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M ONTHLY R E V IE W of Credit and Business Conditions Second Federal Reserve District November1,1941 Federal ReserveBank, NewYork funds through Treasury transactions in August, Sep tember, andthefirsthalf of October. Intheweekended On September 24, the Board of Governors of the October 22, however, a large loss of funds occurred, FederalReserveSystemannouncedthateffectiveNovem representingcashpaymentsbypurchasersinNewYork ber1reserverequirement percentagesof memberbanks for the newissue of 2y2 per cent Treasury bonds of wouldbeincreasedtothepresent statutorylimit. Im 1967-72. Treasurydisbursementsonlyslightlyexceeded portant changes in the excess reserve position of the receipts in the week ended October 29, and for the memberbankshavetakenplaceduringtheperiodsince wholeperiodfromSeptember24toOctober29Treasury the increase in reserve requirement percentages was transactionsresultedinsomenet lossof reservesof the announced. Most of thechangehasbeenat NewYork NewYorkDistrict banks. City banks, whose excess reserves declined from ith respect to the payment for the newTreasury $1,830,000,000 on September 24 to $1,535,000,000 on boW dissue, banks, bothin this District and in other October 22 andto$1,345,000,000 onOctober 29. The disn t ts, madelarger useof the“bookcredit’’ method surplusreservesheldbyallmemberbanksinthecountry of praic y entthanforsometime. Creditstotheaccount declined from $5,200,000,000 on September 24 to of them T suryonthebooksof banksmakingpayment $4,660,000,000 onOctober 22, andto$4,600,000,000 on forbondrsea a ttedtothemfortheirownaccount, orfor October 29. Onthe basis of the reserve requirements customers, llo a m ountedto approximately 35 per cent of andreserve balances as of October 29, it is estimated the total of bo s allotted, while cashpayments were thatexcessreserves, aftertheincreaseinreserverequire madefor65pernd c tof thetotal of bondsallotted. On ment percentagesbecomeseffectiveonNovember 1, will thetwoprecedingen i s es of Treasurybonds, payments amount to approximately $825,000,000 for the New inthe formof booksu c dits amountedto only 22 per York City banks andto approximately $3,450,000,000 cent (for the Marchisrseu nd17 per cent (for the for all member banks. At the beginning of 1941 at Juneissue) forthecountrey) aa s hole, andinthecase least half of the total excess reserves of all member of theNewYorkDistrict thepaerw c e ntages were12and bankswereheldbytheNewYorkCitybanks. 7 p e r c e n t , r e s p e c t iv e ly . T h e m o r e r ent largeruseof The principal gains and losses of funds, affecting thebookcreditmechanismisareflecteic o nof thedeclines reserve balances of the banks inthe Second Federal ReserveDistrict, areindicatedintheaccompanyingdia +75Oj-------gramfor the period since the beginning of 1941. Throughout this period the Second Federal Reserve District haslost fundsin“othercommercial andfinan cialtransactions”.Theseinclude,inadditiontopayments toandfromotherparts of thecountry onaccount of business transactions, settlements for United States Government securitiesbought orsoldintheNewYork market byinvestors inother districts andtransactions byNewYorkinvestors consummatedinother districts. Exceptingoneweek, this class of transactions resulted inacontinuedsubstantial net drainonNewYorkDis trict bankreservesintheperiodbetweenSeptember24 andOctober 29. The next largest influence onthe reserves of New YorkDistrictbankshasbeenTreasurytransactions, data for which, as giveninthechart, represent theweekly net disbursementfromorreceipt of fundsintheTreas •2000___________________________ ury account at the Reserve Bank. Following alarge cumulativeloss of funds asaresult of Treasurytrans actions inthefirst sevenmonths of theyear, theNew YorkDistrict regainedasubstantial amount of reserve M on ey M a r k e t in O c t o b e r MILLIONS OF DOLLARS 1750 JAN FEB P r in c ip a l F a c of R e se rve D is t r ic t re se MAR APR MAY t o r s A c c o u n t in g fo r B a la n c e s o f M e m b e r ( C u m u la t iv e sin c e J r v e b a la n c e s , (— ) = JUN 1941 JUL M ove m e n ts of F B a n k s in S e c o n d a n u a r y 1, 1 9 4 1 ; l o s s to re se rv e AUG SEP OCT u n d s In t o a n d O u t F e d e ra l R e se rv e ( + ) — g a in to b a la n c e s ) 82 MONTHLY REVIEW, NOVEMBER 1, 1941 whichhadalreadyoccurredinexcess reserves orwere bill holdings were virtually unchanged for the four inprospectforNovember1. Bankshavealsocontinued weeks. JudgingfromdatafortheweekendedOctober totakeadvantageof thebookcreditmethodof payment 22, the reporting banks did not absorb a materially for Treasurynotes of thetaxanticipationseries which larger proportion of the Treasury bond issue dated October 20thanof theissuedatedJune2, despitethe arepurchasedbytheir customers. Withrespect tochanges inout-of-townbankers’ bal fact that the recent issue was double the size of the ancesheldinNewYorkCitybanks, therewasariseof Juneissue. Nodoubt this was dueat least inpart to around $160,000,000 in September and the first half thelongmaturityof thelatest issue (31years ascom of October, but intheweekendedOctober22adecline paredwith17 years for theJune issue), whichmade ofabout$140,000,000occurred,probablyreflectingwith itespeciallysuitableforinvestorssuchasinsurancecom drawals toprovidefunds topayfor thenewTreasury panies, savingsbanks, andtrustfunds, andlesssuitable bondissueandperhapsalsoanticipatoryadjustment of for bankportfolios. the reserve positionof some out-of-townbanks to the Commercial, industrial, andagricultural loans of all November1level of reserverequirements. Intheweek reportingbanksshowedafurthernetriseof$167,000,000 ended October 29 there was a further reduction of inthe four weeks ended October 22, despite a small $65,000,000inbankers’ balancesheldinNewYorkCity recessioninthe last weekof the period. Holdings of banks, whichpresumably was directly associatedwith openmarket paperbythebanksincreased$30,000,000, out-of-townbanks’ preparationstomeettheNovember1 and loans to brokers and dealers in securities rose increase inreserve requirements. OnOctober 29, the $54,000,000, most of whichoccurredat NewYorkCity amount of out-of-townbankbalancesheldinNewYork