The full text on this page is automatically extracted from the file linked above and may contain errors and inconsistencies.
MONTHLY REVIEW
O f Credit and Business Conditions
F E D E R A L
R E S E R V E
V olum e 36
B A N K
M A R CH
O F
N E W
Y O R K
19 54
No. 3
MONEY MARKET IN FEBRUARY
Bank reserve positions in the aggregate continued to be
new price rise was generated by rumors that the Government
comfortable throughout February and excess reserves regularly
was contemplating more positive steps to bolster the econ
exceeded borrowings by a substantial margin. In order to
omy, that the Board of Governors was considering a reduction
avoid wide fluctuations in the supply of reserves, the Federal
of member bank reserve requirements, and that the Treasury
Reserve System purchased securities at the beginning of the
might postpone any offering of long-term securities for cash
month to avert a threatened reserve squeeze, and in the latter
at this time. This rise persisted through the end of the month.
part reversed the process and sold a larger amount of securities
than it had purchased earlier. For the four statement weeks
was thin throughout February after the closing of the sub
ended February 24 the System Open Market Account took
scription books on the Treasury’s refunding offer, and the
102 million dollars (net) out of the money market.
Trading in most sectors of the Government security market
larger part of the month’s activity was again concentrated in
On February 4 the Federal Reserve Bank of New York and
Treasury bills. Under the pressure of demand and the decline
four other Reserve Banks announced that effective the follow
ing day they were reducing their discount rate for loans to
average rates on new issues of bills declined to the lowest
in the supply of short-term securities after the refunding,
member banks from 2 per cent to V>A per cent. This reduction
levels in several years (0.893 per cent for the February 11
supplemented and emphasized action taken previously through
open market operations, to assure that an adequate supply of
issue). Outstanding issues traded in the market during most
reserves would be available to the banking system to meet the
credit needs of the economy, and brought the discount rate
more nearly in line with current short-term money rates. By
February 15 the lower rate was in effect at all twelve Reserve
Banks. The announcement of the discount rate reduction had
an immediate effect on many other money market rates. Prices
of almost the whole Government security list were marked up
the following morning. At the close of business on February 5
quotations on some of the longer bonds were % of a point
or more above the previous day’s close. The Federal Open
Market Committee reduced the Systems minimum buying
rate on bankers’ acceptances by Va of 1 per cent to 1% per
cent and shortly thereafter the dealers’ offering rate on unin
dorsed 90-day acceptances was reduced from 1 % per cent to
1 Ys per cent. Rates on Federal funds were lowered to bring
of the month at yields below 1 per cent and closed on
February 26 at bid rates ranging from 0.80 per cent for short
bills to 1.00 per cent for the longest ones.
In the four weeks ended February 17, the loans and invest
ments of the weekly reporting member banks expanded
slightly, despite large sales of Treasury bills (to meet the
pressing demand from nonbanking sources) and a continuing
decline in the demand for commercial, industrial, and agricul
tural loans. These reductions were offset by substantial in
creases in security loans and loans to banks, and by bank pur
chases of municipal obligations.
CONTENTS
Money Market in February................................................. 33
them into line, and there was some further easing of rates on
Report of the Randall Commission on Foreign Economic
Policy ................................................................................ 36
other related credits.
The President’s Budget Message for Fiscal 1955 ............... 40
The rise in Government security prices, however, proved
to be temporary and in the next ten days or so prices of these
Earnings and Expenses of the Second District Member
Banks ........................... ................................................... 44
securities eased; in some cases they dropped back close to or
Department Store Trade ..................................................... 47
below the levels prevailing immediately prior to the discount
rate announcement. Shortly after the middle of the month a
Selected Economic Indicators ............................................ 48
34
MONTHLY REVIEW, MARCH 1954
Table I
W e e k ly
(62 million) to the losses from the other regular market
factors. But a sharp decline in required reserves offset more
C h a n g e s in F a c t o r s T e n d in g to In c r e a s e o r D e c r e a s e
M em ber B a n k R e se rv e s, F e b ru a ry 1954
(In millions of dollars; ( + ) denotes increase,
(— ) decrease in excess reserves)
than half of the net losses from the other factors. This decline,
Statement weeks ended
Factor
Operating transactions:
Treasury operations*........
Federal Reserve float........
Currency in circulation. ..
Gold and foreign account.
Other deposits, etc............
Total.
Feb.
3
Feb.
10
Feb.
17
-224
-153
- 30
- 34
- 65
-1 8 9
- 60
+ 7
+ 5
+ 102
-507
-230
+ 8
+106
+289
-
9
92
Feb.
24
+ 21
Four
weeks
ended
Feb.
24
+ 22
- 12
-2 8 6
-2 1 9
+ 62
- 16
-1 6 1
-282
-622
-2 9 5
- 17
+397
Total.
dollars of bills outright in the first two statement weeks of the
month and the Federal Reserve Bank of New York acquired an
additional 57 million dollars of short-term securities under
a rise in float and a return flow of currency combined to
-102
75
- 57
-1 4 9
-2 4 7
-
-
43
+138
swell the volume of reserves available to the banks, the System
+518
+ 14
-2 0 6
-2 9 0
+ 36
Account withdrew from the market and the dealers repur
chased from the New York Bank the securities they had sold
to it earlier. In the final week of the month the persistent ease
+ 89
+ U
-2 1 6
+ 16
+222
+191
+ 45
-5 7 2
+ 77
-5 8 6
+360
Excess reserves...................................
+ 27
+ 6
+236
-4 9 5
-226
211
360
614
301
632
Borrowings from Reserve Banks. ..
Excess reserves.................................
reserve losses were met by a reduction of excess reserves.
The System Open Market Account purchased 145 million
+ 56
+ 57
+405
Total reserves.................................
Effect of change in required reserves.
Daily average level of member bank:
sequent decline in demand deposits. Most of the remaining
repurchase agreements. In the week ended February 17, when
Direct Federal Reserve credit transactions;
Government securities
Direct market purchases or sales..
Held under repurchase agreements.
Loans, discounts, and advances........
360 million dollars, reflected for the most part the substantial
bank sales of Treasury bills to nonbank investors and a con
306
200
682
268
Note: Because of rounding, figures do not necessarily add to totals.
* Includes changes in Treasury currency and cash.
M e m b e r B a n k R eserve P o s it io n s
Member banks in the aggregate were adequately supplied
with reserves throughout February, although the distribution
of these reserves among the banks was not always even. Some
banks in New York City and elsewhere were under pressure
at various times during the month and had to borrow from
the Reserve Banks on several occasions to meet their reserve
requirements. Rates on Federal funds in the City, as a result,
remained close to the "ceiling” through most of February.
Excess reserves of member banks declined 226 million dollars
over the four weeks ended February 24, but on a daily average
basis, as Table I indicates, they remained well above average
borrowings throughout the month.
Most of the regular operating factors took funds out of the
money market during the four weeks under review. The
Treasury, which had allowed its working balances with the
Reserve Banks to be drawn down to a low level in the middle
of January in anticipation of large tax receipts in the latter
in bank reserve positions threatened to create a "sloppy” money
market, and the System Open Market Account sold 247 mil
lion dollars of securities. The net decline in System security
holdings over the four-week period offset much of the net
increase in member bank borrowings, so the resulting increase
in total direct Federal Reserve credit outstanding was only 36
million dollars.
The reserve position of banks was less easy during February
in New York City than in most other parts of the country
since there was a large and persistent outflow of commercial
and financial funds from this market. A substantial part of
the outflow was related to the sales of securities by banks out
side the City to New York depositors. Part of it also may have
reflected the *repatriation” of Treasury interest payments on
the securities that were involved in the February 15 refunding
operation and that were held by New York banks for the
account of their correspondents. Although the New York
market did gain funds on balance through direct Treasury
operations during the month, these gains offset only part of the
losses from the outflow of funds.
T rea su r y Fin a n c in g
and the
M arket
for
G o v e r n m e n t Se c u r it ie s
part of January and of cash receipts on February 2 from the
In the early part of February the Treasury completed one of
third issue of Commodity Credit Corporation Certificates of
the largest debt operations in its history. Out of the 20.8 bil
Interest, built up these balances above normal working levels
lion dollars of securities involved in the exchange, approxi
early in February and, despite subsequent disbursements, took
mately 7.0 billion were exchanged for the 1 Ys per cent certifi
286 million dollars net out of the market. "Other” deposits
cates of February 1955 and 11.2 billion for the 2Vz per cent
with the Reserve Banks, which had also been reduced in
bonds of November 1961. Of the issues eligible for exchange,
January, were rebuilt in February, and, together with other
only 102 million of the 8.1 billion dollars of the 2*4 per cent
unclassified items, took about 160 million dollars out of the
certificates of indebtedness and 7 5 million of the 4.7 billion of
market. Float, in line with its usual seasonal pattern, con
the 1Ys per cent notes were unexchanged. Of the June bonds,
tracted somewhat over the month and there was a small addi
1.7 billion of the 2’s of June 1952-54, 376 million of the
tional market loss during the four weeks from foreign account
of 1952-55, and 322 million of the 2V4*s of 1954-56 remain
operations.
The post-Christmas return flow of currency, as is customary,
leveled out in February, and thus provided only a minor offset
2 1/a s
outstanding. The Treasury announced that holders of the re
maining 2.4 billion of June bonds would be given another
opportunity, later, to exchange them for other securities.
35
FEDERAL RESERVE BANK OF NEW YORK
The new issue of 7-year and 9-month bonds is the largest
single marketable Treasury issue outstanding, and its issuance
marks another stride in the Treasury Departments effort to
lengthen the average maturity of the outstanding public debt
and to space its maturities. It also points up how difficult the
then held less free reserves than at any other point in the
month. The announcement of the discount rate reduction,
added to demand factors already present, caused the rate on
the February 11 bill issue to drop to 0.893 per cent, the low
est rate since October 1947. Rates on the next two issues
mere passage of time makes this task. When the interest-
(February 18 and 25) rose somewhat again, but the ease
bearing public debt was at its all-time peak (277.9 billion
in the money market and the generally bullish attitude in the
dollars) in February 1946, approximately 72 per cent of the
Government security market kept them relatively low— 1.024
total was in marketable issues with an average maturity of nine
per cent and 0.986 per cent, respectively.
years and two months. At the beginning of last year, market
Trading in the new 2 Vis of 1961 was also fairly substantial
able issues constituted only 56 per cent of the total interest-
during the month. Dealers exchanged a relatively large amount
bearing debt and their average maturity was down to five years
and five months. Despite the fact that 1.6 billion dollars of
of ’ rights” for the new bonds and they apparently succeeded
over the month in selling a substantial part of their holdings
30-year bonds and 2.2 billion of 7-year 10-month bonds were
of the issue to commercial banks, who were continuing efforts
included in the Treasury’s fund raising program for 1953, the
to lengthen their own portfolios, and also to other investors.
