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MONTHLY REVIEW
Of Credit and Business Conditions

F E D E R A L

V

olum e

34

R E S E R V E

B A N K

MA R CH

O F

N E W

Y O R K

19 52

No. 3

M O N E Y M A R K E T IN F E B R U A R Y
Money market conditions during most of February were
firmer than in January, reflecting some pressure on bank
reserves resulting in part from an increase of Treasury bal­
ances in the Reserve Banks to more normal levels. In addition,
net sales of short-term Government securities were made by
the Federal Open Market Account to meet the continuing
demand for such securities and to absorb additional reserves
arising out of a substantial net increase in Federal Reserve float
over the first three weeks of the month and continued net for­
eign disbursements. In the latter part of the month, however,
the System purchased substantial amounts of securities to facili­
tate the very large Treasury refunding operations announced
on February 13 and did not fully offset its purchases by sales
of other securities at the time. The rate on Federal funds in
New York remained close to the discount rate during the first
three weeks of February, but eased moderately thereafter.
Reserve positions of the commercial banks in the rest of the
country were generally tight throughout the month.
The Treasury refunding operations, which were announced
on February 13, included the offering of a new 2 Vs per cent,
5-7 year bond in exchange for the IVz per cent bond called for
redemption on March 15, outstanding in the amount of
approximately 1 billion dollars, and the offering of a new I Vs
per cent, 11VI?-month certificate of indebtedness in exchange
for the 9.5 billion dollars of certificates maturing on April 1.
The subscription books were open from February 18 to 21,
inclusive, and both types of new securities were to be issued on
March 1 with adjustment of interest to maturity or redemp­
tion dates.
Market opinion indicated general approval of the terms
chosen for these Treasury offerings, with particularly favor­
able comment concerning the Treasury’s decision to make its
first offering of a marketable bond since the issuance of the
Victory bond in December 1945. Considerable shifting of
ownership of the called bonds and maturing certificates
occurred in advance of the exchange, however. Many of these
securities were held as short-term investments by corporations




and other investors who shifted into Treasury bills and certifi­
cates of short maturity. Demand in the market for the "rights”
to the new issues, especially the 5-7 year bonds, was limited,
probably reflecting in part the imminence of the March 15 tax
date and uncertainty concerning the market conditions that
may prevail during March as a consequence. In these circum­
stances, the Federal Reserve System made fairly substantial
purchases of the called and maturing securities, but offset a con­
siderable part of its purchases by sales of short-term securities.
Despite the relative scarcity of bank funds for security
investment, the short-term security market continued the
firmness that had characterized it in January, as corporation
funds seeking investment pressed on available supplies of
short-term securities. The other sectors of the Government
security market were fairly steady on a limited volume of
trading. Bank business lending, which had declined signifi­
cantly over the five statement weeks in January, showed a
tendency to level off during February, as expanded defense
borrowing offset a continuing decline in nondefense credit.
M

em ber

B a n k R eserves

The net effect of the several factors influencing member
bank reserve balances and excess reserves, shown in the table,
was to maintain moderate pressure on reserve positions during
nearly all of February. Excess reserves available to the banking
system were never above what have come to be considered

CONTENTS

Money Market in February.....................................29
Debits and Clearings Statistics...............................31
Control of Inflation in the Netherlands..............32
Life Insurance Companies and the
Security Markets ..................................................35
Production in a Defense Economy..................... .39
Department Store Trade........................................ .43

30

MONTHLY REVIEW, MARCH 1952
Weekly Changes in Factors Tending: to Increase or Decrease
Member Bank Reserves, February 1952

(In millions of dollars; ( + ) denotes increase,
(— ) decrease in excess reserves)
Statement weeks ended
Feb.
6

Feb.
13

Feb.
20

Feb.
27

Four
weeks
ended
Feb.
27

Operating factors
Treasury operations*...........................
Federal Reserve float...........................
Currency in circulation.......................
Gold and foreign a ccou n t....................
Other deposits, e t c ................................

+ 155
+ 47
- 31
+ 54
+ 7

-1 6 8
-1 2 4
- 47
+ 55
+ 9

-2 5 8
+399
+ 38
+ 12
- 13

-2 2 0
-2 6 1
3
8
+ 69

-4 9 1
+ 61
- 43
+ 11 3
+ 72

T ota l............................................

+ 234

-2 7 6

+177

-4 2 0

-2 8 5

Direct Federal Reserve credit
Government securities.........................
Discounts and advances......................

-1 7 1
+ 72

-1 1 5
+ 337

- 99
-1 6 5

+ 155
- 32

-2 3 0
+ 212

Factor

T ota l............................................

99

+222

-2 6 4

+123

-

Total reserves...............................................
Effect of change in required reserves........

+ 135
+ 24

- 54
+ 130

- 87
+
5

-2 9 7
+ 59

-3 0 3
+218

Excess reserves............................................

+ 159

+ 76

-

-2 3 8

-

-

82

18

85

N ote: Because of rounding, figures do not necessarily add to totals.
♦ Includes changes in Treasury currency and cash.

"normal” working levels, and on several days rather substan­
tial borrowing from the Federal Reserve Banks was necessary
by banks adjusting their reserve balances to their requirements.
Moderate pressure on bank reserves was apparent in the
New York money market as the rate on Federal funds, which
had been below 1 per cent during most of January, rose above
l l 2 per cent early in February and then fluctuated at levels
/
just below the 1% per cent Federal Reserve discount rate until
the latter part of the month. Part of the demand for Federal
funds originated with out-of-town banks, but the consistently
low levels of New York City bank excess reserves would indi­
cate that the most important demand came from New York
banks. The sources of gains and losses of funds to the money
market followed the customary pattern. Funds gained from
Treasury expenditures in excess of funds acquired by the
Treasury in New York City, plus funds gained through foreign
account disbursements, were largely offset by the outflow of
funds to other parts of the country. Sales of securities by the
Federal Open Market Account constituted another important
drain on City bank funds in February.
For the country as a whole, the factors exerting the greatest
influence on member bank reserve positions were Treasury
operations, changes in Federal Reserve float, and Federal
Reserve security and lending operations. In each of the last
three statement weeks in February, unusually large Treasury
tax receipts, reflecting in part lagging tax collections in pre­
vious months, together with Treasury withdrawals from its
Tax and Loan Accounts in the banks, enabled the Treasury to
build up its deposit balances with the Federal Reserve Banks,
draining reserves from the member banks. Float followed the
customary monthly pattern, increasing as a result of expanded
check usage toward the middle of the month and then tapering
off in the last statement week.




Steady selling by the System to maintain some pressure on
bank reserves was made possible by the strong nonbank demand
for short-term investments. Net sales by the System totaled
385 million dollars during the first three statement weeks of
February, and by February 20 Government security holdings
in the System Open Market Account were at the lowest level
since last May. Despite substantial market purchases made for
Federal Reserve account in connection with the Treasury’s
refunding offer, the System was able to take 230 million dollars
out of the market through net security sales for the month as
a whole. Federal Reserve discounts and advances, which are
initiated by the borrowing banks, served their traditional func­
tion as a "shock absorber”, expanding to offset losses of funds
and contracting when reserves became available from other
sources. During the four weeks ended February 27, they
showed a net increase of more than 200 million dollars.
Since 1950, Federal Reserve float has been the most impor­
tant week-to-week variable affecting bank reserves and, with
the exception of net purchases of Government securities by
the System, the most important source of net additions to bank
reserves. The significance of this source of banking funds is
shown in the accompanying chart. The average daily level of
float in 1951, month by month, was some 500 million dollars
greater than in the corresponding months of 1950. (There
was a dip below last years level, however, in February 1952
which may be explained by the unusually large float in Febru­
ary 1951 when the railroad strike and weather conditions
delayed check shipments.) Float arises as a by-product of the
service provided by the Federal Reserve System in collecting
out-of-town checks for banks. The bank sending in a check
for collection is credited for the check automatically (subject
Federal Reserve Float
(M onthly averages o f daily figures,
January 1950-February 1952*)

FEDERAL RESERVE BANK OF NEW YORK

to the check’s being honored) after an arbitrary period of time
specified by what is called the "availability schedule”. Since
this schedule frequently is less than the actual time necessary
for the check to be collected, there are at all times large num­
bers of checks for which payee banks have received Reserve
Bank credit but which have not yet been debited to the reserve
accounts of the payor banks. Part of the explanation for the
very marked expansion of float in 1951, and thus far in 1952,
above earlier levels lies in the greater number and dollar vol­
ume of checks that has grown out of the expanded dollar vol­
ume of business activity. More important, however, was the
action of the Federal Reserve System in January 1951 in low­
ering the maximum availability time from three days to two.
This action gave commercial banks more rapid access to funds
from checks being cleared, but it also increased the number of
checks credited before collection and thus substantially con­
tributed to member bank reserve balances.
T r e a s u r y Fi n a n c i n g

and

the

G overnm ent

Se c u r it y M a r k e t

Despite the general tightness of bank reserves, the market
for short-term Government securities remained firm through­
out February. The buying pressure was concentrated in the
very short-term area, and represented in part investment by
nonbank investors of funds being accumulated for tax pay­
ments in March. There also was buying interest in issues
maturing near the June tax date, particularly the July 1 cer­
tificate of indebtedness. Average issue rates on new bills
reflected the firm tone in the short-term market, and the issue
dated February 21 was placed at an average discount of 1.507
per cent, down appreciably from the 1.589 per cent on the
January 31 bills, and the lowest new bill rate with but one
exception since last June. The bill issue dated February 28
increased somewhat in yield to an average of 1.563. The prin­
cipal sources of supply of short-term securities were the
System Open Market Account (in the case of certificates) and
commercial banks, including some New York City banks.
Corporate purchases of Savings notes intended for use in
March tax payments were made in substantial volume in the
first half of the month, as the low rates on comparable maturi­
ties of marketable securities encouraged shifts into this form
of investment. A large part of the Savings note investment
took place in the one-week period following the Treasury
refunding announcement, as March and June tax funds were
shifted out of the maturing issues.
Prices in the intermediate sector were generally steady
through the month in an inactive market. Maturities in the
1957-59 range sold off slightly following the Treasury
announcement of the terms of the March 1 refunding opera­
tion, but this loss was subsequently recovered and the inter­
mediate issues closed the month on a steady tone. Prices of




