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MONTHLY REVIEW of Credit and Business Conditions S e c o n d F e d e r a l R e s e r v e D is t r ic t F ed e ra l R e se rv e B a n k , N ew Y o rk N o v e m b e r 1 ,1 9 4 2 Money Market in October D u rin g October further upw ard revisions were made in the estimates of Government expenditures and o f the necessary amount of Federal borrowing during the fiscal year ending June 30, 1943. W h ile the new tax legisla tion, approved by the President on October 21, is expected to yield $6,900,000,000 to $8,000,000,000 fo r a fu ll year, the added amount of revenue which it is anticipated will be collected during the fiscal year ending June 3 0 ,1 9 4 3 — about $4,000,000,000— falls short of earlier calculations. On the other hand, war expenditures, estimated at $56,000,000 ,000 in the budget message of last January, and raised to $70,000,000,000 in A p ril, are now calculated at $78,000,000,000, or an average of $ 6 % billion monthly fo r the current fiscal year. These figures include not only war expenditures within the regular budget, but also $4,000,000,000 to be spent by Government corpo rations, principally the Reconstruction Finance Corporation and its subsidiaries. The amount which the Government will be called upon to borrow from the public during the current fiscal year has been successively raised from $34,000,000,000 in January to $47,000,000,000 in A p ril and now to $60,000,000,000. The Federal debt, direct and guaranteed, is expected to reach $140,000,000,000 on June 30 next. “ Raising the sigh ts” of the objective war effort thus involves a significant rais ing o f our financial sights. A ttention is focused not only upon the question of additional tax measures, but also, and more particularly for the immediate pres ent, upon the necessity for an ever-widen ing public distribution and ever-increasing individual participation in the Govern ment security offerings which must be made to meet the financial requirements of a m axim um war effort. Banks and other financial institutions, under the leadership of the V ictory F u n d Com m it tees and the W a r Savings Staff, can play a vital role in this undertaking. FOR V IC T O R Y ★ B u y U n it e d S t a t e s Inasmuch as the production capacity of the country w ill be even more severely drawn upon for war pu r poses than had been earlier anticipated, there is a clear im plication that estimates of the supplies of civilian goods m ust be revised downward. A n d it becomes of increased importance that the “ disposable incom es” of consumers — those amounts remaining after meeting essential needs and tax paym ents— be invested in Gov ernment securities and thus help to finance the war effort. I f such income remains idle, or tries to compete fo r a reduced supply of civilian goods, unnecessarily large purchases of Government securities w ill be forced upon the commercial banks of the country. W a r expenditures under the regular budget reached a new peak during October, at approxim ately $5,500,000,000, and ‘ ‘ new m on ey’ 9borrowings by the Government simul taneously rose to the highest level so fa r recorded. Sales of new issues of V /2 per cent Treasury notes and 2 per cent Treasury bonds, offered join tly October 8, aggregated $ 4,100,000,000. In addition, weekly offer ings of Treasury bills, $400,000,000 on October 7 and 14, were further raised to $ 500,000,000 on October 21 and 28, and, as a result, the outstanding supply of Treas u ry bills was increased by $500,000,000. Sales of W a r Savings bonds and tax an ticipation notes are estimated in excess of $1,500,000,000 fo r the month. The banks added substantially to their holdings of Government securities during October. W a r Savings bonds, of course, went to nonbanking investors exclusively, ^ and tax anticipation notes in large part. On the other hand, it was announced that investors other than commercial banks purchased only one quarter of the $4,100,000,000 of Treasury notes and Treasury bonds sold during the month. The New Y o rk banks are estimated to have added approxim ately $800,000,000 to their holdings o f Government securities during October, as compared with an average of W a r S a v i n g s B o n d s a n d S t a m p s 82 MONTHLY REVIEW , NOVEMBER 1, 1942 (In billions of dollars) Fiscal years ended June 30 1942 Actual 1943 October 3 estimates Total war expenditures................................................. Other expenditures..................... .................................. 28 7 78 6 Total expenditures................................................. 35 84 Budget receipts.............................................................. Borrowing from trust accounts ................................... Borrowing from the public (net)................................. 13 2 20 21 3 60 Total financing'....................................................... 35 84 Public debt, end of year (direct and guaranteed)----- 77 140 Note: Offsetting receipts and expenditures of trust accounts are omitted. somewhat over $300 ,000 ,00 0 m onthly during the preced ing six months. M em ber bank excess reserves were drawn against at an accelerated rate during October by expanding currency circulation which reduced reserve balances and by m ount ing deposits which enlarged reserve requirements. The m on th ’s increase in currency circulation apparently ex ceeded the September figure of $500,000,000. The expan sion in deposits, resulting from increased bank purchases of Government securities, was larger than in recent months. Y e t in spite of these large demands on their reserves, and their heavy purchases of new Treasury se curities, member banks in the aggregate had more excess reserves at the end of the month than at the beginning. The drafts upon excess reserves through the outflow of currency circulation and the growth of deposits were compensated fo r by action of the Federal Eeserve System. F ederal Eeserve Bank purchases of Government securi ties were very large and the reserve requirement percent age against net demand deposits fo r the central reserve city banks was reduced from 22 per cent to 20 per cent, the third such reduction since A u gu st 15, 1942. A s a matter of fact, excess reserves of all member banks rose tem porarily from a low of $1,690,000,000 on September 30 to $2,710,000,000 on October 14, and amounted to $2,160,000,000 on the 28th. Excess reserves in New Y o rk C ity, which had fallen to $90,000,000 on September 30, were maintained at an average level above $500,000,000 during most of October, and excess reserves of all other U. S. Government Obligations, Direct and Fully Guaranteed, Held by Weekly Reporting Banks in Leading Cities member banks held generally between $1,800,000,000 and $2,200,000,000— about the same range as for some months past. The