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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.