31

long-term Treasury bonds in February failed to extend the
recovery that had taken place in the last half of January, and
tended to fluctuate in a limited range around the January
closing levels. Rather sharp declines occurred in each of the
first two statement weeks, as a result of professional activity,
but recovery was rapid in each case and the market, while
chronically thin, was relatively firm over most of the month.
Some easing was apparent in the market toward the end of
February, attributable in part to the large volume of corporate
financing scheduled for March, but for the month as a whole
only insignificant price changes were recorded.
The Treasury’s announcement on February 13 of the offer­
ings for its spring refunding schedule occasioned the greatest
amount of market activity during the month. Rather aggres­
sive selling of the March 15 and April 1 "rights” followed the
Treasury announcement and continued until the subscription
books closed on the 21st. During the four-day period when
Treasury books were open, the Federal Reserve System acted
to lend stability to the market by purchasing substantial
amounts of the maturing issuts. The greater part of these
purchases, however, were offset during the same period by
sales of near-maturity certificates from the System portfolio.
Unexchanged securities, which will be redeemed by the
Treasury, amounted to 10 per cent for the March 15 bonds and
7 per cent for the April 1 certificates.
Comment in the market suggested that the limited demand
for the new Treasury issues was more the result of particular
circumstances in the market than of any general dissatisfaction
with the terms of the issues. Similar issues of 1% per cent
certificates have been well received on the several occasions
when they have been offered during the past year, and the

D E B IT S A N D C L E A R IN G S S T A T IS T IC S
The Board of Governors of the Federal Reserve
System has recently published a technical paper
entitled The Development of Bank Debits and Clear­
ings and Their Use in Economic Analysis, by George
Garvy, Senior Economist of the Research Department,
Federal Reserve Bank of New York. In this paper,
an attempt is made to combine a study of the clear­
ings and debits series with a broad investigation of
the contributions these series have made to economic
analysis and of the services they have rendered to the
economic analyst, historian, and theorist. This publi­
cation is available at a price of 25 cents for single
copies, and at 15 cents per copy in quantities of 10
or more. All orders should be addressed to the Divi­
sion of Administrative Services, Board of Governors
of the Federal Reserve System, Washington 25, D. C.

32

MONTHLY REVIEW, MARCH 1952

consensus of market opinion has been that the new 2 Ys per
cent bond was a well conceived offering. However, a good deal
of March 15 tax money had been invested in the two issues,
and this money was not available for exchange into the refund­
ing issues. Investors holding the maturing securities for tax
investment purposes had the alternative of redeeming them at
maturity for cash or of selling the "rights” during the period of
exchange. Since the premium on the "rights” was more than
sufficient to cover reinvestment costs, many tax investors chose
to sell, and it was this selling that occasioned the System pur­
chases. Possibly of some importance, as well, in explaining the
lack of buying interest in the "rights” to the new issues, was
the fear (which may not prove to have been well founded)
that general monetary tightness in the coming month may
cause some easing in security prices. Thus, a substantial part
of the available funds has been going into the very short area
in anticipation of this development.
Also in February, the Treasury announced its decision not
to call the 2V\ per cent bonds of June 15, 1952-55 and the
2 per cent bonds of June 15, 1952-54, as well as the 2 per
cent bonds which had originally been issued for December 15,
1951-55 and which had already been passed by the Treasury
on the first call date.

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

After declining by 432 million dollars over the five state­
ment weeks ended in January, the business loans of the weekly
reporting member banks in the larger cities tended to stabilize
during the first three weeks in February. By February 20,
commercial, industrial, and agricultural loans of the reporting
banks were down only 12 million dollars from their January 30
level. Defense lending continued to increase in February, and
offset continuing reductions in certain nondefense lines. Loans
to food, liquor and tobacco processors, as well as to commodity
dealers, continued their seasonal decline, and loans to sales
finance companies, reflecting lower levels of consumer durable
goods purchases, were off for the month. Borrowing by textile
and apparel concerns reversed the declining tendency of pre­
vious months and increased slightly in February.
New York City banks increased their lending activity in
February and the business loans of the weekly reporting City
banks increased 99 million dollars in the four weeks ended
February 27, to a total of 7,890 million dollars. This loan
figure is the next to the highest on record, second only to the
7,933 million on December 26 last year.

C O N T R O L O F IN F L A T IO N IN T H E N E T H E R L A N D S
The Netherlands has made rapid progress since mid-1951
toward economic stability both domestically and in its foreign
commercial and financial relations. In combating the renewed
inflationary pressure and the critical deterioration in its external
position that developed in 1950, particularly after the outbreak
of the Korean hostilities, the Netherlands resorted primarily
to monetary restraint, while at the same time reducing non­
defense government expenditures, particularly for consumption
subsidies and capital investment. The new policy marked a
definite departure from the one followed during the earlier
postwar years, when the Dutch Government relied primarily
on direct controls over imports, investment, and consumption,
coupled with price and wage controls and heavy government
subsidies on staple foods. Up to 1950 there had been little
resort to credit controls as an anti-inflationary measure, apart
from^a selective screening of loans by the central bank.
This rehabilitation of monetary policy followed the realiza­
tion that the inflationary pressures of the last two years could
no longer be satisfactorily controlled by the techniques used in
the earlier postwar years. During 1945-49 the prevailing infla­
tionary pressures were largely the result of a very high rate of
investment, which was considered necessary in a country that
had emerged from the Second World War with particularly
heavy destruction of its agricultural and industrial plant and
merchant marine, and a severe loss of income from overseas
investment. In addition, the outlays in what is now Indonesia




involved a heavy drain on Dutch resources, while at home it
was necessary to provide employment for a rapidly growing
population. It was under these conditions that the country
embarked upon a long-term program of economic reconstruc­
tion, while endeavoring to check inflationary pressures prin­
cipally by direct controls. Balance-of-payments deficits were
very large, particularly in 1947 and 1948, but these in part
reflected a deliberate sacrifice of a large part of private and
government foreign assets, as well as substantial financial aid
from the United States, in the effort to speed up Dutch
economic rehabilitation and reconstruction.
During 1949, the economic situation improved markedly;
output rose considerably above prewar, direct controls were
largely removed, and government borrowing from the banking
system was reduced, while the international position also
improved. It is true that the country apparently was still invest­
ing more than it could afford out of its own resources, but
this was done without generating uncontrollable inflationary
pressure. In consequence of this improvement, the Nether­
lands was able to join the Western European endeavor to
liberalize intra-European trade, and in particular, to remove
almost entirely the barriers to trade with Belgium and Luxem­
bourg at the beginning of 1950.
The outbreak of hostilities in Korea and the subsequent
repercussions on world economic conditions were followed in
the Netherlands by renewed inflationary pressures, and the

FEDERAL RESERVE BANK OF NEW YORK

country’s international financial position greatly deteriorated.
In a country as dependent on foreign trade as the Netherlands,
world price trends of course greatly affect domestic conditions.
The 30 per cent guilder devaluation of September 1949 had
already brought about higher import prices in terms of
guilders; and the post-Korea world price developments greatly
accentuated the trend. From June 1949 to June 1951 the
Netherlands terms of trade deteriorated by 17 per cent, thus
necessitating a larger volume of exports for a given volume of
imports. Nevertheless, only a portion of the increase in the
Dutch trade deficit was attributable to the deterioration in the
terms of trade; it primarily reflected a considerable rise in the
volume of imports, which increased by 47 per cent from the
first half of 1949 to the first half of 1951. Although exports
also increased substantially during the same period, the trade
deficit rose from the equivalent of 360 million dollars to 457
million.
The increased volume of imports was accounted for prin­
cipally by consumer goods and raw materials, the rise in invest­
ment goods being quite small. Hence, it was apparently the
restocking of Dutch inventories of imported goods that was
chiefly responsible for the marked deterioration in the country’s
international position. The inventory accumulation in turn
reflected the relaxation of import restrictions under the intraEuropean, and especially the Benelux, trade liberalization pro­
gram, as well as accelerated buying in anticipation of further
price rises. This inventory accumulation was financed partly
by the redemption or sale of large amounts of treasury bills in
the hands of the trading community, and since the treasury’s
resources were inadequate to meet the redemption of bills,
direct government borrowing from the central bank increased
by a moderate amount. The inventory accumulation was also
financed to a considerable extent by additional borrowing from
the commercial banks. Bank credit to business, which had
been expanding relatively slowly, increased by almost 20 per
cent in 1950 and rose at a comparable rate in the first quarter
of 1951 before being brought under control in the second
quarter. It was this commercial bank credit expansion and "its
irrefutable connection” with the import financing and the
consequent balance-of-payments deficit that prompted the
Dutch monetary authorities to raise the official discount rate
in September 1950 and introduce quantitative credit restric­
tions at the year end.1
The increase in the central bank’s discount rate from 2 Vi
to 3 per cent in September 1950 was the first rate change since
1941; it was followed in April 1951 by a further rise to 4 per
cent. Furthermore, in order to make the discount rate more
effective, the commercial banks have been required since
January 1951 to maintain a reserve in cash and short-term
1 De Nederlandsche Bank, Report for the Year 1950, page 45.




