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M O N TH LY REVIEW O f Credit and Business Conditions FEDERAL V ol . 28 RESERVE M A Y BANK OF 1946 NEW YORK No. 5 MONEY MARKET IN APRIL On April 24 this bank announced the elimination, effective the following day, of the preferential discount rate of V2 per cent on advances to member banks secured by Government obligations maturing or callable in one year or less. This rate had been adopted in October 1942 as one means of assist ing member banks in doing their part in the financing of the tremendous war expenditures of the Government. W ith the conclusion of the immediate tasks of war financing this special means of access to Federal Reserve funds, and the special en couragement to expansion of bank credit which it implied, was no longer deemed necessary or desirable. A state ment issued by the Board of Governors of the Federal Reserve System, which was released on April 25, accompanying an announcement of the Board’s approval of the action taken by the boards of directors of the Federal Reserve Banks of Philadelphia and San Francisco as well as this bank, appears 011 a subsequent page of this Review. Removal of the prefer ential rate makes the currently effective discount rate 1 per cent for advances to member banks secured by all maturities c f Government obligations or by eligible commercial and agricultural paper, as well as for rediscounts of eligible paper. Announcement of the elimination of the preferential dis count rate apparently had the effect of "clearing the air” to some extent, in the Government security market and in related markets, although there were still factors in the situation which contributed to uncertainty. In the early part of April, there was a strong rise in prices of long-term bonds which was apparently induced by news reports which were interpreted to mean that no action was likely which would interfere with further declines in interest rates, especially for long-term obligations. The Victory Loan 2Vis of December 1967-72 rose in very light trading from about 105 toward the close of March to a peak of 106 Vi on April 6, and the yield declined from 2.20 to 2.12 per cent. The rapid rise was attributable more largely to withdrawal of sellers from the market than to active buying at the rising prices. Subsequently the discussion shifted to factors which would be likely to affect the market for long-term securities adversely, including especially the possibility of substantial sales of Victory Loan bonds by the more speculative holders after May 15, or six months after the date of purchase, when profits derived from the sale of the securities will become taxable at the rates applicable to long-term capital gains instead of the rates on current income. In that connection some emphasis was placed on the prospect that the banks may, as recommended in a report released by the American Bankers Association, review their loans on Government securities with a view to eliminat ing those which appeared to be serving speculative purposes. Other possible influences on the market which were discussed were the slower rate of accumulation of investable funds in savings banks and other investing institutions, and the prospect of greater outlets for the funds of such institutions through mortgage loans and new security issues by corporations and by the International Bank. Prices of long-term Treasury bonds receded rapidly, and by April 25, the day the change in rate at this bank became effective, the Victory Loan 212 ,s / had fallen to 104, or 2Vi points below the April 6 peak, and their yield had risen to 2.27 per cent. Prices of "bankeligible” Treasury bonds also receded and on April 24 were in most cases at the lowest levels since the latter part of 1945. These latter bonds turned upward on April 25, and were followed the next day by the long-term "restricted” Treasury bonds. During the closing days of the month the market was irregular, and the "restricted” bonds declined further in light trading. Short-term interest rates in the money market became slightly firmer, following the elimination of the preferential discount rate by this and other Reserve Banks. The rate at which banks will lend "Federal funds” to other banks moved from Ys per cent to 7 /16 by April 29. A few banks announced an advance MONTHLY REVIEW, MAY 1946 38 in their rate on loans to Government security dealers from Ys to % per cent effective May 1, but most banks postponed action until the situation in the money market became clearer. Yields on Treasury certificates advanced a little closer to the % per cent coupon rate on these securities. On the whole, the elimination of the preferential discount rate by several Federal Reserve Banks appears to have had a salutary effect on the general situation in the money market. Loans and discounts of the Federal Reserve Bank of New York, as well as other Reserve Banks, were at relatively low levels when the rate action became effective, of course, and few of the borrowing banks found it necessary immediately to readjust their position, since the V2 per cent rate on outstand ing advances secured by short-term Government obligations continues in effect until these advances mature. M em ber Ba n k R eserve Po s it io n s Reserve positions of all member banks were noticeably easier early in April when Treasury disbursements were especially heavy because of the cash redemption of 2 billion dollars of a 4.8 billion issue of certificates of indebtedness maturing on the first of the month. In the course of these expenditures, Treasury deposits with the Federal Reserve Banks, which had been built up to 1.4 billion on March 27. largely through income tax collections, were reduced to 530 million on April 3. About one half of this net disbursement, however, was absorbed by the retirement of maturing securi ties held by the Federal Reserve Banks. The remainder went chiefly to augment excess reserves of member banks or to enable them to reduce their use of Federal Reserve credit. Member banks repurchased more than 500 million dollars of Treasury bills from Federal Reserve Banks in the week ended April 3. New York City banks bought 200 million dollars of Treasury bills for the investment of funds that became available to them in that week, but a substantial part of the repurchases were made by Chicago banks for resale to depositors seeking to reduce their liabilities under the Cook County, Illinois tax on personal property owned on April 1. Total member bank borrowings showed little change during this week as repayments by banks which benefited by Treasury disbursements were about balanced by additional borrowings by Chicago banks. The Chicago banks borrowed to adjust their reserve positions in connection with their Treasury bill operations and temporary losses of funds to other areas over the April 1 tax date. Borrowings declined in other Reserve districts, particularly among New York City banks whose reserve position was particularly easy since they and their customers held large amounts of the redeemed certificates and consequently received a large part o f the net Treasury disbursements. The New York money market remained easy in the fol lowing three weeks. Transfers of substantial amounts of business funds from other regions exceeded by a wide margin net withdrawals of funds by the Treasury. The New York City banks were therefore able to retire a substantial part of their indebtedness to the Reserve Bank, purchase additional Treasury bills, and augment their Treasury bond holdings which reached a new peak on April 24. Some banks, however, were short of reserves and made open market sales of short term Treasury notes, part of which were absorbed by the Federal Reserve Banks. Gains and losses of reserves among banks in other parts of the country were uneven so that some institutions were able to retire Federal Reserve credit while others were expanding their use of it. On balance, total Federal Reserve credit out side New York City increased in this period and excess reserves o f member banks declined moderately. Treasury de posits in the Reserve Banks, which had been reduced to rela tively small amounts early in the month, were built up some what in the latter half, chiefly through withdrawals of deposits from War Loan accounts in depositary banks. Toward the end of April, the Treasury issued a call for payment of an aggregate of about 1.5 billion dollars from War Loan deposits on April 30 and May 1 and 2 to provide funds for the redemption of the entire issue of