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O f Credit and Business Conditions

V o lu m e









N o .3

The money market was under considerable pressure during

tions in required reserves accompanying the collection of

February until late in the month. Chief among the transac­

income and other tax checks and a moderate decline in cur­

tions absorbing bank reserves were substantial net Treasury

rency in circulation.
Although the Treasury paid out more funds than it took

receipts, augmented by continued collections of personal in­
come taxes early in the period. While the Federal Reserve

in during the last statement week under review (the week

System continued to sell sizable amounts of Treasury bonds,

ended February 2 3 ), member bank reserve positions remained

such sales were at a slower pace than in January. As income

tight until the latter part of the week. The banks’ required

and other tax payments reduced demand deposits, required

reserves continued to decrease, but there was a substantial

reserves of the member banks fell substantially, thus provid­

contraction of Federal Reserve "float” (Federal Reserve funds

ing the chief offset to the pressure on the bank reserves. A per­
sistent drain of funds from New York City to other parts of the
country placed a large part of the burden of adjusting reserve

credited to banks against checks still in the process of collec­
tion) and a further loss of reserves through a moderate rise in
currency in circulation. The uneven distribution of these gains

positions upon the City banks, at the same time easing, in part,

and losses of funds tended to put pressure especially on the

the position of the other banks. There was a considerable

reserve positions of banks in certain sections of the country,

demand for Federal Reserve credit, and excess reserves de­

while in other areas, particularly in New York City, the banks’

clined markedly.

position was more comfortable. In the closing days of the
month, the money market was easier than in several weeks.

The post-Christmas return flow of currency came to an end
late in January. During the following weeks, seasonal factors


for Federal Reserve credit were continuous

that had a tightening effect upon member bank reserves, such

throughout most of February but were heaviest in the early

as net Treasury receipts, assumed more importance. Treasury

part of the month. Member banks obtained such credit largely

tax receipts were heaviest in the early part of the month and

by selling substantial amounts of short-term Treasury securi­

fell off subsequently. However, a moderate withdrawal of
funds from the Treasury’s War Loan accounts in depositary

ties, although they borrowed sizable amounts temporarily from
the Reserve Banks at times. In the three weeks ended Febru­

commercial banks in the middle of the month and a decrease

ary 16, they also drew heavily upon their excess reserves (by

in Government expenditures prevented any material easing
of the money market until late in the month. In the three
weeks ended February 16, Treasury deposits with the Federal
Reserve Banks rose about 620 million dollars, to 1,754 million

380 million dollars). However, a part of these and other
funds were used to reduce indebtedness to the Reserve Banks,
which declined 220 million dollars, net, in this period. Most

dollars. In addition, about 90 million dollars of funds with­
drawn by the Treasury from the money market were absorbed
by retiring Federal Reserve System holdings of certificates of
indebtedness maturing February 1. The Treasury’s substantial
net excess of cash receipts from the money market coincided
with other transactions, such as sizable purchases of Govern­
ment bonds by nonbank investors from the Reserve System,
that caused further losses of reserves by the banks.
The pressure on reserve positions was only partly eased by
other money market factors, among which were the reduc­

Money Market in F eb ru a r y ...........................

Postwar Changes in the Velocity of
D e p o s i t s ........................................................... 27
The OEEC Interim R e p o r t ........................... 29
Population in the Second Federal Reserve
District, 1940-48 ............................................. 31
Department Store T r a d e ................................ 33



of the decrease in excess reserves and member bank borrow­
ing occurred in the week ended February 2. In the week ended

Ownership of Treasury Bills
(As of last Wednesday of month*)

February 23, both the excess reserves and the borrowings of
member banks increased moderately and the System con­
tinued to purchase short-term Treasury securities. Over the
entire four-week period, the System purchased (net) 414
million dollars of certificates and 327 million of bills, and sold
343 million dollars of bonds and 78 million dollars of notes.
Although still sizable, Federal Reserve System sales of
Treasury bonds during the past month were on a much reduced
scale as compared with January, reflecting the decrease in
market activity. Savings banks apparently did not purchase
long-term restricted Treasury bonds as vigorously as in the
previous month, presumably in part because their deposit
gains were smaller. Switching operations of these institutions
are reported to have continued on a sizable scale. However,
the commercial banks did not appear to be as eager as before
to take the eligible issues which the savings banks offered in
order to obtain additional funds for the purchase of ineligible
securities. Prices of eligible bonds declined slightly during the
second half of the month.

Thus, the past month saw an

* Latest figures, February 16, 1949, are preliminary.
# W eek ly reporting banks.
t New series based on revised list of reporting banks.

ings to 43 per cent. Part of the decline reflects Treasury cash

abatement of the commercial banks’ tendency to resume their

retirement of bills held by the System, but an equally large part

war and early postwar practice of reaching out for longer-term

has resulted from the shift in ownership of bills to the com­

bonds with funds raised principally through the sale of short­

mercial banks and other private investors. Thus, to a large

term Government securities to the Reserve System.
The Reserve System sold Treasury bonds and purchased

extent, the expectation that Treasury bills would again become

certificates in each week of the month. The certificate pur­

rates were "unpegged”, has been realized.

an important money market investment instrument, once their

chases in considerable part reflected investor preferences for
other types of Government securities, particularly Treasury

M e m b e r B a n k C r e d it

bills and bonds. Member banks in need of reserves adjusted

Reflecting the generally tight money market conditions, the

their positions through the sale of certificates, particularly the

weekly reporting member banks in 94 cities reduced their
holdings of Treasury bills and certificates by 1,100 million
dollars during the four weeks ended February 16. Their

longer-dated issues, and invested in Treasury bills funds which
they expected to retain only a short time. In recent months
the steady rise in the rate on three-month Treasury bills to
1.16-1.17 per cent (while one-year certificates have remained
on a 1 lA per cent basis) has favored the use of bills as a
medium of short-term investment.
As shown in the accompanying chart, Treasury bill hold­

Government bond holdings continued the rise which had
begun shortly after the national elections. During the fourweek period, the rise amounted to 300 million dollars, or to
one per cent of their total Government bond portfolios. Total
Government securities held by the weekly reporting banks

ings of commercial banks and nonbank investors have risen

declined by 859 million dollars. Since the Federal Reserve

substantially since July 1947, when the Treasury bill rate was

Systems portfolio in this period showed an increase of 915

"unpegged”. Many industrial corporations, attracted by the

million dollars in bills and certificates and a decrease of 610

higher rate, have invested idle demand deposits at least tem­

million in bonds, it appears that the reporting member banks

porarily in Treasury bills.