33

government paper.2 These requirements, the first of their kind
in Dutch banking history, were designed to limit drastically
the banks’ freedom to substitute commercial loans for treasury
paper in their portfolios; the ease with which such debt
monetization could take place before January 1951 had been
the major reason for the banks’ ability to expand their com­
mercial loans without impairing their liquidity.
While the monetary authorities were thus strengthening
their controls over the money market, the Dutch Government
evolved an anti-inflationary fiscal program. This program
aimed at an over-all reduction in demand through a 5 per cent
cut in consumption, a 25 per cent cut in private investment,
and a sizable decrease in nondefense government expenditure.
The cost-of-living subsidies on staple food items were reduced.
The government negotiated an agreement with labor that up to
5 per cent of any cost-of-living increases after September 1950
would not be compensated by higher wages. Government
investment was reduced, primarily through a cut in housing
subsidies. New taxes to meet part of the increased defense
expenditures were enacted by Parliament in August 1951.
In general, the government relied on its monetary and fiscal
measures to bring about the desired reduction in consumption
and private investment, refraining from the reintroduction of
over-all price and material controls. Import controls were
tightened only slightly, while the government reaffirmed its
intention of fulfilling its obligations under the trade liberaliza­
tion code of the Organization for European Economic
Cooperation.
These measures of monetary and fiscal restraint soon began
to exert a pronounced influence on the domestic money and
capital markets. While the commercial banks as a group
retained early in 1951 a moderate margin of reserves in excess
of those required by the new regulations, their lending policies
became more cautious as they approached the point where they
would have to rediscount at the central bank, since such dis­
counts are traditionally considered undesirable by the Dutch
banks.
On the capital market, a substantial rise in the entire interest
rate structure also took place. Widespread drawing on savings
to finance current consumption, and the uncertainty created by
the government’s retreat from its easy money policies, reduced
the supply of investable funds at the same time that the heavy
demand for defense, housing, and industrial expansion con­
tinued to exert pressure on the limited supply. During 1951,
the average yield of government bonds rose from 3.23 to 3.55
per cent, while the yield of industrial bonds went up from 3.27
to 4.76 per cent. Under these conditions the Dutch Govern­
ment reconsidered its postwar borrowing policy, which had
2 Special provisions, however, enable banks to modify the impact of
these reserve requirements if they limit their commercial loan
portfolios to 105 per cent of the September 1950 level.

34

MONTHLY REVIEW, MARCH 1952

been based on a maximum rate of interest of 3 per cent on
long-term bonds, and raised this rate to 4 per cent.
Along with these developments in the financial markets,
prices became stabilized and in some cases declined. The
reversal in the upward trend of world raw material prices in
the spring of 1951, together with the tighter internal mone­
tary policy, brought about a change in business and consumer
expectations. The heavy inventory accumulation of the early
post-Korea months left many businesses overstocked and com­
pelled a liquidation of inventories. Wholesale and retail prices,
after reaching all-time highs in May and April 1951, respec­
tively, remained stable at slightly lower levels during the rest
of the year. More or less simultaneously, industrial production
leveled off and has subsequently declined somewhat in response
to the slackening of consumer demand. While this lag in
industrial production and consumer demand is expected to
facilitate the transfer of productive resources to the rearma­
ment industries, it is also necessarily accompanied by some
increase in unemployment. Apparently largely because of
transitional factors, there was a moderate increase in total
unemployment in the Netherlands over the past year— to some­
what over 4 per cent of the labor force in January 1952, from
close to 3 per cent in January 1951.
Moreover, the effective restriction of domestic demand con­
tributed greatly to a rapid improvement of the Dutch external
position after July 1951. Imports dropped sharply as inventory
accumulation slowed down, while many producers for the
first time since the war found it necessary to turn to foreign
markets in order to sell their output, thus increasing the volume
of exports. During the second half of 1951, exports rose in
value by 17 per cent and imports fell by 12 per cent as com­
pared with the first half of the year, the trade deficit decreasing
from the equivalent of 457 million dollars to 130 million.
The over-all balance-of-payments position has also registered
a noteworthy improvement. Since the midsummer of 1951,
the greatly reduced trade deficit has been more than offset by a
surplus on invisible account together with dollar aid receipts.
As a result, net reserves (after taking account of both assets
and liabilities under bilateral and European Payments Union
agreements), which had declined to the equivalent of 241 mil­
lion dollars in July 1951, rose steadily to 562 million in late
February 1952.
Perhaps the most striking change in the Dutch external posi­
tion has been the shift of the Netherlands to a creditor position
in the European Payments Union, reflecting the improvement
in payments relations with the other OEEC countries and their
overseas monetary areas. From July 1950, when the EPU com­
menced operations, through July 1951, the Netherlands had a
net deficit in every monthly accounting, and accordingly had
to make use of up to 75 per cent of its quota. However, from
August 1951 to January 1952, the Netherlands had surpluses




totaling 343 million dollars, as a result of which the accumu­
lated deficit was wiped out by January and the Netherlands
became a creditor country in the EPU ( see table).
While the crisis in the Netherlands external position has
abated in recent months, the Dutch Government is taking the
view that the country’s difficulties have by no means been over­
come completely. It has already been pointed out that the
stabilization program has been greatly helped by the leveling
off of international raw material prices, available data indicat­
ing that the deterioration in the terms of trade slowed substan­
tially in the fall of 1951. However, a renewal of raw material
price increases could seriously endanger the gains of the Dutch
economy unless exports were still further increased.
In addition to the more favorable trend of import prices, the
Dutch balance-of-payments position has recently been strength­
ened by a number of temporary factors. Germany, after over­
coming its own payments crisis, has made several large
repayments of outstanding bilateral debts to the Netherlands.
The Belgian Government has agreed to a postponement of the
service on the Dutch intergovernmental debt. Lastly, some
speculative inflow of capital into the Netherlands is reported to
have occurred in the fall months of 1951. On the other hand,
the recent British and French import cuts are expected to affect
the Netherlands adversely; in the year ended June 30, 1951
these countries purchased 20 per cent of all Dutch exports.
The present policies of the Dutch authorities call for the
continuation of the country’s stabilization program. The gov­
ernment has stated its intention of continuing to enforce the 5
per cent cut in consumption at least through 1952, while the
government budget for 1952 foresees a deficit equivalent to
only 70 million dollars, as against a prediction of 220 million
which had been made for 1951. Further cuts are to be made in
housing construction, while defense expenditures are to be held
to the equivalent of 394 million dollars (29 per cent of all
government expenditures). On the other hand, the progress
of the stabilization program was considered sufficient to permit
Netherlands Position in the European Payments Union,
July 1950-January 1952
(In m illions o f d ollars)

Period

Cumulative sur­
plus ( + ) or
deficit ( —) at
end of period

1950 July-Decem ber.......
1951 January-June..........
July...........................
A u gu st.....................
September................
O ctober.....................
N ovem ber................
December.................
1952 January....................

-1 0 7 .8
-2 7 1 .0
-2 9 7 . 3
-2 7 1 . 5
- 2 2 0 .8
-1 4 7 . 6
- 96.2
- 53.1
+ 45.6

M onthly rate of
surplus ( + ) or Per cent of quota
deficit ( —) dur­
used as of end
ing period
of period*
-1 8 .0
-2 7 .2
-2 6 .3
+ 2 5 .7
+ 5 0 .8
+ 7 3 .2
+ 5 1 .4
+ 4 3 .2
+ 9 8 .7

23.6
73.0
7 5.3
6 8 .0

53.7
33.1
18.6
6 .5
21.3

N ote: Owing to rounding, the various figures may not be precisely reconcilable
with one another.
* The Dutch quota was 330 million dollars until July 1 , 1951, when it was raised
to 355 million. In addition, the Netherlands had the use of 30 million dollars
of initial resources before beginning to use its quota. The' percentage figures
take both of these adjustments into account.
Source: Press releases of the Organization for European Econom ic Cooperation.

FEDERAL RESERVE B AN K OF NEW YO R K

35

a reduction in the discount rate of the Nederlandsche Bank
from 4 to 3V2 per cent on January 22, 1952.

mainly due to the shortage of consumption goods and raw
materials). When direct controls were gradually removed as

Altogether, the Dutch anti-inflationary policy since the
Second World War offers an interesting example in adaptation
to changing economic conditions. During the early postwar

the more serious shortages eased, a new type of inflation
developed, characterized by excessive credit expansion, overraP^ restocking of business inventories and accelerated con-

years stress was laid on direct controls over investment and

sumer buying, for which indirect monetary and fiscal controls

consumption, while indirect monetary and fiscal controls were
considered inappropriate for coping with the type of inflationary pressures then prevailing ( that is, pressures which were

proved more suitable. The entire experience illustrates the
advantages of adaptability and flexibility in economic and
financial policies in times of rapid economic change.