Treasury certificates (amounting to 1.6 billion dollars) which falls due May 1. This unusually heavy withdrawal o f Government funds from the banks will probably give rise to a need for Federal Reserve credit on the part of many banks subject to the withdrawal, as a sizable amount of the certificates to be redeemed is held by the Reserve Banks. G o v e r n m e n t a n d P r iv a t e D e p o s it s As the accompanying chart indicates, the usual inverse relationship between War Loan deposit accounts and private Private and Governm ent Dem and D eposits in W eek ly Reporting M em ber Banks in 101 Cities* B ILLfO NS * W ednesday dates. FEDERAL RESERVE BANK OF NEW YORK deposits, which prevailed during the war, has not continued in recent months. As the proceeds of War Loan deposit with drawals have been used largely to redeem debt held by the commercial and Federal Reserve Banks, War Loan deposits have been extinguished without giving rise to corresponding increases in private deposits. Thus, between the high point of War Loan deposits on December 12 of last year, following the Victory Loan, and April 3, 1946, Government demand deposits in the weekly reporting member banks were reduced by about 2,750 million dollars while "demand deposits ad justed” showed a net reduction at the same time of more than 800 million (partly because of the temporary reduction in the deposits of Chicago banks over April 1 ). Both private and Government deposits remained relatively stable until late February, as Treasury expenditures receded to a level where they could be approximately covered by tax receipts, and as War Loan credits resulting from the payment of deferred subscriptions to Victory Loan issues and from current sales of Savings bonds were approximately equal to withdrawals. Beginning in March substantial War Loan calls were issued, largely to retire called or maturing issues, but since nonbank investors held only small amounts of the redeemed securities private deposits were not materially affected and remained close to the levels reached during the Victory Loan. In the two weeks ended April 17, private demand deposits in weekly reporting member banks rose about 1,200 million dollars, reflecting the combined effect o f a restoration of deposit accounts in Chicago banks, Government expenditure of funds withdrawn from War Loan accounts, and a growth in the investments of the banks, largely in Treasury securities. E LIM IN A T IO N OF P R E F E R E N T IA L DISCOUN T R A T E The Board of Governors of the Federal Reserve System, in announcing its approval of the action taken by the Federal Reserve Banks of New York, Philadelphia, and San Francisco to eliminate the preferential discount rate of Vi per cent, effective April 25, issued the following statement: "The boards of directors of the Federal Reserve Banks of Philadelphia, New York, and San Francisco have voted to discontinue the special wartime preferential discount rate of Vi of 1 per cent per annum on advances to member banks secured by Government obligations due or callable in not more than one year. Changes in rates, to become effective at the Reserve Banks, must be approved by the Board of Governors. "The Board has approved discontinuance of the preferen tial rate because it has served the purpose of facilitating the war-financing program for which it was adopted in 1942. The Board does not favor a higher level of interest rates on 39 U. S. securities than the Government is now paying. Dis continuance o f the special rate will not involve any increase in the cost to the Government of carrying the public debt. "The preferential rate encourages member banks to bor row at Federal Reserve Banks in order to hold or to purchase additional Government securities, or to lend to others at low rates for the purpose of holding or purchasing Government securities. W hile such encouragement was justified early in the war to induce -the banks to utilize their reserves more fully in financing huge war expenditures, it has subsequently made for speculation in Government securities and has resulted in unnecessary expansion of the money supply through monetization o f the public debt. The Governments program no longer calls for expansion of bank credit to help finance huge war expenditures. Instead, it calls for action that will stop additions to and bring about reductions in the country’s monetary supply in order to reduce inflationary pressures. Discontinuance of the preferential rate, therefore, signifies an appropriate adjust ment from wartime to postwar conditions in accordance with the Government’s program of economic stabilization.” Subsequently, during April, similar action was taken by the boards of directors of the Boston, Chicago, Kansas City, Min neapolis, and St. Louis Reserve Banks and approved by the Board of Governors. C U R R E N C Y R E F O R M IN E A STE R N EUROPE After the first W orld War, it was the countries of central and eastern Europe which suffered the most from monetary chaos and inflation. The currencies of Germany and Poland lost all value, while those o f most eastern European countries fell in value to a very small fraction of the prewar parities. Again, after the second W orld War, currency disorder is great est in central and eastern Europe. The existence of this state of affairs in eastern Euorpe is due partly to the fact that Nazi Germany exploited her eastern and southeastern neighbors more ruthlessly than she did the countries o f western Europe, and partly to the fact that the borders of most eastern Euro pean states were substantially altered under German rule, some nations in that area being entirely dismembered. Numerous new currencies were introduced in the territories annexed by Germany and her satellites and in the German-sponsored pup pet states. Postwar currency reform in eastern Europe had, therefore, to address itself to more manifold and complex issues than the monetary measures taken in France, Belgium, and the Netherlands, which were described in the October 1945 and January 1946 issues o f this Review. Information on present monetary conditions in eastern Europe is scanty and not always reliable, but this article will attempt to outline the known facts and the steps which have been taken to reform the currency and stop inflation. Nothing can be 40 MONTHLY REVIEW, MAY 1946 said at the moment concerning the situation in Germany, except that the prewar monetary and banking systems have been thoroughly disrupted and very little has so far been done to rebuild them. Illustrative of the currency confusion prevailing in some parts of eastern Europe during the war period were the mone tary conditions with which the governments of Poland and Yugoslavia were confronted upon the liberation of their coun tries. In the occupied Polish territories the zloty currency issued by the Bank Polski in Warsaw had been entirely with drawn during the war and converted into a number of new currencies, mostly German reichsmarks, Soviet rubles, and zlotys put into circulation by the German-sponsored Issue Bank in Poland at Cracow. Occupation currency issued by the German Reichskreditkasse and carbovanetz notes of the Ukraine Central Bank established by Germany had also circu lated during the war in certain formerly Polish areas. The first step toward the reconstitution of a Polish national currency was taken when the Polish Committee for National Liberation in Russian-occupied Lublin adopted a decree on August 24, 1944, authorizing its Treasury to issue zloty notes bearing the inscription "Polish National Bank.” This bank was, however, not set up until January 15, 1945. The with drawal of reichsmarks, Cracow zlotys, and Soviet currencies and their conversion into the new zlotys put into circulation by the newly established Polish National Bank was regulated by a series of decrees adopted by the Polish Provisional Gov ernment in January and February 1945. While it appears from press reports that ruble currency was converted in full and at par into the new zlotys, Cracow (German-issued) zlotys, as well as the reichsmarks circulating in the Polish areas annexed by Germany, were exchanged under conditions which reduced the currency circulation drastically. Individuals were permitted to convert no more than 500 Cracow zlotys into the new zlotys. The exchange of somewhat higher amounts was authorized for business firms, except in the western part of the Government General. The upper limit for the exchange of German currency was set at 500 reichsmarks* and the parity between the