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MONTHLY REVIEW O f C r e d it a n d B u s in e s s F E D E R A L V o lum e 38 R E S E R V E B A N K C o n d itio n s O F M A Y 19 56 N E W Y O R K No. 5 MONEY MARKET IN APRIL M em ber bank reserve positions w ere under continuous pres basis, total Federal R eserve holdings of G overnm ent securities sure during A pril, a m onth in w hich the discount rates of the w ere 226 m illion dollars low er in the w eek ended A pril 25 Federal R eserve Banks were advanced and in w hich upw ard than in the last statem ent week of M arch. T he continuous adjustm ents in a w ide range of m oney m arket rates took pressure in the m oney m arket was reflected in the m arket for place. G overnm ent bond prices show ed substantial declines, Federal funds, the effective rate for w hich was steady at 2 V l and yields on both new and outstanding corporate and m unici per cent before the discount rate increases and thereafter rose pal securities rose sharply, w hile Treasury bill rates broke to 2 V a per cent, rem aining at this level throughout m ost of through the previous postw ar highs set in D ecem ber 1955. the rest of the m onth. Expectations of an advance in Reserve Bank discount rates O n A pril 12, nine Federal Reserve Banks announced in creases in their discount rates from 2 V l per cent to 2 % per and other rates of interest w ere im portant influences in the cent, and the Federal Reserve Banks of M inneapolis and G overnm ent securities m arkets early in the m onth and con San Francisco advanced their rates from 2 V l per cent to 3 tributed to higher yields on interm ediate and long-term Treas per cent, the new rates being effective in each case on A pril 13. ury bonds. In addition, the dow nw ard trend in the prices of Later in the m onth, the Federal R eserve B ank of Chicago G overnm ent notes and bonds reflected optim ism concerning raised its discount rate to 2 % per cent, effective A pril 20. For the prospects for business activity, as w ell as the reduced the Federal Reserve Bank of N ew Y ork and for m ost of the attractiveness of yields on G overnm ent securities, as yields on other Reserve Banks, this advance was the fifth since the high-grade corporate and m unicipal bonds m oved rapidly beginning of A pril 1955, w hen the discount rates of all higher. Prices fell further im m ediately after the advance in discount rates, b u t later m any issues recovered m ost or all of Federal Reserve Banks were at I V i per cent. Follow ing the discount rate advances announced on A pril this loss, and prices steadied tow ard the end of the m onth. 12, the principal com m ercial banks in N ew Y ork City, joined O ver the m onth as a whole, m ost longer-term issues recorded by m ajor banks in other cities, announced an increase in their net losses of betw een 1% 2 and s % 2 of a point. Treasury bill rates m oved erratically early in the m onth as prim e loan rates— the rates charged to custom ers w ith the end-of-M arch dem and stem m ing largely from Chicago was highest cred it ratings— from 3 V l per cent to 334 per cent. T he replaced by liquidation of bill holdings after the A pril 1 Cook announcem ents w ere m ade on A pril 12 and A pril 13, and County, Illinois, tax assessment date had passed. As these offerrepresented the third rise of Va per cent since the beginning of A ugust 1955. D ealer rates for com m ercial paper were raised on A pril 13 by Va per cent, bringing the rate on prim e CONTENTS four-to-six m onths’ paper to 3 Va per cent, w hile rates on M o n ey M a rk e t in A p r i l ............................................... 57 bankers’ acceptances were raised by Vs per cent on A pril 16. In te r n a tio n a l M o n e ta ry D e v e lo p m e n ts .................. 60 Rates on directly placed finance com pany paper w ere raised C u rre n t B u sin ess P a t t e r n s ........................................... 62 by Vs per cent on A pril 17. R e c e n t S te rlin g A re a D e v e lo p m e n ts ....................... 65 M eanw hile bank reserves rem ained under steady pressure S u rv e y o f B u sin ess L o an s a t M em b er B a n k s in throughout the m onth, as average net borrow ed reserves th e S eco n d D is tric t ...................................................... 68 am ounted to 450 m illion dollars or m ore each week and D e p a rtm e n t S to re T r a d e ................................................. 71 average m em ber bank borrow ings from Federal Reserve Banks S elected E co n o m ic I n d i c a t o r s .................................... 71 w ere close to, or above, 1 b illion dollars. O n a daily average 58 MONTHLY REVIEW, MAY 1956 ings tapered off, yields declined briefly, b u t grow ing expecta tions of an upw ard adjustm ent in basic interest rates led to advances in m arket rates to above 2 V i per cent even before the discount rate increases. T hereafter rates advanced sharply, and in the A pril 16 Treasury bill auction the average issuing rate clim bed to 2.769 per cent, m ore than Va per cent above the rate a week earlier. A further slight advance to 2.788 per cent occurred at the auction on A pril 23, b u t subsequently T reasury bill yields declined slightly. T he longest bill closed on A p ril 27 at 2.68 per cent ( b id ), 38 basis-points higher than at the end of M arch. T he m arkets for corporate and m unicipal bonds rem ained w eak during m ost of A pril, as the current and prospective volum e of new offerings continued to be substantial. Prices on outstanding securities m oved dow n and, in a num ber of cases, the breaking-up of underw riting syndicates resulted in sharp yield m arkups as dealers attem pted to m ove unsold securities. M ost new issues, even w hen offered at rising yields, m et w ith only lim ited dem and until late in the m onth, w hen several attractively priced issues w ere quickly sold. M em b e r B a n k R eserve P o sit io n s Pressure on m em ber bank reserve positions during A pril was about the same as in M arch. N e t borrow ed reserves aver aged 462 m illion dollars during the four statem ent weeks ended A pril 25, slightly higher than the 406 m illion dollar average in the preceding four weeks. M em ber bank borrow ings rem ained high, averaging over 1 billion dollars, 104 m illion dollars above the average M arch level. In contrast to M arch, w hen reserve positions showed large daily and weekly swings, the pressure on reserves in A pril was relatively steady. A t the beginning of the period, net borrow ed reserves de clined som ew hat from the peak reached in the statem ent week ended M arch 28 w hen they reached the highest level since M ay 1953. A decrease in required reserves contributed sub stantially to the decline and was im portantly influenced by preparations for the Cook C ounty tax assessment date on A p ril 1, w hich led depositors to sw itch into Treasury bills, not subject to the local tax assessment. T hroughout the rest of the m onth operating factors tended on balance to add to bank reserves, especially in the weeks ended A pril 18 and A pril 25 as the usual m idm onth expansion in float and return flow of currency from circulation developed. T he influence of these tw o factors on reserves was only partly offset by losses stem m ing from a rise in Treasury balances at Federal Reserve Banks after the m iddle of the m onth as the volum e of personal incom e tax collections increased. Federal Reserve operations acted to offset in part the fluctua tions in bank reserve positions during the m onth. A t the outset, the m arket pressures engendered by the coincidence of the Cook C ounty tax date, the M arch 31 statem ent date, and the G ood Friday holiday in som e parts of the country Table I Changes in Factors Tending to Increase or Decrease Member Bank Reserves, April 1956 ( In m illio n s o f d o lla r s ; ( + ) d e n o te s in c re a se , ( — ) d e c r e a s e in e x c e s s r e s e r v e s ) D a ily ave ra g e s— w e e k e n d e d Net changes F a ctor A p r. 4 A p r. 11 A p r. 18 A p r. 25 + 56 -1 9 6 + 18 + 30 +130 24 +147 + 10 5 5 34 + 44 +135 + 13 15 + + + + - Operating transactions T r e a s u r y o p e r a t i o n s * ............................ F e d e r a l R e s e r v e f l o a t ............................ C u r r e n c y i n c i r c u l a t i o n ........................ G o l d a n d f o r e i g n a c c o u n t .................... O t h e r d e p o s i t s , e t c ................................ T o t a l ........................................ + + -1 41 81 69 5 3 3 39 70 94 33 23 - 84 + 38 +123 +142 +219 + + 92 - 69 44 -1 4 1 + 19 - 95 22 -2 1 3 13 - 10 0 - 49 0 -1 3 6 0 0 0 - 1 0 0 0 Direct Federal Reserve credit transactions G o v e r n m e n t s e c u r it ie s : D ir e c t m a rk e t p u rc h a se s o r s a le s . . H e ld u n d e r re p u rc h a se a g re e m e n ts. L o a n s , d is c o u n t s , a n d a d v a n c e s : M e m b e r b a n k b o r r o w i n g s ............... 34 -2 1 1 0 B a n k e r s ’ a c ce p ta n ce s: B o u g h t o u t r i g h t ................................. U n d e r r e p u r c h a s e a g r e e m e n t s ........ + 1 0 T o t a l ........................................ - +134 0 0 0 84 + 21 -1 3 2 -1 6 7 -3 6 3 + + 57 58 - Effect of change in required reserves^ . . . . -1 6 8 +124 8 0 - 25 19 -1 4 4 +163 Excess reservesf .......................................... - 44 +115 - 8 - 44 + 985 535 1 ,1 1 9 650 1 ,1 0 9 642 D a i l y a v e ra g e le v e l o f m e m b e r b a n k : B o rro w in g s fro m R e se rv e B a n k s . . . . E x c e s s r e s e r v e s f ..................................... 1 ,0 6 0 598 19 l,0 6 8 t 6061 N o t e : B e c a u s e o f r o u n d in g , f ig u r e s d o n o t n e c e s s a r ily a d d t o t o t a ls . * In c lu d e s c h a n g e s in T r e a s u r y c u r re n c y a n d c a sh . T h e s e fig u r e s a re e s tim a t e d . A v e ra g e fo r fo u r w e e k s e n d e d A p r il 25. w ere relieved by a m oderate increase in average System hold ings of G overnm ent securities. Later in the m onth, how ever, as m em ber bank reserve positions tended to ease, System open m arket operations w ithdrew reserves. O n a daily average basis outright holdings in the week ended A pril 25 w ere 213 m il lion dollars low er than in the statem ent week ended M arch 28, w hile average holdings under repurchase agreem ents declined by 13 m illion dollars. G o v e r n m e n t S e c u r it ie s M a r k et T he decline in the prices of Treasury notes and bonds, w hich had continued alm ost w ithout interruption since early February, was accelerated in the first half of A pril. Prices w ere m arked dow n sharply and, although brief rallies devel oped from tim e to tim e, the dow nw ard readjustm ents con tinued until the latter p art of the m onth w hen som e recovery took place. P rior to the advance in R eserve Bank discount rates, the declines reflected in p art the grow ing expectation that either discount rates or com m ercial bank prim e loan rates, or both, w ould be raised. T his anticipation had been strengthened tow ard the end of M arch w hen leading banks in N ew Y ork City increased some call loan rates to brokers and dealers against collateral other than G overnm ent securities. M ore fundam entally, continued optim ism over the prospects for busi ness activity during the rem ainder of the year and grow ing fears that a resurgence of inflationary pressures m igh t lead to FEDERAL RESERVE BANK OF NEW YORK further m easures to restrain credit expansion acted to depress G overnm ent bond prices. Furtherm ore, the prospective cor porate and m unicipal security flotations scheduled over the next few m onths suggested to the m arket that further advances in bond yields w ere not unlikely, w hile upw ard adjustm ents already m ade created a yield spread that encouraged sw itching from Treasury issues into high-grade corporate and m unicipal bonds. A lthough yields on interm ediate and long-term