The combined bill holdings of

nonreporting banks and nonbank investors


mostly the holdings of the latter) have in recent months been

bore a large share of the loss of reserves resulting from pur­
chases of Government bonds by nonbank investors and from
various other transactions.

at the highest level on record. The increase in bill holdings

About half of the decline in the weekly reporting banks’

of the weekly reporting member banks, which usually are fairly

Government security portfolios during the four weeks occurred

representative of changes at all banks, has been less rapid.

among the New York City banks. The New York institu­

In October 1948 the holdings of those banks had regained

tions, however, acquired only a nominal amount of bonds

the levels of early 1945, but they declined subsequently owing

(net). On the other hand, the liquidation of Treasury bills

to the pressure on bank reserves. The Federal Reserve System,

and certificates by reporting banks in the 93 other cities was

which early in 1947 held close to 90 per cent of all Treasury

accompanied by a rise of nearly 300 million dollars in their

bills outstanding, had by February 16, 1949 reduced its hold-

holdings of Treasury bonds. Thus it appears that those banks


disposed of part of their short-term holdings to acquire longerterm bonds. Compared with a year ago, however, the Govern­
ment security holdings of all weekly reporting banks decreased
by 3,744 million dollars, and the decline came almost entirely
in Government bonds (3,594 million dollars), the highest
yielding type of security.
Commercial, industrial, and agricultural loans of the weekly


over a period of time in the rate of deposit turnover are more
important than the absolute rate at any given time. In addi­
tion to check payments, reported debits include transfers of
funds between accounts of the same holder, withdrawals of
currency, and other nonpayment transactions, so that the
computed rates of turnover are really indices, rather than
actual measures of velocity of deposit money.

reporting member banks continued their seasonal decline with

Normally, deposits, debits, and the rate of turnover move

a further decrease of almost 150 million dollars in the four

in the same direction, with debits (and therefore the rate of

weeks ended February 16. This brought the contraction of

turnover) moving somewhat more rapidly than deposits. When
business is good or improving, the use of bank credit (and

business loans from the December 22, 1948 peak to about 370
million dollars. In the same period last year, the decrease was

deposits) expands and money is spent more rapidly. In a

less than 100 million dollars. Almost the entire decline in

recession, both the money supply and the rate at which it circu­

such loans in recent weeks has occurred among the reporting

lates tend to decline. During the middle 1930’s, however, the

banks located outside New York City. Banks in the City
reported only a nominal decline in the four weeks ended

increases in total deposits and debits were just about parallel,
so the turnover rate remained fairly constant. After 1937

February 16. Since February 2, in fact, business loans of the

velocity began to decline and, with the brief exception of

reporting banks in New York City have shown a small in­

1941, continued to decline through 1945. The reason why the

crease. On February 23, they were only 27 million dollars

turnover rate during the 1930s remained unchanged, or de­

below the December 22, 1948 level (and only 76 million

clined, was that the large additions to bank deposits resulting

below the peak level in the City of November 10, 1948).
The only other noteworthy development during the month

from a heavy inflow of gold and from the Governments deficit
financing program were not related to business demands for

was the continued gradual decline in all other loans (includ­

money and therefore were often held idle.

ing consumer loans) of the weekly reporting banks. Total

During the war, the rate of deposit turnover continued to

loans of all weekly reporting banks remained 1.5 billion dol­

fall off primarily as a result of three factors. First, since the

lars higher on February 16, 1949 than on the corresponding

Government was then the sole purchaser of roughly two fifths

date in 1948. A large part of the increase was in commercial

of the goods and services produced within our economy, a

and real estate loans, although there was a substantial net

number of intermediary transactions were eliminated that

increase also in the "other loans” category, which includes

would otherwise have taken place and given rise to bank

instalment and other loans to consumers.

debits between the time of production and the final con­
sumption stage. In the second place, deposits continued to

The money supply is one of the factors mentioned most fre­
quently in discussions of the causes and manifestations of infla­
tion. Of considerable significance also, but less frequently dis­
cussed, is the velocity or rate at which money turns over. If
the money supply were contracting at the same time that turn­

grow rapidly as the Government continued to finance a large
part of its deficit by borrowing from banks. Finally, as a
result of a combination of high incomes and a shortage of
producers’ and consumers’ goods, both business concerns and
individuals tended to hold larger idle deposit balances than
Since the end of the war, some of the factors which tended

over was increasing, the sum total of all payments in the

to reduce the velocity of money have been reversed. Goods

economy might remain the same and the price level would
then be unaffected.

and services for civilian use, with very few exceptions, have

Perhaps one reason why the rate at which money circulates

ment as a buyer of goods has declined; its share of the gross

become more plentiful. The importance of the Federal Govern­

through the economy is not given more attention in discus­

national product dropped from 42 per cent in 1944 to 8 per

sions of inflationary developments is the difficulty of measur­

cent in 1948. Deposits have fluctuated within relatively nar­

ing it. In particular, there are no statistical data with which

row limits since 1945, and business activity has continued to

to measure the rate of turnover of banknotes and coins. How­

remain on a very high level. As a result, both debits and de­

ever, a fair idea of the rate at which bank deposits are being

posit turnover showed a fairly steady increase from the end

used can be had from published data on the ratio of bank

of the war until very recently.

debits to deposits. Such ratios are even more significant if

During the middle 1930’s, total deposits (after deducting

limited to demand deposit accounts, since a very high pro­

interbank deposits and collection items) at all commercial

portion of payments in this country is made by means of checks

banks turned over on the average 15 or 16 times a year. By

against demand deposits, while rates of turnover of time de­

1945 the rate had declined to less than 11 times a year. While

posits are much less subject to rapid change. Also, changes

final figures for 1948 are not yet available, the rate probably



rose to approximately 14 times, about the same as that
prevailing in 1939 and 1941. The velocity of demand de­

ness conditions. The velocity of deposits in this City reached
a low point of 17.1 in 1940, compared with over 30 in the

posits is, of course, much greater than that of time deposits,

middle 1930’s. From the 1940 low, it increased gradually each

but the short-run fluctuations in the series for total and for
demand deposits are very similar. In 1929 the velocity of de­

year until 1947, when there was a slight decline, but in 1948
it again moved up fairly rapidly. The wartime increase in New

mand deposits of all commercial banks reached a peak of 54.