change in the reserve requirement percentage, which was effective October 3, placed the reserve require ments of the central reserve city banks on the same basis as those of the reserve city banks. This move had the effect of transferring $335,000,000 from required reserves to excess reserves in N ew Y o rk and $75,000,000 in Chicago. H a d it not been fo r the reduction in the reserve requirement percentage against their net demand de posits, reserve requirements of the central reserve New Y o rk City banks would have increased approxim ately $270,000,000 between September 23 and October 21. A s it was, giving effect to the further adjustm ent in the requirement percentage against their net demand deposits, the reserve requirements of these banks showed a net decline of $85,000,000 over the four weeks’ period. For all member banks reserve requirements increased about $100,000,000 net over the fou r weeks. Purchases of Government securities by the Federal Eeserve Banks reached a total of $830 ,000 ,00 0 between September 23 and October 21, much more than counter balancing the loss of reserve fu n ds to member banks through increased currency circulation. Treasury bill holdings of the Eeserve Banks declined $93,000,000 over the fou r weeks, as banks enjoying im proved reserve posi tions reacquired bills which had been sold to Eeserve Banks under repurchase agreement, but substantial pur chases were made by the Eeserve Banks of Treasury bonds, notes, and certificates of indebtedness as the System Open M arket A ccount undertook to absorb securi ties from individual banks adjusting their reserve posi tions and other offerings of securities which did not find ready markets elsewhere. D is c o u n t E ate C hanges Between October 15 and 30, all of the Federal Eeserve Banks established discount rates of y 2 per cent for advances to member banks secured by Government obliga tions callable or m aturing within one year. The change in the discount rate schedule of this bank was made effec tive October 30. U n til these changes were initiated, the discount rates charged member banks on advances (except those under Section 10b of the Federal Eeserve A c t) had been 1 per cent for all the Eeserve Banks. One objective of the low rate on advances secured by short term Government obligations, is to promote wider distribution of such securities among all groups o f banks throughout the country. Like the buying rate and repur chase facilities that have been arranged by the Eeserve System for Treasury bills, it creates a means whereby individual banks can participate more freely in new offerings of short term Government obligations and utilize more fu lly their available reserve funds, with assurance that if, subsequently, additional reserves are needed, the banks can obtain them at low cost. A mem ber bank can purchase short term Government securities and continue to hold them through any period of tempo rary strain upon its reserve position, borrowing the amount of reserves needed from the Eeserve B ank at y 2 per cent. Establishm ent of the differential rate has the effect of placing the discount rate schedules in closer harmony with the current interest rate structure. A t the present FEDERAL RESERVE B AN K OF N EW YO R K time yields on short term Government securities range between % per cent on Treasury bills and % per cent on one-year certificates of indebtedness. Y ields on Treasury notes or bonds nearing m aturity are correspondingly low. On the other hand, taxable Government bonds and notes callable or m aturing in more than a year, and avail able fo r investment by commercial banks, range fo r the most part between 1 and 2 per cent. Money Rates in New York Oct. 31,1941 Sept. 30,1942 Oct. 30 ,1942 Stock Exchange call loans..................... Stock Exchange 90 day loans................ Prime commercial paper—4 to 6 months Bills— 90 days unindorsed..................... Average yield on taxable Treasury notes (3-5 years)........................................... Average yield on tax exempt Treasury bonds (not callable within 12 years). Average yield on taxable Treasury bonds (not callable within 12 years)............ Average rate on latest Treasury bill sale 91 day issue......................................... Reserve Bank discount rates On advances to member banks secured by Government obligations callable or maturing in one year or less............ On other advances to member banks secured by Government obligations, and on rediscounts.................... ......... Reserve Bank buying rate for 90 day indorsed bills....................................... 1 n s 1 *1 X H -H AB - H % 0.77 1.28 1.28 1.88 205 2.05 F^m 2.21 2.35 2.33 0.067 0.373 0.373 X 1 X 1 1 X X * Nominal Member Bank Credit O f the $5,800,000,000 of new money raised by the Treas u ry between September 23 and October 21 through the sale o f public marketable issues, weekly reporting m em ber banks in N ew Y o rk C ity absorbed $1,065,000,000, while reporting banks in 100 other leading cities took $1,380,000,000. H oldings of Government securities by New Y o rk C ity banks increased during these fou r weeks $794,000,000 fo r Treasury notes, $234,000,000 fo r Treas u ry bonds, and $213,000,000 for Treasury bills. On the other hand, these banks made net sales o f $47,000,000 o f certificates of indebtedness, and their holdings o f guaran teed obligations decreased by $129,000,000. The latter decline represents prim arily the redemption of % Per cent R .F .C . notes on October 15. In addition, reporting New Y o rk banks reduced their holdings of other securi ties by $79,000,000. In the 100 cities outside New Y o rk the reporting mem ber banks added to their Government securities portfolios $1,071,000,000 of Treasury notes, $308,000,000 o f Treas u ry bonds, and $68,000,000 of Treasury bills. Outside New Y o rk the reporting banks sold only $4,000,000 o f certificates o f indebtedness, and holdings o f guaranteed issues were reduced by $65,000,000. The decline in other securities was relatively small, $14,000,000. D u rin g the fou r weeks between September 23 and Octo ber 21 total loans of reporting New Y o rk C ity banks rose $69,000,000, while in the 100 other cities there was a decline of $54,000,000. In New Y o rk the most important factors in the expansion o f loans were a $57,000,000 increase in commercial, industrial, and agricultural loans and a net rise o f $23,000,000 in loans to brokers and dealers in securities. Outside New Y o rk C ity commercial, industrial, and agricultural loans showed a small increase am ounting to $9,000,000, but there were declines o f $31,000,000 in the “ all other” loan classification and $19,000,000 in holdings o f open market paper. A ccom panying the marked expansion in total loans and investments, total deposits of the weekly reporting banks in 101 cities rose $2,627,000,000 over the fou r weeks’ period. Most of this increase was accounted for by a rise o f $1,979,000,000 in U . S. Government deposits, reflecting extensive use of the book credit method of pay ment for new Government security issues. In New Y ork, Government deposits of the reporting member banks rose $1,116,000,000 and in 100 other cities the increase amounted to $863,000,000. A d ju sted demand deposits rose $129,000,000 in the N ew Y o rk C ity banks and $495,000,000 in other reporting banks. 