reichsmark and the zloty was fixed at 2:1, com pared with the 1:2 rate which the Nazi occupation forces had used. Only Polish citizens and Allied nationals over 18 years of age were entitled to exchange reichsmarks. Cracow zlotys and reichsmarks held in excess of the amount permissible for exchange had to be deposited and were blocked. N o in formation is yet available as to the unblocking of these de posits or as to the manner in which zlotys were introduced into the formerly German territories now under Polish admin istration. In April 1946, the Polish Government fixed the exchange rate of the zloty for United States currency at 1 cent. In Yugoslavia, monetary conditions at the time of liberation * According to one report, the upper limit was 500 zlotys. were complicated by the large number of currencies circulating in the various parts of the country. Following the dismember ment of Yugoslavia in 1941, the German-dominated adminis trations of the puppet states of Serbia and Croatia issued separate currencies, called the dinar and kuna, respectively In the areas incorporated into Germany, Italy, Hungary, Bul garia, and Albania, the currencies of the annexing nations were put into circulation. Soon after liberation, under a decree issued in April 1945, a new currency called the dinar o f Federative and Democratic Yugoslavia was issued to the holders of currencies which had been put into circulation under the occupation, up to an amount of 5,000 new dinars per person; the conversion rates fixed for the new dinar were 20 Serbian dinars, 40 Croatian kunas, 1 Hungarian pengo, 10 Bulgarian leva, 0.4 Albanian francs, and 3.33 Italian lire. Holdings in excess of 5,000 new dinars were blocked until June 15, 1945 and, except those of cooperatives and certain public organizations, became subject to a capital levy with different rate schedules for various classes of owners; for enter prises engaged in production and for farmers, the rates fixed were relatively low. The new dinar notes were issued by the Ministry of Finance rather than by the country’s central bank, which under a decree of January 15, 1946, was renamed the "National Bank of the Federative People’s Republic Yugo slavia”. Early this year, the bank fixed the rate for the dollar at 50 dinars. The monetary reform decrees issued in Czechoslovakia and Austria in October and November 1945, though exhibiting some distinctive features, resembled the currency reform meas ures adopted in several countries of western Europe and Scandinavia; they provided for the withdrawal of practically all outstanding currency, the limited issue of a new currency, and the freezing of a large part of the bank deposits existing immediately prior to the promulgation of the currency decrees. The objectives of the Austrian and Czechoslovak programs were to unify the currencies circulating in each country, to force the public to seek employment by making it dependent on earnings instead of savings, and to suppress the black market by depriving people of ready cash with which to pay exorbitant prices. Under Czechoslovakia’s monetary reform decree of October 19, 1945, a new Czechoslovak crown currency was established, and all currency in the country at the time, except one-crown certificates of 1944 and coins, lost its legal tender function on October 31 and was withdrawn. All bank deposits not made in new legal tender were blocked, effective November 1, 1945, from which date on no further interest accrued to such de posits. Each person was permitted to obtain up to 500 crowns in new legal tender (worth 10 dollars at the exchange rate of 2 cents to the crown established in November 1945) through conversion of invalidated currency or through withdrawals from blocked accounts. Businessmen, corporations, and insti FEDERAL RESERVE BANK OF NEW YORK tutions were authorized to withdraw from their blocked bank deposits up to the amount of their payrolls for one month, and could obtain certain additional amounts upon definite assurance that the funds were needed for normal business operations. Withdrawals from blocked deposits for investment purposes and for the discharge of financial obligations were prohibited, but transfers from one blocked account to another were per mitted up to December 31, 1945 for the settlement of several types of obligations that had fallen due or been contracted before November 1, 1945. Despite these stringent restrictions on cash withdrawals, increases in currency circulation following the completion of the conversion program were of very large proportions. On August 31, 1945 the statement of the reconstituted National Bank of Czechoslovakia had shown notes outstanding in the amount of 40.4 billion crowns. Subsequently, a very substantial amount of currency had returned to the bank and on October 15, immediately prior to the announcement of the decree, currency in circulation had fallen to 29.5 billion crowns. The currency conversion reduced circulation to a low of 19.6 billion crowns on November 23, but by December 31 circulation had increased to 26.4 billion crowns and on March 7, 1946 the note issue stood at 31 billion. Monetary reform in Austria was confronted with two major problems: (1 ) sterilization of the huge amount of bank de posits accumulated during the period when Austria was part of Germany, and (2 ) elimination of German reichsmark and Allied military schilling currency from the Austrian monetary structure. The first step toward the reconstitution of an independent monetary system was taken when the National Bank of Austria was reestablished, by a decree issued on July 3, 1945, by the Provisional Austrian Government. On the same day, the gov ernment adopted the Law for the Resumption of Payments by Credit Institutions (the so-called Schaltergesetz) authorizing banks to resume payments on July 5 but, at the same time, blocking a large part of the money supply held in the form of bank deposits. This decree appears, however, to have been enforced only in those areas of Austria which at that time were occupied by the Russian army. It provided that bank balances deposited prior to July 5 might be withdrawn in cash up to the amount of 150 reichsmarks per month, but only by persons who could prove that they did not possess any other funds for their support and who were physically unable to work. In addition, cash withdrawals up to 40 per cent of the July 5 balance were permitted for the purpose of making certain specified types of payments. Employers, for instance, were authorized to draw up to 40 per cent of their July 5 balance for the payment of wages, but only up to 200 reichsmarks per month for each wage and salary recipient. Transfers to other accounts through the giro (bank transfer) system were freely permitted up to 40 per cent of the July 5 balance. 41 A comprehensive currency reform law for the whole of Austria was not adopted until November 30, 1945. This law, known as the "schilling law,” provided for the withdrawal by December 22, 1945 of all currency in denominations of over 5 reichsmarks or 5 military schillings circulating in Austria, and for the issue of new schilling notes by the Austrian National Bank at the rate of 1 new schilling = 1 Allied mili tary schilling = 1 reichsmark, which compares with the rate of 1 reichsmark = 1.50 schilling fixed following Germany’s invasion of Austria in 1938. (The preinvasion rate had been 1 reichsmark — 2.15 schillings.) N o individual was permitted to convert more than the equivalent of 150 schillings into new notes. Corporations and other legal entities received no notes whatsoever, but merely credits on the books of the depositories. Withdrawals from the resulting deposits were subject to the same severe restrictions as had been applied in some parts of the country to deposits made before July 5. The schilling law also called for the partial blocking of existing bank balances, but its blocking and unblocking pro cedures did not apply uniformly throughout the country. In the areas of Austria where, in accordance with the intent of the Schaltergesetz (which was declared null and void by the schilling law), separate accounts were maintained for pre- and postiiberation deposits, approximately the same cash with drawal provisions continued to apply to funds banked before liberation. But cash withdrawals from funds deposited since liberation and prior to the announcement of the schilling law, i.e., December 1, 1945, were permitted freely up to 40 per cent of the November 30 balance of the account and, in speci fied cases, in