York may partly reflect debits arising from the Treasury’s War

In the middle 1930s the average turnover was around 25 or

Loan financing and the large amount of transactions in out­

27 times a year. At the end of the war it was down to 13V^>

standing Government securities which accompanied War Loan

but it has since recovered to about 20. The decline in velocity

drives. Outside New York City the turnover of demand de­

has been larger for demand than for total deposits because

posits at the weekly reporting member banks declined from

most of the increase in deposits in the past 15 years has been

around 22 or 23 times a year in the middle 1930’s to 16.1 in

in demand balances and a large part of these balances have

1945. Since then, the advance has been fairly steady. The

been held relatively idle.
The accompanying chart shows monthly fluctuations in the

average for 1948 was about 27 in New York and 19 outside
New York.

velocity of demand deposits at the weekly reporting member

A study of the velocity figures for each of the Federal

banks in New York City and outside New York from the be­

Reserve Districts indicates that all sections of the country have

ginning of 1946 to date (adjusted for seasonal variation). The

participated in the postwar increase in turnover rates. The

rise in velocity can be seen clearly from the five-month moving

most substantial increases outside New York City were in

average, which has been plotted as a dashed line. Both curves

the Cleveland, Dallas, Philadelphia, and Atlanta Reserve Dis­

seem to indicate that the velocity of demand deposits reached

tricts. In all of these the velocity of adjusted demand deposits

a peak in the fall of 1948, and turned down somewhat at the

was roughly 8 to 10 per cent higher last year than in 1947.

year end.
Turnover rates in New York City, as the chart also illus­

The smallest increases were in the Minneapolis, Richmond,
and San Francisco Districts, where the rate of turnover in

trates, are higher and often move quite differently from those

1948 was only 2 or 3 per cent higher than in the preceding

in other parts of the country. This difference is largely attribut­

year. A leveling off of the rate toward the end of the year was

able to the fact that financial transactions account for a much

also noticeable in all of the districts.

higher proportion of debits in New York City than else­
where in the country. Financial accounts are the most active

which statistics are available, increases in the velocity of total

type of deposit account and are subject to especially wide fluc­

deposits (other than interbank) during recent months have

tuations which are not necessarily related to changes in busi-

been quite small. Differences within the District in the annual

Annual Rate of Turnover of Demand Deposits* of Weekly
Reporting Member Banks in New York City and
Outside New York City
(Monthly, 1946-Jan. 1949; adjusted for seasonal variation)

In those Second District cities outside New York City for

turnover of total deposits, however, are considerable. The
character of the economic activity in the community and the
proportion of time deposits to total deposits have an important
influence on the activity of deposit accounts. In communities
which are primarily residential, such as Montclair, New Jersey,
the turnover rate is low— for total deposits of all clearing house
banks in such cities, it is currently around 5 or 6 times a year.
In Binghamton and Bridgeport, which are industrial communi­
ties, it has been averaging approximately 10 times a year. In
Albany, where debits and deposits are subject to special influ­
ences arising from the handling of State funds, the average last
year was about 21.
Does this general increase in the velocity of deposits have
any special significance beyond marking the postwar return to
normal trade relationships and expenditure patterns? The ac­
companying table showing percentage changes during the
three postwar years in the rate of turnover of demand deposits
(other than interbank accounts and collection items) and in
the money supply, gross national product, the volume of indus­
trial production, and prices may help to answer the question.
In 1947 and 1948 both production and prices increased, but
the money supply (demand deposits adjusted, U. S. Govern­
ment deposits, and currency outside banks)

showed little


Annual Percentage Changes in the Turnover of Commercial Bank Deposits
_____________________ and in Related Factors, 1946-48_________ ____________




Gross national product................................
Industrial production...................................
Wholesale prices.............................................
Consumers’ prices..........................................
M oney supply*...............................................
Turnover of deposits#..................................

— 1 .9
— 1 6 .3
+ 1 4 .5
+ 8 .5
+ 0 .8
+ 1 0 .4

+ 1 0.7
+ 1 0 .0
+ 2 5 .6
+ 14 .3
- 5 .9
+ 1 5 .4

+ 10.1
+ 2 .7
+ 8 .4
+ 7 .5
+ 0 .4
+ 1 6 .3

p Preliminary.
* Demand deposits adjusted, U. S. Government deposits, and currency outside
# Demand deposits of all commercial banks, other than interbank deposits and
collection items; 1948 estimated.
Source: Board of Governors of the Federal Reserve System, U. S. Department
of Commerce, and U. S. Department of Labor.

change, owing primarily to policies adopted by the Treasury

In addition, there are plans for increased production of food
and raw materials in the dependent territories of the area. Al­
though the full effects of many of these projects will not be
felt for 10 or 15 years, significant gains are expected by
The OEEC, in examining the prospects for achieving the
various production targets, concludes that "with some excep­
tions there will be enough food and raw materials physically
available to support the production programs as a whole”,
assuming the countries are able to pay for the imports neces­
sary for this output. Resources for capital investment, how­

and the Federal Reserve System. In order to handle the larger

ever, are likely to fall short of needs, and it is considered

volume of payments generated by higher production and price

doubtful whether output per manhour will be increased the

levels, the rate of turnover of deposits increased; deposits that

anticipated 15 per cent in the next 3^2 years. The OEEC

had formerly been held idle were activated. This increase, as

consequently regards it as unlikely that the production targets

shown in the table, was roughly in line with the increases in

will be reached by 1952-53.
The most significant estimates in the report relate to the

production and prices. After the middle of 1948, prices, and
consequently many value series, showed signs of leveling off
after nearly a decade of practically uninterrupted increases.

areas balance of payments. Imports from the outside world
at the end of the European Recovery Program are placed at

This leveling off has been reflected in the recent declines in

99 per cent of 1938 in terms of physical volume, or 12.8 bil­

the velocity of deposits.