L IF E IN S U R A N C E C O M P A N IE S
The steadily increasing popularity of life insurance has made
the life insurance companies as a group the largest single
depositary of the publics savings. The task of investing these
savings in the capital markets of the country has consequently
been a growing one, and individual life insurance companies
have found themselves faced with the problems of safely and
profitably investing very large sums each year. Over the last
30 years, the total assets of the legal life insurance companies
have grown SV2 times, to an estimated total of about 68 billion
dollars at the end of 1951. The rate of growth in the assets of
the life insurance companies between 1920 and 1950 was
greater than that for the mutual savings banks, the savings and
loan associations, and the fire and casualty insurance companies,
and also exceeded the rate of increase in commercial bank
holdings of Government securities and long-term earning
assets. This article, and another to follow in a subsequent issue
of this Review, will summarize some of the notable character­
istics, and the implications, of the growing importance of life
insurance companies in the capital markets.
The substantial growth of funds available to the life insur­
ance companies for investment has, along with other develop­
ments of recent years, resulted in a considerable shrinkage in
the importance of the traditional security markets and in the
reliance placed upon the gales machinery of the investment
banking houses in financing corporate capital expansion. There
has consquently been an accompanying reduction in the volume
of market transactions in outstanding corporate bonds. A rela­
tively new mechanism for long-term industrial financing, the
direct negotiation between borrower and lender, has developed
as a natural consequence of the collection of large pools of
funds by the insurance companies, and the necessity of keep­
ing those funds fully and profitably employed.
The very extent of life insurance investment activities has
raised the total demand for corporate debt instruments sub­
stantially. Over the years, competition for corporate debt secu­
rities has grown considerably, among the life insurance
companies themselves, and between these companies as a group
and other investors. This competition has probably been much
keener during periods of relatively depressed business condi­




A N D T H E S E C U R IT Y M A R K E T S
tions, such as in the thirties, because of the dearth of new
corporate obligations and the relative stability of the flow of
savings into the life insurance companies and some other types
of institutional investors. The persistence of this demand may
at times have had some tendency to reduce the cost of long­
term corporate borrowing. However, the low rates of return on
corporate (and other) debt securities over the past 20 years
have been a reflection principally of national credit conditions
and policies, and, together with the competition for corporate
obligations, have brought an increasing interest on the part of
life insurance companies and others in new outlets for funds.
The search for new outlets has to some extent resulted in plac­
ing institutions with fiduciary responsibilities in the role of
owner rather than creditor, through such programs as sale-andlease-back and purchase-lease arrangements (especially for real
estate and railroads), limited purchase of equity securities, and
multi-family housing developments.
The impact of the growth of life insurance investments on
the security markets may be summarized in terms of their own
investment practices, the competition for securities between the
life insurance companies and other investors, the structure and
liquidity of the security markets, and the functioning of the
investment machinery of those markets. Only the first of these
— the investment practices of the insurance companies as they
relate to corporate borrowing— will be discussed in detail in
the present article.
This impact, of course, cannot be isolated from other devel­
opments in the capital market which have had profound effect
on the volume and distribution of the flow of savings into the
market and on the volume and types of investments becoming
available for the absorption of those savings, and which have
likewise had important bearing on the volume of funds and
types of investments available to the life insurance companies.
Among these developments, the quest for safety of principal
by individuals suffering heavy losses during the 1929 stock
market crash and during the depression of the thirties, and the
increasing relative importance of the savings of the lower
income groups which normally place their funds in life insur­
ance, savings deposits, and other secure forms of savings have

36

M ON THLY REVIEW, MARCH 1952

tended to increase the relative flow of individual savings to
institutional investors since the twenties. More significant for
its immediate impact on the bond market has been the sharp
increase over this period in Federal income taxation, of which
a particularly heavy burden has been placed on wealthy indi­
viduals (including personal trust accounts) and on business
and financial corporations. The net effect of higher taxes has
been to compartmentalize the bond market, tax-exempt securi­
ties becoming increasingly the favored outlet for the funds of
individuals, personal trust accounts, and institutional investors
subject to taxation, and corporate obligations becoming increas­
ingly the outlet for institutional investors not subject to sub­
stantial taxation, particularly the life insurance companies.
Finally, the long period of low money rates since the early
thirties has made corporate bond yields less attractive to indi­
vidual investors, especially after taxes. At the same time, the
low cost of borrowed funds encouraged corporations to issue
debt securities when seeking external funds; and the facts that
dividend yields on common stocks were high during a large
part of this period and that dividends are payable after taxes,
whereas interest is an expense of business and so deductible
from income before taxes, were even more important stimu­
lants to the flotation of debt securities when external financing
became necessary. The growth of life insurance company
investments, nevertheless, has had an important impact on the
security markets apart from, as well as in conjunction with,
these other developments.
G rowth of Life Insurance Co m p a n y Investment
O perations

The vast scope of the operations of the life insurance com­
panies may be measured in several ways. First, the reserves
established by the life insurance companies to meet their obli­
gations to policyholders aggregated 55 billion dollars at the end
of 1950, somewhat more than double such reserves before the
war, and accounted for almost one third of the total savings
lodged in major financial institutions and Government Savings
bonds together. Second, the absolute amounts of new savings
channeled into life insurance companies each year have been
large and growing, and have shown unusual resistance to the
influences that have caused declines in other forms of saving
during depression. Premium income from life insurance poli­
cies and annuities fell from 3.7 billion dollars in 1931 to 3.5
and 3.3 billion dollars in 1932 and 1933, respectively, but was
always in excess of operating disbursements, with the result
that net reserves increased even during the leanest years of the
great depression. In each year during and since the war, of
course, the net amounts of funds available to life insurance
companies for investment have grown substantially, rising from
1.5 billion dollars in 1939 to approximately 4.3 billion in 1951.
Over a long period of years following World War I the net
amount of funds available grew substantially, not only in dollar




amounts but also in relation to the increase in total public and
private long-term debt outstanding. Third, the gross amount
of funds for which life insurance companies must annually find
productive employment substantially exceeds the net increase
in assets because the companies also receive funds from peri­
odic repayments, redemptions, and retirement of mortgages,
securities, and other assets. In addition, during the past several
years life insurance companies have obtained large sums for
the purchase of new, higher-yielding investments by selling
substantial amounts of lower-yielding Government securities
purchased during the wartime period.
Life Insurance Co m p a n y H oldings of Corporate Bonds

In investing a larger and larger volume of funds, the life
insurance companies have generally indicated a preference for
the better grades of corporate debt securities, because they
afford the most convenient outlet, of suitable quality, for sub­
stantial amounts of funds at adequate rates of return and at a
minimum of originating and supervising costs. In the mort­
gage market, on the other hand, large numbers of transactions
each involving small loans are the general rule, and municipal
securities do not yield adequate returns. Thus, for the largej
companies at least, corporate obligations have been a means
of greatly easing the investment burden and reducing invest­
ment cost. However, the net yield on such issues has not been
as large as the return on most mortgages, even after the added
expense of placing and keeping the latter on the books. Con­
sequently, life insurance companies have also accelerated their
acquisitions of mortgages in the postwar years.
Nevertheless, providing for the long-term capital needs of
business corporations has become one of the most important
Chart I
Distribution of Assets of All Life Insurance Companies

FEDERAL RESERVE BAN K OF NEW YO R K
Chart I I

Changes in Net Long-Term Debt of All U. S. Business Corpora­
tions and in Life Insurance Company Holdings of
Securities of Business and Industry

37

the larger ones. For example, total business securities of 17
companies with assets of less than 200 million dollars each
accounted for less than a fourth of their total assets at the end
of October 1951, as compared with more than two fifths for
the 13 companies each with assets of one billion dollars or
more. Mortgage holdings of the smaller companies, further­
more, were larger in dollar amount than business security
holdings, whereas for the largest companies (with assets of a
billion dollars and over) mortgages amounted to only 55 per
cent of their business security investments. In the composition
of their assets, the smaller companies more closely resemble
the savings banks rather than the larger life insurance
companies.
These differences reflect perhaps principally the more largely
local or regional character of the investments of the smaller
life insurance companies. Their investment acquisitions being
more frequently local in character are presumably more likely
to take the form of mortgages, instead of the securities avail­
able in the national capital market. This preference may also
stem from a better rate of return on local obligations.
G rowth of D irect or Private Placements

Sources:

Institute o f L ife Insurance and U. S. Department o f Commerce.

investment activities of the life insurance companies during
peacetime. As shown in Chart I, life insurance company hold­
ings of long-term corporate debt securities have increased
steadily and rapidly since 1920. By 1936, they exceeded mort­
gage investments. The leading role played by the life insurance
companies in the corporate bond market during recent years
is shown in the second chart. In the six postwar years begin­
ning with 1946, these companies' holdings of corporate bonds
( including relatively small amounts of foreign corporate issues
and those of miscellaneous debtors) increased by an estimated
16.2 billion dollars, or more than two thirds of the estimated
total increase in outstanding long-term corporate debt (23.9
billion dollars). In contrast, in the decade of the twenties,
following World War I, the life insurance companies’ net pur­
chases of corporate bonds came to only about one sixth of the
net increase in corporate long-term indebtedness. Throughout
the thirties and the war years, the life insurance companies
continued to add to their holdings of business debt securities
even though total corporate indebtedness declined. By the end
of 1951, it is estimated that their holdings had risen to over
40 per cent of the total outstanding.
Although holdings of corporate obligations by life insurance
companies are very large in the aggregate, there is wide varia­
tion in the importance of such issues among individual com­
panies. In particular, corporate debt issues are much less
prominent in the portfolios of the smaller companies than in




As already suggested above, direct placements came into use
chiefly as a result of the growing volume of investable funds
in the large insurance companies. Although the smaller insur­
ance companies also have made “direct or private placements”
of securities, their activities in this area are more limited.1
Circumstances apparently became increasingly opportune for
direct negotiation of new security issues during the depressed
years of the thirties. Because the aggregate indebtedness of
business corporations was falling off in this period, life insur­
ance companies experienced considerable difficulty in investing
all of their available funds. Investment bankers floating refund­
ing issues or new capital issues of those corporations seeking
funds, on the other hand, found that wide distribution of new
issues to investors scattered all over the country was no longer
necessary, since the demand for new bond issues from large
institutional investors exceeded the supply of such issues
available.
Direct negotiation of new security issues between corporate
borrowers and life insurance company lenders (or other
lenders), which apparently had been a practice of long stand­
1 A study of the 22 largest life insurance companies showed that, while
the four largest at the end of 1949 held 58.5 per cent of the
combined assets of the group, these same four held 67.4 per cent
of the combined private placements of all 22. The four sm
allest
of these companies, by contrast, held 3.9 per cent of the combined
assets as against 1.1 per cent of the combined private placements.
Cf., "The Pros and Cons of Direct Placement” by Frazar B.
Wilde, a speech delivered before the Financial Section of the
American Life Convention, October 6, 1950. E. V. Hale and
Company, in their analysis of the 1950 direct placements of life
insurance companies with assets of 10 million dollars or more at
the end of that year, listed 154 (mostly small) companies for
which no direct purchases of securities were found.