excess of 40 per cent. On the other hand, in the areas of Austria where such a separation of pre- and postiiberation deposits had not been introduced, all bank accounts (with the exception of accounts of credit institutions and public agencies) were divided into two parts, 30 per cent of the credit balance existing on Novem ber 30 being transferred to a new account which became sub ject to the same relatively liberal withdrawal privileges as were applied in the other areas of Austria to funds deposited after liberation but before December 1. The remaining 70 per cent was treated like preliberation deposits elsewhere in Austria. In order to take care of hardship cases, a decree of December 23 relaxed a number of provisions of the "schilling law”. On February 20, 1946, German banknotes in denominations of 5, 2, and 1 reichsmarks, which had remained in circulation, ceased to be legal tender. Monetary measures of unusual interest were enacted in Hungary and Finland during the closing weeks of 1945. In Hungary, where inflation had reached a very advanced phase, the government in December 1945 put into effect a currency contraction scheme probably unprecedented in monetary his tory. Under a decree signed on December 18 and issued on the 42 MONTHLY REVIEW, MAY 1946 following day, notes in large (1,000, 10,000, and 100,000 pengo) denominations had to have official stamps affixed to retain their legal tender quality at face value. Unstamped notes remained legal tender until December 31 at one fourth of their original value. Stamps were sold by the government through banks and post offices at three times the face value of the notes to be stamped. Thus, the price of a stamp for a 10,000 pengo note was 30,000 pengos in unstamped notes, but only 7,500 pengos if paid in stamped notes or in small legal tender notes not subject to stamping. The measure, despite its severity, had no more than a tem porary effect on the progress of inflation in Hungary. Prices had been increased in anticipation of the decree, and while a moderate reduction occurred following the contraction of the currency stock to 25 per cent of its December 18 value, prices turned up again before the end of December, and early in January inflation was again in full swing. Even by December 31 the note circulation had reached approximately the same level as on the day before the decree became effective. Since the beginning of this year, inflation has been greatly accelerated and has reached a rate reminiscent of the hyperinflation in Germany following the first World War. During the first three months of the year, prices in Hungary increased to approximately thirty-four times the level that prevailed at the end of 1945. The latest in the series of monetary reform measures adopted in eastern Europe is a decree which became effective on Jan uary 1, 1946 in Finland. The Finnish plan, which aimed at the contraction of the country’s overexpanded currency supply and the detection of concealed capital wealth kept in the form of cash and securities, deprived 50 per cent of the large denom ination currency (5,000, 1,000, and 500 finmark denomina tions) of its legal tender quality. Under the decree, all notes in these denominations had to be cut in two. From January 1, 1946 on, only the left half of these notes remained legal tender, at one-half the value of the original note. New banknotes were later issued for these left-hand pieces, which ceased to be legal tender on February 16, and for the small denomination notes. The right-hand parts of the large notes had to be surrendered between January 10 and February 16, 1946 for conversion into 2 per cent government bonds which were to be redeemed by 1949. To a considerable extent the Finnish currency conversion scheme achieved its major objective prior to the date on which it was actually put in force. In anticipation of the con version, the public returned a substantial amount of its note hoards to the banking system during the closing months of 1945, and on December 31, 1945 the note circulation stood at 13.6 billion finmarks, compared with 18.9 billion in August 1945. By the end of February 1946, however, the new notes in circulation totaled 14.8 billion finmarks. The most unrestrained inflation suffered by any European country during the war took place in Greece. Note circulation had risen from about 9-5 billion drachmas at the end of 1939 to about 2,500,000,000 billion on November 11, 1944. Prices had also risen by leaps and bounds, during some periods doubling from day to day. On November 11, 1944, the finan cial authorities ordered the conversion of the currency into a new one at the rate of 50 billion old drachmas for 1 new diachma, thereby bringing the circulation down to 50 million drachmas, but there was an immediate resumption of the up ward trend, which continued until the money volume reached 135 billion drachmas (including a relatively small amount of British Military Authority notes) at the end of January 1946. To limit further advances, and in accordance with the Finan cial and Economic Agreement between Greece and Great Britain of January 24, 1946, a Currency Committee was set up consisting of three Greek members, an American citizen, and a British citizen, each member having the power to veto new currency issues. The work of this Committee will be impeded, however, so long as tax receipts are inadequate and government borrowing from the public out of the question. The currency conversion measure obviously raised problems as to the proper basis for the valuation of bank deposits, commercial debts, foreign exchange claims, and other monetary assets, which have been resolved on an interim basis by various decrees issued after November 1944, usually including a distinction between prewar and subsequent accounts, but these problems have not yet been finally resolved in all details. The Greek authorities in November 1944 also withdrew the legal tender privilege from the Bulgarian leva, which had circulated during the war in areas of Thrace and Macedonia occupied by Bulgaria. A further step undertaken by the Greek authorities in N o vember 1944 was the public sale of gold sovereigns, a favorite hoarding medium of the population, in order to stem infla tionary price advances. The price of gold sovereigns was first fixed at 2,400 drachmas, but with inflation still out o f control their price rose to a peak of 190,000 drachmas in December 1945, to subside thereafter to 110,000 drachmas in early spring of this year. Greece has been forced to devalue the drachma three times since liberation in October 1944. The rate of the new drachma was fixed at 150 to a dollar in November 1944, then at 500 to a dollar in June 1945, and finally at 5,000 to a dollar at the end of January 1946; in August 1939, the prewar drachma was valued at about 117 to a dollar. Except in Greece and Hungary, the monetary reform laws reviewed above have contributed to economic and financial reconstruction in that they have unified the currency system wherever several currencies circulated side by side, and in that they have sterilized a large part, if not most, of the huge liquid funds accumulated during the war period. Inflationary price movements, to the extent that they were being generated by the spending of these funds, were held in check, and black markets were dealt a heavy blow. The currency reform decrees FEDERAL RESERVE BANK OF NEW YORK have also facilitated the detection of tax evasion. But the ineffectiveness of the decrees adopted in Hungary and Greece and the reappearance in recent months of currency disturbances in some of the other countries under review suggest that com plete monetary rehabilitation cannot be attained without the improvement of basic supply conditions and the adoption of fiscal and economic (as well as monetary) policies which tend to strengthen public confidence in the currency. 