lion dollars at 1948-49 prices. Of the total imports in 1952-


and fuel for 55 per cent, and manufactures for only 7 per

53, food is expected to account for 38 per cent, raw materials

As the first year of the European Recovery Program comes
to a close and Congressional hearings on appropriations for
the second year begin, the Council of the Organization for
European Economic Cooperation (OEEC) has submitted a
report to the Economic Cooperation Administration on the

cent. The current sources of imports differ widely from the
prewar trade pattern, but it is planned to restore that pattern
by decreasing imports from North and Central America and
increasing them from other parts of the world, as shown in
Table I.
The countries’ estimates of the import goods that will be

programs of the participating Western European countries for
the achievement of "viability”, i.e., independence from "extra­
ordinary outside assistance” by 1952. The programs and con­
clusions set forth in the report are reviewed and commented
upon below.
The plans of the participating countries are based on the
following assumptions: (1 ) a continuation of peace; (2 ) a
high level of employment throughout the world, and especially
in the United States; (3 ) a high level of world trade; (4 ) the
continued mutual co-

control of inflationary pressure; (5 )

operation; and (6 ) United States assistance during the next
three years "on a sufficient scale.”

available in 1952-53 from areas other than North and Central
America are considered by the OEEC as about 1 billion dollars
too high, in the aggregate. Nevertheless, if the participating
countries "are prepared to take positive action to encourage
new production either by offering long-term contracts, indi­
vidual or collective, or by investment or by any other method,
the volume of supplies available may well be increased. How­
ever, in view of the time necessary to develop primary pro­
duction, the full effects of plans made now may not be felt
until after 1952.”
Exports to nonparticipating areas are scheduled by the indi-

A large increase in Western Europe’s industrial and agri­

Table I
Sources of Imports of OEEC Countries from Outside World
Excluding Imports from Dependent Territories
(In per cent of total)

cultural output by 1952 is planned. Industrial output, on the
basis of the national programs, is scheduled to rise about 30
per cent above the prewar level by 1952-53, or about 25 per




North and Central America. . . .
South America............. .....................
Nonparticipating sterling area*.
Eastern Europe.................................
Middle East, Far East, etc.........

3 1 .5
1 3.1
2 2 .3
2 3 .1
1 0 .0

5 8 .4
1 3 .6
1 6 .0
7 .2
4 .8

2 9 .7
1 6.4
2 5 .8

T otal........................................

1 0 0 .0

1 00.0


cent above present levels. Agricultural output is to rise about
15 per cent above the prewar level. The increase in agricul­
tural production over prewar is expected to be concentrated
in the United Kingdom, France, and Turkey; the other coun­
tries plan merely to regain their prewar levels.1
The report points out that a 3 per cent increase in present agri­
cultural output would eliminate 1 billion dollars’ worth of imports, or
virtually the whole estimated deficit of the area in 1952-53 with the
outside world.

* The non participating sterling area includes the British Empire ''except, the Uni­
ted Kingdom, Eire, Canada, and Newfoundland), British Mandated territories,
British protectorates, Burma, and Iraq.

Source: Organisation for European Econom ic Co-operation— Interim R eport on
the European Recovery Programme, Vol. I (December 1948).



vidual countries to aggregate 10.6 billion 1948-49 dollars in
1952-53, or 33 per cent more than in 1938. Manufactures are
to comprise 80-90 per cent of the total. The changes from

in this regard that: "since, however, it is the view of certain
countries that the total trade, including both exports and im­
ports, with this area may be capable of further expansion as

1938 are to be as follows: increases of 46 per cent to North

a result of discussion with the countries concerned, the pro­

and Central America, 92 per cent to South America, and 65

visional estimates are not regarded as representing an upper

per cent to the nonparticipating sterling area2; a decrease of 20

limit of what may be possible.”

per cent to Eastern Europe; and an increase of 27 per cent to

The emphasis on the balance of payments with the outside

other areas. The OEEC comments regarding these estimates

world should not be allowed to obscure the importance of

that if there are no significant changes in present national

intra-OEEC trade (including that with the OEEC countries’

export policies, exports in 1952-53 actually are likely to

dependent areas). In the program for 1952-53 such imports

amount to only 8.5 billion dollars. If, however, there are basic

are expected to comprise 48 per cent of total imports. How­

changes in the export policies of the participating countries,

ever, the programs of the individual countries are not com­

export earnings might reach 9.5-10 billion dollars.

pletely reconcilable in this respect, since the aggregate intra-

"Invisible” earnings in 1952-53 are estimated by the partici­
pating countries at 1.2 billion dollars, in addition to 250 mil­

OEEC balance of payments on current account shows that

lion dollars that French, Belgian, Dutch, and Portuguese de­

million dollars more to one another than they expect to im­

the nonsterling participants expect in 1952-53 to export 394

pendent territories are expected to earn. The British territories

port from one another. The excess exports are only 7 Vi per

are not included in these estimates, although they are expected

cent of the total, but for certain individual commodities the
discrepancy is much larger. Trade between the nonsterling

to have a surplus with North and Central America of 0.3
billion dollars. The estimates are considered by the OEEC
too high by about 10 per cent.

participants and the sterling area is expected to be in broad
balance, but the estimates of the distribution of trade made

The deficit with the outside world in 1952-53 is expected

by the nonsterling participants are quite different from those

by the participating countries to be reduced to an aggregate

made by the United Kingdom. Another difficulty in the intra-

of 0.8 billion dollars, as shown in Table II, total earnings being

European trade program pointed out by the OEEC is that the

expected to pay for 94 per cent of imports. The OEEC, on

Benelux countries (Belgium, Luxembourg, and the Nether­

the other hand, forecasts that total earnings from exports and

lands) and the Bizone (the American and British-occupied

invisible items will be only 9.8 billion dollars if present export
policies are continued. On the assumption of basically altered

European trade, but the other European countries are unlikely

export policies, the OEEC estimates total earnings at about

to be able to pay in dollars.

zones of Germany) evidently expect to earn dollars in intra-

11 billion, or enough only to pay for 85-90 per cent of pro­

The OEEC feels that, in spite of the inconsistencies in the

grammed imports. This pessimistic conclusion, however, is

various national plans, some expansion of intra-European trade

subject to an important qualification: in the OEEC estimate
based on fundamental changes in export policy, the effects of
such changed policies on trade with the nonparticipating

in excess of the programmed amount may be possible. Some
of the plans did not take full account of the prospective avail­
ability of certain products, particularly food, within Europe.

sterling area are not considered. The report merely states

Increased trade in less essential products is also considered
advantageous, so long as it does not involve dollar payments.

