were on deposit. In fact, if the withdrawals of money from the banks by individuals are large enough, as has been the case in some instances, the banks may be forced to sell some of their present holdings of Government securities. To the extent that the capacity of banks to buy Government securities is reduced, it is evident that purchases of Savings Bonds made with money withdrawn from deposits in the banks do not assist in the over-all financing of the war. Invest ments of funds withdrawn from trust accounts and from certain other deposit accounts in the banks, against which the banks may have been holding cash instead of making investments, constitute an exception. In such cases, investment of the funds in Savings Bonds would, in general, represent a net addition to the volume of funds available for investment in Government securities. The economic advantages of the use of current income for the purchase of Savings Bonds are especially important at the present time, perhaps more important than the financial effects. Invest ment by individuals of a part of current income in Savings Bonds absorbs funds which might other wise be spent on current consumption of many products, the supply of which is decreasing, whereas the use of accumulated savings to make purchases of Savings Bonds may not restrain consumption at all. In order to curb inflationary price developments, which may result when an increased volume of money income is competing for a shrinking volume of consumers7 goods, it is imperative that large amounts of current income be saved, not spent. It is for this reason that regular saving of a part of current incomes, especially those that have been increased by the war effort, and the investment of these savings in United States Savings Bonds, is so desirable. More emphasis on the purchase of United States Savings Bonds out of current income, and less emphasis on such purchases out of accumulated savings, which indirectly are already invested to a large degree, will aid in preventing the development of inflationary tendencies, as well as aid the Government in the aggregate task of financing the war. Another important source of funds which could be applied to the financing of the war, through the medium of purchases of Savings Bonds, with benefit to the owners of such funds and to the Gov ernment, is the large amount of currency which is being held by individuals. While the rapid rise in the volume of production and trade in the past three years, and the accompanying rise in money incomes, serve to explain a large part of the rise in currency in circulation, there is still a large amount which undoubtedly represents hoarding by individuals, or at least the holding of unusual amounts, i.e., larger amounts than are needed to make day-to-day purchases. Various explanations have been advanced as reasons for the hoarding of currency. None is more irrational than that which holds that currency is to be preferred to bank deposits or Savings Bonds, because an inflation may develop as a result of the war. Many steps being taken by various Govern ment and other agencies are aimed at the prevention of inflation and it is in the minds of all that infla tion should be prevented. But a holder of currency would not in any event have any advantage over the holder of Savings Bonds or of a bank deposit, both of which can be freely converted into currency. Furthermore, the holder of a Savings Bond receives an interest return on his investment, whereas the holder of currency holds a nonincome producing asset. With the nation at war, patriotism and selfinterest alike, therefore, suggest that such money be put to work by investing it in United States Savings Bonds.
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