43 Percentage Changes, 1944 to 1945, in Cash and Credit Sales by Type of Store, Second Federal Reserve District* ■ ■ C A S H ^ 3 ACCOUNT INSTAL MEN T TOTAL WOMEN 5 A P P A R E L HO U SE HO L D A PPLIAN CE D EP AR T M EN T RETAIL CREDIT SURVEY FOR 1945 The Retail Credit Survey, which was recently conducted by this bank for the fourth consecutive year, as part of a Federal Reserve System project, is based on reports from 555 Second District retail credit-granting stores. Its coverage exceeds that of the last survey by about 100 stores.1 Total volume of retail sales rose considerably during the year 1945 to establish a new all-time record for this District. All classes of businesses included in the study reported increases over 1944 sales, whereas in 1944 sales volume had declined in some groups. In particular, "hard goods' lines recorded gains, thus reversing wartime sales trends. On the whole large stores gained more than middle sized and small stores. One of the greatest percentage rises (21 per cent) for the year was experienced in the womens apparel group. In this group of stores dollar sales nearly doubled between 1941 and 1945. Department and mens clothing stores reported substantial sales increases for the year, continuing the rising trends of the last few years which in a large measure reflect higher prices and greater demand for better grade merchandise. Annual sales in the latter group were comparatively high despite shortages o f mens wear which were particularly acute toward the end of the year. Following a minor decline in 1944, jewelry store sales in 1945 apparently were not deterred by excise taxes to the extent they were in the previous year and expanded con siderably. Sales at hardware stores continued to rise in 1945, while household appliance stores reported a 23 per cent increase, following a decline in 1944. More household goods were available owing to reconversion and some stores added new lines of merchandise to those usually carried. Increased current demand, especially from the returning veterans, caused furniture store sales to recover to some extent, thus reversing the declines of the three previous years. While automotive store sales were higher in 1945 than in the preceding year, volume was still only one-half as large as in 1941. In all reporting trade groups the percentage increase over 1944 of cash sales exceeded that of credit sales, but in the groups with the largest sales volume open credit sales increased at a rate only slightly less than cash sales. For the District as a whole and for the individual groups the distribution of sales 1 A report tabulating the material in greater detail and containing data by localities is available upon request. FURNITURE JEW EL RY mm AUTOMOTIVE m en ’s C L O TH IN G HARDWARE PER CENT 0 +40 + 20 +30 +10 +20 +30 * Type o f store arranged in order o f increase in total sales o f stores report ing sales by type o f transaction. # N o change. Source: Compiled by Federal Reserve Bank o f New York from figures supplied by stores reporting in the Retail Credit Survey. between cash and the two types of credit transactions showed no material change from 1944. As is shown in the accompany ing chart, furniture, household appliance, and women’s apparel stores reported exceptionally large gains in cash and charge account business compared with 1944 volume. Both cash and charge account sales of household appliance stores increased in 1945, while a year earlier these stores had the largest decline in credit sales and were the only group to register a decline in cash sales. Hardware stores had an above average increase in cash business, but practically no change was reported in the amount of credit transactions. Credit sales of mens clothing stores declined further during the year, continuing the down ward movement of the two previous years; the decline was especially pronounced in sales on the instalment basis. Other decreases in instalment sales occurred in automotive and jew elry lines, where cash and charge account sales were higher. Although expansion in furniture trade was particularly evident in cash and open account sales, it was also noticeable in instal ment sales, which percentagewise increased more than in any other group. Increases of 2 or 3 per cent in instalment volume were reported by three other types o f stores. Accounts receivable held by all retail stores covered by this survey were about eight per cent higher at the end o f 1945 than at the close of the previous year. Most of the gain was in charge account receivables, but instalment accounts outstand ing also increased slightly. As indicated by Table I, charge account receivables were only slightly below the 1941 level, but instalment receivables were still nearly 50 per cent below the amount outstanding at the end of 1941. However, both MONTHLY REVIEW, MAY 1946 44 TABLE I Percentage Change, 1941 to 1945, in Sales and Accounts Receivable by Type of Retail Store, Second Federal Reserve District* (Sales figures are based on annual totals; accounts receivable, on end-of-year data.) Accounts receivable Sales Type of store Total T o ta l............................ W om en’s a p p a rel.. Jewelry.................... D epartm ent........... M en’s clothing....... Hardware................ Furniture................. Household appliance............. Autom otive f .......... Cash +43 + 91 +52 +45 +36 +33 — 6 Total + 16 + 511 + 61 + 9 — 14 +15 + 16 — 24 + 23 — 37 — 21 — 70 — 37 — 20 — 24 + 38 — 27 — 18 — 44 — 47 — 56 — 2 + 39 + 8 — 10 — 37 — 41 — 15 — 47 + 1 — 63 — 33 — 91 — 84 — 57 + 21 — 22 — 67 — 90 — 76 — 37 — 18 — 22 — 84 — 83 + 78 +172 + 87 + 74 + 91 + 59 + 78 — 31 — 51 Charge Instal account ment Charge Instal account ment — 3 — 66 * Based on the year-to-year percentage changes compiled from the Retail Credit Surveys for 1942 through 1945. The sample was increased from 268 stores in 1941 to 520 in 1945. f Includes automobile dealers and automobile tire and accessory stores. kinds of receivables are lower in relation to their 1941 levels than are charge account and instalment sales. This smaller proportion of receivables to credit sales can be attributed in large measure to the shorter collection periods and larger down payments enforced by Regulation W . Accounts receivable of the different kinds of business fol lowed on the whole the same pattern of change over 1944 as credit sales, with household appliance stores showing the great est increase and men’s clothing stores practically no change. In 1944 receivables in all kinds of business, with the exception of two, had shown declines against a year earlier. Stores in nearly all reporting cities showed an increase in both credit sales and receivables but the rates of increase varied considerably be tween cities. Total current assets of retail stores in this District continued in 1945 the steady growth that characterized the war period. Stores covered by the survey showed a 10 per cent growth in current assets, with all retail lines surveyed sharing in the in crease. Cash and bank deposits and United States Government securities both increased about 14 per cent over 1944, but the rate of increase was much greater in 1945 for cash and deposits, and much smaller than in 1944 for Government securities. A large part of Government securities held by retail stores are tax notes. It is probable that retailers held more cash at the end of 1945 than a year earlier anticipating that they would be able to increase stocks substantially during the first quarter of 1946. In spite of a record increase in sales, the dollar volume of inventories of the entire group of stores was 4 per cent higher at the end of 1945 than a year earlier. A rise in total current liabilities of 23 per cent over 1944 resulted in a decline of the current ratio (current assets divided by current liabilities) from 3.4 to 3.0. Notes payable to banks were 43 per cent higher than in 1944, after a decline of 63 per cent from 1943 to 1944; they are, however, the smallest component of total current liabilities. Trade payables increased at a faster rate than in 1944. Other current liabilities rose 22 per cent, which is somewhat less than the 1944 gain. Net working capital increased 5 per cent during the year. All lines of business surveyed shared in the increase in total current assets and in net working capital, but the changes in assets and liabilities varied considerably among groups. Automobile dealers and tire and accessory stores showed the largest percentage increase in holdings of cash. A large part of this increase probably resulted from customers’ deposits on cars not yet delivered. Cash held by men’s clothing stores also increased substantially, as a result of a high inven tory turnover and the very short supplies of men’s clothing at the end of 1945. Only men’s clothing stores and automotive stores had a decline in inventories over the previous year. Department and women’s apparel stores were the only other TABLE II Sales, Current Assets, and Current Liabilities by Size and Type of Retail Store Second Federal Reserve District (Sales figures are based on annual totals; balance sheet items, on end-of-year data.) Classification Business classifications Women’s apparel stores............... Jewelry stores............................... Department stores....................... Men’s clothing stores................... Hardware stores........................... Furniture stores........................... Household appliance stores......... Automotive storest...................... Inventory turnover Percentage■of current assets Receivables Total Accounts Inven Current sales receivable tories assets Second District total....................... Size classifications! Large stores................................. Medium stores............................. Small stores.................................. 