Although the price of this bond wavered occasionally during
average maturity of the public marketable debt had declined
to five years and two months at the end of last December.
Even with the completion of the February refunding operation
the month, it closed on February 26 at a bid price of 1011% 2>
compared with an opening "'when-issued” bid quotation of
the average has been lengthened only to five years and eight
months.
of indebtedness lagged during most of the month, although it
100 12/%2 . Market interest in the new 1 Ys per cent certificates
The effect of the refunding operations on security prices
did pick up somewhat in the closing days. The final bid price
in February was negligible, as most of the adjustments had
been made at the end of January. A number of other factors,
for that issue on the 26th was 1001% 2- Activity in the rest of
the list was very thin, as it has been for many months, although
however, did have important effects on the market. The first
dealers continued to mark up prices, the gains for the month
of these was the reduction of the discount rate. However, the
ranging up to more than 2 points. The ten-month-old 3 Va
price increases generated by this reduction were dampened
per cent bonds of 1978-83 closed the month at 1082% 2 (bid).
shortly thereafter by the market’s adjustments to an expected
new issue of long-term securities for cash. The trend was
reversed once again in the middle of the month by Administra
tion indications that more positive measures to bolster the
T a b le
begin to expand seasonally in the spring, and by the wide
spread, persistent rumors of an early reduction in member
Statement weeks ended
Item
Jan.
27
bank reserve requirements that appeared at about the same
The demand for Treasury bills was strong throughout Feb
ruary and a large volume of them changed hands. For the
most part the sellers were commercial banks and the buyers
were corporations, public authorities, and other nonbank inves
tors, some of whom were seeking short-term investment out
lets for the proceeds of recent financing or for their tax
reserves. The upward pressure of demand on Treasury bill
prices (downward on yields) was no doubt greatly accentu
ated by the removal of so large a volume of other short-term
securities from the market, through the Treasury’s successful
refunding operation. The average rate on the first issue of
o f th e
(In millions of dollars)
economy would be taken if business and employment did not
time. Many analysts reasoned that if the Administration
wished to take more positive steps to stimulate business, it
would not offer long-term securities to absorb funds that might
otherwise go into mortgage or corporate securities. As a
result, prices of the longer-term outstanding Treasury bonds
again advanced strongly late in the month.
II
W e e k ly C h a n g e s in P r in c ip a l A s s e t s a n d L i a b ilit ie s
W e e k ly R e p o rtin g M e m b e r B a n k s
Feb.
3
Feb.
10
Feb.
17p
Change
from Dec.
30, 1953
to Feb.
17, 1954p
Assets
Total loans and investments.. . .
Loans, net*..............................
Commercial, industrial, and
agricultural loans.............
Security loans......................
Real estate loans.................
Loans to banks...................
All other loans (largely
consumer)....................
+232
+590
-7 9 2
+ 25
-1 ,4 0 9
-
81
+724
-1 7 8
+ 32
-1 ,2 0 3
—184
— 51
— 4
+165
+ 136
+565
+ 6
+ 16
- 82
-1 5 7
— 1
+176
+
+
+
13
38
15
71
+
+
-
—
29
9
811
305
19
142
3
-1 1 4
-
-
238
+313
-1 3 4
-6 1 4
—
7
-
206
U. S. Government securities. +300
Treasury bills................... +313
Other U. S. Government
securities....................... - 13
Other securities.................... + 13
-2 9 8
-5 3 1
-5 8 0
-4 8 3
- 63
+ 40
-
454
495
+233
+ 164
-
97
34
-1 0 3
+ 56
+
+
41
248
68
+888
-2 1 2
+ 88
-
955
Total investments...................
Loans net and other securities___
-
Liabilities
Demand deposits adjusted. . .
Time deposits except
Government.........................
U. S. Government deposits...
Interbank demand deposits:
Domestic..............................
Foreign.................................
+ 25
-5 2 7
-7 9 9
-5 9 1
-2 ,0 1 9
+ 61
- 88
+ 63
+434
+ 18
-1 6 7
+ 30
+731
+
+
178
245
-9 1 1
+ 25
—147
- 11
-1 4 2
0
+120
+ 40
+
971
8
1
new bills in February, the one dated February 4, rose slightly
p Preliminary.
over the closing January figure to 1.031 per cent, as the banks
* Figures for various loan items are shown gross (i.e., before deduction of valuation
reserves); they therefore majr not add to the total, which is shown net.
36
MONTHLY REVIEW. MARCH 1954
Member Bank Credit
since part of the decline was offset by bank purchases of the
Loans and investments of the weekly reporting member
third issue of Commodity Credit Corporation crop-loan cer
banks increased 55 million dollars, net, during the four weeks
tificates. These certificates were issued on February 2 and
ended February 17, primarily as a result of substantial increases
apparently about half of the 350 million dollar issue went to
in loans to banks and in security loans. Loans to banks in
creased 428 million over the four-week period, reflecting both
the weekly reporting member banks. "All other” loans were
the uneven distribution of reserves among banks and the
existence within the banking system of excess reserves that
sharp drop registered in the week ended February 10 reflects
could be loaned out at less than the discount rate. The 319
million dollar net increase in security loans was a direct result
a sizable block of consumer paper that it had previously sold
of loans made mainly by New York City banks to Govern
ment security dealers to help them carry their purchases of
the "rights” to the new 1Ys per cent certificates of indebted
ness and the 2 Vz per cent bonds of November 1961— and later,
down 155 million during these four weeks. The particularly
in part a large retail concerns repurchase from the banks of
to the banks.
Total investments of the weekly reporting banks declined
442 million dollars during these four weeks. This decline,
as noted earlier, was largely accounted for by sales of Treasury
of course, the loans financed carrying of the new securities
bills. This group of banks offset only a fraction of these sales
themselves. As the figures for the weeks ended February 10
by purchases of other securities but apparently picked up part
and 17 indicate, these loans are being gradually liquidated as
of the 2Vz per cent bonds of November 1961 which the
the dealers place the securities with investors. Commercial,
dealers disposed of during this period. As Table II indicates,
industrial, and agricultural loans and consumer (all other)
loans continued to decline in the four weeks under review.
weekly reporting banks rose only 20 million dollars, net. They
The actual decline in the former group of loans was even
also purchased nearly 200 million dollars of New York City
more than the 117 million dollars indicated by Table II,
Housing Authority notes and other municipal securities.
the holdings of Government securities other than bills by the
REPORT OF THE RANDALL COMMISSION
ON FOREIGN ECONOMIC POLICY
Very considerable interest and discussion have been aroused
the end of 1952, the period of major postwar international
economic dislocation and readjustment seemed largely to have
in this country and abroad by the release on January 23 of the
report of the Commission on Foreign Economic Policy headed
come to a close; there had been a striking improvement in
by Clarence B. Randall. The Commission, composed of ten
the economic situation and in the payments position of much
members of the Senate and the House of Representatives,
selected from both political parties, and of seven private citi
of the rest of the world; and there were growing demands at
home and abroad for policies to promote a more rapid move
zens appointed by President Eisenhower, was formally consti
tuted last August in keeping with the terms of the Trade
ment toward liberalized international trade and payments in
the interests of further strengthening the economic base of
the free world.
Agreements Extension Act of 1953. The Commission was
given the broad directive "to examine, study, and report on
the subjects of international trade and its enlargement con
sistent with a sound domestic economy, our foreign economic
The Commissions report, prepared in a period of three
months on the basis of intensive discussions, hearings, and
policy, and the trade aspects of our national security and total
staff work, surveys a wide range of our foreign economic prob
lems and policies, including those relating to tariffs and trade
foreign policy; and to recommend appropriate policies, meas
policy, foreign aid, foreign investment, currency convertibility,
ures, and practices”.
agriculture and raw materials, East-West trade, and others.
Although a number of official commissions, notably those
The controversial nature of the subject matter examined,
headed by Gordon Gray, William Paley, and Daniel Bell, had
however, is indicated by the fact that in the main body
in recent years already reviewed and reported in detail on
of the text a large number of dissents or special viewpoints
our foreign economic problems, policies, and objectives, the
on individual recommendations are expressed by individual
new Administration on taking office had an understandable
members. Of more significance, a separate statement, express
desire to initiate another survey of this important field, under
ing disagreement or reservations on many of the recommen
a commission of its own choosing, with a view to shaping its
dations, was submitted by Senator Millikin; and a minority
future foreign economic policies. The heavy Congressional
report, published separately, was submitted by Representatives
representation on the Commission suggests, also, that the
Reed and Simpson.
Administration hoped in this way to achieve a legislative pro
Despite these dissents, there is evidence in the main text of
gram that might reconcile the wide range of conflicting views
the report that many concessions were made by individual
in Congress on this broad subject. The time, in any case,
members of the Commission, presumably in a desire to mini
seemed not inappropriate for a fresh review of the field. By
mize the area of disagreement and to make possible recom
FEDERAL RESERVE BANK OF NEW YORK
mendations that would stand a chance of legislative enactment.
It is, in fact, basic to a proper appraisal of the report to recog
nize it as a compromise document aimed at providing a prac
tical program for early Congressional action. Unlike many of
its predecessors, the focus of this report is primarily upon
37
uncertain and unstable character. If, for example, the present
direct restrictions on dollar expenditures by foreign countries
were significantly relaxed— and it has long been a fundamental
objective of the United States Government, and is an expressed
hope of the Commission, that they should be so relaxed—
short-run problems rather than upon broader, long-run issues.
the foreign demand for dollar goods could rise substantially.