Treasury bonds reached the highest levels since m id-1953 even before the advance in discount rates, the volum e of trading was lim ited. M ost of the m arkdow ns in price were the result of professional activity, and only a lim ited volum e of offerings, notably from com m ercial banks and savings institutions, ap peared in the m arket. D em and, how ever, was sporadic as m ost investors preferred to rem ain on the sidelines aw aiting developm ents. Prices m oved dow n rapidly im m ediately after the advance in discount rates, but a later rally offset the decline in m any issues, and prices steadied tow ard the end of the m onth. A ctivity revived from the low levels that had been character istic of the first half of A pril, and a m oderate investm ent de m and developed. T ax sw itching, w hich had been m oderate early this year, increased slightly as the low er level of prices m ade sales for tax loss purposes of interest to some investors. T he m arkdow ns in A pril tended to accentuate the bulge in the yields on interm ediate m aturities that had first developed tow ard the end of M arch, and led to some dem and for inter m ediate issues tow ard the end of the m onth. By A pril 27, prices of bonds and notes w ith m aturities through I960 had generally declined by 1% 2 to 2% 2 °f a poin t from the end of M arch, while m ost longer issues had fallen by betw een 1% 2 and 3% 2A t the beginning of the m onth the Treasury bill m arket was dom inated by substantial liquidation of Treasury bills that had been held in connection w ith the A pril 1 personal property tax assessment date in Cook County. Partly as a result, the auction on A pril 2 resulted in an average issuing rate of 2.397 per cent, m ore than 20 basis-points higher than in the previous auction, w hen the m arket had been influenced by the dem and for bills originating in the C hicago area. Yields on outstanding bills declined briefly on A pril 5 and 6, but the rise was resum ed after the w eek end. A fair volum e of trading took place, but nonbank dem and was readily satisfied by com m ercial bank and Federal Reserve sales, w hile the spreading conviction that a further rise in interest rates was im m inent exerted upw ard pressure on rates. As a result, the average issuing rate rose to 2.497 per cent in the A pril 9 auction, w hen substantial holdings of m aturing bills were not replaced. T he follow ing day yields on the longest bills m oved above 2 V2 p er cent, reaching 2.56 per cent (b id ) on the eve o f the discount rate advances. T he im m ediate reaction to the discount rate advance was a sharp rise in rates on ail m aturi 59 ties, and was reflected in the A p ril 16 auction w hen the average issuing rate clim bed to 2.769 p er cent. Later in the m onth rates tended to stabilize and then to decline slightly, as non bank dem and revived in the wake of higher yields and steady accruals of corporate funds. In the auction held on A pril 23 for the bill dated A pril 26, the average issue rate rose only slightly to 2.788 p er cent, and by A pril 27 the longest bill was bid at 2.68 p er cent, dow n 8 basis-points from the peak quota tion on A pril 17 but 38 basis-points higher than at the end of M arch. O t h e r S ec ur ities M ark ets T he optim istic appraisal of the econom ic outlook and a con tinued large volum e of new offerings resulted in steadily higher rates on both new and seasoned corporate and m unicipal bond issues. Average yields on M oody’s Aaa corporate bond list advanced 16 basis-points through A pril 27, follow ing a rise of 7 basis-points in M arch, and rates on new issues rose con siderably m ore. A verage yields on outstanding high-grade m unicipal issues rose by about 18 basis-points, approxim ately the same am ount as in the previous m onth. In each case, aver age yields for the first tim e this year exceeded the 1955 highs and w ere at the highest levels since the fall of 1953. T he estim ated volum e of public offerings of corporate bonds for new capital am ounted to 315 m illion dollars, dow n about 65 m illion dollars from the previous m onth but about twice as large as in A pril 1955. Each new issue as it reached the m arket bore a higher rate than the last preceding com parable issue. O ne notable developm ent was the reoffering, after the advance in discount rates, of a new A a-rated public utility issue at a yield of 3.77 per cent, the highest rate on such an issue since Septem ber 1953 and alm ost V2 per cent above the reoffering yield on a sim ilar issue tow ard the end of M arch. In several instances the congestion in the corporate m arket was reflected in the m arkup of yields after underw riting syndicates had broken up. M ost new issues m et w ith a poor reception until late in the m onth, w hen several sizable issues were suc cessfully floated and soon were quoted at prem ium s over the initial prices. N ew public offerings of m unicipal bonds am ounted to an estim ated 350 m illion dollars in A pril, about 55 m illion m ore than in the previous m onth. A lthough dealer inventories re portedly declined som ew hat from the levels prevailing in the latter half of M arch, they rem ained large as m ost new issues m et w ith investor resistance despite a general advance in the yields offered. Tow ard the end of the m onth a 50 m illion dollar issue of A a-rated State revenue bonds was bought by underw riters at a net interest cost of 3.09 per cent, as against a 2.31 per cent cost to the same borrow er in July 1955. M em b e r B a n k C redit T otal loans and investm ents of weekly reporting m em ber banks declined by 1.0 billion dollars during the four weeks 60 MONTHLY REVIEW, MAY 1956 ended A p ril 18, in contrast to a 2.4 billion increase in the preceding four weeks. T he decline in the current period re flected prim arily a renew ed liquidation of security investm ents, w hich am ounted to 920 m illion dollars, com pared w ith a 325 m illion increase in the four weeks ended M arch 21. Treasury bill holdings, follow ing earlier purchases that w ere attributable in part to preparations for the Cook C ounty assessment date, decreased by 274 m illion dollars in the current period, and holdings of other G overnm ent securities fell by 685 m illion dollars. T he reduction in total loans was very m oderate, am ounting to only 82 m illion dollars, and was largely attributable to a drop in security loans. Security loans showed a net decline over the four-w eek period of 377 m illion dollars, w ith m ost of the decrease concentrated in the first week w hen the financ ing needs of G overnm ent security dealers w ere reduced as the dem and for Treasury bills rose prior to the Cook County assess m ent date on A pril 1. Loans in m ost other m ajor categories increased. B oth real estate loans and "all other” loans (largely consum er loans) continued to rise at about the same rate as in earlier m onths this year. Business loans show ed a m oderate increase of 84 m illion dollars, contrary to the expectations of some observers that the rapid increase in borrow ing during the m id-M arch tax period m ig h t lead to net repaym ents in late M arch and early A pril. M ost categories of business loans increased over the four-week period, w ith the largest advances taking place in the metals and m etal product industries, in petroleum and related in dustries, and in wholesale and retail trade. T hese advances w ere partially offset by substantial net repaym ents in the public utility and transportation industry category, largely represent ing funds obtained from recent security flotations that were used to reduce indebtedness to banks in N ew Y ork City. Since the end of 1955, total loans and investm ents of weekly reporting m em ber banks have declined by 1.2 billion dollars, in contrast to a larger 1.6 billion decrease in the com parable period last year. T he sm aller decline this year is attributable Table II Weekly Changes in Principal Assets and Liabilities of the Weekly Reporting Member Banks (In millions of dollars) State m e n t w eeks e nd ed It e m A p r. 18 M a r. 28 A p r. 4 A p r. 11 + 69 9 -2 9 7 + 21 -1 8 1 32 + 61 + 3 +107 2 58 + 33 + + 89 2 83 35 + + + + 83 Cbauge fro m D e c . 28, 1 9 5 5 to A p r . 18, 1 9 5 6 Assets L o a n s a n d in v e stm e n ts: Loan s: C o m m e r c ia l a n d in d u s t r ia l A g r i c u l t u r a l l o a n s ................. S e c u r i t y l o a n s ........................ R e a l e s t a t e l o a n s ................... A ll o th e r lo a n s (la rg e ly c o n s u m e r ) ....................... 23 37 27 J + 1 ,0 6 3 + 475 265 + 371 + 1 ,1 1 4 -1 9 3 -1 1 6 +106 +121 -2 7 6 -3 8 3 - 87 56 51 -1 0 5 +140 -1 4 1 696 -1 ,7 3 1 T o t a l ............................... O t h e r s e c u r i t i e s ..................... -6 5 9 6 -1 4 3 + 82 -1 5 6 + 43 - 1 80 -2 ,4 2 7 + 64 T o t a l i n v e s t m e n t s ............ -6 6 5 - -1 1 3 - 81 -2 ,3 6 3 + 40 -1 ,2 4 9 T o t a l lo a n s a d j u s t e d * — In v e s t m e n t s : U . S . G o v e r n m e n t s e c u r it ie s : T r e a s u r y b i l l s .................... T o ta l lo a n s and in v e s t m e n t s L o a n s t o b a n k s .............................. Loans a d ju ste d * 61 and — 85S -1 7 7 - +276 -1 2 6 -1 1 3 7 +120 + -1 9 9 - 34 +149 + 41 + 1 .1 7 8 -7 6 7 -3 4 1 +819 +502 -2 ,1 6 9 + 23 +384 + 22 -9 3 3 33 -9 8 1 + 11 59 + 65 24C -1 5 9 + 32 +862 + 32 + + -2 7 0 53 + 395 36 128 “ o th e r” Liabilities D e m a n d d e p o s i t s a d j u s t e d ......... T im e d e p o s its e x c e p t G o v e r n m e n t ............................... U . S . G o v e r n m e n t d e p o s i t s ......... In t e r b a n k d e m a n d d e p o sits : * 74 30 E x c lu s i v e o f lo a n s t o b a n k s a n d a f te r d e d u c t io n o f v a lu a t io n re se r v e s; fig u r e s fo r t h e in d iv id u a l lo a n c la s s ific a t io n s a re s h o w n g r o s s a n d m a y n o t , t h e re fo re , a d d to th e to ta l sh o w n . alm ost equally to a larger increase in loans and a sm aller liqui dation of G overnm ent securities. Loans have risen by 1.1 bil lion dollars, com pared w ith a 0.8 billion advance last year, w hile G overnm ent security holdings have fallen by 2.4 billion, as com pared w ith a 2.8 billion liquidation last year. H oldings of other securities have, how ever, increased only slightly so far this year in contrast to a 0.4 billion dollar rise last year. INTERNATIONAL MONETARY DEVELOPMENTS M o n e t a r y T r e n d s a n d P o lic ie s T he Bank of C anada raised its discount rate from 2 % to 3 per cent— a record high— as of the close of business A pril 4. T he increase, the fourth since A ugust 1955, came against a background of continued credit expansion and rising m arket interest rates. Business loans by the chartered banks (show n as "all other” loans in the banks’ consolidated balance sheet) increased by over 2 per cent in both February and M arch, and o n A pril 11 w ere 7.8 per cent above the end of 1955 and 30.4 per cent above a year earlier. In the first statem ent week in A pril, the banks’ average cash ratio fell briefly below the legal lim it (this deficiency, how ever, was m ade good in subsequent w eeks), and during the m onth the chartered and savings banks again borrow ed from the Bank of Canada for the first tim e since early January. A t the same tim e, the banks’ total hold ings of governm ent securities declined substantially, and in m id-A pril were 8.1 per cent below the D ecem ber 28 level. In preparation for the com ing into effect at the end of this m onth of secondary com m ercial bank reserve requirem ents (in the form of T reasury bills and day-to-day loans), the shift in the com position of the chartered banks’ holdings of govern m ent securities continued, w ith Treasury bills accounting for alm ost 23 per cent of such holdings on A pril 18, as against less than 14 per cent at the end of 1955. D ay-to-day loans, FEDERAL RESERVE BANK OF NEW YORK how ever, dropped