1945 Percentage distribution of sales 1944 to 1945 Percentage change Number of stores* Current Working liabilities capital Cash Current ratio Inventories Charge account Instal ment 1944 1945 1944 1945 1944 1945 1944 555 +14 + 8 + 4 +10 +23 + 5 65 27 8 4.8 5.2 25 25 31 30 3.4 3.0 93 143 193 +15 +11 + 7 +10 +10 +10 + 5 + 1 - 4 +10 +12 +14 +23 +13 +43 + 3 +11 + 9 69 61 59 26 33 26 5 6 15 4.9 5.0 3.4 5.4 5.5 3.8 23 30 16 23 29 16 31 32 38 30 30 33 3.0 4.0 6.8 2.7 4.0 5.4 70 50 97 52 21 110 36 119 +21 +13 +13 +10 + 9 +13 +23 + 5 +18 +12 + 8 0 +12 + 2 +19 +12 + 2 +12 + 4 —30 + 8 +11 +50 — 1 +12 +13 +10 +10 + 9 + 5 +19 +17 +11 + 8 +27 + 7 +17 +15 +98 +51 +13 +15 + 2 +11 + 8 + 3 + 2 + 9 51 52 72 65 48 26 40 40 48 40 23 34 50 4 35 53 1 8 5 1 2 70 25 7 4.3 1.7 5.4 4.0 3.2 2.8 4.2 5.6 5.1 1.7 5.8 6.3 3.2 2.9 3.4 6.0 30 18 22 17 16 48 19 14 32 18 22 15 16 47 19 13 39 45 30 33 50 24 19 32 37 45 28 20 50 25 28 27 2.9 3.8 3.2 3.5 7.0 5.9 5.8 4.9 3.0 4.0 2.8 3.6 6.6 5.3 3.5 3.8 1945 * Number of stores for which reports have been tabulated._ Some stores did not report all items requested. Therefore, the composite averages are based on the largest sample reporting each item. The smallest District coverage was 411 stores reporting current assets and current liabilities. f Dollar limits which determine size classifications vary for different types of business. Figures for 126 stores not classified by size are included in Second District totals. } Includes automobile dealers and automobile tire and accessory stores. FEDERAL RESERVE BANK OF NEW YORK TABLE III Percentage Change and Distribution of Current Assets and Current Liabilities, December 31, 1942-45, Retail Stores, Second Federal Reserve District * Per cent of total current assets or liabilities Percentage change from the preceding year 1943 1944 1945 1942 1943 1944 1945 Current assets Cash and bank deposits. . . U.S. Government securities Receivables........................... Inventories............................ +42 +42 — 6 — 4 + 1 + 45 + 5 — 6 +14 +15 + 8 + 4 16 11 31 42 23 17 25 35 22 23 25 30 22 23 25 30 T o t a l.............................. +10 + 7 +10 100 100 100 100 — 22 — 63 + 9 +27 +43 +19 + 22 11 89 8 31 61 3 30 67 5 29 66 +14 +23 100 100 100 100 Current liabilities Notes payable....................... Trade payables..................... Other current liabilities.. .. T o ta l.............................. 1 4-14. + 9 | * Percentage changes based on the stores reporting current assets and current liabilities in the Retail Credit Surveys for 1943 through 1945. The sample has increased from 189 stores in 1942 to 411 in 1945. groups where the ratio of inventories to current assets declined. Furniture stores had the highest proportion of current assets in receivables, and automotive stores the smallest. Inventory turnover of all reporting stores increased from 4.8 to 5.2, with men’s clothing stores and automotive stores lead ing department stores in the rate of turnover by a slight mar gin. Next to men’s clothing stores, women’s apparel stores had the largest increase in turnover rate. Because household appliance stores experienced a rapid increase in inventories toward the end of the year, they were the only group of stores to show a decline in inventory turnover. As was true in 1944, the largest stores had the greatest increase in sales, but contrary to the 1944 experience, they also had the largest increase in inventories. The smallest stores were the only size group to report a decline in inventories. PRICES SINCE THE END OF THE WAR The end of this war has not brought about even the tem porary reversal of wartime price trends which followed the first World War. In fact, the rise in prices has been more rapid during the period since the end of the war than during the preceding two years. The conditions which made for wartime price rises— the shortage of raw materials and finished goods, on the one hand, and the excess purchasing power created by war financing on the other— are still present, and with the cessation of hostilities additional upward pressures on prices have developed. The disappearance of forced and voluntary restraints on personal consumption has resulted in a record level of consumer expenditures at a time when civilian goods are not yet reaching the market in anywhere near adequate amounts to meet the demand. Equally important has been the rapid rise in wage rates. As a consequence of these wage increases since the end of the war, average hourly earnings of industrial workers are practically back to the war-end figure despite the elimination of most overtime premium pay. In 45 many individual industries average labor costs per hour of employment are higher now than last August. At the same time the virtual ending of the production of war goods, on which satisfactory profits were assured, has forced many manu facturers to pay close attention to cost-price relationships in the production of peacetime goods. Inflationary tendencies in the price structure can be exam ined best in the light of changes in wholesale prices, since recent increases have not yet made themselves fully felt at the retail level. During the period from August 1945 to March 1946 the Bureau of Labor Statistics wholesale price index rose 3 per cent. Superficially, a change of this sort might give little cause for concern. What is disquieting, however, is that price increases on the whole have been greater and more gen eral since the end of the war than during the corresponding period one or two years ago. Seven of the ten major com modity groups which make up the B.L.S. wholesale commodity price index show larger advances for the seven months follow ing V-J Day than for the same period a year ago. The index for every group was higher in March 1946 than seven months earlier. The recent acceleration of the upward price movement is illustrated by a comparison of price changes from March 1945 to March 1946 with those for the two previous years. The rise for commodities other than farm and food amounted to 3.0 per cent from March 1945 to March 1946 as against 1.1 per cent one year earlier and 1.7 per cent two years earlier. Farm prices have increased more during the past year than in the previous two years together. Food prices, which were nearly stabilized (except for seasonal variations) from the spring of 1943 through 1944, have developed a strong upward trend during the last twelve months. The nearly 900 prices that enter into the Bureau of Labor Statistics index represent the largest and most inclusive avail able collection of actual price quotations. For the most part, they cover highly standardized basic commodities, which can be priced from month to month without much difficulty. All articles which require continued variation in design in order to appeal to the consumer, highly finished commodities, and semiluxury or luxury goods are omitted. To mention two striking examples, in February 1946 clothing was represented by handkerchiefs and men’s and boys’ wear; women’s and in fants’ apparel was not included at all. The style element is so important in such items as women’s and girls’ dresses or mil linery that measurement of sufficiently comparable commodities over a period of time is virtually impossible. Furniture was represented by office chairs and office desks. Prices of home furniture were estimated or carried forward, since comparable quotations were no longer available after November 1943. It must be understood then that the index of wholesale commodity prices is chiefly a measure o f wholesale prices of the most standardized grade o f a large number of basic commodities. In ordinary times price movements of highly standardized basic MONTHLY REVIEW, MAY 1946 46 Percentage of Commodity Quotations (Included in the Bureau of Labor Statistics Wholesale Price Index) Up, Unchanged, or Down from Year to Year February 1939— February 1946* PER