On balance, however, the reports program for action has
a decided leaning toward the "liberal” position on foreign
Moreover, the present high level of world dollar receipts is
based in part on large "extraordinary” and, by implication,
trade. That position has traditionally been based on those
impermanent expenditures abroad by this Government, includ
general principles of the free market economy toward which
ing some 3 billion dollars per year of outlays for our military
United States domestic economic policy has, for the most part,
establishment abroad, for offshore procurement, and for stock
been oriented. It is the "liberal” premise that the largest pos
piling, and about 2 billion dollars per year of economic grants
sible volume of unrestricted, nondiscriminatory world trade is
and loans.
in the best interests of the world as a whole and of the indi
that economic grants, which constitute the bulk of our eco
nomic aid to foreign countries, should, in general, be termi
vidual trading countries. Relative freedom in international
(The Commission, in fact, explicitly recommends
trade and payments tends to induce each country, via the work
nated as soon as possible.) Finally, it is noted that the dollar
ing of the price mechanism, to concentrate on the production
position of foreign countries would also be affected adversely
of those things in which it has the greatest relative advantage,
thereby tending to increase the world’s aggregate output of
if there were a marked contraction of business activity in this
country or an unfavorable turn in the terms of trade of West
goods and services and to raise the living standards of each
ern Europe. The conclusion is reached, therefore, that "much
nation. As applied to the United States, which exercises so
dominant a role in the world economy, the "liberal” position
remains to be accomplished before a dependable and durable
solution of the dollar problem can be achieved”.
favors measures to relax significantly our barriers to imports,
The implication is left in the report that the dollar prob
not only to provide us with goods that can be acquired more
lem is a problem both for foreign countries and for ourselves.
cheaply from abroad than at home, but also to enlarge the
Presumably we want the economies of the rest of the free
current dollar earnings of foreign countries and thereby to
facilitate the relaxation of foreign restrictions against the im
world to be strong, healthy, and capable of steady growth,
not only in our economic and trading interests, but also in
portation of our own goods. The alternatives, it is usually sug
our security interests. Only if the economic base of friendly
gested, might be continued tight restrictions abroad and/or
large-scale economic aid from this country.
W orld D ollar Problem
countries is sound are they likely to have the ability and will
to resist Communist intrigue and subversion. Tight restrictions
abroad against the importation of our goods— arising out of
dollar payments difficulties— constitute a major impediment to
The analysis and recommendations of the report are devel
the realization of these objectives by depriving friendly coun
oped and set forth against the background of the so-called
tries of the goods they need and thus weakening their econ
world dollar problem. During the postwar period as a whole,
foreign countries as a group had heavy deficits in their pay
ments with the United States, despite the tight exchange and
fact made possible— by United States Government grants and
loans; our economic aid alone amounted to about 33 billion
dollars in the years 1946 through 1953. The report calls at
omies and their growth potential, as well as their ability to
rearm. A continuation of dollar payments difficulties could
thus have serious divisive implications of an economic and
political character for the free world, make for a less economic
use and allocation of its over-all resources, and jeopardize
our security interests. The analysis of the Commission majority
implies, therefore, that there are further important reasons,
beyond the mere assurance of continued large exports of our
tention, however, to the marked improvement that had
goods and services, for the United States itself to have a vital
occurred during the past few years.
interest in a satisfactory solution of the dollar problem.
trade controls which they have maintained over dollar expendi
tures. On balance, these deficits have been financed— and in
By 1953, the world
"dollar gap” (exclusive of military aid items) had been closed,
In keeping with its source of authority, the report focuses
and foreign countries in that year accumulated over 2 billion
mainly on various measures that the United States might
dollars of gold and dollar reserves; the industrial production
take to enlarge the flow of dollars to the rest of the world, to
and foreign trade of Western Europe were much above prewar
strengthen the economies of foreign countries, and thereby
levels; inflation abroad had generally been checked and internal
to contribute to a solution of the dollar problem. Primary
direct controls relaxed; and considerable progress had been
made toward liberalizing world trade and payments.
imports and our private investments abroad. It is emphasized,
emphasis is placed on policies to increase our merchandise
The report emphasizes, however, that the present situation
however, that the United States "cannot do this job alone”
of relative ease in the world’s dollar position is based in part
and that the final solution "will probably depend even more
upon a number of special factors which give it a somewhat
upon the efforts of other countries than upon our own”.
MONTHLY REVIEW, MARCH 1954
38
Su m m a r y of R ecommendations
In the controversial field of trade and tariff policy— which
problem, since similar injury could arise from many other
unavoidable changes in a free economy. On the other hand,
Mr. McDonald’s recommendation that no tariff concessions
lies at the core of the report— the Commission advances a
series of recommendations that bear the marks of attempted
compromise. It recommends that the Reciprocal Trade Agree
should be granted on products made by workers receiving
wages which are substandard in the exporting country was
ments Act should be extended for not less than three years,
adopted by the Commission.
so as to reduce the degree of uncertainty associated with the
Considerable attention is devoted in the report to various
recent shorter-term extensions. Under the new act, the Presi
methods of increasing the outflow of private investment capital
dent should be authorized to reduce existing tariff rates by not
to the rest of the world. Such an increase, it is argued, would
more than 5 per cent of the present rates in each of the first
serve to enlarge the volume of international trade, to assist
three years. He should also be authorized to reduce tariffs,
in the maintenance of high levels of economic activity in the
on products not being imported or being imported only in
negligible volume, by not more than 50 per cent from the
United States, to develop primary resources abroad to meet
levels of January 1, 1945; and to reduce to 50 per cent
ad valorem, or its equivalent, any rate in excess of that level.
tries, and to contribute to over-all economic development and
higher levels of productivity abroad. The report calls attention
the ever-growing needs of the United States and foreign coun
It is recommended that the controversial "escape clause” and
to the need for creating an investment "climate” in foreign
"peril point” provisions of the present legislation be retained,
countries which would attract private American capital in
but that the President be more explicitly authorized to dis
larger volume. In this connection, it recommends that the
regard findings under these provisions whenever the national
United States Government should give full diplomatic support
interest of the United States requires it. It is also recom
to the acceptance and understanding abroad of the principles
mended that the provisions of the Buy American Act, which
require Government procurement agencies to give preference
underlying the creation of such a climate, and that we should
to domestic suppliers unless their prices are substantially higher
than foreign suppliers, be waived in cases where the foreign
bidders are from countries that treat our bidders on an equal
continue to negotiate international treaties to establish com
mon rules on the fair treatment of foreign investments. It
also recommends that our present program of guaranties to
American investors abroad against expropriation or incon
basis wTith their own nationals. Despite the compromise nature
vertibility of exchange should be continued for a further trial
of these various recommendations, the three Congressional
period and extended to cover the risks of war, revolution,
or insurrection.
members of the Commission previously mentioned dissociated
themselves from many of them in their separate statements.
As a means of stimulating our foreign investments, however,
Steps should also be taken, according to the Commission,
the Commission places its main emphasis on various tax meas
to remove unnecessary complexities and uncertainties associ
ated with our present tariff structure and our customs proce
dures and administration, which have in themselves proved
a significant deterrent to imports. More specifically, the Tariff
Commission should be directed to study our tariff schedules
with a view to framing proposals for the simplification of com
ures. The measures recommended are substantially the same
as those suggested by President Eisenhower in his Budget
Message and those recently approved by the Ways and Means
Committee of the House of Representatives. Broadly, they
would involve three revisions in the Revenue Code. First,
modity definitions and rate structures; the Department of the
Treasury should formulate proposals designed to simplify the
problem of classifying articles not enumerated in our tariff
corporate tax rate by at least 14 percentage points on income
from investment abroad, and that comparable preferential tax
treatment be granted to individuals investing abroad. Second,
the Commission recommends that there be a reduction in the
schedules, and should make a continuing study of the difficul
the Commission recommends that Congress remove several
ties and delays in customs administration with a view to their
specified restrictions which now prevent a person who invests
elimination; the Senate should give prompt consideration to
abroad from offsetting in full against his domestic tax the
a bill presently before it which would amend and improve our
appropriate foreign taxes. Finally, recommendations are made
customs valuation procedures; and measures should be taken
to reduce the possibility, inherent in present United States tax
to promote the more efficient operation of the present pro
law, of penalties to investors for adopting the specific form
visions relating to our anti-dumping and countervailing duties.
One of the public members of the Commission, David J.
of organization dictated by local laws or business conditions
abroad.
McDonald, submitted a proposal, which is reprinted in the
Primary reliance, in the view of the Commission, should be
report, for Government assistance to communities, employers,
placed on private, as contrasted with United States Govern
and workers to facilitate adjustment in the event that injury
ment, investment abroad. But it is pointed out that there are
is caused by tariff changes. Although the Commission viewed
special circumstances where our economic and foreign policy
this proposal with some sympathy, it refused to incorporate
objectives can be served by public lending, namely, where
it in its recommendations on the ground that possible injury
substantial economic aid is deemed necessary in our interests,
caused by tariff changes was but one phase of a much broader
but cannot be obtained from private or international sources.
39
FEDERAL RESERVE BANK OF NEW YORK
Examples would include the expansion of foreign production
of raw materials needed for defense purposes, alleviation of
the results of natural disasters, expansion of basic facilities
abroad (e.g., transportation), and in some cases general eco
nomic development. But it is emphasized that public lend
requiring use of United States vessels for half of all shipments
financed by United States Government loans and grants should
be repealed; and also that the determination of the active
merchant fleet requirements of this country should take account
of the availability of foreign vessels. To promote United States
ing should not compete with, or displace, private foreign
tourist expenditures abroad, the duty-free allowance for return
investment.
ing tourists should be raised from $500 to $1,000. And to
reduce the dependence of Western European countries upon
With regard to economic grants by the United States
Government, it has already been noted that the Commission
recommends the termination of such grants as quickly as
possible. But exception is made for cases where support is
needed to maintain military forces or to conduct military
United States aid and to strengthen their economies, we
should acquiesce in more trade in peaceful goods between
Western Europe and the Soviet bloc, so far as this can be
done without jeopardizing our military security.
operations connected with our own security beyond the eco
In the final section of its report, the Commission emphasizes
nomic capacity of the foreign country to sustain. The Com
the desirability of a restoration of currency convertibility and
mission also recommends vigorous support of our technical
nondiscrimination in trade abroad and suggests measures that
assistance program for underdeveloped countries, but cautions
that it should not become a "big money” program or involve
the United States might take, over and above the more gen
capital investments.
but positive progress” toward this goal. Pointing to the need
eral policies recommended in the report, to promote "gradual
for larger monetary reserves abroad as a prerequisite for con
The strong emphasis throughout the report upon the incen
tives of the free enterprise system, the stimulating effects of
competition, and the stabilizing influence of free markets is
most evident in the section dealing with the problems of
agriculture and raw materials. While making it clear that
it was not the responsibility of the Commission to reformulate
the agricultural policy of the United States, the report stresses
the need for harmonizing our agricultural and foreign economic
policies without sacrificing the sound objectives of either.