The nonparticipating sterling area includes the British Empire
On the basis of the various national production and trade
(except the United Kingdom, Eire, Canada, and Newfoundland),
British Mandated territories, British protectorates, Burma, and Iraq.
estimates, the participating countries expect their combined

gross national product by the end of the Recovery Program

Table II
Combined National Forecasts of Current Transactions of OEEC
Countries with the Outside World, 1952-53
(In billions of dollars at 1948-49 prices)
N on p a r­
South ing sterl­ Eastern Far East,
A m erica A m erica ing area Europe
Im port programs...........
Programmed exports’plus
net invisible earnings*

3 .8

2 .1

3 .3

2 .2


to be about 20 per cent above 1938, or about 35 per cent
more than in 1947. Consumption levels are to return almost
to 1938, compared with present levels of around 20 per cent
less. These increases are considered too great by the OEEC,

T otal

2 .5 **

2 .0

4 .0

2 .1



B ala n ce a cco r d in g to
programs..................... - 1 . 3 * *

- 0 .1

+ 0 .7

- 0 .1

0 .0

- 0.8

mainly on the ground that the imports necessary to maintain
the requisite high level of production probably cannot be paid

The OEEC report estimates that the aggregate gross

national product will probably be only 10 to 15 per cent above
1938, and consumption only 5 to 10 per cent above 1948 (or
12 to 16 per cent under 1938).

* Including estimated balances of French, Belgian, Dutch, and Portuguese de­
pendent overseas territories, amounting to 0.25 billion.
** In addition, the dependent overseas territories of the United Kingdom are
expected to have a surplus with North and Central America of 0.3 billion.
This would increase earnings in North and Central America to 2.8 billion, and
reduce the deficit there to 1 . 0 billion.
Source: Organisation for European Econom ic Co-operation— Interim Report on
the European Recovery Programme, Vol. I (December 1948).

The OEEC thus paints a rather gloomy picture of Euro­
pean prospects in 1952-53, even though it considers the various
programs likely to fall short of their goals by only small per­
centages. In appraising the OEEC’s conclusions, it must be



borne in mind, however, that the figures are subject to a
wide margin of error. In particular, the difficulties of fore­

and Central America are therefore scheduled to decline by 48

casting the volume and direction of a major part of the worlds

per cent (in terms of 1948-49 prices) between 1947 and

trade four years hence are obvious. For example, a signifi­
cant shift in the terms of trade alone might either double or

1952-53, i.e., from 7.3 billion dollars to 3.8 billion, or to
less than the 4.1 billion imported in 1938. This would signify

volume of imports from the dollar area. Imports from North

wholly eliminate the gap between expected earnings abroad

the perpetuation of discriminatory trade and exchange arrange­

and the imports necessary to support the OEEC economies at

ments abroad, and a considerable loss in trade to the United

full employment. Furthermore, relatively minor improvements

States. To prevent this, it would be necessary for the European

in crop conditions, working hours, and the allocation of man­

countries to conduct an aggressive sales campaign in this

power might substantially increase the volume of domestic

country at competitive prices, and for the United States to be

production and thus permit a reduction in imports, or an in­

willing to face increased foreign competition in the domestic

crease in exports.

market, unless this country is prepared to supply free aid

The aggregative approach of the European Recovery Plan,
while it has great virtues, obscures the fact that some of the
problems of the OEEC area are the problems of a few indi­
vidual countries only, not necessarily shared by the rest. For

indefinitely or to export capital on a very large scale.
R E SER V E D IST R IC T , 1940-481

instance, the decline in "invisible” foreign income for the

In the nine years since the last national Census of population

entire area from about two billion dollars in 1938 to an

was taken, both the Second Federal Reserve District and the

actual deficit of 750 million in 1947 is mainly a British and

United States as a whole have experienced a considerable

Dutch problem. If, as the British believe, they can solve their

increase in population. Although the figures needed for a

part of the problem by 1952, this particular difficulty is

thorough analysis of population developments will not be

actually in good part taken care of. Similarly, the OEEC area’s

available until tabulation of the data from the 1950 Census

balance-of-payments deficit with the Western Hemisphere that

is completed two or three years hence, the changes that have

will remain in 1952 will to a large extent be the problem of

taken place since 1940 can be estimated from the current re­
ports of the Bureau of the Census.

the Benelux countries and Germany. If the Benelux countries
are able to shift some of their Western Hemisphere purchases
to European sources, and if Germany also can make progress

A sharp rise in the national birth rate during and since the
war to levels that prevailed in the 1920s has belied predic­

in that direction, the dollar problem, too, can thus be solved,

tions of an early leveling off or decline in population. A l­

at least in part, by the policies and actions of individual coun­

though the postwar peak in the rate of natural increase (the

tries. Furthermore, the OEEC program includes, along with

excess of births over deaths) seems to have been reached in

relatively strong countries, countries with special problems—

1947, absolute gains through natural increase continue to be

chiefly Greece, Austria, and Germany, and perhaps also Italy—

substantial. The total population of the continental United

that may find it difficult to do without "extraordinary assist­

States was estimated at about 148 million at the end of 1948,

ance” after 1952 unless circumstances are highly favorable.

an increase of roughly 13 per cent, or 16 million, over the

It is important to note in this connection that the policies
recommended by the OEEC include vigorous control of in­

April 1, 1940 Census count. The principal factor in this in­
crease has been the excess of births over deaths (including war

flationary pressures, reexamination of investment programs

losses), with immigration accounting for less than 10 per cent
of the gain.

to eliminate unnecessary duplication and to encourage those
investments that will aid most in the attainment of viability,

Population gains in the Second Federal Reserve District

strenuous efforts to reduce dependence on imports that cost

since 1940 have not been as great as in the rest of the country.

dollars, and "radical changes in export policy”. What the
OEEC means by "radical changes in export policy” is not

In mid-1948 an estimated I8 V2 million people lived in this
District. The increase of about 1 Vi million since 1940 repre­

fully defined, but the report says for instance that:

sents a gain of approximately 8 Vz per cent, a rate of growth

The power of Western Europe to regain lost markets
will depend to a considerable extent on prices. The
export prices of many OEEC countries are not in all cases
competitive with those of the United States . . . It is
unlikely that without a substantial reduction in relative
prices, it will be possible to achieve the large export
expansion planned. (Paragraph 191).
The anticipated effect of the European programs on the

about 20 per cent less than for the country as a whole. This
relatively slower rate of growth goes back to the depression
decade. Up to about 1932 the rate of population gains in this
District exceeded that in the rest of the country, but in the
later 1930s the rate of growth here contracted even more
sharply than it did nationally and this District’s share of the
country’s population declined somewhat.
the chart.)