CENT 1 0 0 -------------------------------------------------------------------------------- --------- ---------UP 9 0 ----------------------------- 1939-40 1940-41 UNCHANGED V7A M l 1941-42 1 942-43 DOWN ---------------------------- 194 3 - 4 4 194 4 - 4 5 194 5 - 4 6 * O nly com m odities for which comparable quotations are available from one year to the next are included. S ou rce: Compiled by Federal Reserve Bank of N ew Y ork from Bureau of Labor Statistics data. commodities correspond closely to those of the more stylized or more finished varieties; but this latter group comprises pre cisely the items which the O. P. A. has been least successful in stabilizing during the past three years. For a period of fairly rigid price regulation an index based on staple goods and similar items may, therefore, understate the magnitude of the price advance of all goods currently purchased by con sumers. Another rigidity in the wholesale price index arises from the fact that price quotations are no longer available for about one fifth of the commodities included, with about 15 per cent of the aggregate weight. Prices for such items are carried forward or estimated. The effect of price control on the sensitivity of the whole sale price index is illustrated in the accompanying chart.1 It appears clearly that most of the commodities included have been controlled rather effectively by the O. P. A. This was reflected until the year ended February 1945 in the rising percentage of items for which no change was quoted from one year to the next. Included in this group are the com modities which are pegged by subsidy payments. The num ber o f items which showed a decline has, of course, been very small since 1941. During the past year the trend of the previous three years was partly reversed. There was a small drop in the group of unchanged items from 62 to 56 per cent of the total. The proportion of items which recorded price decreases showed a 1 February is the latest month for which detailed 1946 data are now available. The February to February comparison is used to eliminate the influence of purely seasonal fluctuations. further decline; but items for which prices were higher than in the previous year comprised 36 per cent o f the total as against 25 per cent in the preceding year. An analysis of changes by size of increase or decrease indicates that price advances were not only more numerous, but also somewhat larger in size. It is quite evident that at present supply-demand relation ships still exert an upward pressure on prices. Price declines are the exception. Food prices weakened temporarily in August when the Government released large stocks of food. Gasoline and mercury are among the few commodities whose price has dropped in response to competition among producers for a larger share of the market. W ool prices declined as a result of the Commodity Credit Corporation’s policy of bringing domestic wool into a more favorable position compared with foreign grades. Practically all prices not subject to O. P. A. ceilings, however, have advanced at an accelerated pace since the end of the war. For example, prices of cotton and rye, the two most important uncontrolled farm products, advanced 16 and 48 per cent, respectively, during the six months ended in February, compared with a 3 per cent rise for all farm prod ucts. In view o f rising costs— particularly labor costs— the O. P. A. has granted numerous and rather substantial upward revisions in ceiling prices. And in the meanwhile, additional increases are being announced every week. Impending adjust ments in miners’ wages and freight rates are expected to necessitate further price relief. As civilian production gains in volume and as the pent-up demand is satisfied a whole set of new pricing problems must necessarily arise. Price advances during the war were uneven; they were largest for foods, textiles, and furniture, and were relatively small for metal products. These changes reflect in part the narrowing of wage differentials between higher and lower-paying industries. It remains to be seen how new price relationships will affect the pattern of consumer purchases, and how competition among producers will affect the various elements of the price structure. D E P A R T M E N T STORE T R A D E Consumers purchased an unprecedented dollar volume of merchandise in the Second District department stores during the Easter season. Sales in April were slightly higher than those in March and are estimated at approximately 100 million dollars.1 The accompanying chart shows that this unusually high dollar volume has been exceeded only five times, in each case during the Christmas shopping season of recent years. 1 April sales were about 60 per cent higher than in the correspond ing month last year. Allowance must be made for the fact that Easter was three weeks later this year and the calendar month had one more shopping day. The seasonally adjusted index for April declined about 5 per cent from the March all-time high but was approximately 45 per cent higher than in the corresponding month last year. In 1945, however, the index reached its low point in April, sales being adversely affected by closings following President Roosevelt’s death. 47 FEDERAL RESERVE BANK OF NEW YORK Department and Apparel Store Sales and Stocks, Second Federal Reserve District, Percentage Change from the Preceding Year Estimated Dollar Volume of Sales, Stocks, and Outstanding Orders of Second District Department Stores, 1940-46 N et sales Locality March 1946 Department stores, Second D istrict. . . New Y ork C ity .................................... Northern New Jersey......................... Newark.............................................. Westchester and Fairfield Counties. B ridgeport......................................... Lower Hudson River V alley............. \ Poughkeepsie.................................... Upper Hudson River V alley............. A lb a n y ............................................... Schenectady...................................... Central New Y ork S tate................... Mohawk River V alley.................... U tica............................................... Syracuse............................................. Northern New Y ork State................ Southern New Y ork State................. Bingham ton...................................... Elm ira................................................. Western New Y ork State.................. B uffalo............................................... 1 Niagara Falls.................................... Rochester.......................................... Stocks on Jan. through hand March 1946 Mar. 31, 1946 +13 +16 +15 +13 +21 + 2 +11 +15 +15 +25 +23 +22 +16 +18 +20 +17 +21 + 4 +_4 +21 +12 +12 +17 +13 +18 +19 +22 +44 + 6 + 8 + 8 +25 8 - +12 +22 +23 + 5 - 1 3 9 3 4 7 — 2 + 4 + 3 +10 +19 +14 +17 + 16 +21 + 6 + 7 +14 +14 +11 +11 +13 +16 +17 - 1 +15 +19 -1 0 Apparel stores (chiefly New York City) + 6 +17 + 9 + 7 + + + + +10 + 13 S o u rce : Estimated on basis of reports received by Federal Reserve Bank of New York. Data for stocks and orders are for end of month. Indexes of Department Store Sales and Stocks Second Federal Reserve District (1935-39 averages 100 per cent) 1945 1946 Item Mar. Jan. Feb. Mar. Sales (average daily), unadjusted................. Sales (average daily), seasonally adjusted. . 176 187r 155 194 174 210 206 232 Stocks, unadjusted........................................... Stocks, seasonally a djusted............................ 153 151 144 162 156 166 171 170 March, or 50 per cent more than the dollar amount of stocks on hand. These orders have increased almost 800 per cent since 1940; at that time they were equivalent to only one quarter of the merchandise in the stores. Since 1944 orders have increased at a faster rate than sales, and the ratio of orders plus stocks to sales has been close to five months’ supply, compared with 3.6 months’ supply in March 1940. Indexes of Business r Revised. 