sharply to a record low in the first half of the m onth. G overnm ent bond yields continued to rise in A pril, and the three m onths’ Treasury bill tender rate reached a post w ar high of 2.89 p er cent on A pril 26. O n A pril 23 the chartered banks raised by V l p er cent m ost loan rates; the prim e com m ercial rate, w hich had rem ained unchanged since 1953, thus rose from 4^2 to 5 and som e other rates reached the statutory m axim um of 6 per cent. In the U nited K ingdom , the Chancellor of the Exchequer, in his budget message for the 1956-57 fiscal year (discussed elsew here in this R e v i e w ) , announced a series of m easures intended to stim ulate private savings. These include: ( 1 ) a new seven-year Savings Certificate, w ith a yield to m aturity of 4.20 p er cent, com pared w ith the current ten-year, 3.05 per cent issue; ( 2 ) a new A V l per cent D efense Bond issue, w ith a 5 per cent tax-free bonus if held for ten years, w hich com pares w ith the current 4 per cent issue carrying a 3 per cent prem ium ; (3 ) exem ption from incom e tax of the first £15 of interest accruing from Post Office Savings; and ( 4 ) creation of a £1 prem ium bond— noninterest-bearing, b u t qualifying for quarterly prizes of varying am ounts (som e as high as £1,000) that each year w ill aggregate 4 p er cent of the bonds outstanding. Further evidence of the governm ent’s intention to absorb additional funds from nonbank sources is to be found in the Treasury announcem ent on A pril 20 of a 250 m illion pound cash issue of 3 Vl per cent T reasury Stock of 1979-81, priced at 81, to yield 4.825 per cent. T he Chancellor also announced that for fiscal years 1956-57 and 1957-58 the Treasury will m eet, up to a m axim um of 700 m illion pounds, the total long-term borrow ing needs of the nationalized industries. Reportedly, this is to give the authorities greater technical control over such borrow ing; the nationalized industries w ill look to the banks only for their "norm al requirem ents of short term capital’*. T his m ove is likely to ease the pressure on bank advances w hich, according to the M arch statem ent of the Lon don clearing banks, increased by 39 m illion pounds in the five statem ent weeks ended M arch 21 (th e sam e am ount as in the four weeks through February 1 5 ), largely because of further borrow ing by the nationalized industries and of certain sea sonal dem ands that m ore than offset reductions in other sectors. Prices of gilt-edged securities generally w ere higher during A pril; the yield o f 2 V i per cent Consols on A pril 27 closed at 4.56 per cent, as against 4.65 at the end of M arch. T he average tender rate for three months* Treasury bills, w hich had stood at 5.17 per cent at the last M arch and first A pril tenders, de clined to 5.12 on the follow ing tw o tender dates. T he Bank of Finland on A pril 19 raised its differential dis count rate structure from 5-7 Vl per cent to 6V^-8 per cent. This m ove was taken, according to the bank’s announcem ent, to ch e c k the risin g tren d o f p r ices and w a g es and to p u t a brake on investm ent and speculation. 61 Exchange Rates T he pound sterling strengthened in the N ew Y ork m arket during m ost of A pril b u t declined som ew hat tow ard the end of the m onth. T he C anadian dollar also firmed. O ther developm ents included a rise in the W est G erm an "liberalized capital” m ark and an adjustm ent in the quotation for the Chilean peso, reflecting the m easures taken to sim plify the C hilean exchange rate structure. Sterling, recovering from the w eakening tendency that m arked the period im m ediately preceding Easter, strengthened early in A pril. T hus A m erican-account sterling rose from an A pril 2 quotation of $ 2 .8 0 1 % 2 to as high as $2.803% 2 on A pril 11, on increased com m ercial dem and in a m arket influ enced by the announcem ents that B ritain’s gold and dollar reserves and its trade balance had developed quite favorably during M arch. W hile the rate w eakened slightly on A pril 12, it nevertheless rem ained rather steady in a quiet m arket aw ait ing the budget presentation of A pril 17. Follow ing the budget, the rate m oved as high as $2.81% on A pril 18. T here after, the rate declined som ew hat and closed at $ 2 .802% 2 on A pril 30. In the forw ard m arket the discount on three m onths’ sterling declined during the first half of A pril from 2 % 6 cents to 1 1 z4 q, w hile six m onths’ sterling fluctuated narrow ly at a dis count of about 3 % cents. A fter the m idm onth, how ever, in creased dem and reduced both discounts, the three m onths’ discount falling to 1 2% 2 cents and the six m onths’ to 3% o cents at the close of the m arket on A p ril 30. T ransferable sterling also reportedly m et w ith continued good dem and, the rate m oving upw ard from $2.7785 on A pril 2 to a high of $2.7865 on A pril 18 and closing at $2.7845 on A pril 30. Securities sterling, after having appre ciated substantially in earlier m onths, fluctuated w ith in rather narrow lim its during A pril, such sterling being offered at rates ranging from $2.7734 to $2.78% . T he C anadian dollar was quoted near $1 .0 0 % 2 during the first week of the m onth, b u t then began to strengthen, m oving to $1.00% on A pril 25, in large m easure as a result of sub stantial investm ent dem and. T he W est G erm an "liberalized capital’* m ark, after having been quoted for som e tim e at betw een 23.65 and 23.74 cents, rose sharply on A pril 4 to 23.81. A rather sm all supply of these m arks, coupled w ith continued good dem and for invest m ents in G erm any, reportedly accounted for the strengthen ing, w hich brought the rate above th at for the official D eutsche m ark. T he C hilean G overnm ent on A pril 20 introduced a new exchange system. W h ile a secondary m arket w ill continue for a few invisible transactions, the m ajor p a rt of exchange trans actions— involving com m ercial im ports and exports, G overn m ent transactions, and som e invisible transactions— w ill be 62 MONTHLY REVIEW, MAY 1956 m ade at a unified rate that w ill be responsive to supply and dem and forces but subject to discretionary intervention by the authorities to avoid excessive m ovem ents. Follow ing the intro duction of the new system, the rate applying to the bulk of C hiles exchange transactions has been steady at 500-495 pesos per U nited States dollar. CURRENT BUSINESS PATTERNS Since late in 1955, after a year of rapid expansion, econom ic activity in the U nited States has tended to level off on a high plateau. W hile total production of goods and services in the first quarter of 1956 rose further from the record rate attained in the preceding quarter, the increase was quite sm all com pared w ith the gains registered last year and largely reflected higher prices. T o some extent, these developm ents have been a m ore or less necessary consequence of the econom y’s sw ift approach to capacity output during 1955, but because of the noticeable w eakening in certain types of dem and (particularly for new hom es and autom obiles) there has been some concern that a business readjustm ent m ight be in the m aking. A t the same tim e, how ever, there have been im pressive signs of addi tional strength in the economy— m ost notably the stepped-up program s of capital investm ent— as well as w idespread evi dence of unim paired business and consum er confidence. A ccording to some observers, these stim ulating factors are m aking it possible for the economy to absorb the declines in a few areas w ith a m inim um of disruption, and to avoid the general retrenchm ent that in the past has often followed periods of rapid and substantial grow th. Indeed, the m ore im m ediate concern recently has related to the inflationary potentialities suggested by intensive dem and for credit along w ith continued sw ift inventory build-up, large-scale capital expansion, tight supply conditions for essential m aterials, and persistent price increases for key industrial goods. T e n d e n c y T o w ard Lev e l in g O u t In broad outline, the econom y seems to have been char acterized since last sum m er by a shift away from consum er investm ent— in new hom es, autom obiles, and other durable goods— and tow ard business investm ent in inventories and new plant and equipm ent. In addition, there have been fur ther gains in consum er spending for services and nondurable goods, and governm ent outlays have risen som ew hat. A t the sam e tim e, industrial prices have m oved upw ard along a w ide front and farm prices also have advanced after reaching a low point in D ecem ber, w hile average retail prices showed alm ost no change. Since increases in certain areas of dem and have out w eighed the declines in some others, gross national product advanced from a seasonally adjusted annual rate of 392 billion dollars in the third quarter of 1955 to 397 billion in the final quarter and to an estim ated 399 billion in the first three m onths of 1956. M ost of the increase in aggregate activity since the third quarter of 1955 had apparently been achieved by O ctober or N ovem ber, since a num ber of com prehensive m onthly m easures of business activity tended to level off or decline som ew hat after early autum n. T otal business sales, for exam ple, have shown only m inor variation since last Septem ber, after seasonal adjust m ent. R etail sales rose to a plateau in Septem ber that was m aintained during the balance of the year, as low er autom o bile sales w ere nearly offset by increases in other lines. Sales w eakened slightly, how ever, in the opening m onths of 1956 w hen autom otive sales declined further and those of som e nondurable goods and of household durables tended to level off or decline. N evertheless, total consum er spending has in creased m oderately further since the third quarter of 1955, largely as a result of expanding outlays for services. C onsum er credit outstanding has also risen during this period (o n an adjusted basis), although the increase was m uch less rapid than during m ost of 1955, as the rate of instalm ent debt repaym ent tended to catch u p w ith new extensions. C redit grow th has thus continued to support the high level of con sum er spending but to a lesser extent than previously. T he over-all level of industrial production, m eanw hile, has show n little change for a num ber of m onths. T he Federal R eserves seasonally adjusted index clim bed rapidly from m id-1954 through the third quarter of 1955 and ad vanced som ew hat further in the final three m onths of the year, reaching a record 144 p er cent of the 1947-49 average in D ecem ber; production m oved dow nw ard slightly in early 1956, how ever, and the index for M arch was estim ated at 142, the same as in Septem ber 1955. D u rin g this six-m onth period sub stantial gains w ere recorded in the output of m inerals and cer tain nondurable goods, w hile som e types of durables showed sizable declines. T his diversity, illustrated in the accom panying chart, stands in sharp contrast to developm ents during the p re ceding half year w hen nearly every type of production regis tered large gains and the aggregate output index increased by 5 per cent. A m ong durable goods, som e of the largest produc tion declines during the Septem ber-to-M arch period w ere for consum er item s. T hus, low er output of electrical goods seem ed to reflect particularly the decrease in radio and television set production, as w ell as the effects of a prolonged labor dispute. O n the other hand, o utp ut of nonelectrical m achinery rose con siderably, in response to industry’s grow ing dem and for capital equipm ent. Sim ilarly, the decline in transportation equipm ent, w hich m ainly reflected a m arked drop in passenger car p ro duction, was m oderated by increased output of aircraft, trucks, and freight cars. In some lines, industrial outp u t clearly has been restricted FEDERAL RESERVE BANK