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MONTHLY REVIEW O f Credit and Business Conditions F E D E R A L V o l. 25 R E S E R V E B A N K N OVE M B ER M O N E Y M A R K E T 1, IN O F N E W Y O R K 1943 No. 11 O C TO B ER Through the intensive sales efforts of the reconstituted War Federal Reserve District in connection with the War Loan Finance Committee organization, building upon experience drives has not declined in the degree indicated by the reduc gained during the campaigns of December and April, the tion in the percentage of sales credited to the District. The proportion of Government securities taken by com Third War Loan, which officially came to an end October 2, attained a new high mark for the major loan drives. Sales of bonds and other securities to nonbanking investors ( exclud ing Federal agencies which acquired $630,000,000) reached $18,313,000,000 in comparison with the objective of $15,000,000,000 and a corresponding total for the Second War Loan drive of $13,085,000,000. The results of the Third drive are summarized and compared with those of the first two in a separate article in this Review. The total sales credited to the Second Federal Reserve Dis trict under the Third War Loan drive, $6,334,000,000, made up 35 per cent of the aggregate sales to nonbanking investors exclusive of purchases for Government trust accounts. The corresponding totals and proportions were $5,295,000,000 and mercial banks in this District, on offerings made to banks, has shown no definite tendency to decline. Allotments to banks in this District of classes of Government securities other than Treasury bills generally amount to 30 to 35 per cent of the allotments to banks throughout the country. As a result of the Third War Loan drive and the subse quent sales of securities to commercial banks, it is estimated that the Treasury will have sufficient resources to cover its expenditures, other than for redemption of maturing obliga tions, until the early part of 1944. The Governments require ments for cash from borrowing have shown a definite tendency to flatten out in recent months, as a result of at least a tem porary cessation of the sharp month-to-month increases in war 40 per cent for the Second War Loan drive, and $3,814,000,000 and 50 per cent for the First drive. The fall, from one War Loan drive to the next, in the proportion of sales credited to expenditures and enlarged tax receipts under the Current Tax the Second District is not, however, an accurate measurement expectations, it appears that the maximum rate of need for Treasury borrowing may have been reached. The payments for the securities sold under the Third War Loan were made in predominant part by means of credits to War Loan deposit accounts on the books of qualified deposi tary institutions. From $3,691,000,000 on September 8, War Loan account deposits were brought up to a record total of $19,349,000,000 on October 16. of a lessened relative degree of reliance upon the Second Dis trict in Government war financing, for two reasons: net transfers to other districts of credits for subscriptions entered and paid for here have increased sharply from one drive to the next; and the net outflow of commercial and financial funds from New York City prior to and during the course of the Third drive, apparently associated in considerable part with transfers of funds to other localities for the purpose of enter Payment Act. Unless there is a further considerable rise in expenditures, or unless tax revenues fail to come up to present ing subscriptions elsewhere, was far greater than the outflows Total credits to the War Loan accounts, including book credit payments on October 15 for the 2 per cent bonds and occurring in connection with either the First or Second War per cent certificates of indebtedness offered to commer Loan drives. Net withdrawals of commercial and financial cial banks outside of the drive, reached $17,250,000,000 over funds from New York City between August 18, three weeks this period. prior to the opening of the Third War Loan, and October amounted to only about $1,600,000,000 between September 8 Repayments from the War Loan accounts 6, a few days after its close, amounted to approximately and October 16, inasmuch as the need for withdrawals was $1,400,000,000. limited by quarterly income tax collections, cash payments for Taking these factors into account— transfers of credits and transfers of funds— it is fair to say that, while securities sold under the drive (payments continued to flow a definite improvement in the geographical distribution of to the Treasury up to the middle of October), and cash pay Government security sales has occurred, the proportion of ments on the October 15 offerings to banks. nonbanking investors’ funds actually coming out of the Second on the War Loan deposit accounts were resumed October 18 Regular calls 82 MONTHLY REVIEW, NOVEMBER 1, 1943 Need for Cash from Public Borrowings (In billions of dollars) Period 1942 st quarter nd “ 3rd “ 4th “ 1 2 1943 1st quarter 2nd “ 3rd “ While it would appear likely that banks in New York City will show further net losses of funds through Treasury opera Decrease in Treas Withdrawals from Net cash pay ury deposits with War Loan deposit ments for Govern Federal Reserve accounts ment securities Banks* Total tions over the next few months, an inflow of commercial and financial funds began toward the end of October, apparently 4 .2 9 .4 securities purchased by dealers in the City during the War 0 .7 4 .2 5 .5 4 .8 6.8 12.6 0 .4 0 .1 10.8 6.1 9 .7 8 .9 associated with the sale to investors in other localities of 0.6 0 2 .9 5.2 7 .5 15.5 0 .7 5.9 4 .6 13.6 15.2 13.2 0 .4 0 .8 Loan drive and a replenishment by insurance companies and other corporations of their New York deposit balances, which were sharply drawn down for the purpose of purchasing Government securities during the War Loan drive. ^Figures in italics represent increases in Treasury deposits. and at the end of the month the balance in these accounts amounted to approximately $17,300,000,000.