1946 1945 For the year through April sales are 30 per cent above the corresponding 1945 period and more than double those in the first four months of 1940. Department store stocks at the close of March were 12 per cent higher than on the corresponding date last year and approximately equal to the dollar volume of March 1942. Comparison with March 1940 shows that stocks were 65 per cent higher. In relation to sales, however, stocks are low, while outstanding orders for merchandise are very high, as shown by the following ratios. M onth of March Stocks to sales Outstanding orders to sales Stocks plus orders to sales 1940 1941 1942 1943 1944 1945 1946 2 .8 2 .9 3 .9 2 .9 2 .7 2 .2 2 .2 0 .8 1.1 2 .1 2 .0 2 .1 2 .7 3 .0 3 .6 4 .0 6 .0 4 .9 4 .8 4 .9 5 .2 Outstanding orders of department stores in this District amounted to approximately 300 million dollars at the end of Index Mar. Industrial production*, 1935-39 = 100.......... (jBoard of Governors, Federal Reserve System) Electric power output*, 1935-39 = 100......... (Federal Reserve Bank of New York) Ton-miles of railway freight*, 1935-39=100 (Federal Reserve Bank o f New York) Sales of all retail stores*, 1935-39 = 100. . . . (Department of Commerce) Factory employment United States, 1939 = 1 00 f.......................... (.Bureau of Labor Statistics) New York State, 1935-39 = 100................. (New York State Dept, o f Labor) Factory payrolls United States, 193 9 = 10 0 f.......................... (Bureau of Labor Statistics) New York State, 1935-39=100................. (New York State Dept, of Labor) Income payments*, 1935-39=100................. (Department of Commerce) Wage rates, 1926 = 100.................................... (Federal Reserve Bank o f New York) Consumers’ prices, 1935-39 = 100................. (Bureau o f Labor Statistics) Velocity of demand deposits*, 1935-39=100 (Federal Reserve Bank o f New York) New York C ity ............................................. Outside New York C ity .............................. Jan. Feb. Mar. 235 160 153 169p 205 187 185 191p 238 180 187p 194 228 234p 166r 130r 122 127p 143 119 112 117p 342r 229 211p 294 227 206 244 234 232p 169 170 171p 127 130 129 130p 76 75 101 79 91 79 91 81 * A djusted for seasonal variation. p Preliminary, f Series revised beginning January 1944. r Revised. 229p MONTHLY REVIEW, MAY 1946 48 National Summary of Business Conditions (Summarized by the Board of Governors of the Federal Reserve System) production advanced considerably in March and appears to have declined onh moderately in the early part of April notwithstanding a complete shutdown in the bituminou: coal industry and some reduction in output at steel mills. The value of retail trade has continuec to set new records during this period and wholesale commodity prices have risen further. TN DU STRIAL In d u s t r ia l P r o d u c t io n Indexes o f P h y sica l V olu m e o f Industrial P ro d u c tion , A d ju s te d fo r Seasonal V aria tion , 193 5 -3 9 A v e r a g e s 100 P er C ent (G rou p s show n are e x p ressed in term s o f p oin ts in the tota l in d ex) V alue o f C on stru ction A c t iv ity . F igu res B egin n in g in 1944 are J oin t E stim a tes o f the D epartm ents o f C om m erce and L a b o r; E arlier F ig u res E s ti m ated b y D ep a rtm en t o f C om m erce. D ata E xclu d es R epair and M aintenance W o rk . M on th ly A v e ra g e s o f Q u arterly Data P rior to J u ly 1 9 4 4 ; M on th ly Data, T h erea fter Production at factories and mines, according to the Board’s seasonally adjusted index, ros< from a level of 153 per cent of the 1935-39 average in February to 169 in March. This i: slightly above the level reached last November before production was reduced by strikes in th< automobile, electrical equipment, and steel industries. In April the index will probably show i decline of 3 or 4 points as decreases in coal and steel are only partly offset by continued increase: in other industries. The large increase shown by the total index in March was due for the most part to i sharp recovery in steel ingot production following settlement of the labor dispute. There wer< production gains also in industries manufacturing automobiles, machinery, stone, clay, and glas: products, furniture, textiles, paper, and rubber products. These gains in steel and other industrie: were offset only in small part by declines in the nonferrous metal industries, some food industries and crude petroleum. Steel ingot production for the month of March averaged 84 per cent of capacity as comparec with 20 per cent in February and at the end of March was close to 90 per cent. Subsequently owing to reduced coal supplies, steel output declined and by the fourth week of April was dowr to a rate of 74 per cent of capacity. In the automobile and machinery industries productior increased substantially during the latter part of March and the early part of April, reflecting improvement in steel supplies and settlement of important wage disputes. Output of stone, clay, and glass products continued to advance in March and production it the first quarter of this year exceeded the previous peak levels reached at the beginning of 1943 Output of nondurable goods rose further in March to a level of 168 per cent of the 1935-3$ average, the highest level since last June. Production of nondurable goods for civilian use i; now in larger volume than at any previous time. Activity at woolen mills has shown an excep tionally large advance since the end of last year and, with marked increases in cotton consumptioi and rayon shipments, the Board’s index of textile production in March was at a level of 162 pe; cent of the 1935-39 average. This equals the previous peak rate at the beginning of 1943. Mineral production declined in March as a further advance in coal production was mor< than offset by a decline in crude petroleum output and by work stoppages at important meta mines. Activity at bituminous coal mines was suspended beginning April 1 owing to a labor management dispute over a new wage contract. Em p l o y m e n t Employment in nonagricultural establishments rose by about 600,000 in March after allow ance for seasonal changes. This rise reflected increased employment in manufacturing— largeb in the iron and steel group— and continued gains in trade and construction. There were further substantial releases from the armed forces. The total number of persons unemployed remainec at a level of about 2,700,000 in March. D is t r ib u t io n Department store sales rose sharply in March and continued at a high level in the first hal: of April. Total sales during the Easter season are estimated to have been about one-fourti higher than last year. Freight carloadings during March were close to the record rate for that month reached las year. In the first three weeks of April loadings declined, reflecting the stoppage of bituminou: coal production. Shipments of most other classes of revenue freight continued to increase. Indexes o f V alu e o f D ep artm ent S tore Sales and S tock s, A d ju s te d for S easonal V ariation (1 9 3 5 -3 9 a vera g e — 100 per cen t) C o m m o d i t y P r ic e s Wholesale prices of agricultural and industrial commodities continued to advance from th( middle of March to the third week of April. The general level of wholesale prices is now highei than last September by something over four per cent. In recent weeks ceiling prices for i number of products have been raised considerably and where ceilings have been removed price: have generally risen. A bonus of 30 cents a bushel has been granted on wheat delivered b] May 25 under the certificate plan to help meet the critical food situation abroad, and a like paymen has been offered for 50,000,000 bushels of corn. Subsidy payments for some commodities hav< been increased to prevent further price advances. B a n k C r e d it Member bank reserve positions tightened in the last half of March as Treasury deposits a the Reserve Banks were increased by large income tax collections. Banks sold short-tenr Government securities largely to the Reserve Banks, and drew down their reserve balances tc meet this loss of funds. Reserve positions were eased on April 1 in connection with the casl redemption of 2.0 billion dollars of Treasury certificates on that date, and in the following weeki banks bought Government securities and reduced borrowings at Reserve Banks. M em ber B anks in L ead in g C ities. Dem and D e p osits (A d ju s t e d ) E xclud e U . S. G ov ern m ent and Interbank D ep osits and C ol lection Item s. G ov ern m en t S ecu ri ties Include D irect and G u ar anteed Issues (L a te s t fig ures are fo r A p ril 10) Commercial and industrial loans at member banks in leading cities increased further. Loan: to brokers and dealers rose at the end of March in connection with Treasury security retiremen operations and declined sharply in the week ended April 3. Deposits, other than those of the Treasury, fluctuated considerably, reflecting large income tax payments and the April 1 ta? assessment date in Illinois.