38

M ONTHLY REVIEW, MARCH 1952

ing but limited scope before the thirties,2 was also given
impetus by the passage of the Securities Act of 1933. This
Act, in order to correct abuses that had worked particular hard­
ship on smaller investors who purchased securities listed on
the organized exchanges, required corporate issuers to file
registration statements with the Securities and Exchange
Commission. These statements had to provide considerable
information with respect to proposed new issues and business
operations, and the Act placed legal liabilities on officers and
directors and others responsible for the accuracy of such state­
ments. It also required a waiting period between filing the
registration statement and offering a new issue for sale, in
order to permit review of the information prior to the appear­
ance of the securities in the market. However, during that
waiting period, changing market conditions could alter the
chances of success of a new issue or result in considerable
change in the terms of the offering. Exempt from such regis­
tration because they are offered to a limited number of
investors, privately placed securities were a means of avoiding
the delays, expense, and uncertainties entailed in the SEC pro­
cedure. Presumably, in selling securities directly to large
lenders, corporate management could make necessary infor­
mation available to a limited number of investors without
widespread publicity.
Increasing Federal personal and corporate income tax rates,
furthermore, and the low yields on most bonds, reflecting the
over-all lack of demand for long-term funds and the prevailing
monetary policy during the thirties, made corporate debt issues
less attractive to wealthy individual investors, personal trust
funds, and to institutional investors subject to corporate taxes.
These investors, in some measure, found more favorable
opportunities in tax-exempt securities. At the same time, how­
ever, rising corporate tax rates and declining interest costs
persuaded those corporations which did have occasion to seek
new funds to raise them through debt rather than equity
securities.
With the exception of the war years, the volume of these
so-called direct or private placements of securities has grown
steadily since 1934, and in recent years has ranged between
IVz and 3 Vi billion dollars annually, or from one third to more
than two fifths of all new corporate security flotations. The
bulk of these private security placements consists of debenture
bonds and notes, and the life insurance companies have recently
been absorbing about 90 per cent of them. Since 1947, total
private placements have exceeded 50 per cent of corporate debt
security offerings, reaching nearly 60 per cent last year. Because
Federal regulatory agencies and those of several States require
that most public utility and railroad security offerings be made
2 See, Fraine, H. G., "Direct Sale of Security Issues”, Journal of the
American Association of University Teachers of Insurance, March
1949.




at competitive bidding, the largest part of the privately placed
issues consists of securities of industrial and financial corpora­
tions, including manufacturing, mining, trade, and sales and
personal finance companies.
It is chiefly through the vehicle of private placements, there­
fore, that "industrial” bonds have become a significant portion
of life insurance company investments— 9.5 billion dollars or
almost 15 per cent of assets at the end of 1950, as compared
with less than 300 million and 1.6 per cent of assets at the end
of 1929. Public utility bond holdings as a fraction of total
assets have grown much more slowly between these two years,
from 8 per cent at the earlier date to 16 Vi per cent last year.
Life insurance company investments in railroad bonds, on the
other hand, increased only 355 million dollars over this period,
and fell from 16 per cent of assets at the end of 1929 to 5 per
cent at the close of 1950. However, the small increase in
their holdings of railroad obligations occurred in spite of a
substantial decline in total railroad indebtedness in this period.
Their ability to provide long-term funds in large amounts
has gained for the larger life insurance companies a competitive
advantage over other types of investors in securing investments
directly from corporate issuers, an advantage which only the
growing self-administered and trusteed pension funds may
eventually encroach upon. That private placements will remain
an important method of long-term corporate financing seems
assured. Corporate borrowers apparently have placed a high
value upon the convenience of direct borrowing, and have been
willing on occasion to undertake such arrangements when the
interest rate was slightly higher than might have been obtained
with a registered market offering. A number of new bond
issues have been floated in the market at a lower net interest
cost to the issuer than the net interest cost on private place­
ments made by comparable borrowers. Corporate financial
management has probably been most strongly attracted by the
flexibility of private loan agreements, the ease with which addi­
tional funds may be secured once relationships between bor­
rower and lender have been established, and the ability to
secure firm commitments in advance, to defer drawing down
funds until they are needed, and to obtain funds regardless
of price conditions in the market.
Undoubtedly many borrowing corporations have used priv­
ate placements because they wanted assurance that definite
sums would be made available to them at some future time, in
accordance with the schedules of their estimated needs. In
return for such assurance, the borrower usually pays a commit­
ment fee of Vi of 1 to 1 per cent until the funds are drawn
down, and thereafter the regular interest rate (as determined
during the negotiations) applies. A marked acceleration in the
volume of life insurance company corporate security commit­
ments during 1950 and early 1951 reflected mainly the sharp
step-up of business capital expenditures and expansion plans

FEDERAL RESERVE B AN K OF NEW YO R K

resulting from the war in Korea and the Government’s defense
program.3
For the life insurance companies, the private placement
technique provides a desired opportunity to earmark in advance
the employment of a part of the funds that are expected several
months later on, thus easing the investment burden. The devel­
opment of close relationships with corporate borrowers, more­
over, tends to build repeat loan business for the life insurance
companies and also enables them to become thoroughly famil­
iar with the borrowers business operations and financial status.
Direct placements may also enable the lender to impose pro­
tective conditions, many of which would not be suitable or
possible in the case of a publicly offered bond issue. These
include provisions for sinking fund and pay-out clauses, and
various covenants limiting to some extent the borrowers finan­
cial operations (such as the maintenance of working capital at
a specified level, or restrictions on the pledge or sale of assets).
What is more important, these terms can be tailored to the indi­
vidual transaction, including both the borrowers and lenders
requirements, in order to provide better security for the loan.
Very often, too, life insurance companies receive higher yields
on securities purchased directly than on market purchases, not
only because of a tendency to set a price for securities which
allows the lenders to share a portion of the savings in expense
of floating a public offering, but also because the life insurance
company ( or a small group of companies where a few lenders
participate in an issue) assumes the risk of the entire transac­
tion. In connection with a public offering in February 1952 of
a 125 million dollar twelve-year issue of 3 Vs per cent debenture
bonds of the Aluminum Corporation of America, for example,
3 A similar acceleration of residential mortgage commitments w
as
related to efforts of builders and potential home owners to "beat”
the more restrictive term of Federal real estate credit regulation.
s

39

it was reported by the underwriter heading the syndicate that
the issuer "could not have negotiated the transaction on a priv­
ate placement basis for less than 3 Vi per cent”.4
The foregoing discussion suggests that the private placement
has drawbacks as well as advantages from the investment point
of view. To the insurance company, the lack of ready market­
ability may mean that it may be frozen in, perhaps for large
sums, should an issue turn "sour”, although a number of safe­
guards have been adopted to mitigate the adverse effects of
such an eventuality. As a balancing consideration, it is probably
also true that many listed and over-the-counter bond issues
have a limited or doubtful marketability, especially when a
bondholder tries to dispose of a sizable block of bonds. As for
the borrowing corporation, it may pay a higher yield on a
directly placed issue than one offered in the public market. It
also loses the privilege of repurchasing its securities at a dis­
count for sinking fund or other purposes should interest rates
subsequently rise (sinking funds in direct placements usually
provide for payments at par), a disadvantage which may be­
come very real in a flexible bond market. The management of
borrowing corporations may also find some objection to the
limitations occasionally placed on financial operations by the
terms of a direct placement agreement. On the whole, how­
ever, the advantages of the direct placement technique appar­
ently outweigh considerably the disadvantages in a large
number of borrowing situations.
A second article to appear in a forthcoming issue of this
Review will deal with the impact of the growth of life insur­
ance investments on other investors and investing institutions,
and on the functioning of the security markets and the tradi­
tional methods of marketing new corporate debt issues.
4 The New York Times, January 30, 1952, page 39.

P R O D U C T IO N IN A D E FE N S E E C O N O M Y
Industrial production in the opening months of 1952
appears to have stabilized at the same level which character­
ized most of 1951. Despite the impact of the defense program
and heavy capital expenditures by business, the Federal Reserve
index of industrial production was no higher at the end of
1951 than it was a year earlier. Output in current months has
actually been slightly lower than in the corresponding period
of 1951. Yet this over-all stability has been deceptive. Marked
shifts have occurred in the nature and composition of the
nations output. Defense, capital goods, and basic metals indus­
tries have been increasing production substantially, at the same
time that many civilian goods lines have been cutting theii
activity sharply. Materials shortages, arising from heavy defense
needs, have restricted consumer durable goods output, but activ­
ity has also been affected markedly by a drop in consumer
demand. In nondurable goods lines, the chief causes of cur-




tailed production have been declining orders and heavy inven­
tories.
The defense program has played an increasingly important
role in industrial production over the past year and a half. It
could be argued, however, that the direct effects of defense
production now being felt are not nearly so upsetting to the
economy as were the anticipatory effects a year or so ago. After
the start of the Korean war, and again after the Chinese Com­
munist intervention, fears and rumors of shortages or price
increases touched off large-scale buying by both business and
consumers. The shortages failed to appear, prices declined, and
inventory congestion plagued industry throughout most of
the past year. In part, this reversal reflected the tremendous
productive capacity of the American economy, but it also
stemmed from widespread misapprehensions about the impact
and timing of the defense program.