OF NEWYORK 63 by capacity lim itations. M ost notably, steel production has stem m ed by the end of the first quarter, how ever, as residential been running at virtually full capacity since last O ctober, w ith outlays seemed to be stabilizing w hile expenditures for indus high backlogs apparently assuring continued peak operations trial building and some other types of construction continued through the first half of this year. In part, this has been a to gain. Furtherm ore, contracts for new construction have result of inventory accum ulation by custom ers w ho anticipate been running well above a year ago for the past few m onths. a possible strike and higher prices after the current labor In contrast to the sizable increases recorded during m ost contract expires at the end of June, but it also reflects the of last year, both farm and nonfarm em ploym ent have gen strong dem and generated by capital expansion program s. erally displayed only seasonal changes in recent m onths; the O u tput of nonferrous m etals and of m any types of industrial estim ated num ber of persons out of w ork has also held fairly chemicals and paper products also has been at capacity for a steady at a level slightly higher than during last sum m er and num ber of m onths. O n the other hand, production of textiles equivalent to about 4 per cent of the civilian labor force, and apparel, and of certain durable consum er goods, has leveled after allowance for seasonal influences. Em ploym ent in gov off or declined in response to sales trends. ernm ent and in m any service occupations has risen further R eflecting the fact that business sales tended to flatten out in recent m onths, on an adjusted basis, but the num ber of earlier than production, inventory accum ulation accelerated workers in m anufacturing declined during the first three sharply in the fourth quarter of 1955 and continued at a sub m onths of this year, m ainly because of cutbacks in the auto stantial pace in the opening m onths of 1956. By the end of m obile industry. A t the same tim e, the w orkw eek in m anu February the ratio of stocks to sales had risen by 5 per cent facturing has been declining and was slightly shorter in M arch from its low poin t last sum m er, w ith increases at nearly all than a year earlier; but hourly rates of pay have advanced both stages of production and distribution. T he over-all ratio was in m anufacturing and in other types of em ploym ent, thus no higher than a year earlier, however, and still below the providing an im portant support to the slowly rising trend level of the preceding few years, suggesting that m uch of the in personal income. recent inventory rise may have represented a catching-up w ith W age increases, how ever, along w ith the strains im posed by the advanced rate of sales. N evertheless, it is widely recog capacity operations in m any lines, have been a source of con nized that the recent rate of inventory increase, w hich has tinuous upw ard pressure on industrial prices. T he average stem m ed partly from price rises— actual and anticipated— has rate of price increases from Septem ber to A pril, w hile m uch been larger than can be sustained for long. slower than in the few preceding m onths, has been enough to A n im portant factor in the recent trend of business activity generate some apprehension; m any observers anticipate that has been the m oderate decline in construction outlays. Follow further w idespread increases w ill follow a rise in steel prices ing a strong rise throughout 1954 and m ost of 1955, spending after midyear. Prices of farm products also have advanced in in this area fell off som ew hat in the fourth quarter (after the past few m onths, reversing at least tem porarily their sharp seasonal adjustm ent) and declined further in early 1956, as decline during m ost of last year, and aggregate wholesale low er outlays for residential building w ere only partially offset prices consequently have risen to the highest level since the by increases elsewhere. T he declining trend appeared to be end of 1951. C onsum er prices, m eanw hile, have show n re m arkably little over-all change, rem aining w ith in the narrow RELATIVE CHANGES INMAJOR COMPONENTS OF INDUSTRIAL PRODUCTION range that has prevailed for several years. Soptombor1955toMarch1956 March1955toSoplombor1955 Le a d in g E l e m e n t s o f W e a k n e ss a n d S t r e n g t h T hroughout 1955 the m arkets for new housing and new autom obiles, w hich w ere contributing so m uch to the business expansion, were w idely regarded as potential sources of w eak ness for the economy. W hile consum er spending in both these areas has declined since last Septem ber, playing a m ajor part in slow ing the econom y’s rate of advance, these declines recently have show n som e signs of com ing to a halt. Thus, during the past few m onths the value of contract awards for residential building has been running w ell ahead of the late 1955 pace, after seasonal adjustm ent, and som ew hat ahead of a year ago as well. M oreover, w hile th e year-long dow nw ard trend in new housing starts continued during the opening Parconl foruni m onths of this year, the m onth-to-m onth declines in outlays SovrcotBeardafGovernor*ofth«h^wot R**orvoSyrifa,dataadlustodforMatoaal variation. for residential building w ere becom ing progressively smaller. 64 MONTHLY REVIEW, MAY 1956 In part, the dow ntrend in building during the latter part of cent above the rate for 1955 as a whole. B usinessm ens plans 1955 seems to have stem m ed from the lesser availability of -indicated an additional rise to an annual rate of 35.3 billion m ortgage m oney and the som ew hat m ore restrictive dow n in the second quarter and a slight further advance in the paym ent and m aturity term s required by Federal agencies that second half of 1956. These investm ent increases, actual and underw rite hom e m ortgages; similarly, the recent leveling planned, w hich have been reported for nearly all m ajor indus tendency m ay be traced in som e m easure to the easier avail tries, strongly attest to a high level of business confidence not ability of m ortgage funds early this year and the restoration only in im m ediate sales prospects, b u t also w ith regard to a in January of m ore liberal term s on Federally guaranteed and m ore extended future period. insured m ortgages. Larger governm ent outlays for goods and services, especially M uch larger in dollar term s than the decline in hom e build by State and local authorities, also have been a source of ing since last sum m er has been the reduction in consum er strength to the economy. M oreover, a som ew hat higher budget outlays for autom obiles; b u t in this area, too, there are some for Federal spending in the com ing fiscal year, and the prospect indications that the dow nturn may have run m uch of its of continuing expansion at the State and local level, make course. N ew car sales showed a seasonal uptu rn during Febru further increases in governm ent expenditures likely during ary and M arch, and an active dem and has been reported for the rem ainder of the year. T hese m ay provide particularly used cars. M oreover, there is considerable optim ism , both im portant support in such areas as m ilitary hardw are and w ith in and outside the autom obile industry, that new m odels heavy construction. to be introduced later in the year w ill stim ulate consum er Finally, continued grow th in consum er spending for services dem and. D ealers’ inventories of new cars currently are very and nondurable goods has contributed substantially to the high, but the sharp rise since last autum n— w hich apparently econom y’s high level of activity in recent m onths, show ing resulted initially from an overestim ate of sales possibilities for increases that m ore than offset the drop in outlays for durable the new m odels offered at that tim e, and w hich continued in goods, w hich m ainly reflected low er new car sales. T his early 1956 despite substantial cutbacks in production— seems upw ard trend in total consum er outlays during a period of to have been checked in M arch. T he possibility of a further general leveling-off in business activity illustrates forcefully seasonal strengthening of sales has given rise to hopes of the sustaining influence of such spending on econom ic grow th. restoring a m ore norm al relationship betw een stocks and A n encouraging indication of continued large outlays was sales, although further, m ore-than-seasonal output cuts may provided recently by the Survey of C onsum er Finances, spon still occur. Last m onth, leading m anufacturers announced a sored by the Board of G overnors of the Federal Reserve Sys fu rther paring of production plans for the A pril-June quarter, tem, w hich pointed to a strong financial position for con scheduling about 25 per cent few er assemblies than in the sumers, w idespread confidence in the business outlook, and a corresponding m onths of 1955. high level of spending intentions for this year. Also receiving m uch attention in recent m onths as a "soft C o n c l u s io n spot” in the econom y has been the reduced level of farm income. H ere, too, the decline that has continued for several D espite the leveling-off in over-all business activity and years has shown signs of halting, at least tem porarily. Farm the extensive inventory accum ulation during the past several prices have strengthened noticeably since D ecem ber, and, w hile m onths, the recent period may well have been one of hesitation this advance has been partly seasonal, it may also denote a in the econom y’s advance rather than a peak from w hich m ore fundam ental change in trend. T o some extent, the price substantial declines m ust follow. For, w hile the dow nturns advances have reflected the m arket s response to G overnm ent in autom obile sales and in hom e building as w ell as the w eak efforts aim ed at bolstering agricultural incom e. Early in 1956 ening last year in farm ers’ incom e undoubtedly generated som e Federal buying helped to strengthen m eat prices, w hile in dow nw ard pressures on the econom y at large, there have also A pril the A dm inistration announced higher support levels for been pow erful upw ard forces generated by expanding business several basic crops. capital outlays and m oderate strength in other m ajor sources C ounterbalancing the weakness since last Septem ber in the of final dom estic dem and. Foreign dem and has also been a areas noted above, some other types of activity have registered stim ulant, both to high activity and rising prices. These factors appreciable increases. M ost notable, both for the size of its lend support to the view th at aggregate final dem and m ay be advance and the strategic nature of such spending, has been well sustained in the m onths im m ediately ahead. the upsurge in business outlays for new plant and equipm ent. T here has been little evidence th at inventories in general A ccording to a G overnm ent survey early this year, outlays are currently too high, b u t the rapid grow th of stocks in recent d uring the first quarter w ere estim ated at a seasonally adjusted m onths— against a background of little change in sales— has annual rate of 33.2 billion dollars; this was some 3 V i billion aroused concern that accum ulation m ight proceed too far and m ore than in the third quarter of 1955 and m ore than 15 per then slow dow n abruptly. A further and related source of FEDERAL RESERVE BANK OF NEW YORK apprehension during recent m onths has been the persistent advance in industrial prices. N evertheless, to the extent that price increases have reflected dem ands pushing against capacity lim itations, the current expansion of productive facilities may 65 in tim e relieve some of the upw ard pressure. In addition, the recent tightening of credit and continuation of strongly com petitive conditions in retail m arkets m ay exert a