(See Table I and

trade of the United States is rather striking. It is anticipated by
the report that Western Europe will not, after 1952, be able to
earn enough dollars to finance anything like the present

1 Copies of a more extensive analysis, on which this article has been
based, may be obtained from the Domestic Research Division of
this bank on request.



Table I
Total Population of New York State, the Second District,
and the United States*

Table II
Percentage Changes in Total Population, Selected Periods 1940-48*

Population (in thousands)

New York



Second District
as per cent of
United States

June 1, 1900. . .
April 1 , 1 9 3 0 ...
July 1, 1940.. .
July 1, 1944. ..
July 1, 1948. ..





* Excludes armed forces overseas.
Source: U. S. Bureau of the Census; Second District estimated by the Federal
Reserve Bank of New York.

The decline in the Second District’s share was further ac­

New Jersey................................
Second Federal Reserve Dis­

W ar
T otal
July 1, 1940 July 1, 1942 July 1, 1945 July 1, 1940
July 1, 1942 July 1, 1945 July 1, 1948 July 1, 1948



- 1
- 1

+ 12

+ 7
+ 14

- 1


+ 13

+ 8

united States outside Second
Total United States.................


- 1



+ 1

- 1


+ 11

* Excludes armed forces overseas.
# Increase of less than X of 1 per cent.
Source: Computed from data of the U. S. Bureau of the Census b y the Federal
Reserve Bank of New York.

celerated during the years 1941-44, when, in addition to losing
personnel stationed here, the District also lost civilian popula­

not share in the employment boom of the early years of de­
fense and war production to the same extent as some other

tion through out-migration to other areas (see Table II).

districts. In addition, large numbers went from this region

During the defense period— July 1, 1940 to July 1, 1942—

to military establishments elsewhere in the United States. The

total population declined in the Second District, although in

tendency to locate large training camps away from the East
Coast raised the ratio of military to total population in the

more people to the armed forces than it gained in military

the rest of the country it increased 2 per cent. There was con­
siderable out-migration of civilians to defense production
centers, since this area, particularly New York City with its

rest of the country to almost double that in the Second District,
particularly in 1943 and 1944.

emphasis on consumers’ nondurable goods manufacturing, did

Between mid-1944 and mid-1945, when the New York City
area felt the full impact of the war production boom, the

Total Population of the United States and the Second District*:
Second District as a Per Cent of United States
(July 1, 1910-48)

Second District’s civilian population rose while the rest of the
country continued to show an over-all decline. As reconver­
sion progressed more rapidly in this area than in most other
sections of the country, population gains from mid-1945 to
mid-1947, reflecting increased in-migration as well as de­
mobilization of the armed forces and a high rate of natural
increase, surpassed those of the rest of the country. Nonethe­
less, this District has not fully recovered its prewar share of
the United States population. Since mid-1947 population in
the rest of the country has again begun to increase more
rapidly than in the Second District, and it appears likely, as
a result of more rapid expansion, both economically and in
terms of population, in other sections of the country (par­
ticularly the Far West) than in this region, that the Second
District will not regain the proportion of population it main­
tained in the early 1930’s. The fact that this District contains
a greater proportion of old people than does the country
as a whole may contribute to the decline of its share in the
total population of the country.
The most important factor in population growth in this
District, as in the rest of the country, has been the excess of
births over deaths, although the rate of natural increase here
did not reach the levels achieved in the rest cf the country.
Net in-migration was of relatively minor importance in the
population growth cf this District, in contrast to the imponant
role which ic played in the population increases enjoyed by
sections of the West. Nevertheless, the States which comprise

* Excludes armed forces overseas.
# Plotted on ratio scale to show proportionate changes.
S ource: U. S. Bureau of the Census and Federal Reserve Bank of New

the Second District ranked high in absolute annual increases
in net in-migration during the later war years and the post­
war period, reversing the prewar tendency to lose population



through migration. (Connecticut, however, had already shown

gains than the less industrialized sections of the State. On the

a net increase through migration in the prewar period.) It is
most likely ( although the data are inadequate to fully substan­

other hand, within these counties, small communities (those
with populations of less than 10,000) grew more rapidly than
the cities. The same tendency for the population to shift away
from the most heavily populated areas may be observed in

tiate this point) that a sizable share of net in-migration in
this District represents foreign immigration, many of the
immigrants of the late war and postwar periods apparently

New York City. Since 1940, according to estimates of the

having settled in the Middle Atlantic States.

Consolidated Edison Company, Manhattan’s population has

The very scattered and meager data on the characteristics

grown only 3 per cent, compared with gains ranging from

of the Second Districts population seem to indicate that the

6 to 14 per cent in the outlying boroughs.
In the New Jersey division of the New York-New Jersey

long-term tendency toward industrialization and suburbaniza­
tion continued during the past nine years, especially after losses
to the armed forces were recouped. There are even indications
that highly industrialized cities like Buffalo and Syracuse, which

Metropolitan District a similar trend was apparent. The popu­
lation of the four large cities4 increased 13 per cent from 1940

either ceased growing or lost population during the 1930’s,

gain was 16 per cent.

have recently enjoyed large increases in population which may
be the beginning of a new upward population movement.

to 1947 while in the remaining part of this area the population
In New York State nonfarm rural areas experienced their
greatest growth in population during the decade of the