40

M ONTHLY REVIEW, MARCH 1952

In the first 18 months of the Korean conflict, the share of
the total national output accounted for by all types of Govern­
ment expenditures for national security rose from 6 per cent
to 13 Vi per cent. This, however, is far short of the more than
40 per cent devoted to defense at the height of World War II.
By the beginning of 1952, actual deliveries of military goods
and construction had reached a rate of over 2 billion dollars per
month, approximately triple what they were a year earlier.
Yet these increased expenditures for final products represent
only a fraction of the current impact of the defense effort. At
present, a large share of the program is being privately
financed. Private businesses holding defense contracts have
been spending large sums of money and using large quantities
of materials to build or convert facilities, to obtain tools and
working stocks, and to start the processing of goods which
may not be delivered as finished weapons for many months
to come.
One means of gauging the growth of defense activity is
the increasing quantities of metal going into military produc­
tion. Allocations for the second quarter of 1952 indicate that
producers of military items are scheduled to receive 35 per cent
more steel, compared with the fourth quarter of 1951. They
will be using approximately 45 per cent more copper, and 60
per cent more aluminum. For the second quarter, military pro­
duction has been allocated approximately one eighth of the
total steel supply, one fourth of the copper, and three eighths of
the aluminum. Moreover, these allotments cover only direct
military production; additional supplies are used indirectly for
production of component parts, while such vital defensesupporting programs as atomic energy, machine tools, industrial
construction, and electric power expansion receive separate
allocations and correspondingly reduce supplies available for
purely civilian uses.
In the second quarter of this year, quantities of scarce mate­
rials taken for military use are scheduled to be increased fur­
ther. At the same time, however, supplies of these materials
are expected to increase somewhat as some of the expanded
facilities for production of basic materials ( a fundamental part
of the defense program) start producing, and further increases
are scheduled for late 1952 and 1953. Defense officials have
indicated that the share of scarce materials going into military
production may be approaching its peak by the middle of
1952. This does not necessarily mean plentiful supplies for
civilian production; the pinch on materials will persist as the
defense program continues to chew up materials at a high rate.
Nor will a leveling off in the input of materials mean that the
output of finished defense goods is similarly near its peak.
There is a long time lag for many weapons between the initial
processing of the basic metal and the delivery of the finished
product. New plants must obtain working inventories, the
flow of component parts from suppliers must be begun and
smoothed out, and vast quantities of goods in process may be




held up by a bottleneck shortage of some small but strategic
item. Under current schedules, military deliveries as a whole
are not expected to reach a peak until the early part of 1953
and certain individual programs, including aircraft, may not
reach their highest production rates until some time in 1954.
This build-up of defense production has been part of a delib­
erate program which emphasizes not only actual output of
munitions but also the expansion of basic productive capac­
ity and the creation of facilities for rapid expansion of mili­
tary output if necessary. In the current situation the program
is essentially a defensive one, and there has been no desire to
maximize rapidly the output of planes, tanks, and guns (which
might soon become obsolescent) at the expense of the civilian
economy. Rather, the object has been to expand our potential
military strength while maintaining a relatively high level of
civilian goods output. The defense program has been subject
to adjustments from time to time, the latest of which,
announced in January, involved the decision to stretch the pro­
gram out over a longer period, perhaps several years, at peak
rates, instead of building up to a still higher peak and then
dropping off.
The chief manifestation of the defense program so far has
been its effect on the supplies of various basic materials. As
noted earlier, the demand for materials has come not only from
actual military production but also from the defense-support­
ing programs for expanding industrial plants and facilities.
The principal method of controlling the use of scarce materials
is the Controlled Materials Plan, or CMP, under which the
total supply of steel, copper, and aluminum is divided up
among military and civilian uses. All three of these metals
have been hard to get, and, particularly in the case of copper,
the pinch is expected to continue. Both the steel and aluminum
industries, however, are expanding their basic capacity, and
eventually some easing of supplies is expected. The tight scrap
supply may prove to be a limiting factor on steel output.
Nevertheless, certain types of steel are already easier to get than
they were last fall, and inventories of numerous fabricators
have been reported to be more than adequate for reduced rates
of production. Trade journals have noted the virtual disappear­
ance of the high-priced gray market for steel, while order back­
logs of some small high-cost producers are no longer sufficient
to maintain capacity operations. Cold-rolled strip, sheet, and
chrome steel are definitely more plentiful, but the supply of
many items, such as structural steel, plates, bars, and pipe, is
still tight. Of course, the current supply situation could be seri­
ously upset by strikes in the steel or coal industries this spring.
To some extent the easing of certain steel supplies may reflect
the fact that many fabricators of civilian goods find their pro­
duction rates regulated by the availability of copper and alumi­
num, whose use has generally been more sharply curtailed than
that of steel. During the current quarter, producers of con­
sumers’ durable goods other than automobiles have been alio-

41

FEDERAL RESERVE BAN K OF NEW YO R K

cated steel equal to about 50 per cent of what they used during
their pre-Korea base period (the average of the first two
quarters of 1950), but allotments of copper and aluminum
are little more than one third of the base period consumption.
Such an imbalance in allotments is likely to encourage sub­
stitution of relatively less critical materials for those which
are scarcer. Automobile manufacturers are being allotted suffi­
cient materials for 930,000 passenger cars in the first quarter
of this year, although by substituting materials, economizing,
and drawing down inventories they may produce as many as
a million cars.
In the second quarter, rising military needs may pinch con­
sumer goods producers even more tightly. Late in February,
the NPA announced that steel allocations for consumer durable
goods production during the second quarter will be continued
at about the first-quarter rate, but that copper and aluminum
will be cut by about one seventh. In some instances, however,
this cut will be more apparent than real. In making its allot­
ments for previous quarters, CMP officials had relied on World

War II experience and assumed that 10 to 15 per cent of the
materials allocated to manufacturers and other users would
never be claimed. When such attrition in the allotments failed
to occur, many firms found themselves unable to obtain all the
metal they were allocated. For the second quarter of 1952,
therefore, total allocations were brought more closely into line
with available supplies, and allotments to the various programs
were correspondingly reduced. Since manufacturers are more
likely to be able to obtain the full amounts allotted to them,
however, actual deliveries will not be cut as much as alloca­
tions. Another source of relief for manufacturers lies in the
adjustment of the defense program mentioned earlier. The
Air Force has found that stretching out the defense program
will allow it to turn back as much as 35 million pounds of
aluminum already allotted for military production in the
second quarter, while the Army is turning back nearly 10
million pounds of copper. Some of this will be reallocated for
nondefense uses. Already one million pounds of aluminum
have been added to the allotment for automobile production,

Business Indicators
Percentage change
1951

1952

Item
Unit

January

December

November

January

Tatest month Latest month
from previous from year
month
earlier

U N IT E D STATES
Production and trade
Industrial production*......................................................................
Electric power o u t p u t * ....................................................................
Ton-miles of railway freight*..........................................................
Manufacturers' sales*........................................................................
Manufacturers’ inventories*...........................................................
Manufacturers’ new orders, to ta l...................................................
Manufacturers’ new orders, durable good s..................................
Retail sales*f f ....................................................................................
Residential construction contracts*...............................................
Nonresidential construction contracts*........................................
Prices, wages, and employment
Basic com m odity p ricesf..................................................................
Wholesale prices f* * ...........................................................................
Consumers’ p ricesf............................................................................
Personal income* (annual rate)......................................................
Composite index of wages and salaries*.......................................
Nonagricultural em ploym ent*........................................................
Manufacturing em ploym ent*..........................................................
Average hours worked per week, m anufacturingf.....................
U ne mploy ment...................................................................................
Banking and finance
T otal investments of all commercial banks.................................
Total loans of all commercial banks..............................................
Total demand deposits adjusted.....................................................
Currency outside the Treasury and Federal Reserve B an ks*..
Bank debits* (U. S. outside New Y ork C ity ).............................
Velocity of demand deposits* (U. S. outside New Y ork C it y ).
Consumer instalment credit outstandingf...................................
United States Government finance (other than borrowing)
Cash incom e........................................................................................
Cash ou tgo..........................................................................................
National defense expenditures........................................................

1935-39 =
1935-39*=
1935-39 =»
billions of
billions of
billions of
billions of
billions of
1923-25 =
1923-25=

100
100
100
$
$
$
$
$
100
100

Aug. 1939 - 100
1947-49 = 100
1935-39 - 100
billions of S
1939= 100
thousands
thousands
hours
thousands
millions of $
millions of $
millions of $
millions of $
billions of $
1935-39= 100
millions of $
millions of $
millions of $
millions of $

219p
_
—

—
_
_
_
1 2 . 6p
226p
364p

323.8
113.2p
189.1
_
—

46,510p
15,806p
4 0 .7p
2,054
75,290p
5 7 ,480p
97,760p
28,551
8 8 .0

96.3
13,313p
5 , 192p
5 ,483p
3,843

218
342
200 p
2 1 . 3p

219
338
198
2 2.3
4 1.7
22.7

221

318
208
2 2 .6

42. Op
2 1 . 3p
1 0 . 3p
12.3
240
367

12.5
243
331

34.1
28.2
15.1
13.6
312
350

328.1
113.5
189.1
2 5 7 .Ip
23 lp
46,525
15,808
41.2
1,674

327.5
113.6
188.6
256.5
230
46,473r
15,773r
4 0.5
1,828

383.9
115.0
181.5
243.6
219
4 5 ,804r
1 5 ,852r
4 1 .0
2,503

75,070p
58,300p
9 8 ,120p
28,850
80.9
9 8 .6r
13,506

74,590p
57,270p
9 6 ,290p
28,526
88.3
99.1
13,271r

72,340
52,710
91,600
27,222
8 7.8

1 1 .1

1 0 2 .8

13,252r

#
+
+
+
+
-

+

1
1

5
1
6

7
2
6
1
1

#
#
#
1

#
#
- 1
+23

1
+
8
3
+
1
+ 26
— 7
- 12
8
- 28
+
4
- 16
2
+
4
+
5
+ 7
+
2
#
1
- 18
+
+
+
+

+ 9
- 2
- 1

4
9
7
5
#

-

6

-

#
1

#
-

1

#

5,642
5,621
3 , 445r

4,293
5,642
3,430

4,696
3,438
l,8 7 0 r

-

8
2
+12

+ 11
+ 59
+106

235
89 p
160p
184.0
7 ,3 2 1 .8p
2 ,6 3 3.4
4 4.2
3 .4
117.0

233
94
165
184.1
7,2 7 7 .3
2,6 0 0.1
4 8.2
3 .9
114.4

224
213
232
177.8
7 ,2 5 6 .9r
2 ,6 2 7 .lr
4 6.4
4 .Or
116.6r

+ 1
- 6
- 3
#
+ 1
+ 1
+ 5
+16
- 9

+
6
- 45
- 19
+ 4
+
1
+
1
#
1
9

SEC ON D F E D E R A L R E S E R V E D IS T R IC T
Electric power output* (New York and New Jersey)...................
Residential construction contracts*...................................................
Nonresidential construction contracts*............................................
Consumers’ pricesf (New York C ity )...............................................
Nonagricultural em ploym ent*.............................................................
Manufacturing em ploym ent*..............................................................
Bank debits* (New York C ity )..........................................................
Bank debits* (Second District excluding N. Y . C. and A lb a n y ). .
Velocity of demand deposits* (New York C it y )............................