restraining effect on both price and inventory increases. RECENT STERLING AREA DEVELOPMENTS T he recovery of sterling in the past few m onths has been when unem ploym ent dropped to less than 1 p er cent of the m ainly a response to the m easures of financial restraint that num ber of em ployed. T he increase in wages and prices was were adopted by the B ritish and other sterling area authorities accelerated, the rise in 1955 being m ore than half again as in 1955 and in early 1956. T he official sterling-dollar rapid as that of the previous year and larger than in m ost of the exchange rate, w hich had dropped close to the low er support countries that are B ritain’s m ain com petitors in w orld trade. level of $ 2 .7 8 in January and February 1955, and again in A m ong the overseas sterling area countries, on the other the sum m er m onths, has now been above par for six m onths hand, a considerable degree of econom ic stability prevailed. and is currently the highest since A ugust 1954. Transferable Alm ost everywhere incom e was increasing under the spur of sterling, w hich can be converted into dollars by foreign holders generally favorable com m odity exports and expanding dom es in m arkets outside the sterling area,1 has for some tim e been tic outlays, and only in such countries as Australia, N ew quoted above $2.78, the Bank of E ngland’s low er support Zealand, and South A frica was there any question of the ex lim it for Am erican-account sterling. A t the same tim e, pansion being at too rapid a pace. In these countries restraint the rise in B ritain’s gold and dollar reserves during the first measures, principally the tightening of m onetary policy, three m onths of this year has already m ade good about one were adopted by the authorities to curb inflationary pressures fourth of last years drain. Finally, and perhaps m ost im por and right the balance of paym ents; A ustralia also had re tant, this recovery has been achieved w ithout any backtracking course to further direct im port controls, and South A frica from the degree of trade and paym ents liberalization that had established controls on outw ard flows of South A frican capital. been attained in 1953 and 1954 prior to the re-em ergence of St e r l in g A r e a T rade a n d P a y m e n t s sterling difficulties. These contrasting trends w ithin the sterling area in 1955 E c o n o m ic E x p a n s io n A m id S t r a in s brought about a notable change in the p attern of trade and T he recent sterling difficulties have differed basically from paym ents that had been established after the area’s balance-ofthose of the crisis year of 1947, the devaluation year of 1949, paym ents difficulties of 1951. From 1952 to 1954 B ritain’s and the post-K orea inflationary outbreak of 1951. W hereas the balance of paym ents on current account had show n deficits difficulties of the three earlier periods had originated largely w ith nonsterling countries, but these deficits had been m ore in inflationary pressures that in greater or less degree afflicted than offset by the surpluses of the rest of the sterling area w ith all parts of the sterling area, the current strains have em anated the nonsterling w orld, including its sales of newly m ined gold in London. As a result, the sterling area as a w hole was to a m uch larger extent from B ritain alone. In 1955 B ritain produced m ore than at any other tim e in in surplus w ith the outside world, and it was largely for this its history, but beneath this buoyancy lay an im balance be reason that the gold and dollar reserves held by B ritain as tw een the rates at w hich production and aggregate expendi banker for the whole area rose by 1,332 m illion dollars in the ture w ere expanding. U nder the im pact of rapidly grow ing two years ended m id-1954. In addition, B ritain had a large business investm ent in fixed capital and inventories and, to a current account surplus w ith the overseas sterling area that lesser degree, a rising level of consum er buying, the total in m ore than offset its deficit w ith nonsterling countries. Last crease in expenditure last year was one-fifth larger than in pro year, by contrast, B ritain’s current deficit w ith nonsterling duction. As a result, im ports rose sharply to m eet the expanded countries was so enlarged as to m ore than offset the sustained dem and from the hom e econom y, and exportable goods were surplus of the overseas sterling countries, w ith the result that diverted to the hom e m arket, thereby sw inging the balance of the position of the entire sterling area changed from a surplus paym ents from surplus to deficit. T his was accom panied by of 97 m illion pounds in 1954 to a deficit of 181 m illion other fam iliar signs of strain. Job vacancies in industry, w hich in 1955. T he altered position of sterling last year is thus largely had been about equal to the total num ber of unem ployed early explicable in term s of the deterioration of B ritain's ow n bal in 1954, rose to m ore than double that num ber last sum m er ance of paym ents on current account; the B ritish deficit is 1 For a brief discussion of transferable sterling, see "Recent Develop provisionally estim ated at 103 m illion pounds, com pared w ith ments in Foreign Exchange and Payments Policies’*, Monthly Review, a surplus of 205 m illion in 1954. T his change was brought December 1955. 66 MONTHLY REVIEW, MAY 1956 about chiefly by a 400 m illion increase in im ports— a rise of to 4 Vi per cent, and was then raised further to 5 Vi per cent 13 p er cent— of w hich the bulk was from the dollar area and in m id-February 1956, the highest level since February 1932. C ontinental W estern Europe; the expansion largely reflected T he increases in the bank rate w ere accom panied by rises in the increased dom estic dem and for industrial raw m aterials the entire pattern of m arket interest rates, w ith the shorter end and semifinished goods. Also contributing to the over-all of the rate structure being particularly affected. T he yield on deterioration was a 142 m illion pound decline in net receipts three m onths’ Treasury bills, for example, rose from 1.60 per from so-called invisible transactions, due m ainly to greater out cent in N ovem ber 1954 to 5.01 per cent tow ard the end of lays for foreign shipping services and special B ritish paym ents A pril 1956. associated w ith the reopening of the oil refining facilities in A t the tim e of the February 1955 discount rate increase,, Iran. Only partly offsetting these increased paym ents was a 244 controls over consum er credit, w hich had been dropped the m illion pound rise in B ritish exports, principally to the dollar previous sum m er, w ere reim posed; they w ere tightened in area and to other nonsterling countries. T he increase was July 1955, and again last February. In July 1955 the Chancel prim arily accounted for by exports of m etals and engineering lor of the Exchequer requested that the banks effect "a positive products, even though B ritain failed to m aintain its share of and significant reduction” in advances, w hich had continued to w orld m arkets for these products. increase rapidly despite the earlier measures to tighten credit. T he change in the B ritish gold and dollar position from a A t the same tim e he indicated that the C apital Issues C om 244 m illion dollar surplus in 1954 to a 642 m illion deficit in m ittee w ould be m ore critical in scrutinizing applications; last 1955 was largely the outcom e of this deterioration in B ritain's February the com m ittee was directed to adopt a still m ore balance of paym ents on current account, although the recorded stringent policy, and in the follow ing m onth the exem ption capital outflows that accom panied this deterioration also from capital issue control was reduced from £50,000 to adversely affected its gold and dollar reserves. O f this change £10,000. Finally, the authorities have substantially increased in the gold and dollar position, about half was attributable a variety of governm ent-controlled interest rates, including to the enlargem ent of B ritain’s deficit w ith the dollar area. those on new loans by the Public W orks Loan Board, w hich G old and dollar paym ents to nondollar countries, however, has financed a large part of the local-governm ent housing also w ent up m ore than 500 m illion dollars, including the program s. dollar cost of com m odities resold by B ritish m erchants to The greatly expanded role of governm ent spending in the W estern European countries; such sales, of course, helped to economy, com pared v/ith prew ar years, has of course lent added reduce the sterling area’s deficit w ith the E uropean Paym ents im portance to fiscal policy, and the progressive tightening of U nion and tended to enhance the usefulness of sterling as an this policy over the past half year or so has been a significant international currency. These drains on sterling area reserves part of the over-all disinflationary program . W hile taxes, in w ere only partly offset by an increase in the overseas sterling cluding those on personal and corporate incomes w ere reduced area’s com bined gold and dollar surplus. W hile the latter’s under the A pril 1955 budget, the purchase tax was increased direct surplus w ith the dollar area showed a relatively small in O ctober, and during the autum n and w inter announcem ent decline in 1955, its gold sales in the U nited K ingdom increased was m ade of measures to reduce the expenditures of the public by over 100 m illion dollars, to m ore than double the level of authorities, including cuts in m ilitary m anpow er, subsidies, the years im m ediately preceding the reopening of the London and the projected investm ent program s of the nationalized gold m arket in M arch 1954. industries. In addition, local authorities, w hich had been bor row ing heavily from the Public W orks Loan Board, w ere M o n e t a r y a n d F iscal R e s t r a in t M ea su r es directed to finance as large a portion of their requirem ents as T he inflationary pressures in B ritain, w hich were largely the possible in the capital m arket. In m id-February, m oreover, the cause of these balance-of-paym ents difficulties, were m et by C hancellor announced a reduction in certain allowances under m easures of restraint that have becom e progressively stricter w hich tax relief had been provided to encourage private in and m ore com prehensive. These m easures have been directed vestm ent. Finally, in his budget for fiscal year 1956-57, he an at m oderating private consum ption and investm ent, as w ell as nounced further measures to bring aggregate governm ent governm ent outlays, w ith the basic aim s of stabilizing internal expenditures (including those of the nationalized industries) costs and prices and of redressing the im balance in external closer into balance w ith revenues than at any tim e since paym ents by stim ulating exports and restraining im ports. A 1950-51. These m easures included the elim ination of the distinctive feature of the governm ent’s program was the m ajor bread subsidy, higher taxes on business profits, tobacco, and role assigned to m onetary policy, w hich had not been relied some beverages, and a general review of all departm ental ex on to any such significant degree in any earlier postw ar period penditures w ith the aim of reducing them by at least 100 m il of difficulty. lion pounds from budget estim ates. In addition, the C hancellor announced m easures to stim ulate private savings, including a In line w ith this policy, the Bank of E ngland’s discount rate in January and February 1955 was raised in tw o steps novel sm all-denom ination bond issue w ith lottery features. FEDERAL RESERVE BANK OF NEW YORK 67 W h ile it is, of course, still too early to assess the im pact of the lowest level in nearly a year, m uch of the im provem ent the new budget, the fiscal and m onetary m easures adopted being