1 % % 88 War Financing D u rin g October, net borrowings of the Federal Govern ment from the public (including banks and non governmental corporations and institutions) came to approxim ately $6,000,000,000 as compared with an aver age o f around $4,500,000,000 in each o f the three preced ing months. The main feature of the October financing was the offering o f about $4,000,000,000 o f 2 per cent bonds of 1950-52 and 1 % per cent notes m aturing Decem ber 15, 1946. A ddition al amounts were obtained from a further increase in the outstanding volume of Treasury bills, as well as from continued sales of W a r Savings bonds and tax anticipation notes. The distribution of this borrowing was as fo llo w s: $2,140,000,000— i y 2 per cent Treasury notes 1,961,000,000— 2 per cent Treasury bonds 850.000.000— W a r Savings bonds (estim ated) 700.000.000— tax anticipation notes (estimated net receipts) 5 00.000.000— Treasury bills (net receipts) The Treasury note and bond issues were offered for cash subscription on October 8 w ith subscription books remaining open fo r two days. In contrast with the previ ous simultaneous offering of two issues in September, the amount to be raised from each issue was not fixed in advance. Instead, the proportion was determined by the relative amount of subscriptions received fo r the two issues. A nother new feature o f this financing was the provision that allotments in fu ll would be made to sub scribers other than banks which accept demand deposits, so as to insure the placing o f a m axim um amount of these securities outside the commercial banks. A ccording to an announcement by Secretary M orgenthau on October 12, about 25 per cent of the $4,100,000,000 total subscrip tions received fo r the two issues came from sources other than banks which accept demand deposits. The 1 y 2 per cent Treasury notes due December 1 5 ,1 9 4 6 constituted an additional offering of the notes originally issued on June 5, 1942 in exchange fo r $1,119,000,000 of H .O .L .C . and R .F .C . obligations. Subscriptions, which were allotted in fu ll, totaled $2,140,000,000. A llotm ents to subscribers in the Second Federal Reserve D istrict ($ 863 ,0 0 0 ,0 0 0 ) amounted to 40 per cent o f the total, com pared with 37 per cent on the September note issue. The new 2 per cent Treasury bonds were dated October 19, 1942 and mature M arch 15, 1952, but are callable on and after M arch 15, 1950. Subscriptions to the bond issue, which were also allotted in fu ll, totaled $1,961,000,000. A llotm ents to subscribers in this D istrict ($ 876 ,0 0 0 ,0 0 0 ) amounted to 45 per cent o f the total, com 84 M ONTHLY REVIEW , NOVEMBER 1, 1942 pared with 40 per cent on the Ju ly issue of 2 per cent bonds of 1949-51. On the basis of the Treasury D a ily Statement for Octo ber 26, it would appear that receipts by the Treasury from sales of W a r Savings bonds approxim ated $850,000,000 in October, as compared with $755,000,000 in September. Included in the total fo r this month, however, are receipts from the large volume of sales made on the last days of September. A ctu al sales during October, therefore, were somewhat below the $838,000,000 sales reported in Sep tember, but apparently approxim ated the $775,000,000 quota fo r the month. Sales o f W a r Savings bonds by agencies other than post offices in the Second Federal Eeserve D istrict during October were estimated at $130,000,000, as compared with $140,000,000 in Septem ber and $115,000,000 in A u gu st. The decline from September was accounted for by some fallin g off in sales of Series F and O B on d s; sales of Series E bonds were maintained near the September level which was the highest, with the exception of January, 1942, so fa r recorded. A b o u t $500,000,000 in “ new m o n ey ” was raised from the sale of Treasury bills during October. On October 21 and 28 the weekly bill issues amounted to $500,000,000, as contrasted with weekly maturities of $350,000,000. In each of the two previous weeks, $400,000,000 Treasury bills were offered and $300,000,000 matured. Sales of tax anticipation notes, which are estimated at $700,000,000 to $800,000,000 fo r the month, provided net receipts o f a somewhat smaller amount after deducting notes presented in paym ent of taxes. In September, when two new series of tax notes were offered in place o f the earlier ones, sales totaled $929,000,000, second only to the figure of $ 1,037,000,000 in A u gu st, 1941 when the original tax notes were first placed on sale. D u rin g M a y-A u g u st, 1942 sales o f tax notes averaged about $400,000,000 m onthly. On October 26 the Treasury announced the offering of $ 2,000,000,000, or thereabouts, of % per cent certificates of indebtedness to be dated November 2, 1942 and to mature Novem ber 1, 1943. A bout $500,000,000 of “ new m on ey” w ill be raised from this financing after provid ing fo r the redemption of $1,500,000,000 certificates m aturing November 1. A s in the case of the Treasury bond and note issues offered on October 8, subscriptions from all subscribers other than banks which accept de mand deposits w ill be allotted in fu ll. Security Markets The Government security market continued generally steady during October despite the offering of an addi tional $4,000,000,000 of Treasury securities. The easing of reserve requirements through a further reduction on October 3 from 22 to 20 per cent in the percentage to be m aintained against net demand deposits o f the central reserve city member banks, together with purchases of Government securities by the Federal Eeserve Banks, con tributed to price stability. The new bonds were quoted around par on initial trading and the price has subse quently held steady. The bid quotations on the previ ously outstanding i y 2 per cent notes due December 15, 1946, which had ranged slightly above par before the announcement of the additional offering, dropped to par thereafter and remained at that level during the rest of the month. Prices o f the fu lly taxable long term Treasury bonds advanced somewhat during October and the average yield on these securities declined from 2.35 per cent to 2.32 per cent on October 20, the lowest since June. L ittle change occurred in the prices o f either the partially tax exempt long term bonds, the intermediate issues, or the three to five