banks. was $150,000,000 belowthe September 24 level, and Adjusteddemanddepositsof weeklyreportingbanks thiswasanadditional factorinthereductioninexcess onOctober15reachedanewhighlevelof$24,640,000,000, reserves of the NewYork City banks since that time. or about $100,000,000 abovetheprevious peakreached Intheevent thatreservesof individual NewYorkCity at theendof July, but intheweekendedOctober 22, banks arereducedbywithdrawals of out-of-townbank this class of deposit declined $258,000,000, apparently funds or other funds, belowthe reserve requirements inconnectionwithcashpayments bycustomersforthe whichbecomeeffectiveNovember 1, theyareinaposi newissueofTreasurybonds. UnitedStatesGovernment tionreadily to adjust their reserve positions, because deposits in reporting banks, whichhad been reduced of their relatively large holdings of short termassets, $332,000,000 inthe three weeks endedOctober 15, by whichcanberealizeduponatmaturityorbysale. withdrawals to replenishthe Treasury account inthe Currencydemands, asisalsoindicatedinthediagram, Reserve Banks, rose $322,000,000 in the week ended have continuedto absorb excess bank reserves inthe October 22, reflecting book credit payments by the SecondFederal ReserveDistrict, whilegoldmovements banksforthenewTreasurybondissueallottedtothem haveresultedinonlyasmall additiontobankreserves. and their customers. At NewYork City banks the Theexcessreservesofallmemberbanksinthecountry increase in Government deposits for the week ended declinedbetweenSeptember 24 andOctober 29 chiefly October22was considerablymorethantheincreasein as a result of a net increase in Treasury cash and Treasurybondholdings of thebanks duringtheweek, deposits intheReserveBanks of $395,000,000 (largely whileforotherreportingbanksasagrouptheincrease theconsequenceof cashpaymentsforthenewTreasury inGovernmentdepositswaslessthantheriseinTreasury bondissue onOctober 20), andafurther increase of bondholdings of thesebanks. $235,000,000 inthe amount of currencyincirculation. Increases inthe goldstockandother transactions re sultedinpracticallynonet effect onreserves. Money Rates in New York Oct. 31,1940 Sept. 30,1941 Oct. 30,1941 M ember B a n k Credit Renewed expansion of the volume of member bank credit outstanding occurred in the four weeks ended October 22, during whichthe total loans and invest ments of weeklyreportingmember banks in101 cities rose$500,000,000. Approximatelyonehalfoftheexpan sionresulted fromthe banks’ purchases of securities, andonehalf fromloanactivities. Forthefourweeksunderreview,total UnitedStates Government security holdings rose $256,000,000 while holdingsofothersecuritiesdeclined$16,000,000. Reflect ingariseof $325,000,000inTreasurybondholdingsfor theweekendedOctober22, whichincludedthedateon whichthenew2y2percent Treasurybonds of 1967-72 were issued, total Treasury bond holdings rose $309,000,000 for the four weeks, while Treasury note holdings declined $72,000,000, probably representing salesandexchangesoftheTreasurynotesdueDecember 15, 1941, whichunderthetermsoftheTreasuryoffering were exchangeable for the newbondissue. Treasury Stock Exchange call loans....................... Stock Exchange 90 dav loans................. Prime commercial paper— 4 to 6 months Bills— 90 day unindorsed......................... Yield on % per cent Treasury notes due March 1 5 ,1945t..................................... Yield on % per cent Treasury notes due December 15, 1945#.............................. Average yield on Treasury bonds (not callable within 12 years) + ................... Average rate on latest Treasury bill sale, 91 day issue................................... Federal Reserve Bank of New York discount rate........................................... Federal Reserve Bank of New York buying rate for 90 day indorsed bills.. * Nominal. J Negative yield. 1 Vr-Vs % 1 *1H X % 1 % 0.58 0.37 0.45 ■— 0.65 0.78 2.19 1.97 1.88 0.037 0.067 t 1 1 1 X t Tax exempt issues. G overnment S ecurities H X ^Taxable issue. OctoberwasmarkedbyoneofthelargestGovernment cashfinancingoperations since theWorldWar period and by the announcement that the Treasury contem plated eventually refinancing all outstanding Govern mentguaranteedissueswithdirectTreasuryobligations. Government security prices, as a whole, showedno settledtendency before October 9 whenthe Treasury FEDERAL RESERVE BANK OF NEW YORK 1941 2 2 D aily Y ield s on V P er Cent Taxable T reasu ry B ond Issu es inverted to indicate m ovem ent of prices) (Scale made its public offering of $1,200,000,000 of 2% per cent taxable Treasury bonds of 1967-72 for cash, and in conjunction therewith offered bonds of the same issue in exchange for the 1% per cent Treasury notes due December 15, 1941, outstanding in the amount of $204,400,000. It was announced at the same time that an additional $100,000,000 of the new bonds might be allotted to Government investment accounts. The cash offering was heavily oversubscribed, allotments being 12y2 per cent of subscriptions; about 92 per cent of the Treasury notes m aturing on December 15 were exchanged for the new bonds. Appealing particularly to insurance companies, savings banks, and large individual investors, the new long term issue immediately was quoted at a substantial premium (about 3 points) and shared in the upw ard movement in long term Treasury bonds (both taxable and tax exempt) between October 18 and 29. During this period the average price for long term partially tax exempt Treasury bonds advanced 4/5 of a point beyond the previous record high set in Decem ber, 1940 to an average yield of 1.88 per cent. Simul taneous price gains for long term taxable issues amounted to approximately y2 point. The accompanying chart, showing yields on the three 2 y2 per cent taxable Treasury bonds on an inverted scale, indicates the upw ard tendency in prices of the first two of these bonds since issuance and the position of the new 2y2’s of 1967-72 in relationship to them. As market prices on outstanding issues have risen and yields have declined, m aturities on the taxable 2 y2 per cent bond issues have been successively lengthened—13 years on the issue of March 31, 17 years on that of June 2, and 31 years on the