attributable to a rise in exports to record heights. As since early 1955 have clearly helped to restrain the boom a result of this basic im provem ent, and also because of the prim arily through the change that they have effected in B ritish seasonal dem and for sterling area exports, gold and dollar re m onetary conditions. W hereas the m oney supply increased serves have been rising steadily in 1956. T here are indications, rapidly until the beginning of 1955, last year it not only ceased too, that some of the special balance-of-paym ents factors that to grow but actually declined; how ever, the velocity of this operated to B ritain’s detrim ent in 1955 w ill not be repeated in 1956. A m ong these is the possibility that the better balance dim inished m oney supply seems to have increased. in the B ritish econom y w ill lead to the closing-out of bear T he decline in bank deposits that underlay this tightening positions in sterling and the rebuilding of foreign-held sterling in B ritain’s m onetary conditions is attributable largely to the balances. liquidation of bank investm ents and, to a sm aller extent, to a O n the other hand, as the B ritish G overnm ent’s E c o n o m ic decline in advances. Partly offsetting this decline in invest S u rv ey for 1956 has pointed out, B ritain last year m issed an m ents and advances was a considerable increase in the London exceptionally favorable opportunity to strengthen its interna clearing banks’ cash and m oney m arket assets, chiefly the latter. tional position. T he w orld level of dem and for B ritain’s trad i T reasury bill holdings of the clearing banks w ere alm ost 100 tional exports of the m etal-w orking and engineering industries m illion pounds higher in m id-M arch 1956 than a year earlier; was perhaps never higher. Y et, despite the increase in its own this rise appears to have been largely the outcom e of the exports, an enlarged share of w orld m arkets was taken up by T reasury’s budgetary deficit and w hat was, in effect, the financ B ritain’s chief com petitors, including G erm any and Japan. ing of repaym ents of bank advances to the nationalized gas T he U nited States balance of paym ents again resulted last year and electricity industries prim arily through increases in the governm ent’s floating debt. Even after the reduction in bill in net dollar outpaym ents of about 1.5 billion dollars to the rest holdings during the first quarter of 1956, w hen the Treasury’s of the w orld;2 nevertheless, B ritain’s reserves declined w hile tax receipts w ere seasonally high and its cash position was in those of C ontinental E urope continued their rapid build-up. Furtherm ore, w hile the recent uptu rn in B ritain’s gold and surplus, the banks’ liquidity ratios were appreciably higher than they had been a year earlier. As a consequence, the ques dollar reserves seems basically to reflect a genuine im prove tion has recently been widely discussed in B ritish financial m ent in its international position, it is undoubtedly also circles as to w hether the governm ent’s financial policies, and attributable in p art to purely seasonal factors that in the past especially its debt m anagem ent, are as yet fully adequate for have often been reversed later in the year w hen dollar im ports rise and paym ents on the U nited States and C anadian postw ar the m aintenance of m onetary control. loans fall due. Substantial net gold and dollar receipts are therefore needed in the first half of the year not only to off P ro blem s a n d P rospects set a possible net outflow in the second half, b u t also to T his relatively high liquidity of the banking system u n rebuild the reserves from the low level at w hich they still doubtedly presents a problem that has yet to be dealt w ith, stand. T he problem of rebuilding the reserves is rendered although the cash offer on A pril 25 of 3 Vz per cent Treasury even m ore difficult by B ritain’s political com m itm ents abroad, Stock carrying a gross redem ption yield of 4.825 per cent am ong w hich the m ost im portant are the m aintenance of is an indication of the governm ent’s determ ination to deal arm ed forces on the C ontinent and elsew here and the supply w ith the problem of short-term debt. Basically, B ritain’s ing of capital to the overseas sterling area. problem is to restrain dom estic spending so that internal costs In the face of these problem s, the B ritish authorities have and prices can be reasonably stabilized and the country’s endeavored to restore a sustainable balance to the economy, international paym ents position strengthened. In achieving dom estically as w ell as internationally, and to secure the con this goal the authorities are facing the need not only of ditions necessary for its long-run grow th. N o t only have they restraining consum er and governm ent expenditures but also of adopted the rem edial m easures that they regarded as appro curbing investm ent on w hich B ritain’s longer-run position in priate under the circum stances, but they have also reinforced the w orld economy— and indeed its general well-being— is and broadened them w henever earlier efforts did not appear dependent. They are consequently confronted by the delicate to be obtaining the desired results w ith sufficient speed. T he task of curbing the boom w hile at the sam e tim e m aintaining conditions conducive to further grow th, in w hich an increase long-run objective of these efforts has been w ell expressed in the Chancellor of the Exchequer’s recent budget speech, as in private dom estic savings m ust play a leading role. It appears from several sensitive indicators of econom ic well as in the governm ent’s E c o n o m ic S u rv ey for 1956, which conditions that the governm ent’s financial policies are bearing concludes: This programme of disinflation is disagreeable but neces fruit. T he strengthening of the sterling-dollar exchange rate sary: carried through with determination, and with the has already been m entioned; this was accom panied during 2 See "Trends in International Reserves and Payments in 1955*’, February and M arch by a decline in B ritain’s trade deficit to Monthly Review, February 1956. MONTHLY REVIEW, MAY 1956 understanding of the country, our economy will emerge stronger and safer, and we can look forward to a steady advance in the standard of living thereafter. T he reconciliation w ith this objective of the m any obliga tions w ith w hich B ritain is faced is indeed a challenging task. T he determ ination w ith w hich the B ritish G overnm ent is approaching this task is clearly a m atter that transcends the interests of the sterling area alone. For the continuation of the m ovem ent tow ard freer trade and paym ents that has devel oped in recent years depends in large m easure on the sterling area's stability and prosperity. SURVEY OF BUSINESS LOANS AT MEMBER BANKS IN THE SECOND DISTRICT A survey of business lending at m em ber banks in the Second D istrict, conducted last O ctober 5, indicated that be tw een that date and N ovem ber 20,1 9 4 6 , w hen a sim ilar survey was conducted, the num ber of business borrow ers at m em ber banks in the Second D istrict had m ore than doubled, that the relative im portance of the various industrial groups am ong bank borrow ers had shifted significantly, and that the size of the average business loan had increased. T he survey also showed that interest rates on m ost types of business loans were higher in 1955 than 1946, that the proportion of term loans to total loans had declined som ew hat, and that the proportion of cor porate and noncorporate firms am ong business borrow ers had shown little change. Historically, one of the prim ary functions of the com m ercial Ibanking system in this country has been to supply a substantial part of the w orking capital needs of com m erce and industry through loans to business. Since the end of W orld W ar II, the volum e of such loans m ade by com m ercial banks has expanded trem endously. It has been possible to follow the size and trend of this expansion through data provided in m em ber bank condition reports. Lim ited inform ation has also been available on loans to large businesses by type of industry and on average interest rates from a few large banks. B ut such reports provide no inform ation for the great bulk of business loans on the size or business of borrow ers, the size or m aturi ties of individual loans, or even the num bers of loans made. T o obtain inform ation of this nature, the Federal Reserve System has in the last fourteen years m ade three m ajor surveys of business lending at m em ber banks throughout the country; the first was conducted in the spring of 1942,1 the second as of N ovem ber 20, 1946, and the third as of O ctober 5, 1955. T he tabulation of part of the 1955 survey data has recently been com pleted. T he rem ainder of this article describes the m anner in w hich the m ost recent survey was conducted in this D istrict and outlines some of the m ajor changes that the sur vey and the condition reports indicate have occurred in com m ercial lending in this D istrict since the end of the war. Articles in subsequent issues of this R e v ie w w ill discuss the inform ation obtained in the O ctober survey on loan m aturities, interest rates, and collateral and on the size, type of business, and location of borrow ers. 1 The data gathered in the first surrey are not strictly comparable with those collected in the second and third surveys. S u rvey o f C o m m e r c ia l L o a n s In the O ctober 1955 survey, reports w ere received from all m em ber banks in the Second D istrict w ith total deposits of 50 m illion dollars or m ore and, as T able I shows, from a sizable representation of the sm aller banks. In selecting the sam ple of the sm aller banks to be included in the survey, all m em ber banks w ith deposits of less than 50 m illion dollars were grouped according to geographic location and then subgrouped according to the volum e of their total deposits and the rela tive im portance of their com m ercial lending. From each sub grouping, a sufficient sam ple of banks was draw n at random to perm it an adequate analysis of com m ercial lending for each of the size-groups of banks show n in the table. In the aggre gate, reports were received from 267 m em ber banks w hich held 97 per cent of all com m ercial loans outstanding in the Second D istrict on June 30, 1955. T he banks in the survey w hich had total deposits of less than 10 m illion dollars subm itted detailed inform ation on every one of their com m ercial loans outstanding on O ctober 5, 1955, w hile banks w ith total deposits of 10 m illion to 100 m il lion dollars subm itted data on each individual com m ercial loan of $100,000 or m ore and on one sixth of their sm aller com m ercial loans. T he largest respondents provided data on each loan of 1 m illion dollars or m ore and on every sixth loan of less than 1 m illion dollars. In ail, the 267 m em ber banks in the survey provided detailed inform ation on approxim ately 40,000 individual loans. T a b le of I N u m b e r o f B a n k s a n d D o lla r V o lu m e C o m m e rc ia l a n d In d u s t r ia l L o a n s in S a m p le B a n k s C o m p a re d w ith A l l M e m b e r B a n k s o f th e D is t r ic t N u m b e r of m em ber banka B a n k s iz e -g ro u p s (m e a su re d b y t o t a l d e p o sits o n J u n e 30, 1955) $ 2 % b i l l i o n a n d o v e r ........... $ 1 b illio n t o $ 2 H b i l l i o n . .. $ 5 0 0 m i l l i o n t o $ 1 b i l l i o n . .. $ 2 5 0 m illio n t o $ 5 0 0 m il li o n . $ 1 0 0 m illio n t o $ 2 5 0 m il li o n . $ 5 0 m illio n t o $ 1 0 0 m il li o n . $ 2 0 m illio n t o $ 5 0 m il li o n .. $ 1 0 m illio n t o $ 2 0 m i l l i o n . . $ 2 m illio n t o $ 1 0 m il li o n . . . U n d e r $ 2 m i l l i o n ................... T o t a l ........................... C o m m e r c ia l a n d in d u s t r ia l le a n s o