year taxable notes. A m o n g the certificates of in debtedness, the yields fo r the % per cent issue due A u gu st 1, 1943 declined 0.06 per cent to 0.73 per cent bid, while the % per cent issue due February 1, 1943 declined 0.09 per cent to 0.43 per cent bid. The Treasury bill rate con tinued close to the % per cent buying rate of the Federal Eeserve Banks. M unicipal bond prices have continued into new high ground since the country entered the war. The average yield on prime municipal bonds computed by Standard and P o o r ’s Corporation declined to 2.20 per cent on October 28. Prices of domestic corporate bonds continued the firming tendency apparent in recent months, the rise during the month being largely concentrated among the medium and lower grade railroad obligations. Accom panied by the highest rate o f activity this year, stock prices advanced fo r the sixth consecutive month to new high levels since last November. The gain through October 26, amounting to 7 per cent according to Stand ard and P o o r ’s 90 stock index, reflected in part relief from uncertainty with regard to the tax bill. In the next three days, however, prices declined 2 per cent accom panying news of the developing battle in the Solomon Islands. The sharpest gains fo r the month as a whole occurred in u tility shares which were influenced by the provision in the tax law allowing preferred dividends to be deducted before com puting the surtax. New Security Issues The volume of corporate and m unicipal new security financing during October remained at the low level of recent months, with a total of about $76,000,000 publicly offered or privately sold. This prelim inary total m ay be increased somewhat by additional private sales of cor porate security issues announced after the close of the month. Corporate financing amounted to $44,000,000, practically all of which was fo r refunding purposes. M unicipal awards during the month aggregated about $32,000,000. The principal corporate offerings included in the m onthly total were $30,200,000 L on g Island L igh ting Com pany first mortgage 3 % per cent bonds due in 1972, sold privately to a group o f insurance companies, and $9,500,000 A labam a Great Southern E ailroad Com pany first m ortgage 3 % per cent bonds due in 1967, offered publicly at 9 9 % to yield 3.26 per cent. Proceeds from the sale of these issues were to be used to refund out standing bonds. M unicipal financing during the month included $21,100,000 serial bonds of twelve local housing authorities. Employment and Payrolls The total number o f persons at work in the United States during September was 52,400,000, according to estimates of the B ureau of the Census. Unem ploym ent, estimated at 1,700,000, was at the lowest level since 1929. Compared with September, 1941, agricultural em ploy m ent was about unchanged while there was an increase o f 2,000,000 in nonagricultural pursuits. Practically all FEDERAL RESERVE B AN K OF NEW YO R K 85 PER CENT Employment, Payrolls, and Average Weekly Earnings in New York State Factories, Without Adjustment for Seasonal Variation (1935-1939 average=100 per cent) of this gain was among women workers, since, owing to withdrawals fo r m ilitary service, the number of men em ployed was at about last Septem ber’s level. E m ploym ent in New Y o rk State factories increased 2 y 2 per cent between A u gu st and September, and payroll disbursements rose 4 y 2 per cent in the same period, according to the New Y o rk State D epartm ent of Labor. Continued expansion of forces at war plants, and large seasonal increases at canneries were the m ajor factors contributing to the m on th ’s gains. Compared with Sep tember, 1941, m anufacturing establishments in the State employed 5 per cent more workers, and paid out 23 per cent more in wages. A verage weekly earnings increased 1 7 y 2 per cent over the September, 1941 level. D u rin g September em ployment and payrolls in New York C ity increased somewhat more sharply than in the State as a whole, reflecting increased activity in the c ity ’s shipbuilding, instrument, and machinery plants, as well as sizable seasonal increases in the w om en’s dress trade. In the U pstate area contraction in em ployment at plants producing civilian metal and textile products partially offset gains at canneries and factories m anufacturing fire arms and other war goods. The A lbany-SehenectadyTroy area was the only Upstate district in which net gains in em ployment exceeded the State-wide average. On October 3, President Roosevelt by Executive Order established an Office of Economic Stabilization, and appointed James F . B yrnes as director, charged with form ulating and developing a comprehensive National economic policy designed to prevent avoidable increases in the cost of living and to help minimize labor migration. Under the terms o f this order, all wage increases must be approved by the W a r Labor Board. The B oard will attem pt to stabilize wage rates at the level prevailing September 15, 1942, except in cases requiring the correc tion of gross inequities and the elimination of “ substand ards of liv in g .” The W a r Labor B oard has tentatively approved all wage increases effective on or before Octo ber 3, has exempted individual promotions and wage increases due to merit or length of service, and has relieved firms with not more than eight employees from com plying with the wage provisions of the order. On October 27, Director B yrnes issued regulations designed to hold salaries to an individual lim it of $25,000 in 1943 after paym ent of Federal income taxes. In his Columbus D a y speech, President Roosevelt called fo r efficient mobilization of the n ation ’s manpower— through legislation if necessary— by elim inating labor “ p ira tin g ” , by utilizing older workers, handicapped persons, and women, and by stopping workers from mov ing from one job to another as a matter of personal prefer ence. The need fo r some such manpower mobilization is indicated by the increasingly acute labor shortages which have developed in m any localities. In an effort to direct war contracts into areas in which there are labor sur pluses and to withhold them from areas in which short ages exist, the W a r M anpow er Commission classified industrial areas o f the nation into three categories : (1 ) areas already experiencing a shortage of labor (including Buffalo, B ridgeport, and Massena in the Second Federal Reserve D istr ic t), (2 ) areas anticipating a labor short age (such as Bingham ton, Syracuse, and northeastern New J ersey ), and (3 ) areas with a labor surplus (New Y ork C ity and Y o n k ers). Production and Trade Prelim inary inform ation now at hand indicates that the high level of industrial activity reached in September was maintained or further increased during October. H elped by the success