October 20 issue. Although there has been little net change since mid-August, the yield on the 1952-54 bond declined from 2.27 per cent at issuance to 1.85 per cent at the end of October, and the yield on the 1956-58 issue decreased from 2.26 per cent to 2.10. The yield on the new 2 % ’s of 1967-72 has fluctu ated between 2.35 per cent and 2.34 per cent since issuance. Taking the first step in its policy of refinancing guar anteed debt of the Federal agencies with direct Treasury obligations, the Treasury on October 23 offered an issue of 1 per cent taxable Treasury notes, dated November 1 83 and m aturing March 15, 1946, to holders of $300,000,000 of 7/g per cent Reconstruction Finance Corporation notes and $204,000,000 of 1 per cent Commodity Credit Cor poration notes m aturing November 15. The new notes were made available only to holders of the m aturing securities who wished to apply the proceeds of the repaym ent of their Government guaranteed securities to the purchase of new Treasury securities. Holders of more than 99 per cent of these guaranteed securities subscribed to the new notes. ‘ ‘ Rights *1 for the new Treasury notes opened at 100 21/32 bid on October 23. A t the end of the month these new notes were quoted at 100 9/32, having been influenced by weakening during the latter part of the month in prices of short term Treasury and Government guaranteed note issues. Prices of both the taxable and tax exempt Treasury notes declined considerably in October with resultant increases in yield. D uring the course of the month, the yield on the % per cent tax exempt notes due March 15, 1945, rose 0.08 per cent to 0.45 per cent on the 30th, and the yield on the % per cent taxable notes due December 15, 1945, was up 0.13 per cent to 0.78 per cent. Prices of the shorter m aturities of Treasury bonds also declined. Accepted bids on the first three of the five weekly issues of Treasury bills during October were tendered on interest bases declining from 0.062 per cent on the October 1 issue to 0.001 per cent (the lowest rate since last February) on the October 15 issue. Each of these three issues was in the amount of $100,000,000 and each replaced a similar m aturity. The final two weekly bill issues in October were awarded at prices equivalent to an interest rate of 0.024 per cent for the October 22 issue and 0.067 per cent for the October 29 issue. Each of these two issues was in the amount of $150,000,000 and each replaced a $100,000,000 m aturity, thereby placing at the T reasury’s disposal a total of $100,000,000 of “ new money” . D e fe n s e S a v in g s B o n d s Sales of Series E Defense Savings Bonds in the Second Federal Reserve District, including sales by qualified issuing agencies, i.e., commercial and savings banks, building and loan and savings and loan associa tions, and credit unions, and by the Federal Reserve Bank of New York, but not including sales by post offices, aggregated $124,674,100 in the period between May 1, when the sale of these bonds was begun, and October 29. The number of bonds issued during this period totaled 1,059,500. The following table shows the amount and number of bonds issued each month since May 1. J u l y ................................ August .......................... S eptem ber..................... October 1 -2 9 ................. Amount Number of bonds $21,387,100 15,620,300 30,305,800 19,662,800 17,619,400 20,078,700 154,200 145,300 220,900 173,300 174,800 191,000 MONTHLY REVIEW, NOVEMBER 1, 1941 84 Thesales for theperiodOctober 1-29 showedanin scriberwithinacalendaryearwasreducedto$5,000for creaseof 21percentoverthetotal forthefirst 29days the Series Ebonds as comparedwith$10,000 for the of September. Series D, andtwonewseries of Savings Bonds (Series In the Second Federal Reserve District there are FandG) havebeenprovidedfor thelarger investors. slightly more than 1,500 issuing agencies for the sale For thefive monthperiod—Mayto September of this of DefenseSavingsBonds, asidefrompost officeswhich year—sales of the Series E bonds averaged about alsosell thebondsandDefenseSavingsStamps. Virtu $114,000,000 amonthas comparedwith$53,000,000 of ally all of the banks inthe District have qualifiedas salesof SeriesDbondsayearago, astheaccompanying issuing agencies, andinadditionasizable number of diagramindicates. TheriseinSeriesEbondsalestoa buildingandloanandsavingsandloanassociationsand peakinJuly, andthesubsequentdeclineinAugust and September, were inthenature of seasonal movements, creditunionshavesoqualified. In addition, payroll deduction plans adopted by a similarmovementshavingoccurredwithrespecttosales numberof industrial corporations andfinancial organi of earlierissuesof savingsbonds, not onlyin1940but zationsfortheaccumulationoffundsbytheiremployees alsoinprecedingyears. for the purchase of Defense Savings Bonds are now reachingthe point where theywill contribute increas ingly to the sales of bonds. A number of plans for suchpurchases wereestablishedsomemonths ago, and OnOctober27theBoardof Governorsof theFederal theaccumulationsoffundsintheaccountsofindividual ReserveSystemannouncedseveral amendmentstoRegu employees are nowattainingsuchamounts that bonds lationW, dealingwithinstalment credit. The amend 7hich are mainly of an administrative and are being issued inthe names of the employees, and ments w it is expected that further increases in the issue of technical nature, werecommenteduponasfollows ina savingsbondswilloccurforthisreasoninfuturemonths. pressstatementissuedbytheBoardof Governors, which Payroll deduction plans for the purchase of Defense statedinpart: include adoption o f the so-called 11purpose Savings Bonds bymembers of thestaffs of 35business test,The99 amendments requiring a borrower on an instalment loan, after Janu andfinancial concernswithheadofficesinthis District ary 1, 1942, to sign a statement as to the purpose of the loan; havecometotheattentionof theFederal ReserveBank exempting business instalment loans from the Regulation, as of NewYork, andthere are undoubtedly many other well as loans to purchase or construct an entire building; and payroll deductionplans inoperation. Informationon making the eighteen month maximum maturity apply to