u t s t a n d in g J u n e 3 0 , 1 9 5 5 M illio n s o f d o lla rs A ll m e m b e rs 4 4 3 8 20 19 71 99 333 79 640* A ll m e m b e rs In su rv e y s a m p le P e rc e n t a g e in s a m p le banks 4 4 3 8 20 19 42 49 77 41 4 ,7 2 5 2 ,4 6 2 566 535 377 240 227 122 128 8 4 ,7 2 5 2 ,4 6 2 566 535 377 240 133 60 29 4 1 0 0 .0 1 0 0 .0 1 0 0 .0 1 0 0 .0 1 0 0 .0 1 0 0 .0 5 8 .6 4 9 .2 2 2 .7 5 0 .0 267 9 ,3 9 0 9 ,1 3 1 9 7 .2 In s u rv e y s a m p le * Eight banks without commercial loans were excluded. FEDERAL RESERVE BANK OF NEWYORK T r en d s T o t a l B u sin e s s L e n d in g i n t h e P o stw a r Y ears A t the close of W orld W a r II, nearly four fifths of the earn ing assets of all m em ber banks in the U nited States consisted of G overnm ent or "other” securities; loans accounted for the rem aining one fifth. T o m eet the sustained dem and for credit by virtually all the private segm ents of the econom y w hich developed after the close of W orld W ar II, the com m ercial banks disposed of a substantial portion of their G overnm ent securities and expanded loans to businesses and consumers and loans on real estate. C urrently, m em ber bank earning assets in the aggregate are divided alm ost evenly betw een loans and investm ents. D u ring the postw ar period, business loans of m em ber banks in the U nited States rose from 7.1 billion dollars at the end of June 1945 to 31.0 billion dollars at the end of 1955, or by nearly AVz times. By m id-A pril 1956, the total had risen fur ther to an estim ated 32.3 billion dollars. T his increase accom panied the expansion in production and trade and, as the accom panying chart shows, was interrupted only three tim es— in 1949-50, 1952, and 1953-54. D u rin g the first and third of these periods, the econom y was experiencing inventory liqui dations, and w hile inventories w ere being reduced to w hat was considered m ore com fortable levels, dem ands for bank credit contracted. A t N ew Y ork C ity m em ber banks business loans expanded from 2.4 billion to 9-7 billion ddllars, or by 304 per cent, from June 30, 1945 to A pril 11, 1956. In the Second Federal Reserve D istrict outside N ew Y ork City they increased by 465 per cent. T he greatest grow th in com m ercial lending at D istrict banks occurred in Syracuse, Albany, and Buffalo. In the rest of the country, the greatest relative gains in com m er cial lending were in the m iddle and southern A tlantic States and the w estern parts of the country. in COMMERCIAL AN D INDUSTRIAL LOANS DURING THE PO STW AR PERIOD Call dates, June 30 , 1945 -December 31, 1955 Bill ions of dollars Billions of dollars 1O C W 35 30 J 25 All member banks 20 I 15 — / I 10 S 30 25 20 _ 15 V — All Second District member banks j 10 f 5— _ 5 0 1 1 1 1 1 1 1 1 1 I 1 1 1 1 1 1 1 1 1 1 1 1 1 II 1 1 1 1 1 l l 1 1 i 1 l 1 I i 1 1945’46 >47 ’48 ’49 ’50 ’51 ’52 *53 ’54 >5 S o Central reserve ^ ew York City banks 69 M easured in relative term s, the postw ar rise in business lending by the m em ber banks has been outstripped by the increases in real estate and consum er loans, but in actual am ount business loans rose m ore than any other type of credit. In the N ew Y ork C ity banks, m oreover, business loans are vastly m ore im portant than any other segm ent of the banks' loan portfolio, currently accounting for five eighths of total loans and nearly 40 per cent of their total earning assets; in the country as a w hole, the current proportions are 43 and 22 per cent, respectively. Between the N ovem ber 1946 and O ctober 1955 surveys of business loans, the dollar am ount of such loans in this D istrict increased from 4.6 billion dollars to 10.6 billion dollars, or by 129 per cent, w hile the num ber of business loans increased from 114,000 to 254,000, or by 123 per cent. T he greater rise in dollar am ount than in num ber was due to a 3 p er cent rise in the average size of loans. For the country as a whole, the dollar volum e of business loans rose from 13.2 billion dollars in 1946 to 30.8 billion dollars in 1955, or by 133 per cent, w hile the num ber of loans rose from 673,000 to 1,317,000, or by 96 per cent. T his greater relative increase in the dollar am ount of business lending in the country as a whole than in this D istrict reflected a greater rise (1 9 per cent) in the average size of the loans extended. H ow ever, despite this greater grow th, the average size of loans in this D istrict rem ained about tw ice as large as in the country as a w hole because of the heavy concentration in N ew Y ork City of large banks w ith large legal lending lim its. As of O ctober 5y 1955, business loans in the Second D istrict accounted for 34.3 per cent of the dollar volum e of business loans outstand ing at all m em ber banks and 19.3 per cent of the num ber; th e respective percentages on N ovem ber 20, 1946 w ere 35.0 and 16.9 per cent. C h a n g e s S in c e t h e P r evio u s S u r v e y in B u sin e s s L e n d in g by T y pe o f B orrow er T able II shows the num ber and dollar am ount of business loans to various classes of business borrow ers in the Second Federal Reserve D istrict on the 1946 and 1955 survey dates. It indicates that betw een 1946 and 1955 there was a rather large shift in the relative im portance of the m ajor groups o f borrowers. Loans to all classes of borrow ers increased in both num ber and dollar am ount in the 1946-55 period, but in 1955r loans m ade to m anufacturing and m ining and to trade con cerns accounted for a m uch sm aller proportion of the total than in 1946, w hile "other” types of borrow er accounted for a m ore substantial portion. T he increase in loans to service industries, construction contractors, sales finance com panies, and public utilities far exceeded the increases in the num ber and dollar am ount of loans m ade to m anufacturing and m ining concerns and trade concerns. T otal loans to the form er group of industries increased by 80,000 (235 per cent) in num ber and 3.1 billion (242 per cent) in dollar am ount from 1946 to 1955, accounting for 57 per cent of the increase in the total 70 MONTHLY REVIEW, MAY 1956 T a b le A c tu a l a n d P e rce n ta ge II D is t r ib u t io n b y Type o f B o rro w e r o f the D o lla r A m o u n t a n d N u m b e r o f B u s in e s s L o a n s O u t s t a n d in g a t M e m b e r B a n k s in the S e c o n d F e d e ra l R e se rv e D is t ric t o n N o v e m b e r 20 , 1 9 4 6 a n d O cto b e r 5, 1 9 5 5 N u m b e r o f lo a n s, in th o u san d s P e r c e n t d is t r ib u t io n A m o u n t , i n m illio n s of d o lla rs P e r c e n t d is t r ib u t io n N o v . 20, 1946 N o v . 20, 1946 O c t . 5, 1955 N o v . 20, 1946 O c t . 5, 1955 N o v . 20, 1946 O c t . 5, 1955 B u s in e s s o f b o rro w e r Manufacturing and mining—total.................................................... F o o d , l i q u o r , a n d t o b a c c o ................................................................................. T e x t i l e s , a p p a r e l , a n d l e a t h e r .......................................................................... M e t a l a n d m e t a l p r o d u c t s ( i n c l u d i n g ir o n , s t e e l, a n d n o n f e r r o u s m e t a ls a n d t h e ir p r o d u c t s ; e le c t ric a l a n d o t h e r m a c h in e r y ; a n d a u t o m o b ile s a n d o t h e r t r a n s p o r t a t i o n e q u i p m e n t a n d p a r t s ) ................................... P e t r o l e u m , c o a l , c h e m i c a l s , a n d r u b b e r ....................................................... A l l o t h e r m a n u f a c t u r in g a n d m in in g ( in c lu d in g lu m b e r ; f u r n it u r e ; p a p e r ; p r i n t i n g a n d p u b l i s h i n g ; a n d s t o n e , c l a y , a n d g l a s s ) ............... O c t . 5, 1955 2 ,1 8 9 4 ,5 8 4 4 7 .5 4 3 .4 23 46 2 0 .2 1 8 .0 607 224 632 989 1 3 .2 4 .9 6 .0 9 .4 2 8 5 15 1 .8 7 .0 1 .9 5 .7 607 458 1,1 2 2 1 ,2 8 4 1 3 .2 9 .9 1 0 .6 1 2 .1 5 2 11 3 4 .4 1 .8 4 .4 1 .1 293 557 6 .3 5 .3 6 12 5 .2 4 .9 Trade—total............................................................................................. 1 ,1 5 0 1 ,6 2 7 2 4 .9 1 5 .4 57 95 5 0 .0 3 7 .2 W h o le s a le t r a d e a n d c o m m o d it y d e a le r s ( i n c l u d in g s a le s t o b u s in e s s a s f i n a l b u y e r s ) ..................................................................................................... R e t a i l t r a d e ..................................................... .................. ................................. 817 333 939 688 1 7 .7 7 .2 8 .9 6 .5 17 40 22 73 1 4 .9 3 5 .1 8 .6 2 8 .6 Other—total............................................................................................. 1 ,2 7 3 4 ,3 5 7 2 7 .6 4 1 .2 34 114 2 9 .8 4 4 .8 308 581 58 919 1 ,5 7 5 355 6 .7 1 2 .6 1 .2 8 .7 1 4 .9 3 .3 1 5 6 1 9 17 1 .0 4 .4 5 .2 0 .5 3 .6 6 .8 132 429 2 .9 1 14 46 1 2 .2 1 8 .1 194 1 ,0 7 9 4 .2 1 0 .2 8 40 7 .0 1 5 .8 1 0 0 .0 1 0 0 .0 114 254 1 0 0 .0 1 0 0 .0 S a le 3 f in a n c e c o m p a n i e s ( f ir m s p r i m a r i l y e n g a g e d i n f i n a n c i n g r e t a il s a l e s ^ m a d e o n t h e i n s t a l m e n t p l a n ) ........................................................... T r a n s p o r t a t i o n , c o m m u n i c a t i o n , a n d o t h e r p u b l i c u t i l i t i e s ..................... S e r v ic e f ir m s ( in c l u d in g h o t e ls ; r e p a ir s e r v ic e s ; a m u s e m e n t s ; p e r s o n a l a n d d o m e s t ic s e r v ic e s ; a n d m e d ic a l, le g a l, a n d o t h e r p r o f e s s io n a l s e r v i c e s ) ............................................................................................................ A l l o th e r b o rro w e rs (in c lu d in g re a l e sta te o p e ra to rs, o w n e rs, a g e n ts, b r o k e r s , a n d s u b d i v i d e r s a n d d e v e l o p e r s o f r e a l p r o p e r t y ) ............... Total, all borrowers............................................................................... 4 ,6 1 5 * 1 0 ,568f 4 N o t e : B e c a u s e o f r o u n d in g , f ig u r e s d o n o t n e c e s s a r i ly a d d t o t o t a ls . * In c lu d e s a s m a ll a m o u n t o f lo a n s n o t c la s s ifie d b y b u s in e s s o f b o r r o w e r . t T h i s fig u r e d o e s n o t a g r e e w it h t h e c a ll r e p o r t f o r t h i s d a te , sin c e it in c lu d e s r e a l e s ta t e l o a n s f o r b u s in e s s p u r p o s e s a n d e x c lu d e s o p e n m a r k e t p a p e r . num ber of business loans and 52 per cent of the increase in the total dollar am ount. W ith in this general category of business borrow ers, the num ber of loans to service firms ( defined as hotels, repair serv ices, am usem ents, personal and dom estic services, m edical, legal, and other professional services) and the closely allied borrow er group entitled ‘ all other nonfinancial business” ( com prising real estate operators, owners of real estate, agents, brokers, subdividers, and developers of real property, agricul tural services, forestry, and fisheries) was nearly 86,000 in 1955, or about four tim es the 1946 figure of 22,000; the dollar am ount of the loans m ade to these groups of borrow ers totaled 1,508 m illion dollars in 1955, nearly five tim es the 1946 total of 326 m illion. T hese striking increases in the num ber and dollar am ount of loans to these groups of bor row ers reflect their grow ing im portance in the economy. R ising living standards and the high level of building activity have given im petus to the dem and for consum er durable goods and have been accom panied by an expansion in the num ber of firms devoted to servicing and m aintaining this equipm ent. T he higher living standards undoubtedly also have given rise to an expansion in the dem and for professional services and services of various kinds that w ere originally perform ed at hom e. Also, the high level of building activity