1935-39=
1923-25=
1923-25=
1935-39=
thousands
thousands
billions of
billions of
1935-39=

100
100
100
100

__
—
—
184.2
—

$
$
100

2 ,6 6 2.4p
46.3
3 .9
106.5

p Preliminary.
r Revised.
# Change of less than 0.5 per cent.
* Adjusted for seasonal variation.
f Seasonal variations believed to be minor; no adjustment made.
** Revised series. Back data available from the U. S. Bureau of Labor Statistics.
f t Series revised from 1940 to date.
Source: A description of these series and their sources is available from the Domestic Research Division, Federal Reserve Bank of New York, on request.




42

M ON THLY REVIEW, MARCH 1952

while 3.5 million pounds each of copper and aluminum will go
into a reserve for adjustment of consumer goods allotments.
The course of some of the major consumer durable goods
industries during the past two years is shown in the fol­
lowing chart. Most manufacturers of consumer durables were
still maintaining high rates of production a year ago, well
above the pre-Korea base period. The subsequent drop did
not reflect materials shortages or conversion to defense produc­
tion in most cases; the trouble generally was excessive inven­
tories. Both manufacturers and distributors had felt that, if
shortages were coming soon, large inventories would be an
advantage rather than a hindrance. But supplies of consumer
durable goods continued to be ample, the high rate of scare
buying ceased, and extensive promotions became necessary to
attract customers. The most notable production decline
occurred in the radio-television industry, whose output dropped
to less than one third of its January 1951 peak, while pro­
duction of major appliances was cut by nearly one half. Lines
less affected by metals shortages also reduced activity; furniture
output was down about one fourth and carpet manufacturers
experienced a cutback of more than 60 per cent. There was
some recovery in household durable goods production in the
fall of 1951, but not all manufacturers produced as much as
their materials allocations would allow. Consequently, despite
the reduced allotments for the first quarter of 1952, over-all
production rates for household durable goods may not be too
far below those prevailing in the fourth quarter.
The automobile industry did not have the inventory prob­
lems of most other consumer durable goods producers.
Throughout most of the latter half of the year, retail sales
Production of Selected Consumer Durable Goods, 1950-52
(Average, first half of 1950=100 per cent; adjusted
for seasonal variation)*

* January 1952 figures are preliminary.
Source: Board of Governors o f the Federal Reserve System ; transferred to
a new base by the Federal Reserve Bank o f New York.




Changes in Output of Major Industries
since the Start of the Korean War
Per cent change

Industry group

Peak month
since June
1950

Iron and steel....................................

June
Peak to 1950 to
June
1950 to J an u a ry Januarypeak
1952
1952

Transportation equipment (except
automobiles)..................................
Automobiles (including parts). . . .
Nonferrous metals and products. .
Lumber and products.....................
Stone, clay, and glass products. . .
Durable manufactures............

April 1951
December 1951

+ 14
+ 37

-

1
1

+ 13
+ 36

December 1951
August 1950
December 1950
December 1950
April 1951
December 1951

4-135
+
2
+ 10
+ 12
+ 18
+ 19

- 1
-2 1

+ 13 2
- 19
+
2

Textiles and products.....................
Leather and products...................
Manufactured food products........
Alcoholic beverages.....................
T obacco products.........................
Paper and paper products.............
Printing and publishing.................
Petroleum and coal products.........
Chemical products.........................
Rubber products..............................
Nondurable manufactures. . .

October 1950
September 1950
August 1950
August 1950
August 1950
April 1951
April 1951
December 1951
August 1951
October 1950
January 1951

+
+
+
+
+
+
+
+
+
+
+

-1 9
-2 9 *
- 5
-1 9 *
-2 5 *
-1 3
- 4
t
- 3
- 1
- 7

Manufactures.......................

14
18
2

35
16
16
8

26
17
14
9

-

7

-1 0

-1 4
0

2

+
+
—
+
+
+
+
+
+

0
1

18
8

16*
3
4*
14*
1

3
25
14
12
2

Minerals.................................
Industrial production. . .

March 1951

+ 13

-

October 1951
M ay 1951

+ 15
+ 16

- 3
-2 6

+ 12
- 14

October 1951

+

15

-

6

+

9

+ 12

-

2

+

10

April 1951

+

10

* December 1951 data are latest available,
t Change of less than 0.5 per cent.
Source: Computed from seasonally adjusted indexes of the Board of Governors of
the Federal Reserve System.

tended to exceed production, and except for some of the
smaller manufacturers the production cutbacks were closely in
line with those dictated by materials restrictions. By Decem­
ber 1951, however, output of passenger cars was down to less
than half of the June 1950 rate. The consequent layoffs at
automobile assembly plants have created localized unemploy­
ment problems, particularly in the Detroit area. As a result,
defense production authorities have recently adopted measures
designed to channel defense orders into areas of growing
unemployment.
Not all of these centers of unemployment have been caused
by materials restrictions, however. Many nondurable goods
industries have been in the doldrums because of excessive
inventories and lagging demand. Although the first indications
of growing inventories and declining demand were noted
nearly a year ago, the textile industry is still plagued by the
congestion of stocks in the hands of processors and suppliers,
and consequently the price situation is still weak and unset­
tled. The drop in demand has not been confined to cotton
textiles; rayon and woolen mills have been at least equally
hard hit. Military orders offset only a small part of the drop
in civilian demand. Over 130,000 textile workers have been
laid off since February 1951. Output of leather and leather
products has not only dropped below the pre-Korea level, but
also below the 1935-39 average. In addition, as the accompany­
ing table indicates, other nondurable goods industries, includ­
ing tobacco products, alcoholic beverages, paperboard, and

FEDERAL RESERVE BAN K OF NEW YO R K

manufactured food products, have fallen below the level pre­
vailing at the outbreak of the Korean war. However, certain
nondurable goods industries have been directly stimulated by
the defense program, notably petroleum refining and industrial
chemicals, and the expansion in these groups has kept the aver­
age for the nondurable goods category currently at approxi­
mately the pre-Korea level.
Despite the currently weak position of certain industries,

43

the basic forces in the economy are still strong for the remain­
der of this year. Defense production will be on the increase
during the months ahead. Businessmen are still planning a
record volume of plant and equipment expenditures during
Despite increased taxes, spendable incomes have reached
a new peak. Even in those industries where some further adjust­
ment of inventories remains to be accomplished, the prospects
are for a recovery in activity once stocks are brought into line.

1952.

D E P A R T M E N T STO RE T R A D E
Department store sales in this District increased somewhat
more than seasonally during February. Preliminary estimates
indicate that the index of average daily sales, after adjustment
for seasonal variation, reached 102 per cent of the 1947-49
base in February, a rise of 2 percentage points from the level
of the previous month, but was about 9 per cent below the
scare-buying-inflated sales volume of February 1951. On the
basis of monthly totals, however, department store sales in
February, bolstered by one more shopping day this year,
amounted to only 4 per cent less than those of the same month
last year.
While demand for durable homefurnishings continued to lag
substantially behind year-ago levels, sales of men’s and women’s
apparel reportedly compared very favorably with their corre­
sponding 1951 figures. Retailers interpret the relatively strong
showing of the apparel lines at this time as an indication of a
successful spring season. Moreover, the later date of Easter
this year (April 13 as against March 25, 1951) provides an
additional three weeks of pre-Easter shopping which should
allow the stores ample time for moving seasonal merchandise,
thus possibly reducing the need for post-Easter markdowns of
spring apparel.

The more favorable sales performances (relative to year-ago
levels) of many of the apparel lines during 1951 emphasized
once again the comparatively greater resistance to decline that
has been shown by nondurable goods.
With few exceptions, sales of nondurables in Second Dis­
trict department stores fared better (on a year-to-year basis)
than did the major household durable goods. This was par­
tially due, of course, to the exceptionally strong showing of
the durable lines during the latter half of 1950 and also
illustrates, to some extent, the greater degree of fluctuation
in consumer purchases of these items. The greater variation
in demand for durable goods occurs primarily because their
high unit prices render them particularly sensitive to changes
in consumer expectations of income, prices, and the avail­
ability of goods. Moreover, the very nature of the durable
items precludes the necessity of regular replacement buying by
consumers, in contrast with those nondurables which are more
perishable or subject to short-run style changes.
However, not all of the major durables lines failed to
improve upon their 1950 sales volume. Stimulated by the
continued high rate of residential building, sales of furniture
and bedding and of domestic floor coverings recorded gains of

3 and 5 per cent, respectively, from their corresponding 1950

D e p a r t m e n t St o r e Sa l e s
in

by

T ype

of

M

e r c h a n d is e

1951

Department store trade in this District in 1951 will probably
be remembered chiefly for the wave of anticipatory buying of
January and February, the midsummer "price war” in New
York City, and the stores’ intensive liquidation of excess inven­
tories during the latter half of the year, when the sharply
reduced tempo of retail activity became more than just a
temporary reaction to a previous period of heavy consumer
spending. There were, however, other trade developments
which were also of great significance to retailers when relat­
ing the events of 1951 to an appraisal of their business pros­
pects for 1952.
Perhaps the most noteworthy was the less spectacular but
more consistent demand for nondurables (particularly women’s
apparel) during a year in which consumers reportedly saved
the highest percentage of their incomes since World War II.




dollar volume. On the other hand, demand for television sets
and major appliances fell off sharply (compared with yearearlier levels) after February and except for a few brief periods
of markedly increased retail activity, such as during the 'price
war” in June, sales of these goods were well below their
levels.