This should be accomplished, it argues, by seeking to avoid
vertibility, it recommends "a much more active utilization than
heretofore of the International Monetary Funds holdings of
gold and convertible currencies”. As a second means of sup
port, it recommends that "the Federal Reserve System explore
with foreign central banks the possibilities of standby credits
or line of credit arrangements”. It calls attention to the "ample
precedent” for such arrangements in the interwar period and
to the facts that they would avoid an increase in the public
debt and could be handled more flexibly and informally than
a formal grant of credit by our Treasury.
recourse to inflexible agricultural price supports, and to the
export subsidies and import quotas that they involve, and by
devising alternative methods of achieving desirable farm policy
goals. With regard to the troublesome problem of instability
in world raw material prices, the Commission similarly argues
against extensive resort to international commodity agree
ments, which, it contends, will merely introduce undesirable
rigidities and restraints and possibly involve very large out
lays of United States Government funds. On similar grounds,
it objects to proposals for unilateral buffer stock action by the
United States to stabilize world prices of raw materials and
foodstuffs. On the other hand, it believes that the United States
can make "constructive contributions” to greater stability in
world prices by relaxing or removing impediments to our
foreign trade, by encouraging the diversification of production
in countries now excessively dependent upon a few products,
by avoiding actions incidental to our commodity control and
stockpile programs that would have disruptive effects on world
prices, and— in keeping with a theme recurring throughout
the report— by tempering the fluctuations of our domestic
economy.
Co n c l u s io n
The Randall Commission was faced with the difficult task
of producing, within a short period of time, a document
designed to harmonize widely differing views on the contro
versial and politically charged subject of our foreign economic
policies and programs. Its recommendations, summarized
briefly above, add up to a modest, and essentially limited, com
promise program framed with a view to early Congressional
action. It is not clear from the report how large a contribu
tion the Commission would expect this program, if adopted
in full, to make toward a solution of the world dollar problem
and the achievement of freer and more active international
trade which are the report’s main concern. And it is as yet
an open question, especially in the light of the numerous dis
sents and reservations expressed by influential Congressional
members of the Commission, how many of the recommenda
tions will in fact be translated into actual policy. But it is
at least likely that the subject matter and recommendations of
the report will be vigorously debated, within Congress and
In the interests of further contributing to a solution of the
without, in the months immediately ahead. Mr. Randall him
world dollar problem, the report recommends a liberalization
self has been appointed a consultant to the President with the
of our policies with respect to shipping, tourism, and East-
responsibility of supervising the preparation of the Admin
West trade.
istration’s proposals in this field for submission to Congress.
It recommends that the statutory provisions
40
MONTHLY REVIEW, MARCH 1954
THE PRESIDENT’S BUDGET MESSAGE FOR FISCAL 1955
The Budget for the fiscal year ending June 30, 1955 which
President Eisenhower presented to Congress on January 21 is
the first to be completely prepared by his Administration. It
The estimated budget receipts in fiscal 1955 would amount
to 20 per cent of national income at current levels, or some
what less than the estimate (22 per cent) for the current fiscal
is cast, according to the President, in terms of "adequate” pro
year and slightly below that for fiscal 1953. Before Korea, in
vision both for our national defense and international respon
fiscal 1950, budget receipts were 17 per cent of national
sibilities and for "essential” (rather than what some consider
desirable) domestic activities and programs. The basic assump
income, whereas at the peak of the World War II effort they
were 24 per cent. Relating outlays to gross national product
tion is made that fairly stable conditions, both internally and
rather than to national income, the anticipated budget outlays
externally, will prevail. Accordingly, no tax or expenditure
would represent about 18 per cent at current levels, around
programs specifically designed to combat recessionary (or
2 percentage points less than either the estimated share in the
inflationary) tendencies are proposed for consideration by
current fiscal year or the actual proportion in fiscal 1953.
Congress. Likewise, the proposed defense programs do not
reflect any expectation of heightened international tension.
Before Korea, budget outlays were 15 per cent of gross national
product, and at the peak of the World War II effort they were
To be sure, defense and related outlays are changed in compo
nearly 45 per cent. On a cash basis, the ratio of receipts and
sition, with greater emphasis on striking power; but a meas
implies a continuing development toward self-sustainability by
expenditures to national income and gross national product
would be only slightly higher than on a budgetary basis. Thus,
the proposed changes in Federal budget programs within the
the countries receiving economic aid.
expected economic setting would have a relatively modest
urable reduction in total is also envisioned. Finally, the Budget
In particular, these assumptions of stability are reflected in
impact on the economy. The tax reductions as they become
the levels of income and profits upon which the individual
available for spending or investment by the public should be
income and corporate profits tax yields are calculated, in the
levels of private consumption expenditures to which excise
a stimulus to business and should partly offset the projected
shrinkage in Government outlays, although the combined effect
tax revenues are tied, in the levels of farm price movements
of these changes would undoubtedly vary from industry to
on which the net payments by the Commodity Credit Cor
industry.
poration are based, and in the level of unemployment in
While only a slight change in fiscal 1955 is expected in
the net results of Federal operations (i.e., in the budgetary
industries covered by unemployment insurance to which the
disbursements for compensation are related. For the period
deficit), a significant reduction is expected in appropriations
covered by the Budget it is assumed, among other things, that
and in the amount of unexpended appropriation balances at
personal income and corporate profits will continue at sub
stantially the high levels of the final quarter of the past calen
dar year, that consumers will spend at rates prevailing then,
that farmers will withdraw a substantial volume of crops
pledged against loans, and that the number of unemployed
persons will remain close to the level in the past calendar year.
the end of fiscal 1955, as shown in Table I. Under the
The estimate of receipts is based on the retention of the
existing corporate income and excise tax rates, both of which
are scheduled to decline on April 1 in the absence of new
Presidents program for the coming year, new obligational
authority, as in the current fiscal year, will be less than expendi
tures. A cumulative reduction of nearly 25 billion dollars in
unspent appropriations from the peak level at the end of June
1953 is anticipated by the end of fiscal 1955, portending a
further reduction in expenditures. Thus, the President notes
that in the revised 1954 Budget and the new 1955 Budget
"the trend clearly is toward a balanced budget”.
legislation, and the adoption of a list of some twenty-five
Table I
reforms in the current tax structure, most of which have
B u d g e t A u t h o r iz a t io n s , E x p e n d it u r e s , a n d
U n s p e n t A p p r o p r ia t io n s , 1 9 5 0 - 5 5
already been approved by the House Ways and Means Com
( I n b illio n s o f d o lla r s )
mittee. Thus, changes in business conditions or in interna
tional relations, as well as changes resulting from Congressional
Fiscal year
New obligational
authority*
Expenditures
Cumulative unspent
balances of
appropriations!
1950.......................
1951.......................
1952.......................
1953.......................
1954e.....................
1955e.....................
49.3
82.9
91.4
80.2
60.7
56.3
39.6
44.0
65.4
74.0
70.9
65.6
14. le
50.3e
68.8
78.7
66.5
54.1
action, would obviously alter the budget programs.
Under these assumptions, budget receipts, as estimated at
62.6 billion for fiscal 1955, fall short of anticipated expendi
tures of 65.6 billion. The result is an indicated budget deficit
of 2.9 billion dollars, compared with an indicated deficit of
3.3 billion in the current fiscal year and a deficit of 9.4 billion
in fiscal 1953. On the basis of cash receipts and outlays, how
ever, a small surplus would be obtained in fiscal 1955, com
pared with a small deficit expected in the current year and
a deficit of 5.2 billion in fiscal 1953.
e Estimated by the Bureau of the Budget.
* Includes increases and adjustments in authorizations to contract and to make
|teexpenditures from borrowed money, as well as new appropriations to make
expenditures from the general revenues of the Government,
t As of end of year. Includes reappropriations of spending authority for the mutual
security and atomic energy programs which would lapse if not used in a given
fiscal year, as well as continuing and new appropriations. Does not include
authorizations to contract or spend from borrowed money.
Source: The Budget of the United States Government for the Fiscal Year Ending
June 30, 1955.
FEDERAL RESERVE BANK OF NEW YORK
The twin financial problems of debt management are
explicitly presented in the Budget Message as involving not
Table II
U n it e d S t a t e s B u d g e t a r y a n d C a s h O p e r a tin g
T ra n s a c tio n s , F is c a l Y e a r s 1 9 5 3 -5 5
( I n b illio n s o f d o lla r s )
only the offering of securities that the market will take for
cash or refunding, but also an appraising of the economic
situation and the adapting of financing plans to it so as not
41
Transactions
Actual Estimated Projected Change,
1953
1954
1955
1954-55
to contribute to either inflation or deflation. Within this goal,
Income
the specific problems are to lengthen the maturities of the debt
Budget receipts, net:
Income taxes on individuals................
Corporate profits taxes.........................
Excise.............................................
Other receipts, net.................................
Refunds (deduction).............................
32.5
21.6
9.9
3.7
- 3.1
Total budget receipts, net........................
Noncash budget receipts (deduction)... .
-
and to obtain a wider distribution among individuals and other
nonbank investors. A start, for example, was made during
the past calendar year, when the public debt increased by
7.8 billion and nonbank investors (including the Government
trust funds) added 6.4 billion dollars to their holdings of
Government issues.
64.6
0.2
33.4
22.8
10.2
4.2
- 3.0
-
67.6
0.3
30.3
20.3
10.2
4.3
- 2.5
-3 .1
- 2 .5
+ *
-1-0.1
- 0 .5
62.6
0.3
-5 .0
-
CASH BUDGET RECEIPTS...............
CASH TRUST RECEIPTS...................
64.4
7.0
67.3
7.7
62.3
8.5
-5 .0
+ 0.9
TOTAL CASH RECEIPTS...............
71.3
75.0
70.9
- 4 .1
50.9
23.1
49.7
21.2
45.6
20.0
U.9
8 .2
14.1
7.1
14.1
5 .9
- 4 .1
-1 .2
_ *
70.9
- 3.3
0.7
65.6
- 3.2
0.8
-5 .3
+ *
+ 0.1
Outgo
B udget A cco u n ts
Receipts
The estimated decline of budgetary receipts in fiscal 1955
Budget expenditures:
Defense and related programs!............
Nondefense programs...........................
“ Relatively uncontrollable” items . . . .
Other nondefense.................................
-1 .2
by some 5 billion dollars would accrue to the benefit of both
Total budget expenditures.......................
Noncash budget items (deduction) t ........
individuals and corporations, as shown in Table II. It reflects,
Additional cash payments!......................
74.0
- 3.4
0.5
on the one hand, a full year’s effect of the reductions in indi
CASH BUDGET OUTGO.....................
CASH TRUST OUTGO#.......................
CLEARING ACCOUNT........................
71.1
5.2
0.3
68.3
6.8
63.1
7.6
*
-5 .2
+ 0 .8
_ *
profits tax, which became effective on January 1, 1954, and,
TOTAL CASH PAYMENTS............