all loans of $1,500 or less, instead o f $1,000 or less, thenumberofmembersofthestaffsof companiesknown instalment as previously provided. In addition, more liberal provisions tohaveestablishedpayroll deductionplans isnot avail have been adopted to facilitate repayment of instalment loans ableinall eases. Inothercasesthenumbersof partici by farmers, in accordance with the seasonal nature o f their pating employees are constantly growing, and up-toincome. Also, in the case of so-called *‘ add-ons, ” options are either the additional credit may be treated sepa datefiguresarenot available, but at thetimetheplans provided— rately, or the combined credit may be paid in fifteen months, cametotheattentionof thisbank, at least 88,000per monthly payments to be not less than they would have sonsappeartohavebeenenrolledasregularpurchasers the been without the add-on. of Savings Bonds out of current income. nconnectionwiththeincreaseintheamountofinstal SalesofSeriesBDefenseSavingsBondsintheUnited eIn tloansmadesubjecttotheeighteenmonthmaximum States, fromtheinceptionof theprogramonMay1to m aturity, exceptionwasmadeinthecaseof moderniza September 30, were morethandouble thesales of the tm nloanswherethefigureremains$1,000. It wasalso SeriesDSavingsBonds, whichtheylargelysupplanted, io rovided in the amendments that down payments of duringtheMaytoSeptemberperiodof1940, eventhough p $2orlesswillnolongerberequired,andthe$5minimum themaximumamountthatcanbepurchasedbyanysub- fo rmonthlyinstalments (whichwastobecomeeffective January 1, 1942) has beeneliminated. Furthermore, extensions of instalment loans tomakedownpayments onlistedarticles areprohibited. The amendments are effectiveDecember1, 1941, andtheprovisionsof Regu lationWwhichweretohavebecomeeffectiveonNovem ber 1havebeenpostponedtoDecember 1. Copies of theamendmentstoRegulationWhavebeendistributed widely, andadditional copies areavailableuponappli cationtothisbankoritsBuffaloBranch. Inquiriesaris ing inthis District, concerningthe Regulationor the amendments should be addressed to this bank or its BuffaloBranch. R e g u la tio n W — C o n s u m e r C r e d it MILLIONS ©F DOLLARS S e c u r ity M a r k e ts S a le s of S e r ie s E P re v io u s D e fe n s e S a v in g s B o n d s , C o m p a re d w ith Is s u e o f S a v in g s B o n d s ( U n it e d S t a t e s T re a su ry D e p a rtm e n t d a ta) S a le s of Onasmaller volume of tradingthaninSeptember, stockpricesmovedtolowerlevelsduringOctoberunder the impact of adverse developments on various war fronts. Betweentheendof September andOctober 16 the Standard 90 stock price average declined 6 per FEDERAL RESERVE BANK OF NEW YORK 85 cent to apoint only 3 per cent above the year’s low allyatparwiththedollar. ThefreeratefortheVene reached on May 1. After an intervening period of zuelan bolivar declined 90 points to $0.2610 between slightly higher quotations, stockprices onOctober 31 October11and27; at thecloseof themonth, however, the rate was $0.2630. Despite the slackening of the droppedfractionally belowthe October 16 level. Incontrasttotheweaknessinshareprices, quotations tourist demand, theCanadiandollarheldfairlyfirmin of domestic corporation bonds were, in general, firm theunofficial market andbytheendof themonthwas duringOctober. Pricesof primecorporatebonds, those quotedat $0.8925, onlyslightly belowthe year’s high ratedAaabyMoody’sInvestors Service, heldat levels of $0.8975reachedintheearlypart of September. onlyslightlybelowtherecordhigh. Mediumgradecor OnOctober2it was reportedthat Swiss commercial porate bonds, as measuredby Moody’s index of Baa bankshadchangedtherateatwhichtheysupplySwiss bonds, were up slightly for the month as a whole, francs against dollars, for certain specified purposes, althoughsomepriceirregularitywas displayedduring fromtheequivalentof about$0.2325%totheequivalent theperiod. Strengtheningprices were againapparent of$0.2331. Withthisexception,therewerenosignificant inOctoberinmunicipal bonds, resultingintheattain changesintheratesforthecurrenciesofthoseEuropean mentofanewrecordlow(1.89percent) intheaverage neutral countries to whichgeneral licenses have been yieldforprimemunicipal bondsonOctober29, accord grantedunder United States foreignproperty control regulations. ingtoStandard’scomputation. According tovarious reports, there has beenacon siderabledemandinrecent weeksfor foreignexchange intheShanghai blackmarketbyimportersof goodsfor Thevolumeofcorporateandmunicipal financingcon whichthe Chinese StabilizationBoardwill not supply tinuedatalowlevel duringOctober, amountingtoonly exchange cover. Some of this demandreportedly has $237,000,000, or approximately three quarters of the beensatisfiedbyofferings of UnitedStates banknotes. monthly average for the first nine months of 1941. These dealings inAmerican currency appear to have Corporate newcapital flotations which amounted to beenmadeatratesaslowas2%centsperyuan,although $102,000,000 exceededthe January-September monthly atthepresenttimetherateseemstobesomewhat above rate, but refundings were of such small volume that 3cents. the corporate total, at $178,000,000, was about 75 percentofthemonthlyaverageforthefirstthreequar ters of theyear. Temporary financing accounted for an additional ImportsofgoldintotheUnitedStatesduringOctober $126,000,000 and included $85,000,000 of temporary continuedinrelativelysmallvolume, andthenetincrease loannotesof27localhousingauthoritiesand$36,500,000 inthegoldstockofabout$40,000,000wasapproximately of Federal Intermediate Credit Bank% per cent con thesameas inthefour precedingmonths. Goldheld solidateddebentures. Thehousingnoteswereofvarious underearmarkforforeignaccountattheFederalEeserve maturities, rangingfromthreemonthstooneyear, and Banksincreasedabout $30,000,000duringthemonthto were awardedat rates ranging from0.28 to 0.44 per approximately$2,055,000,000. cent. TheFederal IntermediateCreditBankdebentures InthefourweeksendedOctober22, theDepartment matureApril 1andNovember2, 1942andweresoldon of Commercereportedthereceipt of $42,700,000inthe followingprincipal amounts: $15,200,000fromCanada, yieldbases of 0.30 and0.50 percent, respectively. $6,100,000 from Australia, $5,600,000 from