In the absence of precise data for the Second District, some

twenties, while farm population declined during the same

conclusions may be drawn from figures for the larger geo­

period. In the thirties the growth of nonfarm areas con­

graphic region of which the Second District is a part, namely,

tinued. However, the farm population also increased during

the Northeastern States.2 This assumes that trends in the

the thirties, the decline in farm population in purely agricul­

Second District were rather similar to those in the rest of the
Northeastern area.

tural regions being more than offset by a gain in farm popula­

While the farm population in all sections of the country
(except the Pacific States) declined by about 10 per cent on
the average between 1940 and 1947, the rural-nonfarm popu­
lation, both in the country as a whole and in the Northeastern
States, made relatively greater gains than the urban population.3
The number of persons residing in rural-nonfarm areas in the
Northeastern States increased far more rapidly than in the rest
of the country— about 24 per cent in the former compared with
about 11 per cent in the latter. Despite a slight decline in farm
population, the rate of gain in total rural population in the
Northeastern States was still 2 Vi times as great as that for
urban population, with the result that the urban proportion
of the area’s population declined from 77 per cent in 1940 to
75 per cent in 1947. The spectacular growth of rural-nonfarm
areas may, at least in part, reflect the fact that some commu­
nities classified in 1940 as rural (and still considered as such
for the 1947 estimate) have experienced considerable growth
and have actually become suburban communities likely to be
classified as urban in the next Census.

tion around the large cities; in the counties around New York
City, for example, farm population grew almost 60 per cent.
Undoubtedly, a large number of these "farmers” were not
primarily engaged in farming, but were commuting to the
nearest city. However, they produced enough on their land to
be classified with the farm population. (A "farmer” was de­
fined in 1940 as one whose produce was valued at more than
$250 a year.)

It is likely that the communities which are

satellites of the large industrial centers in the Second District
will continue to grow more rapidly than either farm areas or
the large cities themselves.
While it seems likely that the proportion of the country’s
population residing in the Second District will not again reach
the levels it did during the 1930’s, it is noteworthy that the
Second District States have all gained by net in-migration over
the period 1940-47, whereas in some of the more rural States
the net out-migration more than offset the natural increase,
often a substantial number in itself. As a result, housing con­
struction has been maintained here at a high level since the
war and the Second District’s status as a mass market for con­
sumers’ goods has been enhanced.

New York State data also seem to indicate that the ruralnonfarm population increased relatively more than the popu­

4 Newark, Jersey City, Paterson, and Elizabeth.

lation in either urban or farm communities. On the whole,
the industrial and suburban counties show greater population
2 The Second District accounts for somewhat less than half of the
population of the Northeastern States, which include New England,
New York, New Jersey, and Pennsylvania.
3 Urban areas are defined by the Bureau of the Census as cities
and other incorporated places having 2,500 or more inhabitants. The
remainder of the population is classified as rural, and is subdivided
into the rural-farm population, which comprises all rural residents
living on farms, regardless of occupation, and the rural-nonfarm
population, which comprises the remaining rural population.

In February, sales at Second District department stores
declined contraseasonally, reflecting a further narrowing of
consumer buying. According to a preliminary estimate, sea­
sonally adjusted dollar sales volume was about 6 per cent
lower than a year ago, and may have reached the lowest level
in two years. Beginning with the last week in January, sales
ran steadily below those of the corresponding weeks of 1948.



Indexes of Department Store Sales and Stocks
Second Federal Reserve District*
(Adjusted for seasonal variation, 1935-39 average=100 per cent)

February was the second of the past four months in which
daily average sales showed a year-to-year decline.
It is doubtful that the buying restraint of this past
February, as compared with the same month a year ago, has
been due to the circumstance that Easter is farther away this
year. Sales in the pre-Easter season of 1948 were particularly
disappointing, but rose substantially after Easter Sunday,
partly because of exceptional promotional efforts and clearance
sales. The trend of department store sales in this District has
been downward ever since the post-Easter expansion of sales in
May and June of 1948. In those two months, the seasonally
adjusted daily rate of sales had risen to 262 per cent of the
1935-39 average. By January of this year, however, this bank’s
index had fallen to 243 per cent and it is expected to be at
least 15 points lower for February.
The stores cut their stocks at the end of the fiscal year
(January 31) more than usual. Trade sources reported, how­
ever, that markdowns on merchandise left over from the
Christmas season were not greater than in the year before. It is
therefore likely that the reduction in stocks came primarily

Seasonal factors used to adjust sales have been revised, as noted on accom ­
panying table.

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

Jan. 1949
Department stores, Second D istrict----New York C ity ......................................
Northern New Jersey...........................
Westchester C ounty..............................
Fairfield C ou n ty ....................................
B ridgeport...........................................
Lower Hudson River V alley...............
Upper Hudson River V alley...............
A lbany..................................................
Central New York S tate.....................
Mohawk River V alley......................
U tica.................................................
Northern New Y ork State..................
Southern New York State...................
Bingham ton........................................
Elm ira..................................................
Western New York State....................
B uffalo.................................................
Niagara Falls......................................
R ochester............................................
Apparel stores (chiefly New Y ork C ity).


Stocks on
Jan. through
Dec. 1948 Jan. 31, 1949


- 5
- 1
- 5
+ 2
- 1
+ 2
+ 4
+ 9
+ 3
- 4
- 1
+ 5
- 5

+ 4r
















- 2



+ 6

-1 1





+ 1
- 3
- 9
-1 3







r Revised.

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



N ov.



Sales (average daily), un ad justed ................
Sales (average daily), seasonally adjusted*.