apparently has been accom panied by an expansion in service units connected w ith the sale, rental, and m anagem ent of real estate. Loans to construction contractors, w hich directly reflect the level of building activity, just about tripled in num ber betw een 1946 and 1955, w hile the dollar am ount showed a sixfold expansion, the largest relative gain of any industry group in the table. T he num ber of loans m ade to the transportation, com m unications, and public utility group did not quite double betw een 1946 and 1955, b u t it did account for the largest dollar increase, 1 billion dollars, of any group. Loans to sales finance com panies increased only m oderately in num ber, b u t they w ere triple the 1946 level in dollar am ount. In the m anufacturing and m ining groups of com panies the greatest relative and absolute increases in the dollar am ount of loans occurred in the textile, apparel, and leather group and in the petroleum , coal, chemical, and rubber group of com panies. In both these groups, the rise in dollar am ount was due m ore to increases in the average size of the loan than to increases in the num ber of loans outstanding. In the food, liquor, and tobacco com panies, the dollar am ount of loans showed the smallest increase of any group, 4 per cent, despite a 150 per cent rise in the num ber of loans, and indicates a large decrease in the average size of the loans m ade to this group of companies. A sim ilar decline in the average size of loans to com panies in this field occurred in other parts of the country; the reasons for it are not entirely clear. It m ay be that the relative stability of earnings for the com panies in these fields perm itted them to finance their expansion to a greater extent out of retained earnings and sale of capital issues and thus lim ited their reliance upon bank credit largely to sea sonal needs. T he fact that the 1955 survey was m ade earlier in the season than the 1946 survey m ay also account, at least in part, for the sm aller average size of the loan. FEDERAL RESERVE BANK OF NEW YORK Loans to concerns in the wholesale trade field (including com m odity dealers) also showed relatively sm all increases in both num ber and dollar am ount. In the retail trade field the increase in the num ber and dollar am ount of loans was larger than in the wholesale trade group b u t was m oderately less than the average grow th in the num ber and dollar am ount of loans to all types of business concerns. T he 1946-55 trend of grow th in business loans in the Second D istrict has generally paralleled the trends show n for the U nited States as a whole. T he grow th in loans to busi nesses other than m anufacturing and m ining and trade has 71 been som ew hat m ore pronounced in the U nited States than in the Second D istrict. W ith in this group, loans to sales finance com panies and to service com panies expanded at a sharper rate in the rest of the country than in the Second D istrict, whereas loans to transportation, com m unications, and public utility concerns increased at a slower rate. T he increase in loans to wholesale trade concerns and food, liquor, and tobacco com panies for the U nited States also was small relative to the increases in loans to other groups of com panies, but was som ew hat larger than the increases show n in loans to the corresponding groups in this D istrict. D EPA R TM EN T STO RE TRA DE B eginning this m onth the regular m onthly article on D epartm ent Store T rade and the accom panying detailed tables w ill no longer appear in the M o n th ly R e v ie w . A m onthly analysis of departm ent store trade, including detailed sales and inventories data, w ill be available on request to the Financial and T rade Statistics D ivision, Research D epartm ent. (T hese data w ill be available the last week of the m onth follow ing the m onth covered.) T he prelim inary estim ate of m onthly sales w ill be included in the weekly press release as soon as that estim ate is available. T he m onthly indexes of Second D istrict sales and stocks will be published regularly in the "Selected Econom ic Indicators” table of this R e v ie w . S E L E C T E D E C O N O M IC U n it e d S t a t e s a n d IN D IC A T O R S Se con d F e d e ra l R e se rv e D is t r ic t Pe rc e n ta g e c h an ge 1955 1956 It e m U n it M a rc h U N IT E D F e b ru a ry Ja n u a ry M a rc h T te st m o n t h L a t e st m o n t h fro m p r e v io u s fro m ye a r m o n th e a rlie r S T A T E S Production and trade I n d u s t r i a l p r o d u c t i o n * ...................................................................... E l e c t r i c p o w e r o u t p u t * ..................................................................... T o n - m i l e s o f r a i l w a y f r e i g h t * .......................................................... M a n u f a c t u r e r s ’ s a l e s * ........................................................................ M a n u f a c t u r e r s ’ i n v e n t o r i e s * ............................................................ M a n u f a c t u r e r s ’ n e w o r d e r s , t o t a l * ................................................. M a n u f a c t u r e r s ’ n e w o r d e r s , d u r a b l e g o o d s * ................................ R e t a i l s a l e s * ........................................ ................................................ R e s i d e n t i a l c o n s t r u c t i o n c o n t r a c t s * ............................................... N o n r e s i d e n t i a l c o n s t r u c t i o n c o n t r a c t s * ........................................ Prices, wages, and employment B a s i c c o m m o d i t y p r i c e s f .................................................................. W h o l e s a l e p r i c e s f ............................................................................... C o n s u m e r p r i c e s f ............................................................................... P e r s o n a l i n c o m e ( a n n u a l r a t e ) * ...................................................... C o m p o s i t e i n d e x o f w a g e s a n d s a l a r i e s * ....................................... N o n a g r i c u l t u r a l e m p l o y m e n t * ........................................................ M a n u f a c t u r i n g e m p l o y m e n t * .......................................................... A v e r a g e h o u r s w o r k e d p e r w e e k , m a n u f a c t u r i n g f ..................... U n e m p l o y m e n t ................................................................................... 1 9 4 7 -4 9 = 1 9 4 7 -4 9 = 1 9 4 7 -4 9 = b illio n s o f b illio n s o f b illio n s o f b illio n s o f b illio n s o f 1 9 4 7 -4 9 = 1 9 4 7 -4 9 = 100 100 100 $ $ $ $ S 100 100 1 9 4 7 -4 9 = 1 9 4 7 -4 9 = 1 9 4 7 -4 9 = b illio n s o f 1 9 4 7 -4 9 = thousand s thousands h o u rs thousands 100 100 100 $ 100 142p — — — — — — — 317 p 265p 8 9 .7 1 1 2 .8 p 1 1 4 .7 — — 5 0 ,2 1 1 p 1 6 ,838p 4 0 . Sp 2 ,8 3 4 143 213 107p 2 7 .2 p 4 6 . 8p 2 7 .8 p 1 4 .3p 15 .3 p 318 298 143 211 112 2 7 .0 4 6 .3 2 8 .1 14 .7 1 5 .7 290 306 8 8 .9 1 1 2 .4 1 1 4 .6 3 1 3 . lp n .a . 5 0 ,2 8 0 p 1 6 ,8 5 2 p 4 0 .5 2 ,9 1 4 8 9 .4 1 1 1 .9 1 1 4 .6 3 1 2 .7 145p 5 0 ,2 8 7 1 6 ,9 0 7 4 0 .6 2 ,8 8 5 135 188 96 2 6 .0 4 3 .3 2 6 .5 13 .4 1 5 .1 291 239 8 9 .2 1 1 0 .0 1 1 4 .3 2 9 5 .7 140 4 8 ,7 6 0 r 1 6 ,2 2 9 4 0 .6r 3 ,1 7 6 - 1 4- 1 4 + + - 1 1 1 3 3 # -1 1 + - + + + + + + + + + + 5 15 11 11 8 12 17 3 9 11 1 # # # # # # 1 3 + + 1 3 + + + + -1 7 4 3 4 1 1 1 3 1 # 4 2 # 7 +17 + 2 + 2 + 7 + 3 + 23 * Banking and finance T o t a l i n v e s t m e n t s o f a l l c o m m e r c i a l b a n k s ................................. T o t a l l o a n s o f a l l c o m m e r c i a l b a n k s .............................................. T o t a l d e m a n d d e p o s i t s a d j u s t e d ..................................................... C u r r e n c y o u t s id e t h e T r e a s u r y a n d F e d e r a l R e s e r v e B a n k s * . B a n k d e b i t s ( 3 3 7 c e n t e r s ) * ............................................................... V e l o c i t y o f d e m a n d d e p o s i t s ( 3 3 7 c e n t e r s ) * ................................ C o n s u m e r i n s t a l m e n t c r e d i t o u t s t a n d i n g f ................................... m illio n s m illio n s m illio n s m illio n s m illio n s 1 9 4 7 -4 9 m illio n s of $ of $ of $ of $ of $ = 100 of $ 7 5 ,180p 8 4 ,7 3 0 p 1 0 4 ,3 6 0 p 3 0 ,468p 7 3 ,5 1 7 1 2 8 .8p 7 5 ,8 1 0 p 8 2 ,540p 1 0 5 ,590p 3 0 ,3 9 6 7 6 ,8 3 0 1 3 1 .9 2 7 ,7 8 4 7 7 ,3 5 0 p 8 2 , OOOp 1 0 8 ,8 5 0 p 3 0 ,5 5 9 7 4 ,7 1 8 1 3 4 .4 2 7 ,7 6 9 8 1 ,1 8 0 7 2 ,3 1 0 1 0 2 ,4 0 0 3 0 ,0 0 0 6 9 ,0 1 3 r 12 5 .6 2 2 ,9 7 4 7 ,0 8 9 5 ,6 0 0 3 ,0 7 5 4 ,7 2 9 5 ,3 2 3 3 ,3 9 4 1 0 ,9 4 3 6 ,9 3 2 3 ,5 5 5 r + 74 + 10 + 1 0 + 13 -1 1 4 144 239 216 1 1 2 .4 7 ,5 3 1 .lr 2 , 6 2 2 . 4r 6 3 ,4 3 6 4 .6 8 2 1 5 5 .3 106 113 2 +1 3 -1 1 # # 1 + 8 5 + 9 + 2 2 + 9 + 4 + 6 4 # + 2 + 2 + 9 + 2 +13 + 1 + 8 + - United States Government finance (other than borrowing) C a s h i n c o m e ....................................................... ................................. C a s h o u t g o ........................................................................................... N a t i o n a l d e f e n s e e x p e n d i t u r e s ......................................................... S E C O N D F E D E R A L R E S E R V E N o t e : L a t e s t d a t a a v a i l a b l e a s o f noon, A p r i l 2 7 , 1 9 5 6 . r It e v is e d . n .a . N o t a v a ila b le . * * A d j u s t e d fo r se a so n a l v a r ia t io n . So u rce : 1 2 ,3 5 1 6 ,1 4 9 3 ,3 9 6 D IS T R IC T E l e c t r i c p o w e r o u t p u t ( N e w Y o r k a n d N e w J e r s e y ) * ................... R e s i d e n t i a l c o n s t r u c t i o n c o n t r a c t s * ................................................... N o n r e s i d e n t i a l c o n s t r u c t i o n c o n t r a c t s * ............................................. C o n s u m e r p r i c e s ( N e w Y o r k C i t y ) f .................................................. N o n a g r i c u l t u r a l e m p l o y m e n t * ............................................................. M a n u f a c t u r i n g e m p l o y m e n t * .............................................................. B a n k d e b i t s ( N e w Y o r k C i t y ) * ........................................................... B a n k d e b i t s ( S e c o n d D i s t r i c t e x c l u d i n g N e w Y o r k C i t y ) * .......... V e l o c i t y o f d e m a n d d e p o s i t s ( N e w Y o r k C i t y ) * ............................ D e p a r t m e n t s t o r e s a l e s * t ..................................................................... D e p a r t m e n t s t o r e s t o c k s * ^ .................................................................. p P r e lim in a r y . m illio n s o f $ m illio n s o f $ m illio n s o f $ 1 9 4 7 -4 9 = 100 1 9 4 7 -4 9 = 100 1 9 4 7 -4 9 = 100 1 9 4 7 -4 9 = 100 thousand s th o u sa n d s m illio n s o f S m illio n s o f $ 1 .9 4 7 -4 9 = 100 1 9 4 7 -4 9 = 100 1 9 4 7 -4 9 = 100 f — — — 11 2 .2 — — 6 9 ,0 7 0 4 ,7 9 5 1 7 5 .6 107 p 122 p 156 251p 331p 1 1 2 .1 7 ,6 6 9 .8p 2 ,6 5 7 .9 p 6 3 ,7 9 2 5 ,0 4 5 1 6 1 .1 105 124 159 222 373 1 1 2 .1 7 ,6 7 1 .3 2 ,6 7 1 .0 6 7 ,6 4 6 4 ,9 8 9 1 7 3 .7 114 122 S e a s o n a l v a r i a t i o n s b e lie v e d t o b e m in o r ; n o a d j u s t m e n t m a d e , t S e e n o t e o n t h is p a g e re fe rrin g t o D e p a r t m e n t S t o r e T r a d e . # C h a n g e o f le s s t h a n 0 . 5 p e r c e n t . A d e s c r ip t io n o f th e s e s e rie s a n d t h e ir s o u r c e s is a v a il a b le f r o m t h e D o m e s t i c R e s e a r c h D i v i s i o n , F e d e r a l R e s e r v e B a n k o f N e w Y o r k , o n re q u e s t .
@FedFRASER