Russia, $3,600,000fromSouthAfrica, $3,400,000fromthePhilip pines, $2,100,000fromColombia, $2,000,000fromBritish NewYorktradingintheforeignexchangescontinued India, $1,200,000fromMexico, $700,000fromNicaragua, virtuallyatastandstill duringOctober, exceptforsom e and$500,000fromPeru. activityinthe"WesternHemispherecurrenciesandocca sional dealings, under general licenses, inthe neutral Europeanexchanges. The largest movement inLatin Americanrates occurredinthe noncontrolledrate for InOctober, theBureauofLaborStatisticsdailyprice theUruguayanpeso, whichturnedupwardat the end indexof 28basiccommoditiesreversedits upwardten ofSeptember, accompanyingreportsofashiftofforeign dencyandshowedanet monthly decline for the first fundsfromArgentinatoUruguay. ByOctober22this time since July, 1940. The lowest quotations of the rate had appreciated about 6 per cent to $0.4675. monthwereregisteredonOctober16, whenpricesdipped Although some subsequent reaction brought the rate inmostoftheuncontrolledmarketsinconjunctionwith backto$0.4625bytheendof themonth, it nevertheless theJapaneseCabinetcrisis. Subsequentrecoverymove remainedconsiderablyabovethelevelofamonthearlier. ments, however, asindicatedintheaccompanyingchart, TheArgentinepesocontinuedweakinthefreemarket fell farshortinmakingupfortheearlierdeclines. The duringthe early days of October, whenthe free rate dailypriceindexof 28basiccommoditiesshowedaloss reachedalowof$0.2340. TheannouncementonOctober of 5percentbetweenthemiddleof Septemberandthe 14 of the trade agreement betweenthe United States middleof October, andanet declineof 2per cent for andArgentina, however, providedsomestimulus, with themonthof October. theresult that thefreerateroseandclosedthemonth Asindicatedinthechart, theprincipal movementsin at $0.2378. The Mexicanand Cubanrates continued thecombinedindexof28basiccommoditieshaveresulted toholdsteady, theCubanpesonowbeingquotedvirtu fromfluctuations in foodstuffs. The decline in this N ew F in a n c in g G o ld M o v e m e n ts F o r e ig n E x c h a n g e s C o m m o d it y P r ic e s MONTHLY REVIEW, NOVEMBER 1, 1941 86 PERCENT D aily Indexes o f B asic C om m odity Prices (B u reau o f Labor S tatistics d a ta ; A u g u s t 1 9 3 9 = 1 0 0 per cen t) employment intheUnitedStates as awholeincreased 2percent further duringSeptember andfactorypay rolls rose 3%per cent. The gains over September of last yearamountedto22percent foremployment and 46percentforpayrolls. IncomparisonwithSeptember, 1939, thefirstmonthofthewar, factoryemploymentwas 31 per cent greater andpayrolls 71 per cent larger. As inNewYorkState, increases inworkingforces be tween August and September were numerous in con sumers’ nondurable goods industries where seasonal factorsoperateinthedirectionof expansionatthistime of year. Inkeydefense lines, especially shipbuilding andaircraft, employmentcontinuedonasteadyuptrend. Additional workerswerehiredbyautomobileplantsand radioandphonographmanufacturers, but theincreases werenot sogreatasisusual inSeptember. It is estimatedthat morethan400,000 persons were addedtoworkingforces innonagricultural occupations throughoutthecountryduringSeptember, andemploy mentinsuchpursuitsexceeded40,000,000personsforthe firsttime. Approximatelyonehalf of theincreaseover August occurredinmanufacturing establishments, but all majoremployment categoriessharedintheadvance. ComparedwithSeptember, 1940, nonagricultural work ingforcesweremorethan3,500,000larger, andmilitary personnel (not included in the preceding estimate) tripledinstrengthduringtheyear toreachatotal of approximately2,000,000. groupduringthefirst half of Octoberappears tohave been connected with discussions in Congress of the pendingprice control legislationandRussianmilitary reverses, aswell aswithapprehensionoverFarEastern developments. Recoveryinprices of foodstuffs during thelatterhalfofthemonthwaspromotedbyastatement of theSecretaryof Agriculturefavoringthesettingof priceceilingsonfarmproductsat110percentofparity rather than at 100 per cent, and by indications that loansonnextyear’scotton,corn,wheat, rice, andtobacco might begreater thanthe 85 per cent of parityloans onthe1941crops. Therawindustrial groupindex, as OnOctober 9 the Supply Priorities andAllocations in preceding months, fluctuated only slightly during Board announced that in the future no construction October, reflecting the numerous ceiling regulations using appreciable quantities of suchcritical materials affectingquotationsforcommoditiesinthisclassification. as copper, brass, bronze, steel, andaluminummay be edunless suchprojects arenecessaryfor National Some readjustments inprice ceiling schedules were sdteafretn se or for the health and safety of the people. madeduringOctober. Thefirst slidingscheduleswere D u r in thecurrentyear, asshownintheaccompanying applied during the month, the articles affectedbeing chart,gex enditures for newconstructionhave reached carded cottonyarn and cotton goods; revisions from anunusup allyhighlevel, andasaresult thedemandfor timetotimewill dependuponthepriceof rawcotton. criticalma rialsonthepartoftheconstructionindustry Effortsweremadetoincreasesuppliesofzincandcopper, hasbeeneste eciallyheavy. intheformercasebypermittingthepricetorise1cent The charp t of expenditures for newconstruction in to8.25centsapound,andinthelattercasebypermitting certainhigh-costminestosell copperatpricesinexcess -----------------------------------------ofthe12centsapoundceilinggoverningotherproducers. 