76.6
75.2
70.7
-4 .4
on the other, the anticipated reductions arising from the pro
Deficit or Surplus
3.3
0.2
- 2.9
+ 0.2
+ 0 .3
+ 0 .3
3.1
3.1
vidual income tax rates and of the elimination of the excess
posed revisions in the existing tax structure. These revisions,
Budget deficit..............................................
CASH DEFICIT ( - ) OR SURPLUS (+ )
which are designed to eliminate "inequities” and "tax com
Difference in deficits.............................
plications” would, among other things, remove some of the
"double” taxation of dividend income, and provide more liberal
depreciation allowances to business and better tax treatment
to individuals for working children, child care, medical ex
penses, and annuities. They would also reduce the irregularity
of tax payments by requiring advance payments, beginning
in the fall of 1955, by corporations in September and Decem
ber before the end of their income year and by shifting the
filing date for individuals from March 15 to April 15.
If personal income remains at approximately the recent
annual rate of around 285 billion dollars— the figure the
Treasury and the Bureau of the Budget are reported to have
used— it is estimated that taxes on individual incomes in fiscal
1955 will yield 3.1 billion less than in fiscal 1954. The loss
from the recent 10 per cent reduction in tax rates on individ
ual incomes would account for the major portion of this
-
9.4
5.2
4.2
-
_
*
Note: Because of rounding, figures do not necessarily add to totals.
* Less than 50 million dollars.
f Includes spending for the major national security programs (military outlays of
the Defense Department, strategic and critical materials, atomic energy, and
mutual defense) as well as for related programs (the Coast Guard, maritime
activities, expansion of defense production, the National Advisory Commission
for Aeronautics, and the Selective Service System).
% Noncash intra-Governmental payments and interest accrued on Savings bonds
in given years.
§ Includes redemptions by the International Monetary Fund of noninterestbearing notes, and the payment of accrued interest on redeemed bonds.
# Includes the net transactions by partially owned Government corporations, as
well as expenditures of trust accounts.
Source: The Budget of the United States Government for the Fiscal Year Ending June
SO, 1955; Bureau of the Budget, Receipts from and PaymentsJo the Public,
Fiscal Years 1953, 1954 and 1955.
retention of the current corporate income and excise tax rates
scheduled to be automatically reduced on April 1, the Govern
ment will lose around 2.5 billion more in fiscal 1955 than is
anticipated in the new Budget.
Income tax payments by individuals, as estimated at over
30 billion dollars, will provide almost half of the estimated
decline, the anticipated cut from the proposed reforms in the
budget receipts in fiscal 1955, while corporate profits taxes,
tax structure amounting to 600 million dollars. Part of the
at over 20 billion dollars, will provide over 32 per cent. The
loss in income taxes, however, would in effect be offset by
relative contributions from these two sources differ only
an expected 500 million dollar reduction in the amount of re
slightly from those in the current fiscal year. Excise taxes,
funds, reflecting mainly the new rates for withholding income
which provide the bulk of the remaining receipts, are not
taxes. With profits at the recent level of around 43 billion
expected to change from the current year’s 10.2 billion, unless
dollars, a reduction of 2.5 billion in corporate tax collections
Congress refuses to approve the retention of existing rates.
in fiscal 1955 is anticipated as a result of the elimination of
the excess profits tax and the proposed corporate tax reforms.
Disbursements
(The total loss in fiscal 1955 from all these changes will
Anticipated budget expenditures for fiscal 1955 would be
amount to nearly 6 billion dollars, compared with an estimated
some 5.3 billion less than in the current fiscal year and around
If Congress is
8.4 billion less than was spent in the fiscal year ended last
not willing to go along with the President’s request for a
June, before the truce in the Korean conflict. The estimated
loss of over 1 billion dollars in fiscal 1954.)
MONTHLY REVIEW, MARCH 1954
42
ity assistance, as well as under existing legislation. Expendi
The proposed defense program calls for a cutback in mili
tary personnel to slightly over 3 million by June 30, 1955.
The present level of more than 3.4 million is scheduled to be
tures for major national security and related programs, at
reduced by around 100,000 by the end of June 1954 and a
expenditures include requirements under legislation yet to be
proposed to Congress, mainly for the extension of mutual secur
45.6 billion dollars, would be 4.1 billion less than the out
further cut of almost 300,000 is anticipated during fiscal 1955.
lays expected during the current fiscal year and 5.4 billion
These cuts reflect a somewhat larger reduction in Army and
less than in fiscal 1953. Nondefense activities in fiscal 1955,
at 20 billion dollars, would require 1.2 billion less than corre
sponding operations this year and 3.0 billion less than in the
Navy forces, partly offset by a relatively small increase in
Air Force personnel. The rise in the Air Force is part of a
long-range plan under which it would be raised to 115 wings
past fiscal year. All but 5.9 billion dollars of this spending
by June 1954, and to 137 in the following three fiscal years.
would be for the "relatively uncontrollable” major programs,
The Army, which now has twenty divisions, will inactivate one
which are expected to require about the same amount in
between now and July and may lose more in fiscal 1955, when
fiscal 1955 as in the current year.
a cut of nearly 245,000 is to be made in its manpower. Army
antiaircraft guided missile battalions will be increased as part
of a program to improve continental defense. The cut in
D efen se
and
R e l a t e d Pr o g r a m s
Navy strength will be relatively small.
Expenditures for the military functions of the Department
Spending for other national defense programs is scheduled
of Defense alone are estimated at 37.6 billion dollars after
to decline by 100 million dollars. Disbursements for mutual
an anticipated cut of nearly 4 billion. The reduction in mili
defense assistance and atomic energy, at 4.3 billion and 2.4
tary outlays is to be achieved by a substantial cutback of 3.2
billion, respectively, would rise by relatively small amounts
billion in military procurement— particularly of vehicles, am
to new peak levels; these increases would be more than offset,
munition, and soft goods— and by lesser reductions in spend
ing for personnel (down 600 million) and for operation and
however, by projected cutbacks in spending for other related
maintenance (down 200 million).
defense programs, including the stockpiling of strategic and
The program for fiscal
critical materials, maritime activities, defense production ex
1955 is based, according to the President, on the new concept
of military flexibility, involving the full exploitation of air
pansion, the Coast Guard, and several smaller programs. The
power and modern weapons in a program aimed at continued
dollars under the projected budget for fiscal 1955.
latter programs, together, would require less than 1.3 billion
maintenance within the financial capability of a sound econ
omy.
This concept replaces the "target-date readiness” on
which the previous expansive military budgets were based.
Reflecting this concept, as well as savings from economies
and the cessation of hostilities in Korea, the cut in military
outlays will be made mainly in outlays by the Army, although
disbursements by the Navy are also to be cut. Part of these
reductions will be offset by a rise in spending by the Air
Force, which would reach a new peak for the current rearma
ment period. The projected changes would make the Air
Force the largest military spender, with over 16.2 billion or
43 per cent of the military budget allotted to its programs for
fiscal 1955. The Army and Navy divide the remainder about
equally.
N o n d e fe n se Program s
The "relatively uncontrollable” nondefense programs in fis
cal 1955, estimated at 14.1 billion, would be about the same
as in the current fiscal year, with an anticipated decline in
spending for the support of agricultural farm prices and for
public-assistance grants to the States being offset by a rise in
interest payments. Relatively small changes are anticipated
in other major programs in this group, which include veterans’
aid programs, Federal-aid highway grants, agricultural pro
grams for land conservation and for the removal of surplus
agricultural commodities, and grants to the States for the
administration of unemployment services.
The estimated 1.2 billion dollar reduction in "other non
defense” programs arises in part from cutbacks in certain pro
N A T IO N A L S U M M A R Y OF BUSINESS
grams and in part from an expected shift to net receipts from
CO NDITIONS
net disbursements for several of the Governments public
Because of an advance in the publication date of the
"National Summary of Business Conditions”, it is no longer
being reprinted in the Monthly Review. The "Summary”
will continue to appear in the Federal Reserve Bulletin,
which may be obtained from the Board of Governors of
the Federal Reserve System, Washington 25, D. C. This
Bank will also make reprints of the "Summary” available
to member banks in the Second Federal Reserve District
for distribution to their customers.
enterprise programs, which are included on a net basis in
budget expenditures. The cutbacks occur mainly in spending
for international economic aid (down 300 million), and in
the Post Office deficiency (down 350 million, reflecting both
economies and a proposed rise in rates). The shift to net
receipts, which is estimated to provide over 650 million dollars,
is expected to occur in the operations of the Federal National
Mortgage Association and the Export-Import Bank, and in
the agricultural Disaster Loans and Emergency Feed Program,
and would occur as the loans and mortgages are repaid or sold
43
FEDERAL RESERVE BANK OF NEW YORK
to private lenders. The cumulative projected decline in foreign
economic aid in the current fiscal year and in fiscal 1955, at
over 650 million, is more than double the projected increase
in these two years in mutual military assistance. Changes in
other programs are relatively small and tend to offset each
4 billion dollars from fiscal 1954 is expected mainly from the
anticipated decline in income and profits taxes, which will
be partly offset by an expected rise of nearly 900 million in
cash collections by the trust funds. Larger receipts are antici
pated by the Old-Age and Survivors’ Insurance Fund (up 900
other.
million), reflecting mainly the full impact of the increase in
Expenditures by the Commodity Credit Corporation (CCC)
for the support of farm prices are expected to decline only
rates (from IV2 per cent to 2 per cent for both employers
slightly from the nearly 1.2 billion estimated for the current
year, despite the application of marketing quotas on wheat
increase in receipts in fiscal 1955 stems from the proposed
revision in the program, to become effective next January 1,
and employees) effective on January 1, 1954. A further small
and cotton and of acreage allotments on corn. Combined direct
which would extend the coverage to some ten million persons
and indirect price-support operations in fiscal 1955, how
ever, are expected to decline to slightly more than a quarter
and raise the maximum annual taxable income base from
of the combined volume in the current fiscal year; guaran
changes would be significantly greater in fiscal 1956. Cash
teed loans are expected to show a small decline in fiscal
receipts by the Unemployment Trust Fund would also show
$3,600 per employee to $4,200.