1950

This was generally not the case, however, with regard to the
more important nondurable lines, especially men’s and women’s
apparel. Sales of women’s dresses, for example, registered
year-to-year gains in each month of 1951, averaging 7 per cent
above
levels for the year as a whole. While consumer
demand for women’s coats and suits and men’s clothing was
not nearly as consistent, sales of these items for the year as a
whole were up 2, 4, and 7 per cent, respectively, from their
1950 sales volumes. Sales of household textiles, infants’ wear,
women’s and children’s shoes, and men’s furnishings in 1951
were also moderately higher than they were in 1950.

1950

44

M ONTHLY REVIEW, MARCH 1952

Changes in Department Store Sales and Stocks by Selected
Types of Merchandise, Second Federal Reserve District, 1950-51
(Percentage change in total sales from 1950 to 1951; in stocks
from December 31, 1950 to December 31, 1951)

Indexes of Department Store Sales and Stocks
Second Federal Reserve District
(1 9 4 7 -4 9 a v e ra g e = 1 0 0 per ce n t)
1952

1951

Item
Jan.

Dec.

N ov.

Jan.

80

179
103

131
104

120

106
115

132
115

106r
120 r

Sales (average daily), unadjusted.................
Sales (average daily), seasonally a d ju sted ..

Women’s coals

100

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

Women’s suits

101

114

96

r Revised.

Women’ s dresses

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

Men’s c lo th in q
Net sales
Locality

F urniture and
b e ddinq

Jan. 1952

D om estic f lo o r
coverinqs

Department stores, Second D istrict. . .

M a jo r household
a p p lia n c e s
Television
(in c I. rad io -te le vis ion
combinations)

-20

0

P e rce n ta q e chanqe,l95Q t

Except for stocks of women’s suits, the dollar volume of
year-end inventories of the nondurables shown in the accom­
panying chart were higher than on December 31, 1950. This
probably reflects some overoptimism on the part of retailers
concerning the strength of the demand for these goods during
the fall and winter seasons. The year-end values of inventories
of the major durable lines, despite their lower levels on
December 31, 1951, compared less favorably in terms of yearto-year stocks-sales relationships than did many of the more
important nondurable lines. Moreover, some of the reduction
in the stocks of durables, particularly household appliances and




New York C ity ......................................
Nassau C ou n ty......................................
Northern New Jersey...........................
Newark................................................
Westchester C ounty..............................
Fairfield C o u n ty ....................................
B ridgeport..........................................
Lower Hudson River V alley...............
Poughkeepsie......................................
Upper Hudson River V alley...............
Schenectady........................................
Central New York S tate.....................
Mohawk River V alley......................
U tica.................................................
Syracuse..............................................
Northern New York State..................
Southern New Y ork State...................
Binghamton........................................
Western New York State....................
B uffalo.................................................
Niagara Falls......................................
Rochester............................................
Apparel stores (chiefly New Y ork C ity ).

Stocks on
J a n .th ro u g h
hand
Dec. 1951 Jan. 31, 1952

-

16

+

—
—
—
—
—
—
—
+
—
—
—
—
-

18
16
17
17
5

+ 4
+ 13
4- 5
+ 4
4- 13
4- 5
+ 6
1

-

6
6

16
15
11

19
1

18
15
8
20

49
11
11
12
11
8

7
15
8

4+
44+
+
4*
+
4*
444444-

5

0
6

5
6
6
2

3
8

4

-

5

—
4—
4-

5
4
9

—
—
—
4-

6

5
7

10
6

4
10

7
6

9
6
2
11
11
2

29
0
0
0
2

5

-

6
6

-I- 3

0

-

6

4

3

television, undoubtedly reflects revaluation at lower prices,
although the largest part is probably the result of the drastic
cuts in orders for additional merchandise initiated earlier
in the year.

N A T IO N A L S U M M A R Y OF BUSINESS C O N D IT IO N S
(Summarized by the Board of Governors of the Federal Reserve System, February 29, 1952)

Industrial and construction activity and retail sales continued
to change little in January and February. The average level of
wholesale prices decreased reflecting marked declines in basic
commodities. Bank loans were reduced owing mainly to
decreases in loans for nondefense business purposes.

Meat production in January was close to year-ago levels. Dur­
ing the first three weeks of February output of pork showed
much less than the usual seasonal decline and was substantially
larger than a year earlier.

Industrial Production

Employment in nonagricultural industries, after adjustment
for seasonal variation, continued in January at 46.5 million.
Average weekly hours of work at factories, which rose consid­
erably in December, declined again to a level only slightly
above other recent months, while average hourly earnings
changed little. Unemployment was reported at 2.1 million in
early January, up 400,000 from the preceding month, owing
mainly to seasonal curtailment of construction and other out­
door activities, but 450,000 below a year ago.

Em plo ym en t

Output at factories and mines in January, as measured by
the Board’s seasonally adjusted index, was 219 per cent of the
1935-39 average— little changed from the level of recent
months and slightly below a year ago. Durable goods produc­
tion was maintained at a level 5 per cent higher than a year
ago, while output of nondurable goods continued about 6 per
cent below the early 1951 record rate.
Activity in most munitions and producers’ equipment lines
showed little change in January after increasing steadily in
other recent months. Passenger auto assembly was curtailed
further owing in large part to additional model change-overs,
but showed a substantial rise in February. Production of
household durable goods rose somewhat in January reflecting
increased television output. Nonferrous metals production rose
further to a new postwar high owing mainly to expansion of
aluminum capacity and output. Steel production changed little
from December to January and in February was scheduled at
a new record rate.
Nondurable goods output in January was at about the
October-November rate after a slight dip in December.
Changes in the index of nondurable goods production over
this period reflected mainly fluctuations in the textile, leather,
and paper industries. Petroleum refining and output of chemi­
cals and rubber products were maintained in large volume.

Seasonally adjusted sales at department stores in January
and the first half of February remained close to the December
level. Retail sales of durable goods, seasonally adjusted, in
January were generally above the reduced December level.
Stocks held by department stores at the end of January were
estimated to be little changed from December. Stocks of men’s

IN D U S T R IA L PRODUCTION

EMPLOYMENT IN N O N AG R IC ULTU R AL ESTABLISH M EN TS

Construction

Value of construction contract awards in January was some­
what smaller than in other recent months, despite a slight in­
crease in public works and utilities and a sustained volume of
industrial awards, and was substantially below the year-ago
total. January housing starts totaled 68,000, as compared with
62,000 in December and with 86,000 a year ago.
D istribution

PHYSICAL VOLUME, SEASONALLY ADJUSTED, 1935 - 39 • 100

1947

Federal Reserve index.

Monthly figures; latest figure shown is for January.




1948

1949

1950

1951

Bureau o f Labor Statistics data adjusted for seasonal variation by Federal
Reserve. Proprietors and domestic servants are not included. Midmonth
figures; latest shown are for January.

clothing and of some consumer durables remained somewhat
high in relation to sales of these items.
Commodity Prices

The general level of wholesale prices declined moderately
in February, reflecting continued weakness in the markets for
basic commodities. The most marked declines were in prices
of textiles and other materials used by the nondurable goods
industries, but prices of scrap metals also eased. Livestock
prices weakened further and were considerably below the peak
year-ago levels as marketings, particularly of hogs, showed a
much less than seasonal decrease. Wholesale prices of most
metal products, on the other hand, continued at ceilings.
The consumers’ price index was unchanged in January as
further declines in prices of apparel and housefurnishings were
offset by increases in rents and miscellaneous services. Since
mid-January retail prices of foods have shown some declines,
while prices of passenger automobiles have been raised.

commodity transactions and most other nondefense business
purposes were sharply reduced, while loans for defense and
defense-supporting activities continued to increase substantially.
Member bank reserve positions were easy during most of
January but tightened somewhat near month end and in the
first three weeks of February. A post-Christmas return flow
of currency and a further gold inflow supplied reserves to
member banks, while an increase in Treasury deposits at the
Reserve Banks and a substantial reduction in Federal Reserve
holdings of Government securities absorbed reserves.
Security M arkets

Common stock prices declined moderately during the first
two weeks of February and dropped more sharply during the
third week.

Total loans at banks declined in January and early February
owing largely to a decrease in loans to business. Loans for

Yields on short-term Government securities declined slightly
during the first three weeks of February, while yields on
intermediate-term issues rose somewhat in anticipation of an
increase in the supply of securities to be made available to this
sector of the market through the Treasury offering of new
issues announced on February 13.

CONSUMERS’ PRICES

PERSONAL INCOME

M o ney an d Ba n k C redit

1935 - 39 * 100

Bureau o f Labor Statistics indexes. “ A ll items” includes fuel and housefurnishings groups not shown separately. Midmonth figures, latest shown
are for January.




Department o f Commerce estimates. W age and salary data shown are dis­
bursements and include employee contributions for social insurance which
are excluded from the total. Monthly figures, latest shown are for
December.