of the nation-wide drive fo r the collection of household and industrial steel scrap, the steel mills stepped up operations to 101 per cent of rated capacity in the last h alf of the month. Production for the month as a whole was undoubtedly the greatest on record. The accom panying chart indicates how steel pro duction during the present w ar has fa r exceeded the earlier peak years o f 1917 and 1929. The W a r Production Board, in a further effort to re duce nonm ilitary production to a minim um , ordered a sharp reduction in the manufacture of farm machinery and revoked priority assistance fo r certain classes of nonm ilitary construction. A survey of m etal-working industries by the W .P .B . indicated that manufacture of consumers’ durable goods by these plants had virtually ceased by the end of the su m m er; the small amount of production for civilian use was chiefly repair and replace ment parts. I n m any plants fu ll conversion had been achieved, and on the whole employment in factories form erly producing consum ers’ durable goods was above the 1941 level. THOUSANDSOP Daily Average Production of Steel (October, 1942 estimated) 86 MONTHLY REVIEW , NOVEMBER 1, 1942 1941 1942 August Sept. Sept. July (100 = estimated long term trend) Index of Production and Trade.............. 110 118 120p 120p Production............................................. 115 126 128p 130p Producers’ goods—total................... Producers’ durable goods.............. Producers’ nondurable goods....... 126 135 118 156 184 124 160p 191p 126p 164p 197p 127p Consumers’ goods—total.................. Consumers’ durable goods............ Consumers’ nondurable goods. . . . 101 96 103 88 44 103 88p 38p 104p 87p 35p 104p Durable goods—total....................... Nondurable goods— total................. 123 109 143 112 113p UQp 149p 113p Primary distribution............................. Distribution to consumer...................... Miscellaneous services......................... 113 100 102 134 89 124 133p 93p 125p 133p 88p 124p 108 117 118r 118 125 138 140p 62 89 62 86 71 87 Indexes of Production and Trade* Cost of Living, Bureau of Labor Statistics (100 = 1935-39 average)......................... Wage Rates (100 =* 1926 average)............................... Velocity of Demand Deposits* (100 = 1935-39 average) New York City......................................... Outside New York City........................... p Preliminary. * Adjusted for seasonal variation. P r o d u c t io n and T r ad e in 69 85 r Revised. Septem ber In September, the seasonally adjusted index of produc tion and trade computed at the Federal Reserve B ank of New Y o rk was 120 per cent of estimated long term trend, unchanged from the previous m on th ’s record level, but ten points higher than in September, 1941. Industrial production continued to increase during September, but retail trade in general did not expand as much as usual over A u gu st. The index of producers’ durable goods output, includ ing m any types of war goods rose six points more during September, while consum ers’ durable goods production was still further curtailed. Retail trade, on a seasonally adjusted basis, fell off again in September after a two-month recovery from the decline that occurred during the first h alf of 1942. Sales of department stores and variety and grocery chain store systems did not increase as much as expected at this time of year, although mail order house sales showed approxi mately the usual seasonal increase. Building D u rin g the first nine months of 1942 the total volume of construction contract awards in N ew Y o rk State and Northern New Jersey was 14 per cent greater than in the corresponding period of 1941, according to the F . W . Dodge Corporation. A lth ou gh the effect of the war program has not resulted in a marked increase in the total volume o f construction contracts awarded in this region, in the case of m anufacturing building the amount of contracts awarded fo r such projects during the first nine months of 1942 was more than two and one-half times the volume o f the corresponding period of 1941. In addition, there has been a substantial increase in con tract awards fo r utilities projects. M ost o f the expansion of industrial facilities and utilities in this region has been concentrated in Upstate New Y ork, rather than in the M etropolitan New Y o rk C ity area. In order to provide the materials needed fo r plant expansion, most other types of building have been sharply curtailed. In the New Y o rk State— Northern New Jersey region, a contraction in the volume of awards fo r resi dential building has offset to a large extent the increase in awards for m anufacturing building. D u rin g the first nine months of the year awards fo r residential building were almost 50 per cent below the corresponding period in 1941. A w ards for commercial building, public purpose building, and public works construction were also sub stantially below the first nine months of last year. F o r the entire 37 States covered in the F . W . Dodge Corporation survey, the volume of construction contract awards during the first three quarters of 1942 was more than one-third greater than in the same period in 1941. A lthough the volume of awards fo r private construction during the first nine months this year was less than h alf as large as in the same period of 1941, awards for pub lic projects about doubled between these two periods. Because of the need fo r housing workers in war indus tries, awards fo r publicly financed residential building in the 37 States had increased nearly 80 per cent, whereas awards fo r private residential building were only about h alf as large as in the first three quarters of 1941. Commodity Prices Follow ing enactment on October 2 of the B row nW agn er bill to amend the Em ergency Price Control A c t of 1942, and the P resident’s Executive Order of October 3 designed to stabilize the cost of living, wholesale com modity prices in general fluctuated w ithin relatively nar row ranges. Quotations fo r a number of farm products showed downward reactions during the month. Several factors operated during October to influence declines in grain prices, including an order from the Office of Econom ic Stabilization lim iting loans on wheat and corn to the previous rate of 85 per cent of parity and the announced program for selling the Com m odity Credit Corporation holdings of wheat. The declines were ac celerated by the D epartm ent of A g ricu ltu re ’s upward revisions in the estimates of this y e a r ’s principal cereal cro p s; the corn crop for 1942 was placed at 3,132,000,000 bushels— a record level. H o g prices, after reaching new 22-year highs on October 8, turned downward and showed sizable net declines for the month. On the other hand, an average of quotations fo r steers