The increase from these
1955, whereas in the current year a substantial increase is
a small increase, under the initial impact of a proposed revi
anticipated. It is assumed that the major portion of the pri
sion to extend coverage to firms with fewer than eight employ
vate loans, which are short term, will in effect be refunded in
ees and to Federal civilian employees.
fiscal 1955. A fairly large volume of receipts from repayments
Cash outlays by the Government in fiscal 1955 would
by farmers and from the sale of commodities has also been
amount to 70.7 billion dollars, with the budget accounts dis
assumed in setting the net outlays by the CCC in both fiscal
bursing 63.1 billion of this total. The estimated outlays are
1954 and 1955. If such receipts do not materialize, larger dis
bursements by the CCC or an increase in private financing
current fiscal year. The major changes in the budget accounts
4.4 billion dollars less than the estimated spending for the
will be required. To cover the continued large need for both
discussed above will reduce cash spending by 5.2 billion dol
direct and indirect support of farm prices, the President re
lars, but part of this decline is expected to be offset by a
rise in cash outlays by the trust funds.
quested that Congress not only cancel 775 million of notes in
the current fiscal year now owed to the Treasury by the cor
poration,1 but also increase the total of the latter’s borrowing
Cash disbursements by the trust accounts for fiscal 1955, as
estimated at over 7.6 billion dollars, are nearly 800 million
authority by 1,750 million dollars, effective July 1, 1954.
higher than in fiscal 1954, largely as a result of the normal
increase in the number of recipients of old-age benefits and of
C a s h P o s it io n
Cash receipts in fiscal 1955, under the program presented
in the Budget Message, would exceed cash disbursements by
almost 200 million dollars. This is some 3.1 billion dollars
better than the expected budget deficit for several reasons.
In the first place, the budget figures include a large amount
of noncash expenditures and only a small amount of noncash
receipts from Government agencies. The noncash expenditures
consist mainly of anticipated payments to the trust funds for
interest and other charges, and of the net increase in accrued
interest on Savings bonds. These funds are generally invested
immediately in Government securities or held in reserve, thus
requiring no immediate payment of cash. The cash deficit in
the budget accounts alone is expected to be less than 800
million dollars, and it is anticipated that this will be offset
since the trust funds are expected to receive more cash from
the public than they will disburse in benefits.
On a cash basis, nearly 71 billion dollars is expected to be
collected from the public in fiscal 1955. The decrease of over
the proposed revision in the program which would raise indi
vidual benefits as of October 1954. On the assumption of
stable business conditions at the recent high levels, a nominal
rise of only 100 million dollars in payments by the Unemploy
ment Trust Fund is estimated for fiscal 1955, reflecting an
increase in claims of short duration and the liberalization of
benefits by some States. Payments to new claimants under the
proposed extension of the unemployment program would add
around 60 million dollars to disbursements. Disbursements by
other accounts are expected to show a small decline in
fiscal 1955.
P u b l ic D e b t
If Congress accepts the President’s tax proposals, the con
templated cash outlays under the budget program for fiscal
1955 would allow for a small net decline in cash borrowing
from the public. However, a rise of over 3.5 billion dollars
in the debt would occur as a result of noncash expenditures.
Thus, by June 30, 1955 the public debt would amount to 273
billion dollars, as shown in Table III. Because of the wide
swings in receipts and expenditures and the heavy concentra
1
Congress authorized the cancellation of notes in the amount of
tion of taxes in the latter half of the fiscal year, however,
682 million dollars in a measure signed by President Eisenhower on
there would be periods during the year when the public debt
February 12.
44
MONTHLY REVIEW, MARCH 1954
T a b le
III
C h a n g e in t h e P u b l i c D e b t , F i s c a l Y e a r s
1 35 3-55
(In billions of dollars)
Source of funds'14
Actual
1953
Excess of cash payments (+ ) or
receipts ( —) ....................................... -fChange in Treasury balance, cash
operationst......................................... Cash borrowing from the public, net*.
Noncash borrowing...............................
Gold retirement of debt........................
44-
Estimated Projected Change,
1954
1955
1954-55
C urrent Fiscal Y ear
5.2
■f
0.2
2.3
+
0.8
2.9
4.0
—
-f
+
-
0.9
3.5
0.5
-
+
0.2
-0 .3
_
—0.8
0.2
3.5
—
—
-+-0 •5
3.4
-0 .6
266.1
269. S
273.0
+ 3 .2
Treasury’s balance at end of year........
4.7
5.0
5.0
—
+
6.9
-f
4.0
+
-1 .1
Public direct debt at end of year........
Increase in the Federal debt*..........
would be considerably greater than the year-end amount,
which, the President warned, would make it necessary for
Congress to raise the debt ceiling.
Cash receipts in the current fiscal year ending June 30 are
now estimated to provide 75.0 billion dollars, which is only
200 million less than expected cash outlays. These estimates
show little change from those submitted in the Review of the
Budget last August when a cash operating deficit of 400 mil
lion was anticipated,2 compared with a deficit of 6.6 billion
estimated for the current fiscal year in the Budget Message
Note: Because of rounding, figures do not necessarily add to totals.
* The minus ( —) sign indicates the use of a surplus or an existing balance for
retiring debt, and the plus (+ ) indicates the provision of funds by borrowing
to cover a deficit or build up the balance,
t The net change in the General Fund reflects the reduction in gold for the purpose
of retiring debt, as well as the change in deposits from cash operations with
the public.
£ Includes a small amount of transactions in Government corporation issues.
Source: 'The Budget of the United States Government for the Fiscal Year Ending
June SO, 1955; Bureau of the Budget, Receipts from and Payments to the Public,
Fiscal Years 1953, 1954 cind 1955.
submitted January 1953 when higher outlays were proposed.
2
Because of a change in accounting procedures whereby receipts
of the Railroad Retirement Trust Fund are now deducted directly from
budget receipts, additional cuts of 640 million dollars from the Review
of the Budget estimates were made in both budget receipts and expend
itures. This change has no effect on the net deficit. Formerly, the
receipts of this fund were left in budget receipts, and an offsetting
transfer was included in budget expenditures.
EARNINGS AND EXPENSES OF THE SECOND DISTRICT MEMBER BANKS
Net profits of member banks in the Second Federal Reserve
folios. Moreover, some of these losses may have been taken
District, after taxes but before dividend payments, totaled
in an effort to economize on taxes at a time when rates were
high.
221.0 million dollars in 1953. This represented a decline of
7.4 million dollars— slightly more than 3 per cent— from
1952s net profit figure of 228.4 million dollars. As the
profits of all member banks in the nation increased to 865
million dollars from 829 million in 1952, the share accounted
for by the Second Districts member banks fell from 21 Vi to
During the first half of the year, when tight conditions
prevailed in the money market, some banks may have sold
securities at a loss in order to ease reserve positions. But
25 Vi per cent.
other banks that took security losses during 1953 did so in
the course of portfolio "switching” operations aimed at reduc
ing income tax liability. And the fact that security losses were
Within the Second District, the earnings experience of the
central reserve New York City banks contrasted sharply with
that of the reserve city and country banks. For the central
heavier in the second half of 1953, when reserve positions
were considerably easier and there was little or no compulsion
to liquidate security holdings, reinforces the supposition that
reserve New York City banks, the 1953 profit total of 161.1
perhaps the greater portion of the year’s sales was voluntary
in nature and was undertaken to establish tax losses. To the
extent that losses incurred in switching were greater than the
million dollars represented a decrease of 13.5 million, or 8 per
cent, from the 1952 level. For the reserve city and country
banks, however, last years profit total of 59.9 million dollars
represented an increase of 6.1 million dollars, or 11 per cent.
resulting tax savings, net profits were depressed. On the other
hand, any increase in the level of Government security prices
And while the total net profit for the City banks provided a
over that which obtained when the switches were made car
return of 6.4 per cent on capital funds, the Districts reserve
ries with it the possibility of future long-term capital gains
taxable at a lower rate.
city and country member banks as a group earned a 7.6 per
cent return on their capital funds (in 1952 the return for both
groups was 7.2 per cent).
This less favorable 1953 profits experience of the central
The change toward ease in Reserve Bank credit policy
initiated early in May, and the implementation of this easier
policy by open market purchases of Treasury bills and the
reserve New York City banks resulted primarily from the fact
July reduction in reserve requirements, were correctly inter
that the City banks took much heavier security losses during the
preted by many security traders as leading to lower market
year than the reserve city and country member banks did. But,
yields (higher prices) for Government securities. In fact,
to a considerable extent, these losses, reflected by the reduction
Government security prices have been moving upward since
in the central reserve city banks’ 1953 profits figures, may be
considered only temporary in nature. That is, profits were
June 1953 and, according to published announcements, sub
stantial unrealized appreciation has already accumulated in
reduced by the security losses realized, but a considerable part
security portfolios of a number of banks. This unrealized
of those losses has probably since been recovered in the form
appreciation in the value of bank Government security port
of unrealized appreciation in the City banks’ investment port-
folios is, of course, not reflected in the accompanying 1953
45
FEDERAL RESERVE BANK OF NEW YORK
earnings results. It will appear in the future, if and when the
securities that have appreciated are sold or redeemed and a
NET
P R O F IT S
OF
SECO ND
D IS T R iC T
M EM BER
BANKS
M i l l i o n s o f d olla rs
Millions
of
dollars
profit is established.
In 1953, net profits of the central reserve New York City
banks were 25 per cent below the peak established in 1945,
but the net profits of the reserve city and country member
banks in this District had virtually reattained their former
highs. The accompanying chart shows the growth that has
taken place since prewar years in the net profits of both groups
of banks. It indicates that, in both groups, net current operat
ing earnings after income taxes have maintained an almost
uninterrupted advance to successive new peaks. And this ad
vance occurred despite an equally sharp advance in operating
expenses, and an even steeper rise in income taxes.
The other item charted— net profits after all charges but
before dividend payments— reflects the effects not only of
income taxes but also of additions to or deductions from
operating earnings arising from recoveries and charge-offs on
loans, investments, and other assets, security profits or losses,
and increases or decreases in valuation reserves. These "final”
net profit figures bulged upward in the war years as a result
of a heavy volume of security profits. And these security
profits, in turn, were an outgrowth of the Government financ
ing methods followed during the war, including the interest
rate pattern and the Federal Reserve Systems policy of sup
K X H A dd it io ns t o o per at in g i nc ome
V/A
D e d u c t i o n s f rom o per at in g i n c o m e
porting Government security prices.
With the end of hostilities, and the termination of sales of
Government securities on the wartime scale through the com
banks where loan rates are closer to legal ceilings, the increase
mercial banking system, security profits of the banks were
average loan volume (14 per cent) because of a greater growth
gradually reduced to nominal proportions. In fact, beginning
in higher-rate consumer loans than in other types of loans.
in loan income (17 per cent) moderately exceeded the rise in
with the Federal Reserve-Treasury accord of March 1951 and
As a source of current earnings, interest received on U. S.
the resulting "free market” in Government securities, the com
Government securities increased moderately in importance
throughout the District, as the higher average rates obtain
mercial banks frequently incurred small net losses on security
transactions.
able on issues refunded during the year more than offset the
The disappearance of the heavy wartime security profits
resulted in generally lower net profits during the entire post
effect of a decline in average holdings. Government security
portfolios declined more in the New York City banks than
elsewhere in the District. Consequently, the City banks’ earn
war period. And, in the years after 1948, the practice of mak
ing charges against earnings to set up tax-deductible reserves
for bad debt losses on loans had a further depressing effect on
reported profits. Together, these two factors largely obscured
the very real improvement in bank earnings positions that has
resulted from the steady growth in operating earnings.