12| B u ild in g BILLIONS OF DOLLARS E m p lo y m e n t a n d P a y r o lls DuringSeptemberworkingforcesinNewYorkState factories expanded 3 per cent further andwage pay ments increased 4 per cent. Many firms producing consumers’ nondurable goods, particularly food prod ucts, men’sfurnishings, andwomen’sclothingandmil linery,reportedseasonalgainsinemployment. Factories makingdefensematerials continuedtoaddtoworking forces in September, especially the firearms, airplane, and shipbuilding industries. Several heavy industry plants producing nondefense goods, however, were re portedtohavelaidoffworkersowingtolackofmaterials. ComparedwithSeptember, 1940, NewYork Statefac tory employment was 30 per cent higher andpayrolls were55 per cent greater. A ccording to the Bureau of Labor Statistics, factory E stim ated T o ta l Expenditures for C onstruction in the U nited States (D ep artm en t of C om m erce, Office o f Production M an a gem en t, and Federal R eserve B an k o f N ew Y o r k data) FEDERAL RESERVE BANK OF NEW YORK 87 the United States, including both private and public activity is reportedto have continuedat ahighrate. projects, isbasedonaseriesoriginallycomputedbythe Loadingsof railroadfreight reachedthehighest weekly Department of Commerce, withestimates for theyears total since1930, andelectricpowerproductionandout 1940-1942 prepared by the Department of Commerce put of crudepetroleumincreasedfurthertonewrecord andtheOfficeof ProductionManagement. (The 1940 levels. Ontheotherhand, somedeclineappearstohave breakdown for defense and nondefense construction, occurredinbituminouscoalmining. however, was estimatedbythis bank.) It is estimated Further measures were adopted during October to thatthevolumeof expendituresfornewconstructionin put into effect the Government’s programto conserve 1941 will amount toapproximately$11 billion, almost suppliesofcriticalmaterialsfordefensepurposes. Steps two-thirds abovethetotal for 1940andabout equal to weretakentoreducenonessential constructionwork, as theprevious highof themiddletwenties. As aresult describedinthe Building sectionof this Review, and of themeasurestakentoconservethesupplyof critical additional orders governing curtailment of production materials, it is estimatedthat nondefense construction wereissuedtoproducers of automobiles andothercon next year mayamount to only one thirdof the 1941 sumers’ durable goods. Passenger car productionfor total, whiledefenseconstructionisexpectedtoincrease January, 1942 is limitedto about 200,000 units, indi by about one third. Shouldthese estimates be borne catingareductionof approximately50 per cent from out, defenseprojects wouldaccount for three quarters the number of assemblies completedinJanuary, 1941. of all constructionworkin1942, comparedwithabout Inaneffort torelieve “serious day-to-day shortages,” 45 percent inthecurrent year. Despitetheexpected the Director of Priorities of the O.P.M. orderedfull cut, total constructionexpenditures in 1942 wouldbe prioritycontrol placeduponironandsteel scrap. the largest for any year, withthe exceptionof 1941, since1930. P T S Inthe37StateseastoftheRockyMountains, construc During September this bank’s index of production tioncontractawardsreportedbytheF. W. DodgeCor andtrade declinedto 109 per cent of estimatedlong porationduringthefirst 9monthsof 1941were62per termtrend, four points belowthe figure for August cent above the corresponding period of 1940. Public andonepoint belowthat for July. Thegeneral level contracts were slightlymore thandouble those ayear fproductiveactivityappearstohaveheldrathersteady earlier, whileprivateawardswereuponethird. Those o uringJuly, August, andSeptember, andthebehavior types of constructionprojects whichare important to d o f theindexof productionandtradeoverthisperiodis thedefenseprogram,suchasfactories, warehouses, utili larg elyaccountedfor by asharpspurt inretail trade ties, andoneandtwofamilydwellingsindefenseareas, durin gAugust andasettlingbackinSeptember. have shownthe largest year-to-year gains. A lt h hthemajorgroupindexofproductionshowed Geographically there has been a wide variation in stabilitoyug d ringJuly, August, andSeptember, changes thedistributionof constructionawards. For example, were appau r e t in certain of its components. As the during the first three quarters of the year contract accompanyinn g chartindicates, outputofconsumers’ dur awards inUpstate NewYork rose 56 per cent above ablegoods, prin allypassenger cars, declinedduring thesameperiodof 1940, onlyslightlylessthantheyear- this period, seascoip n a l factors considered, as aresult of to-yeargaininthe37States. Ontheotherhand, con official limitations u pon production and shortages of tracts awarded for projects inthe MetropolitanNew vitalmaterials. Onth herhand,outputofproducers’ YorkandNorthernNewJerseyareaincreasedonly15 durablegoods showedeaodtd ional markedgains inboth percent. InNewYorkStateandNorthernNewJersey August andSeptember, reitfle cting further advances in themostimportantgainswereinawardsforcommercial andmanufacturingbuildings. Residential buildingin creased somewhat, but heavy engineering projects showedlittlechange. roduction and rade in eptember PERCEN T P r o d u c tio n a n d T r a d e DuringOctoberbusinessoperationsonthewholecon tinued at a high level. While nondefense industries were affected to an increasing extent by restrictions upon production and by diversions of materials to defense uses, operating schedules in plants producing defenseitemscalledforsteadilyacceleratingproduction. Judgingfromtheweeklyfigures, therewassomefurther recessionindepartment store trade, but sales volumes remainedabovethelevel of ayearago. Despite minor interruptions due to labor difficulties andshortagesof scrap, steel productionwasagainnear capacity. Slacktrading continuedto characterize the cotton goods market early in the month, but sales expandedsharply just prior to the imposition of the newsliding scale price ceilings on October 21; mill Indexes o f Production o f P roducers' D urable G oods and C onsum ers' D urable Goods (Federal R eserve B ank of N ew Y o r k indexes* expressed as percentages o f estim ated long term trends, and ad ju ste d for seasonal variation) MONTHLY REVIEW, NOVEMBER 1, 1941 88 suchkey defense industries as steel, shipbuilding, air August, whenextraordinarily large gains occurred in craft, andmachinery. Productionof nondurablegoods sales of anumber of lines of merchandise. Moderate wasnotmuchchangedduringtheJuly-Septemberperiod, year-to-year gains were reporteduntil the latter part of September, whenanexceptional accelerationof sales eitherintheconsumers’ orproducers’ categories. ccurredpriortotheeffectivedateof thenewFederal After allowingfor seasonal factors, sales volumes in o e x cisetaxes (October1), andforthemonthasawhole various lines of retail trade were reducedsharply in sale were20percent higherthaninSeptember, 1940. September fromthe unusually highlevels of August. Ssale