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






r rujvistju.
* Seasonal adjustment factors for 1942-48 revised; available upon request from
Research Department, Dom estic Research Division.

month’s Review. In January the value of net merchandise
receipts was about 15 per cent less than a year previous.
Orders outstanding at the end of that month showed a
substantial seasonal increase over the end of December, but

Net sales

from the tightening up in store buying policy discussed in last

were more than one-third below the level for the same date
in 1948.
Indexes of Business


Industrial production*, 1935-39 = 100 ........
(Board of Governors, Federal Reserve
Electric power output*, 1935-39 = 100........
(Federal Reserve Bank of New York)
Ton-miles of railway freight*, 1935-39 = 100
( Federal Reserve Bank of New York )
Sales of all retail stores*, 1935-39 = 100........
( Department of Commerce)
Factory employment
United States, 1939 = 1 0 0 ...........................
(Bureau of Labor Statistics)
New Y ork State, 1935-39 = 100................
(N . Y . S. Div. of Place, and Unemp. In s .)
Factory payrolls
United States, 1939 = 100.............................
(Bureau of Labor Statistics)
New York State, 1935-39 = 100................
(N . Y . S. D iv. of Place, and Unemp. In s.)
Personal income*, 1935-39 = 100..................
(Department of Commerce)
Composite index of wages and salaries*J,
(Federal Reserve Bank of New York)
Consumers’ prices, 1935-39 = 100.................
(Bureau of Labor Statistics)
Velocity of demand deposits*#, 1935-39 = 100
(Federal Reserve Bank of New York)
New Y ork C ity ..............................................
Outside New York C it y ..............................


N ov.
















































* Adjusted for seasonal variation.
p Preliminary.
r Revised.
X A monthly release showing the 15 com ponent indexes of hourly and weekly
earnings in nonagricultural industries com puted by this bank will be sent upon
request. Tabulations of the monthly indexes, 1938 to date, may also be pro­
cured from the Research Department, Dom estic Research Division.
# Seasonal adjustment factors for 1942-48 revised; available upon request from
Research Department, Financial Statistics Division.




National Summary of Business Conditions
(Summarized by the Board of Governors of the Federal Reserve System, February 26, 1949)
production showed little change in January, continuing somewhat below the peak
«*• of last October and November. Employment in manufacturing showed a marked decline.
Value of department store sales showed a larger decline than usual in January and the first three
weeks of February. Prices of agricultural commodities decreased further but recovered part of
their declines in mid-February. Prices of some industrial products were reduced further.

In d u s t r i a l P r o d u c t i o n









Federal Reserve index. Monthly figures; latest
figure shown is for January.









bureau of Labor Statistics* estimates adjusted for
seasonal variation by Federal Reserve. Proprietors
and domestic servants are excluded. Midmonth
figures; latest shown are for January.

The Board’s seasonally adjusted index of industrial production was 191 per cent of the
1935-39 average in January, as compared with 192 in December, 195 in November, and 193 in
January 1948. Activity in durable manufacturing industries decreased slightly in January, while non­
durable goods production was somewhat above the December rate. Output of minerals declined
3 per cent.
Steel production rose 2 per cent in January to capacity levels and was at the highest rate on
record. Activity in the automobile industry also expanded, reflecting mainly increased production
of trucks and of parts for new model passenger cars. Output in the steel and automobile indus­
tries has been maintained at the advanced January rate in February. Activity in machinery
industries decreased about 4 per cent in January, reflecting reductions in industrial equipment as
well as household appliance lines. Lumber production showed a substantial decline, in part be­
cause of unfavorable weather conditions in the Northwest, and activity in the furniture industry
declined 6 per cent. Output of most other durable goods was maintained at about the December
According to preliminary indications, output of nondurable goods showed a slight increase
in January. Activity at cotton textile, paper, and paperboard mills was above the reduced
December rate. Newsprint consumption showed less than the usual seasonal decline. Activity in
the petroleum refining, chemicals, and rubber products industries, on the other hand, was reduced
somewhat. Output of manufactured food products showed the usual large seasonal decline.
Crude petroleum production declined 3^2 per cent in January and was curtailed further in
the early part of February, as stocks of crude and refined products continued to rise. Anthracite
production was curtailed sharply in the latter part of January and early February, mainly because
of unusually mild winter weather in the East. Output of bituminous coal and of metals was main­
tained in January at the reduced level of the preceding month.
Em p l o y m e n t

Employment in nonagricultural establishments showed more than the usual large seasonal
decline in January and was 250,000 less than in January 1948, reflecting mainly reduced employ­
ment in most manufacturing industries. The number of persons unemployed increased by 700,000
in January and was substantially above the level of a year ago.
Co n s t r u c t io n

Value of construction contract awards, according to reports of the F. W . Dodge Corporation,
dropped sharply in January, with marked declines in most classes of construction. The number
of new dwelling units started in January, as estimated by the Bureau of Labor Statistics, was
50,000 units as compared with 56,000 in December and 53,000 in January 1948.

W . Dodge Corporation data for 37 Eastern States.
Other includes nonresidential buildings and public
works and utilities. Monthly figures; latest
shown are for January.

is t r ib u t io n

Value of merchandise sold at department stores, despite a large number of special sales, showed
more than the usual seasonal decline in January. The Board’s adjusted index was 290 per cent
of the 1935-39 average, as compared with 309 in December and 286 in January 1948. Sales during
the first three weeks of February were 4 per cent smaller than in the corresponding period
last year.
Carloadings of railroad freight generally declined further in January and the early part of
February and were about 10 per cent below a year ago. Declines in rail freight from the levels of a
year ago have resulted in part from diversion of shipments to other forms of transportation.
Co m m o d it y


P r ic e s

Following marked /declines in January, prices of farm products and foods dropped further
in the early part of February but in mid-February returned to the levels prevailing at the
beginning of the month. Prices of some industrial commodities including scrap metals, alcohol,
and rayon and petroleum products, were reduced further in February, while prices of most
other industrial items continued to show little change.
Retail food prices continued to decline from mid-January to mid-February, reflecting mainly
further sharp decreases in meat prices. In the latter part of February wholesale prices of meats
showed some advance from the earlier low points which were one-fourth below the record levels
prevailing last summer.
Ba n k









ureau of Labor Statistics* indexes. “ All items’*
ncludes housefurnishings, fuel, and miscellane­
ous groups not shown separately. Midmonth
figures; latest shown are for January.

C r e d it

Seasonally large Treasury tax receipts increased Treasury deposits at the Reserve Banks in
the latter part of January and the first half of February. This reduced deposits and reserves of
commercial banks, and banks sold short-term Government securities and drew down their excess
reserves. Reserve Bank holdings of Government securities increased as purchases of short-term
securities exceeded further sales of bonds.
Business loans at banks in leading cities declined somewhat during the last half of January
and the first half of February. Holdings of Government securities were reduced, reflecting sales of
short-term securities. Banks outside New York City increased considerably their portfolios of
Treasury bonds.