O p e r a t in g I n c o m e
ings on Government securities showed a relatively smaller in
crease than the Government security earnings of the reserve
city and country banks. On the average, higher rates of interest
also were obtainable on obligations of States, counties, and
municipalities— the principal components of 'other securities”.
In the central reserve New York City banks, the higher rates
offset a decline in the average volume of holdings, and income
Total current earnings of the Second District member banks
from "other securities” remained unchanged. At the rest of
continued in 1953 the steady uptrend that has been in progress
the District’s member banks, the higher rates reinforced the
for the past fifteen years. All categories of earnings were
effect of an increase in the average volume of holdings, and
larger than in 1952, but the greatest gains— quantitatively and
income from "other securities” rose 10 per cent.
relatively— stemmed from loans. In the central reserve New
York City banks, loan income increased 15 per cent and re
O p e r a t in g Ex p e n s e s
flected an 8 per cent rise in average loan volume, coupled with
In the central reserve New York City banks, total current
an increase in loaning rates. Rates charged on commercial
operating expenses showed a slightly smaller relative increase
and industrial loans, the main component of the City banks’
than total current earnings. In the remainder of the District’s
loan portfolio, were on the average about % of 1 per cent
member banks, however, the growth (12.5 per cent) in ex
higher in 1953 than in 1952. In the reserve city and country
penses exactly matched the rise in operating earnings. Outlays
46
MONTHLY REVIEW, MARCH 1954
E a r n i n g s a n d E x p e n s e s o f M e m b e r B a n k s in t h e S e c o n d F e d e r a l R e s e r v e D i s t r i c t f o r S e l e c t e d Y e a r s
(In millions of dollars)
New York central reserve city banks
Item
Reserve city and country banks
1945
1949
1952
1953
222.1
24.2
105.6
7.5
40.7
32.1
147.8
25.8
188.8
14.9
51.9
46.9
133.8
42.9
377.8
18.2
66.6
52.0
136.7
42.9
433.6
19.6
69.6
54.6
432.2
476.1
691.3
116.8
5.6
94.0
164.2
7.7
110.2
216.4
282.1
Net current operating earnings before income taxes...................
Net recoveries (+ ) or charge-offs (—) on loans.........................
Security profits and recoveries (-+•) or charge-offs (—) ..............
All other net recoveries (■+*) or charge-offs ( — ) .........................
Net additions to ( — ) or deductions from ( - { - ) valuation
reserves for:
Loan losses.................................................................
Security losses............................................................
215.8
+ 1.3*
-j-100. 2 j'
- 12.4
Net profits before income taxes....................................................
Taxes on net income......................................................................
304.9
90.7
166.3
55.0
Net profits after income taxes...............................................
214.2
Cash dividends paid or declared...................................................
Retained earnings...........................................................................
73.0
141.2
Earnings:
On other securities......................................................................
On loans.......................................................................................
Service charges on deposit accounts.........................................
Other earnings.............................................................................
Expenses:
Salaries and wages......................................................................
Other expenses............................................................................
1949
1952
1953
81.5
10.3
45.2
9.0
5.3
12.9
75.3
15.0
123.1
17.9
7.7
15.6
75.9
20.2
186.6
22.4
9.3
18.4
80.5
22.2
218.2
24.9
9.6
19.1
757.0
164.2
254.6
332.8
374.5
212.8
17.9
139.8
228.0
28.1
148.0
46.4
23.8
42.2
80.8
31.3
65.3
106.2
42.1
80.9
117.5
49.2
91.2
370.5
404.1
112.4
177.4
229.2
257.9
194.0
5.7
+ 12.Or
3.9
320.8
+ 2.4
3.7
H- 1.9
352.9
+ 2.1
- 30.4
6.4
103.6
1.6
4.7
1.7
116.6
— 4.5
8.8
1.2
-
30.1
-
—
+
+
11.9
3.7
1945
51.8
+ 1.2*
+ 2 6 .If
2.7
77.2
3.7
+
8.3f
+
0.5
-
-
-
9.9
4.2
—
11.8
—
- 12.8
+ 0.9
313.2
138.6
312.5
151.4
76.4
16.0
70.5
16.9
83.7
29.9
97.7
37.8
111.3
174.6
161.1
60.4
53.6
53.8
59.9
82.3
29.0
94.7
79.9
103.2
57.9
13.9
46.5
19.4
34.2
23.5
30.3
24.9
35.0
—
-I-
5.7
1.3
* Includes transfers to or from valuation reserves for loan losses,
t Includes transfers to or from valuation reserves for losses on securities.
Sources: Board of Governors of the Federal Reserve System, 1945-52; 1953 preliminary figures compiled by the Federal Reserve Bank of New York.
for salaries and wages, the principal component of total ex
N o n r e c u r r in g I t e m s
penses, rose 7 per cent in the City banks and 11 per cent in
the reserve city and country institutions. Interest paid on time
Individually, the New York City banks were about evenly
divided with respect to the number showing net recoveries or
deposits more than doubled in the New York City banks
net losses on loans. Also, in all cases in which net charge-offs
(where such deposits are comparatively unimportant). But
did occur, they were confined to relatively small amounts.
in the remainder of the District, where time deposits comprise
nearly two fifths of all deposits, interest payments increased
Charge-offs on loans in the other Second District member
banks were modestly higher than in recent years. In the aggre
gate, however, they totaled only AVi million dollars, or % 0
1 per cent of outstanding loans. Net security losses, as men
tioned previously, advanced sharply in the City banks and
17 per cent.
The relatively greater increase in the City banks’ interest
payments on
nounced rise
ume of time
time deposits
time deposits resulted from both a more pro
in interest rates paid and a sharply higher vol
deposits. The effective rate of interest paid on
by the central reserve New York City banks rose
from % o of 1 per cent in 1952 to 1.1 per cent in 1953; in
the District’s other member banks, the rate rose by only % 0
amounted to 30.4 million dollars, compared with 3.7 million
in 1952; in the reserve city and country member banks they
rose from 4.7 million dollars to 8.8 million.
Deductions
from earnings made to increase valuation
of a per cent, from 1.1 per cent to 1.2 per cent. Furthermore,
reserves on loans were rather high (9-9 million dollars) in
New York City, reflecting increases in reserves made by a
average time deposit volume expanded more than three times
number of institutions which were hoping for a decision by
as rapidly in the City banks as in the other banks, owing
the Bureau of Internal Revenue to allow increases in the tax-
mainly to a greater growth in time deposits of municipalities
deductible provision for future losses on loans. Currently, the
and foreign banks. Municipalities have evidently been tem
maximum accumulation allowable in the tax-deductible reserve
porarily placing part of the proceeds of recent new security
for bad debt losses on loans is three times the average annual
issues in time deposits with the City banks, in order to earn
loss experience of the past twenty years. Most banks in New
some return until the funds are needed. The accounts of for
York City have already reached their ceilings under this pro
eign banks are maintained almost entirely in the large central
vision, and the anticipatory build-ups of reserves had to be
reserve New York City banks. Consequently, the growth in
made largely without benefit of tax exemptions. If the loan
these accounts, representing part of the improvement in the
valuation reserves had been held within present ceilings, the
gold and dollar positions of foreign nations, was not shared in
great extent by the District’s reserve city and country
increases shown in the attached table and chargeable against
to any
member
banks.
current earnings would have been converted to a modest
reduction.
47
FEDERAL RESERVE BANK OF NEW YORK
in the loan valuation reserve continued at a much reduced
received in the previous year and deducted in the table from
current tax payments in 1952. The increase that did occur,
pace, probably reflecting continued accumulations in bad debt
reserves by banks that have only, in late years, elected to adopt
the reserve method of handling loan losses. Valuation reserves
however, reflects higher taxable incomes, as well as higher
over-all effective rates for those banks in the excess profits tax
bracket (which had a larger proportion of their taxable in
against security losses were drawn upon throughout the Dis
comes subject to excess profits taxes than in 1952).
In the member banks outside New York City, the build-up
trict to cushion the effect on profits of the years security losses.
The upward trend in dividend payments, which has been
in evidence since 1943, continued at an accelerated pace in
T axes
and
D iv id en d s
Income taxes paid by the central reserve New York City
the central reserve New York City banks in 1953, and at a
more moderate pace among the Districts other member banks.
banks increased only 9 per cent, compared with 26 per cent
In New York City, the dividend increase aggregated 8.5 mil
for the remaining member banks. As mentioned earlier, the
lion dollars, or 9 per cent. This was the sharpest year-to-year
City banks reduced their tax bill more heavily than the other
rise since the late twenties. Of the twenty central reserve New
banks by establishing losses on securities. Actually, the in
York City banks paying dividends, thirteen raised their pay
crease in the tax bill for the City banks is overstated to some
ments, six left payments unchanged from the 1952 level,
extent, because of the nonrecurrence of sizable tax refunds
and one lowered its payment.
DEPARTMENT STORE TRADE
Preliminary estimates for department store sales in February
comparison with year-ago levels, were relatively less favorable
point to continuing strength of consumer buying in the Second
Federal Reserve District. The seasonally adjusted index of
than those in the rest of the District. For 1953 as a whole,
Metropolitan Area department store sales were down from a
average daily sales in District department stores is expected
year earlier while sales in the rest of the District advanced.
to rise to 102 per cent of the 1947-49 average, an increase
of 1 per cent over January 1954 and of 2 per cent over Febru
toward a growing use of consumer credit facilities by cus
Final estimates for 1953 indicate that the postwar trend
ary 1953. Data are not yet available to compare the February
tomers of Second District department stores continued in that
experience in the District with that for department stores in
year, roughly paralleling department store credit developments
However, the final figures for
for the country as a whole. Consumers in the Second District
January— when the index remained unchanged from the
the country as a whole.
spent about the same number of dollars in department stores
December 1953 level but registered a 1 per cent increase
in 1953 as they had a year earlier but made cash payments
over the corresponding month a year earlier— compared favor
ably with the preliminary index for department store sales
D e p a rt m e n t a n d A p p a r e l S t o r e S a le s a n d S t o c k s , S e c o n d F e d e r a l R e s e r v e
D is t r ic t , P e rc e n ta g e C h a n g e fro m th e P re c e d in g Y e a r
in the country as a whole. The latter showed a slight decline
in January 1954 both with respect to the previous month
and January 1953.