s of furs in September were more than double Salesincreasesat department stores, mail orderhouses, those o f ayear ago, andunusually large year-to-year and chain stores failed by considerable margins to gains w ere reportedalso insales of silverware, major measureuptousual seasonal proportions. Mainlyasa household pliances, radios andpianos, andwomen’s result of model changeoversandrestrictionsonproduc coatsandsaup it s. tion, retail salesof newpassengercarsdeclinedsharply Fromweekly ports available through October 25, inSeptember, andforthefirsttimethisyearfell below it appears thatrteh e year-to-year increase in sales in thefigureforthecorrespondingmonthof 1940. October was reduced to relatively small proportions, followingthespurt at theendof September, andaver agedailysaleswerelowerthaninthat month, contrary totheusualexperienceinpreviousyears. Retail stocksof merchandiseonhandinthereporting department storesat theendof Septemberwere30per centhigherthanattheendof September, 1940, andthis bank’s seasonally adjusted index of department store stocks advancedsixpoints further to 109 per cent of the1923-25average, thehighestlevel inovertenyears. Inaddition, returns fromalimitednumber of depart ment stores inthis District indicate that outstanding ordersformerchandisepurchasedbythestores, butnot yet delivered, continuedabout twice as large as those of ayearago. (Adjusted for seasonal variations and estimated long term trend; series reported in dollars are also adjusted for price changes) 1941 1940 Sept. July August Index of Production and Trade....................... Production of: Producers’ durable goods....................... Producers’ nondurable goods................. 94 110 113p 109p 96r 99r 126 120 130p 118p 133p 119p Consumers’ durable goods..................... Consumers’ nondurable goods............... 79 96 103 105 96p 105p 83p 104p Primary distribution.................................... Distribution to consumer........................... 87 96 105 107 109p 116p 108p lOOp 114 114 96 85 101 ll l r 124 99 lOOr 90 126 149 130 86 112 155 168r 134 106 125 103 117 88 115 152 177 118p 110 97 130 86 107p 89 p ll5p 144 205p Il7p 107 101 Industrial Production Steel................................................................. Automobiles r ................................................ Bituminous coal............................................ Crude petroleum........................................... Electric power............................................... Cotton consumption.................................... Wool consumption........................................ Shoes............................................................... Meat packing................................................ Tobacco products......................................... 96 Sept. Percentage changes from a year ago Net sales Department stores Manufacturing Employment Man-hours of employment......................... 98 95 120 120r Construction Residential building contracts. . ............... Nonresidential building and engineering contracts..................................................... 58 73 82 64 60 93 137 132 87 95 85 76 104r 116 110 91 104r 114 134p 98p 104 106 96 95 99 98 87 108 99 108 111 104 124r 103 126 131 90 104 97 111 104 58 p 55 57 61 59 Primary Distribution Ry. freight car loadings, mdse, and misc. . Ry. freight car loadings, other................. Distribution to Consumer Department store sales (U. S .) ................. Grocery chain store sales............................ Variety chain store sales............................. Mail order house sales................................. New passenger car sales.............................. 120 122 118p 124p Velocity of Deposits* Velocity of demand deposits, outside New York City (1919-25 average = 1 0 0 )... Velocity of demand deposits, New York City (1919-25 average = 100)............... 25 26 27 27 Cost of Living and Wages* Cost of living (1935-39 average = 1 0 0 )... Wage rates (1926 average = 100)............ 104 114 109 123 110 123 ll l p September, 1941 Jan. through Sept., 1941 +20 +2 0 +20 +29 +4 2 +1 3 +18 +2 2 +17 +27 +38 +24 +14 +1 6 +15 +23 +2 9 +13 +15 +20 +16 +24 +28 +23 New York City.......................................... Northern New Jersey............................... Newark..................................................... Westchester and Fairfield Counties. . . . Lower Hudson River Valley................... Poughkeepsie.......................................... Upper Hudson River Valley................... Central New York State......................... Mohawk River Valley.......................... Northern New York State....................... Southern New York State....................... Binghamton............................................ Western New York State........................ Niagara Falls.......................................... — Stock on hand end of month September, 1941 +29 +29 +27 + 49 +53 +27 — +56 — +42 +32 +45 — +24 +31 +30 +15 + 11 +32 +21 — +23 +24 +34 +20 +24 +15 + 16 +28 — — + 29 +29 +23 +30 All department stores....................... +20 + 16 +3 0 Apparel stores.................................... +23 +14 +35 Indexes of Department Store Sales and Stocks, Second Federal Reserve District (1923-25 average = 100) p Preliminary. r Revised; in the case of automobiles the series has been revised. * Not adjusted for trend. 1941 1940 Sept. July August Sales (average daily), unadjusted................. Sales (average daily), seasonally adjusted.. 108r 103r 81 114 lOOr 134 125 120 Stocks, unadjusted............................................ Stocks, seasonally adjusted............................ 