in Chicago rose $1.00 between September 30 and October 28 to $15.46 a hun dredweight— the highest level since 1928. Cotton prices were relatively stable in October. U nder the B row n -W agn er A c t a number of supple mental regulations affecting commodities and services were issued during October. The Office of Price A dm in is tration placed a nation-wide ceiling on residential rents and price ceilings were established for the most important foods not previously regulated. To relieve the hardships which had developed fo r certain retailers and wholesalers operating under ceiling regulations at M arch levels, alternative pricing form ulae were announced fo r 11 groups of food products and percentage m ark-ups for 14 seasonal foods were announced. The O .P .A . increased the m axim um prices that m ay be charged by the Rubber Reserve Com pany fo r scrap rubber. A n y proposed changes in rates or charges of common carriers or other public utilities were made subject to the intervention of the Director of Econom ic Stabilization. Coffee was added to the list o f rationed items, effective November 29. 87 FEDERAL RESERVE B AN K OF N EW YO R K The amendment to the E m ergency Price Control A c t of 1942 authorized the President to issue a general order stabilizing prices, wages, and salaries affecting living costs. This legislation and the Executive Order under it, followed a series of steps taken in this country to arrest the rising price tendencies growing out of war conditions. P r ic e C o n t r o l in Canada and G r e a t B r it a in A brief comparison of direct methods of curbing price advances in the United States with those which have been adopted in Canada and Great B ritain reveals consider able variation between the three countries. In Canada the W artim e Prices and Trade B oard was established in September, 1939, with wide powers to control prices, but measures of direct price control were at first used only sparingly. On December 1, 1941, a rigid over-all price ceiling policy, covering virtually all goods sold at retail, as well as rents and essential services, went into effect. W a ges and salaries were stabilized, with provision fo r partial adjustm ents to increases in living costs. In Great B ritain direct price control has been selective in character, and its execution has been somewhat hampered by the cou n try’s dependence on outside sources of supply, the sharp external depreciation of the pound sterling which occurred at the beginning of the war, and increased shipping freight and insurance rates. The M inistry of Food has exercised its authority to set m axim um prices for a wide range of foods, but has permitted a number of upw ard revisions of such m axim a. The Prices of Goods A c t of 1939, giving the B oard of Trade power to lim it non-food prices, became effective January 1, 1940 on m any lower priced articles of clothing and household necessities ; the list of items was broadened in June, 1940. This law was supplemented in June, 1941 by the more general Goods and Services A c t, which lim ited profit margins fo r manufacturers, wholesalers, and retailers. No general wage ceiling has been imposed, but wages in many industries are tied by agreement to the cost of liv ing index. A s in the case o f these direct price control measures, there have been substantial differences between the indirect methods of price regulation practiced in the United States, Canada, and Great B ritain. The rise in living costs in the three countries during the present war reflects in some measure differences in the tim ing and character of their price control legislation, but is also partly due to the depreciation of the British and Canadian exchange rates vis-a-vis the United States dollar at the outbreak of war. Since A u gu st, 1939 the M inistry of Labour index of the cost of living in Great B ritain has risen nearly 30 per cent. A s the accompany ing table shows, the official indexes of living costs in Canada and the United States have increased during the same interval by 17 and 19 per cent, respectively. H ow ever, the cost of living in Great B ritain has been relatively stable since June, 1941, and in Canada has shown little further rise since last November. In the United States, on the other hand, the cost of living has advanced con tinuously for the past year and a half, and the current level is about 7 per cent above November, 1941. Consumer Credit D u rin g the year ended A u gu st 31, 1942 the total volume of consumer instalment credit outstanding is estimated to have declined approxim ately 40 per cent. P art of this decline m ay be attributed to the effect of Regulation W of the B oard of Governors of the Federal Reserve System, which first went into operation on Sep tember 1, 1941. Under this regulation lim its were set on the amount of instalment credit which m ight be extended for the purchase of listed articles and rules governing the length of m aturity fo r consumer instal ment credits were established. However, probably a greater part of the decline in the volume of such credit outstanding was due to the curtailment of the production of m any consumers ’ durable goods which are usually sold on the instalment basis. F or example, retail automotive paper held by sales finance companies fell off about 60 per cent between A u g u st 31, 1941 and the end of A u gu st, 1942, and outstanding instalment credit of household appliance stores was roughly cut in half. On the other hand, personal cash loans of commercial banks declined about one fifth, and outstanding instalment credit o f personal finance companies by about one eighth. Last M a y Regulation W was broadened to include open book credit as well as instalment credit. These regulations stipulated that unless paym ent was made fo r charged purchases by the tenth day of the second calendar month follow ing the purchase, no further purchases of listed items might be charged until the original account was settled or placed on an instalment basis fo r paym ent within six months. A lthough regional figures are not available covering all types of consumer credit, fo r certain types of business it is possible to indicate the extent of the decline in con sumer credit in this D istrict on the basis of data collected by this bank from leading department and furniture stores and commercial banks in the area. D epartm ent F u r n it u r e S tores S e c o n d D is t r ic t and in the Reports received at this bank from representative groups of department and furniture stores in this D is trict indicate that the ratio of credit sales to total sales PERCENT Percentage change August, 1942 compared with Indexes of Living Costs August, 1942 Aug., (1935-39 = 100) 1939 United States (Bureau of Labor Statistics)........ Canada (Dominion Bu reau of Statistics). . . . Great Britain (Ministry of Labour).................. June, 1940 June, 1941 Nov., 1941 May, 1942 117.5 +19.2 +16.9 +12.3 + 6.6 + 1.3 117.7 +16.8 + 12 .2 + 6.5 + 1.2 + 1.4 132.2 +29.6 +11.0 + 0.5 + 0.5 + 0.5 Cash, Open Book Credit, and Instalment Credit Sales of a Representa tive Group of Department Stores in the Second Federal Reserve District (The monthly average of total sales in 1941=100) 88 M ONTHLY REVIEW , NOVEMBER 1, 1942 Department and Furniture Stores in the Second Federal Reserve District Percentage Breakdown, Cash and Credit Sales Department stores Net sales—total.............................................................. Cash sales................................................................... Open book credit sales............................... .............. Instalment credit sales.............................................. Sept. 1941 Sept. 1942 100 100 10 67 26 7 100 100 58 32 Furniture stores Net sales—total.............................................................. Cash sales................................................................... Credit sales*............................................................... 14 19 81 86 Percentage of August 31 Accounts Collected during September 1941 1942 Department stores Open accounts.................................................................... Instalment accounts.......................................................... 40 20 49 24 Furniture stores Total accounts*................................................................. 12 16 Percentage Change in Outstanding Accounts Receivable September 30, 1941 to September 30, 1942 Open book credit Instalment credit — 31 * —30 * Department stores................................. Furniture stores..................................... Total accounts receivable —30 —28* * Separate data not generally available; predominantly instalment credit. has fallen off considerably during the past year. In the case of department stores, as the accom panying chart shows, while cash and “ C .O .D .” sales have been running substantially above the year earlier levels, since A p r il and M a y the volumes of charge account and instalment sales have dropped considerably below the corresponding months in 1941. F o r both department and furniture stores the per cent of accounts outstanding at the end of A u g u st that were collected during September showed an increase between 1941 and 1942. A s a result of the decline in the volume of credit sales and the faster rate of pay ment fo r such sales the total amount of accounts receiv able declined 30 per cent in the case of department stores and 28 per cent fo r furniture stores during the year ended September 30, 1942. clines. The accompanying table compares the volume of consumer credit outstanding for a group of member banks in this D istrict on December 31, 1941 and Sep tember 30, 1942. Department Store Trade D u rin g September, department store sales in this D is trict, while advancing considerably over A u gu st, failed to show all of their usual seasonal rise. Estim ates based on the first three weeks of October, however, indicate an in crease in sales of about the usual magnitude between September and October. Sales during September were about 5 per cent lower than in September, 1941, when retail trade was running at an unusually high level in anticipation of the Federal excise taxes effective on October 1 ,1 9 4 1 . Com pared with September, 1940 sales this year were about 14 per cent higher. The increase over a year ago in department store stocks continued to narrow during September, when stocks on hand at the end of the m onth were 39 per cent higher than on September 30, 1941, compared with a year-to-year increase of 59 per cent at the end of A u gu st, and 82 per cent at the end o f July. This ban k ’s seasonally adjusted index of department store stocks in this D istrict declined 9 points between A u gu st and September. Returns from a lim ited number of department stores in this District indicate that at the end of September outstanding orders for merchandise purchased by the stores, but not yet delivered, were about 29 per cent below September, 1941, but about 47 per cent higher than in September, 1940. Percentage changes from a year earlier Net Sales Department stores September, 1942 Jan.through Sept., 1942 — 8 — 7 __ 5 + 9 +13 + 4 + 3 + 5 New York City....................................... Northern New Jersey............................. Westchester and Fairfield Counties... . Lower Hudson River Valley................. Poughkeepsie....................................... Upper Hudson River Valley................. Central New York State....................... Mohawk River Valley....................... C o m m e r c ia l B a n k s in t h e S e c o n d D i s t r i c t F o r the Second District available data on consumer instalment credit extended by commercial banks indicate that the volume of such credit outstanding declined by about one third between the end of 1941 and September 30, 1942. In this D istrict retail automotive credit and other retail instalment credit extended by banks show the largest declines, about two fifths in each case. Loans fo r repair and modernization and personal cash loans showed somewhat smaller, though still substantial, de- Northern New York State..................... Southern New York State..................... Binghamton........................................ Western New York State...................... Niagara Falls....................................... + 11 +21 +13 + 2 + 6 — 3 — 9 + 10 +23 + 6 — 6 + 8 + 5 + 12 + 11 + 16 + 10 — +27 +69 +17 +29 — — +30 +27 + 12 +21 +34 + 8 +35 All department stores................. — 5 + 5 +39 Apparel stores............................. — 13 + 5 +17 1941 (In thousands of dollars) 40,178 72,198 39,428 68,847 23,956 41,688 28,034 51,960 — 40 —42 — 29 — 25 Total........................ 220,651 145,638 —34 1942 Sept. Percentage change Retail automotive.............. Other retail.......................... Repair and modernization. Personal cash loan.............. — 9 — 16 + 7 +19 + 4 — 2 + 7 + 4 + 8 + 6 + 3 +38 + 7 +44 +38 +40 +18 Indexes of Department Store Sales and Stocks, Second Federal Reserve District (1923-25 average=100) Consumer Instalment Credit Outstanding 39 Member Banks in the Second District December 31, 1941 September 30,1942 0 + 1 Stock on hand, Sept. 30, 1942 July August Sept. Sales (average daily), unadjusted............... Sales (average daily), seasonally adjusted . 125 116r 81 114 93 123 120 112 Stocks, unadjusted........................................ Stocks, seasonally adjusted r ....................... 