In actual dollar amounts, District department store sales
during January were slightly down from sales during the cor
responding month a year earlier, when the calendar had in
cluded one more shopping day. The decline was very moder
ate (2 per cent) in the New York-Northeastern New Jersey
Metropolitan Area but fairly pronounced in the remainder of
the District, notably in Northern New York State (15 per
cent) and the Upper Hudson River Valley (10 per cent). This
experience contrasted sharply with that for 1953, when monthly
sales in the New York-Northeastern New Jersey Area, in
(1 9 4 7 -4 9 a v e ra g re = 1 0 0 p e r c e n t)
1954
1953
Jan.
Dec.
Nov.
Jan.
Sales (average daily), unadjusted................
Sales (average daily), seasonally adjusted..
81
101
178
101
129
102
80
100
Stocks, unadjusted........................................
Stocks, seasonally adjusted..........................
98
111
104
113
132
115
102r
115r
r Revised.
Area
Department stores, Second District..........
New York—Northeastern New Jersey
Metropolitan Area........................
New York City*..............................
Nassau County................................
Westchester County.........................
Northern New Jersey.......................
Fairfield County.................................
Bridgeport.......................................
Lower Hudson River Valley.................
» Poughkeepsie...................................
Upper Hudson River Valley.................
Albany-Schenectady-Troy
Metropolitan Area.....................
Schenectady.................................
Central New York State......................
Utica-Rome Metropolitan Area.........
Utica...........................................
Syracuse Metropolitan Area.............
Northern New York State....................
Southern New York State....................
Binghamton Metropolitan Area........
In d e x e s o f D e p a rt m e n t S t o r e S a le s a n d S t o c k s
S e co n d F e d e ra l R e s e r v e D is t r ic t
Item
Net sales
Western New York State.....................
Buffalo Metropolitan Area................
Niagara Falls...............................
Rochester Metropolitan Area............
Apparel stores (chiefly New York City)...
through Feb. 1953
Jan.1954 Jan.
through
Dec. 1953
Jan. 1954
- 3
0
0
Stocks
on hand
Jan. 31,
1954
- 3
- 2
- 2
—
+ 4
- 5
—7
- 9
- 9
- 2
- 2
-10
•4*4
+5
-1
4-4
4-4
-1
4- 4
4- 5
- 5
- 9
- 8
- 9
- 5
-1 2
- 8
- 3
-15
- 8
- 6
-11
- 2
- 4
- 4
- 5
0
-1
-2
+3
+4
+2
+3
+4
+4
0
0
+1
+4
+4
+4
+4
+5
—
-3
4-2
4-3
4-1
4-2
4-3
4-3
0
-1
0
4-4
4-3
4-3
4-3
4-5
- 5
- 8
4- 1
4- 9
4- 4
4- 7
4-12
4- 1
4- 3
+ 6
4- 2
4- 2
0
0
-
-1
-1
1
-1
- 3 (-2)
—
+4
+2
+1
—
-1
- 2 (-2 )
- 5
- 7
+5
4-2
4-1
4-
6
1
1
8
—
4- 4
4- 5
* The year-to-year comparisons given in parentheses exclude the data of a Brooklyn department
store that closed early in 1952.
MONTHLY REVIEW, MARCH 1954
48
for only 58 per cent of their total purchases, compared with
59 per cent in 1952, 61 per cent in 1951, and 73 per cent
second half of 1953 approximately matched the relatively high
level of the corresponding period a year earlier.
in 1945. The increase in the proportion of purchases made on
The continued large volume of instalment sales was greater
a credit basis during 1953 was due entirely to a rise in the
than might have been expected in view of the fact that depart
share of open account buying, in contrast to 1952 when the
ment store sales of durable items— many of which are typically
relative use of both charge accounts and instalment sales had
sold on an instalment basis— were declining fairly steadily dur
risen. Consumers charged 30 per cent of their aggregate 1953
ing 1953 in relation to the sales of a year earlier; for 1953 as
purchases, 1 percentage point more than in 1952 and only
a whole, aggregate sales of furniture and bedding, domestic
slightly less than in the only prewar year (1941) for which
floor coverings, household appliances, and radio and television
data are available. Instalment sales, on the other hand, ac
sets were down 3 per cent. The explanation of this seeming
counted for the same proportion of total department store
sales (12 per cent) in 1953 as they had in 1952. The over
all statistics on instalment sales for 1953 fail to reveal the
nature of the changes within the year, however. During the
inconsistency appears to lie mainly in the fact that in recent
years department store sales of apparel and other soft goods
on ’ revolving credit” or "budget plan” arrangements (which
are classified as instalment sales in the Federal Reserve survey)
first half of 1953, the dollar volume of instalment sales rose
have rapidly grown in importance, while at the same time de
partment stores were in many cases reducing the size of durable
substantially over the year-earlier level and there was also some
goods lines as a result of competition from other types of
further increase in the proportionate share of such sales; this
sellers. In District furniture stores, which specialize almost
increase over year-earlier levels mainly reflected the fact that
entirely in durable items and conduct about four fifths of their
Regulation W
business on an instalment basis, instalment sales declined some
what more over the year than total sales.
was still in effect during the earlier period
(it expired in May
1952).
Instalment sales during the
SELEC T ED
E C O N O M IC
IN D IC A T O R S
U n it e d S t a t e s a n d S e c o n d F e d e r a l R e s e r v e D is t r ic t
Percentage change
Item
1954
1953
Unit
January
December
November
January
129
159
96
24.3
46.9
21.6
9.6
14. lr
176
255
134
150
100
24.5
44.3
24.3
12.1
14.1
173
201
Latest month Latest month
from previous from year
month
earlier
UNITED STATES
Production and trade
Industrial production*:}:..............................................................
Electric power output*...............................................................
Ton-miles of railway freight*.....................................................
Manufacturers’ sales*§................................................................
Manufacturers’ inventories*§ .....................................................
Manufacturers’ new orders, total*§...........................................
Manufacturers’ new orders, durable goods*§...........................
Retail sales*.................................................................................
Residential construction contracts*...........................................
Nonresidential construction contracts*.....................................
Prices, wages, and employment
Basic commodity pricesf............................................................
Wholesale pricesf........................................................................
Consumer pricesf.........................................................................
Personal income (annual rate)*..................................................
Composite index of wages and salaries*....................................
Nonagricultural employment*....................................................
Manufacturing employment*.....................................................
Average hours worked per week, manufacturingf...................
Unemploymentf f .........................................................................
100
100
100
$
$
$
S
$
100
100
125p
—
—
—
—
—
—
13.8p
18lp
196p
127
160
88p
24.1 p
46.7 p
21.9 p
9.5 p
13.9
177
229
1947-49= 100
1947-49= 100
1947-49= 100
billions of $
1939= 100
thousands
thousands
hours
thousands
88.1
110.8p
115.2
—
—
48,352p
16,169p
39.4 p
2,359
88.5
110.1
114.9
284.7 p
253p
48,577
16,412
40.2
1,850
1947-49=
1947-49 =
1947-49=
billions of
billions of
billions of
billions of
billions of
1947-49=
1947-49=
Banking and finance
Total investments of all commercial banks..............................
Total loans of all commercial banks..........................................
Total demand deposits adjusted................................................
Currency outside the Treasury and Federal Reserve Banks*..
Bank debits (U. S. outside New York City)*..........................
Velocity of demand deposits (U. S. outside New York City)*.
Consumer instalment credit outstandingf............................
United States Government finance (other than borrowing)
Cash income.................................................................................
Cash outgo...................................................................................
National defense expenditures...................................................
millions of $
millions of $
millions of $
millions of $
millions of $
1947-49= 100
millions of $
millions of $
millions of $
millions of $
78,680p
66,490p
102,430p
3 0 ,191p
89,570
n.a.
—
4,601p
4,746p
3 ,603p
87.4
109.8
115.0
285.9
253
48,868r
16,589r
40.0
1,428
89.7
109.9
113.9
280.5r
243
49,014r
16,949r
41.0
1,892
7 8,140p
68,260p
103,280p
30,360
91,507
n.a.
21,807
78,210p
67,250p
100,210p
30,313
91,653
n.a.
21,586
76,920
63,860
100,490
29,831
91,403r
n.a.
18,851r
5,339
6,294
4,245
5,396
6,258
3,879
5,239
5,442
4,082
+
-
2
1
8
1
#
+ 1
- 1
- 1
+ 2
-1 4
— 7
+ 7
-1 2
- 2
+ 6
-1 2
-2 5
- 2
+ 5
- 2
#
+ 1
#
#
#
- 1
- 2
+28
- 2
+ 1
+ I
+ 1
+ 4
- 1
- 5
- 4
+25
+
-
1
3
1
1
2
—
+ 1
+
+
+
+
-
-1 4
-2 5
-1 5
-1 2
-1 3
-1 2
+ 1
+16
- 8
#
#
#
+11
- 5
+
+
+
2
4
2
1
2
—
+17
SECOND FEDERAL RESERVE DISTRICT
Electric power output (New York and New Jersey)*.................
Residential construction contracts*..............................................
Nonresidential construction contracts*.........................................
Consumer prices (New York City)f..............................................
Nonagricultural employment*........................................................
Manufacturing employment*.........................................................
Bank debits (New York City)*.....................................................
Bank debits (Second District excluding New York City)*........
Velocity of demand deposits (New York City)*..........................
1947-49= 100
1947-49 = 100
1947-49= 100
1947-49= 100
thousands
thousands
millions of $
millions of $
1947-49= 100
—
—
—
113.0
—
—
59,910
4,183
n.a.
138
152p
202p
113.0
7,612.6 p
2,703.7 p
54,022
4,392
n.a.
137
130
219
112.9
7,607.9
2,706.2
54,269
4,034
n.a.
137
149
190
111.7
7,633.7
2,779.9
50,046
4 ,133r
n.a.
2
4
10
1
#
- 3
+20
+ 1
Note: Latest data available as of noon, March 2, 1954.
r Revised.
% Revised series. Back data available from the Board of Governors of the Federal Reserve
n. a. Not available. Series in process of revision.
System.
* Adjusted for seasonal variation.
§ Revised series. Back data available from the U. S. Department of Commerce,
t Seasonal variations believed to be minor; no adjustment made.
f t On the basis of a new sample, January unemployment was 3,087,000.
# Change of less than 0.5 per cent.
Source: A description of these series and their sources is available from the Domestic Research Division, Federal Reserve Bank of New York, on request.
p Preliminary.
@FedFRASER