87 r 83r 83 96 98 103 113 109 Sept. D e p a r tm e n t S to re T r a d e Sales of the reporting department stores in this District during September were substantially larger thaninthecorrespondingmonthof last year, although theyfailedtoshowthe usual seasonal expansionover r Revised. FED ER AL RESERVE B A N K OF N E W Y O R K MONTHLY REVIEW, NOVEMBER 1, 1941 Business Conditions in the United States (Summarized by the Board o f Governors o f the Federal Reserve System) I NDUSTRIAL activity continued at a high rate in September and the first half of October. Further advances in the output o f defense products were accompanied by curtailment in some lines o f civilian goods, particularly automobiles, rubber, and silk. Prices o f industrial products increased further but agricultural prices declined after the middle of September, and on October 16 dropped sharply in response to international developments. Production In d e x o f P h ysical V o lu m e o f Industrial P roduc tion, A d ju ste d for Seasonal V ariation ( 1 9 3 5 -1 9 3 9 a v e r a g e s 1 0 0 per cen t) Indexes o f V a lu e o f D epartm ent Store Sales and S toc k s, A d ju ste d for Seasonal Variation ( 1 9 2 3 - 1 9 2 5 a v e r a g e = 1 0 0 * per cen t) U. S . B ureau o f Labor S tatistics Indexes o f W h o le sa le P rice s, B ased on 1 2 F ood stu ffs and 16 Industrial M aterials (A u g u s t 1 9 3 9 = 1 0 0 per cen t) W ednesday Figures for Reporting Member Banks in 101 Leading Cities (Latest figures are for October 8) Industrial output increased by about the usual seasonal amount in Septem ber and the B oard’s adjusted index remained at 160 per cent of the 1935-1939 average, the same as in July and August. Continued increases in activity were reported in the machinery, aircraft, and shipbuilding industries. At steel mills activity in September and the first half o f October was maintained at about 97 per cent of capacity. Output and deliveries of nonferrous metals likewise remained at about capacity levels, while lumber production declined somewhat from the high August rate. Automobile production increased less than seasonally in September, following the changeover to new models, and, according to preliminary estimates, output in September was considerably below tlie maximum quota that had been authorized by the Government. In the textile industry activity declined somewhat in September, reflecting mainly a further sharp reduction at silk mills. Activity at wool mills rose to a new high level, while at cotton mills there was little change from a rate slightly below the peak reached last May. Shoe production continued in large volume, and output o f manufactured food products was maintained near the peak August level. Output of chemicals likewise continued at earlier high rates, but at rubber plants activity was considerably below the level o f last summer owing to curtailment programs ordered by the Government. Coal production, which during the summer months had been unusually large, increased less than seasonally in September, owing in part to temporary work stoppages at some bituminous and anthracite mines. Crude petroleum production advanced to record levels in September and the first half o f October, and output o f metals and shipments of iron ore down the Lakes continued at about capacity. Value o f construction contract awards declined in September, according to figures o f the F. W. Dodge Corporation, reflecting chiefly decreases in awards for public projects which had been exceptionally large in August. Awards for private residential building also declined, while contracts for other private work increased somewhat further. Total awards in September, as in August, were 80 per cent larger than in the corresponding period last year. This higher level reflected mainly a greater amount of public construction, which was nearly three times as large as a year ago, compared with an increase o f about 10 per cent for private construction. On October 9, the Supply Priorities and Allocations Board announced that, effective immediately, no public or private construction projects which use critical materials could be started during the emergency unless these projects were either necessary for direct National defense or essential to the health and safety of the nation. D istribution Distribution o f general merchandise showed less than the customary seasonal rise in September, following an unusually large volume of sales in August. During the past three months sales have been larger than in the corresponding period o f any previous year. In the first half o f October sales at department stores declined from the peals: reached in late September when there were considerable consumer purchases, particularly o f articles subject to higher taxes on October 1. Loadings o f revenue freight in September increased less than seasonally, particularly those o f miscellaneous freight, which have been high in recent months, and loadings of coal, which were curtailed during part o f the month by work stoppages at some mines. Shipments o f forest products declined con siderably from the high August level. Commodity P rices P rices o f industrial products continued to advance in September and the first half o f October and Federal price ceilings were announced for additional commodities, including leading types o f lumber, coke, wastepaper, paperboard, acetic acid, alcohols, and carded cotton yarns. In some cases these ceilings were below previously existing market quotations. Price advances were per mitted, however, for some other commodities under Federal control. Prices of cotton and of foodstuffs increased further in the first half of September, but subsequently declined, owing partly to seasonal influences. On Thursday, October 16, prices o f these commodities dropped sharply. B ank Credit Commercial loans at member banks continued to rise during September and the first half o f October, reflecting in part defense demands. Increases were substantial both in New York and in other leading cities. Holdings o f United States Government obligations decreased, mainly at banks in leading cities outside New York. Excess reserves o f member banks showed little change in this period. United S tates Government S ecurity M arket F ollowing a slight decline in the first half o f September, prices o f long term Treasury partially tax exempt bonds increased during the latter half o f September and in the first part o f October. The yield on the 2% per cent bonds o f 1960-65 reached a new record low o f 2.01 per cent in October. Prices o f taxable bonds moved within a relatively narrow range during the period with yields slightly above previous low levels.
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