113 108 156 168 162 165 161 156 r Revised. FED ERAL RESERVE B AN K OF N EW YORK M O N THLY REVIEW , NOVEMBER 1, 1942 General Business and Financial Conditions (S u m m arized b y th e B o ard of G overnors of th e F e d e ra l R eserve S ystem ) I N D U S T R IA L a c tiv ity expanded fu rth e r in S eptem ber a n d th e first h a lf of O ctober. P rices of un con tro lled com m odities continu ed to advance in Septem ber. E a rly in O ctober a n Office of E conom ic S tab iliza tio n w as estab lish ed w ith a view to m ore effec tive control of prices a n d w ages affectin g th e cost of living. P r o d u c t io n Index of Physical Volume of Industrial Produc tion, Adjusted for Seasonal Variation (1935-39 averages 100 per cent) In d u s tria l p ro d u ctio n increased m ore th a n seasonally in S eptem ber a n d the B o a rd 's a d ju ste d index rose 2 p o in ts to 185 p e r cent of th e 1935-1939 average. A rm am en t p ro d u ctio n continu ed to advance. Steel p ro d u ctio n w as m ain tain e d a t a h ig h level d u rin g S eptem ber an d th en increased d u rin g O ctober, reach in g 101 p e r cent of ra te d cap acity in th e th ird w eek of th e m onth. C otton consum ption continu ed a t a h ig h ra te an d o u tp u t of m a n u fa c tu re d foo d p ro d u cts rose m ore th a n seasonally ow ing chiefly to increased a c tiv ity in th e m ea t p a ck in g a n d cann ing in d u stries. Coal pro duction , w hich h ad been m ain tain e d in larg e volum e d u rin g th e sum m er m onths, did n o t show th e usu al sh arp seasonal rise in S eptem ber an d th e first h a lf of O ctober. O u tp u t of crude petro leum show ed little change follow ing a considerable increase in A ug ust. V alue of co n struction co n tracts aw ard ed in S eptem ber w as a b o u t th e sam e as in A ug ust, according to re p o rts of th e F . W . D odge C o rpo ratio n. A s in other recent m onths, aw ard s w ere m ainly fo r publicly-financed w ork w hich, in S eptem ber, am o unted to over 90 p e r cent of th e to ta l. C o ntracts fo r m a n u fa c tu rin g bu ild in g s reached th e h ig h est to ta l y e t rep o rted , a n d increased aw ard s fo r defense housing ra ise d th e to ta l fo r re sid e n tia l b u ild in g b y a b o u t one fo u rth despite a decline in privately -fin an ced w ork. A w ards fo r pu blic w orks an d u tilitie s a n d fo r com m ercial b u ild in g s d ro pped su b sta n tially . D is t r ib u t io n Index of Total Loadings of Revenue Freight, Adjusted for Seasonal Variation (1935-39 aver age = 100 per cent; miscellaneous, coal, and all other loadings expressed in terms of points in total index) D e p artm en t sto re sales, w hich h ad been u n usually larg e in A u g u st, show ed som e w h at less th a n th e usu al sh arp seasonal rise d u rin g S eptem ber. I n th e first h a lf of O ctober sales w ere su stain ed n e ar th e h ig h level p rev ailin g a t th e b e g in n in g o f th e m onth. V a rie ty sto re sales increased seasonally fro m A u g u st to S eptem ber, w hile sales in sm all tow ns an d ru ra l areas rose by m ore th a n th e usu al seasonal am ount. R a ilro a d fre ig h t car load ing s increased fu rth e r in S eptem ber an d th e first h a lf o f O ctober. T he rise w as sm all fo r th is tim e of year, how ever, ow ing m ainly to th e fa c t th a t shipm en ts of m any com m odities, p a rtic u la rly coal, h a d been m ain tain e d a t un usually h igh levels d u rin g th e sum m er m onths. C o m m o d it y P r ic e s P rice s of un con tro lled com m odities advanced fu rth e r in Septem ber. D u rin g the first h a lf of O ctober, a fte r passag e of a n am endm ent to th e P rice C ontrol A ct of 1942, m ore w idesp read controls w ere announced. M axim um prices a t th e h ig h est levels reached aro u n d th e end of S eptem ber w ere estab lish ed fo r b u tte r, cheese, eggs, a n d vario us other foods. T hese item s co n stitu te n e arly one th ird of th e foo d b u d g et a n d now th e p ro p o rtio n of th e to ta l u n der control is a b o u t 90 p e r cent. A n o th er a ctio n d irected resid e n tia l re n ts th ro u g h o u t th e co u n try to be lim ited to th e levels of M arch 1, 1942, w herever re n t control procedures w ere n o t a lre ad y in effect. A 80 1936 1937 1938 1939 1940 1941 80 1942 U. S. Bureau of Labor Statistics Indexes of the Cost of Living (1935-39 average=100 per cent) total Z ' / J j X 1 REQUIREDRESERVES . S' ~W U --" fV fEXCESS RESERVES ■*-V"-i V r- J 1936 1937 v 1 1938 1939 1940 1941 1 1942 Wednesday Figures of Total Member Bank Reserve Balances at Federal Reserve Banks, with Estimates of Required and Excess Reserves (Latest figures are for October 14) g r ic u l t u r e The O ctober 1 official crop re p o rt confirm ed e arlie r pro spects th a t u n usually heavy crop yields w ere in sig ht. T he D e p artm en t of A g ric u ltu re p o in ted out, how ever, th a t, as the h arv est progresses un der difficulties, p a rtic u la rly as to lab o r supply, fa rm ers are show ing less assu ran ce th a t it can be com pleted in season. R ecord crops of g ra in , hay, oilseeds, su g ar, vegetables, an d p ro b a b ly fru its a re still likely. B a n k C r e d it Follow ing a tem p o rary p eak of 3 billio n do llars in m id-S eptem ber, excess reserves of m em ber banks declined to 1.7 billio n do llars in th e la tte r h a lf of S eptem ber b u t increased considerably in th e first th ree w eeks of O ctober. T his increase re su lted in p a rt fro m the a ctio n of th e B o ard of G overnors o f th e F e d eral R eserve System in red u cin g reserve requirem ents on dem and deposits a t c en tra l reserve city b anks fro m 22 to 20 p e r cent, w hich ad d ed ab o u t 400 m illion do llars to excess reserves. I n a d d i tio n m em ber b a n k reserves w ere increased th ro u g h pu rch ases of G overnm ent securities by th e F e d eral R eserve B anks. A s a re su lt of these developm ents excess reserves of all m em ber banks on O ctober 21 am o unted to 2.4 billio n dollars, of w hich a b o u t 500 m illion do llars w ere in N ew Y ork C ity. A t re p o rtin g banks in lea d in g cities heavy pu rch ases of new T rea su ry certificates of indebtedn ess an d T rea su ry no tes w ere reflected in a n increase of 1.6 billio n dollars in G overnm ent secu rity holdings d u rin g th e fo u r w eeks ended O ctober 14. F u rth e r la rg e increases occurred in th e follow ing w eek as b an k s received th e ir allotm ents of th e new 1% p e r cen t no tes an d 2 p e r cent bonds. C om m ercial loans, a fte r declining in A u g u st a n d S eptem ber, increased in the first tw o w eeks o f O ctober, m ainly in N ew Y ork C ity, w hile o th er loans declined fu rth e r. U n it e d S t a t e s G o v e r n m e n t S e c u r it y P r ic e s P rice s of U n ite d S ta te s G overnm ent securities continu ed stead y la s t m onth. L ong term tax a b le bonds are y ield in g 2.33 p e r cent on th e average an d long term p a rtia lly ta x exem pt bonds a re yield in g 2.05 p e r cent.
@FedFRASER