+ Of the total of $19,349,000,000 in the War Loan deposit accounts on October 16, $8,360,000,000, or 43 per cent, was on deposit in the Second Federal Reserve District, and $7,413,000,000, or 38 per cent, was on deposit in New York City. As indicated in an accompanying table, the propor tion of War Loan account deposits in New York City was somewhat smaller on October 16 than it had been at the close of the Second War Loan drive and considerably smaller than at the close of the first, but the proportion is still high enough to indicate that the New York money market will continue to be faced with substantial losses of funds to other localities through receipts by the Treasury (including War Loan account withdrawals) from the New York City banks and their customers in excess of the volume of Treasury checks placed on deposit with these banks. The lessened proportion Distribution o f W ar Loan A ccount Deposits at Close of W ar Loan Drives First drive January , 1943* 6 Second drive May 15, 1943* Third drive October 16, 1943* Millions Per cent of Millions Per cent of Millions Per cent of of dollars U, S. total of dollars U. S. tota of dollars U. S. total 7,413 947 47.1 52.9 8,360 10,989 43.2 56.8 100.0 19,349 $1,110,000,000 on August 25 to $2,050,000,000 September 15, and which still amounted to $1,810,000,000 on September 29, dropped back during October and on the 27th were down to $1,060,000,000. The principal factors tending to reduce mem ber bank excess reserves during the four weeks ended October 27 were an increase of approximately $700,000,000 in reserve requirements and a $272,000,000 further rise in currency circulation. Federal Reserve Banks’ holdings of Govern ment securities showed a net increase of $123,000,000 over the four weeks’ period. Holdings of certificates of indebted ness by the Reserve Banks were enlarged to the extent of $224,000,000 as the Federal Reserve Open Market Account operated to correct a condition of temporary oversupply of certificates nearing maturity. Treasury bill holdings, fluctuat ing irregularly from week to week as banks adjusted their reserve positions through bill purchases and sales, were reduced $115,000,000 net between September 29 and October 27. During the first half of October the central reserve city banks of New York continued to lose reserve balances through an outward movement of commercial and financial funds, but Changes in Holdings of Government Securities by the W eekly Reporting Member Banks (In millions of dollars) 38.3 4.9 100.0 New York C ity............... Other Second District.. . 4,417 384 53.8 4 .7 5,321 705 41.6 5 .5 Second Federal Reserved District......................... Other Districts................ 4,801 3,405 58.5 41.5 6,026 6,764 8,206 100.0 12,790 Total............................. -1 M em ber B a n k R eserve Po sit io n s Excess reserves of all member banks, which had risen from Week ended 8 — 98 — 15 +332 + 43 — 63 of War Loan account deposits held in New York City is partly the effect of some improvement in the geographical of a more general use of book credit payments, and a lessened Certificates Notes Oct. 13............... Oct. ............... 20 — + 13 +206 — — 5 — 37 +177 +235 _ _ 21 21 — + 14 + 18* — 9 + + — + + + + — + 17 + +254** 5 — 42 + 365** Guaranteed Total 2 0 6 4 31 12 98 25 43 + 4 + 9 + 9 + 24 + 17 — 92 + 9 +663 + 62 — + 3 — + 163 +849 22 1 1 0 1 1 1 0 — + + + + — 0 1 6 22 100 Other Cities use of cash payments, in other sections of the country. t On October 18 it was announced that the Treasury Department had decided to continue the method of making calls upon War Loan depositaries as established May 10 at the close of the Second War Loan drive. For "Group A ” depositaries, those having War Loan balances of $300,000 or less at the close of business October 15, a schedule of repayments running through January 5, 1944 has been issued, calling for six repayments of approximately equal size spaced at two week intervals. Calls on depositaries having War Loan bal ances of more than $300,000 at the close of business October 15, classed in "Group B”, would be issued in the same manner as heretofore. Bonds New York City * Dates used are those when War Loan account deposits reached their maximum following the official close of the drive. distribution of Government security sales, and partly the effect Bills Sept. 22............... Oct. 13............... Oct. ............... 20 10 — 56 + 61 + 365 + 44 + 69 + + 9 +247 + 159 + 125 — 112 + 54 + 32 +546** +197 + 60 + 24 + 25 7* _ + 14 + 17 + + 8 0 3 6 8 + + + 103 + 85 + 59 + 76 + +534** 8 8 — + — — + — 5 17 104 708 301 269 + 27 + 320 +1135 * On September 15, $279,000,000 of 1 per cent Treasury notes matured and were paid off. ** Reflects the allotment to commercial banks of new issues of A per cent certifi" 7 cates of indebtedness and per cent bonds on October 15. 2 83 FEDERAL RESERVE BANK OF NEW YO R K the rate of outflow was much diminished and during the second half of the month there was a moderate inward movement. Meanwhile, the limited withdrawals from War Loan account deposits, together with other receipts, fell considerably short of the volume of Treasury checks placed on deposit with the their bill portfolios $312,000,000 and purchased about $80,000,000 of outstanding Treasury bonds and $19,000,000 of guaranteed obligations, but were net sellers of about $50,000,000 of outstanding certificates of indebtedness. Re porting banks in other cities augmented their Treasury bill New York banks, and the banks gained funds which enabled them to build up their holdings of Treasury bills until October 20, after which a moderate reduction occurred. Treasury bill holdings by $214,000,000, and made net market purchases of certificates and bonds amounting in each case to more than holdings of the weekly reporting member banks of New $200,000,000. Total loans of York City rose from $1,229,000,000 on September 29 to $640,000,000, net, during the four weeks ended October 20. $1,604,000,000 on October 20, but fell back a week later to The expansion in loans was to a large extent associated with $1,539,000,000. the increase during the Third War Loan drive in the volume reporting member banks rose almost of loans for purchasing or carrying securities, as shown on M E M B E R B A N K CREDIT the accompanying charts. From September 8 to October 6, Total loans and investments of the weekly reporting mem such loans of reporting banks in New York City rose ber banks in 101 leading cities rose $3,334,000,000 between September 22 and October 20. Since September 8, just prior during the Second War Loan drive (April 14 to May 5 ). $1,045,000,000, compared with an increase of $850,000,000 to the opening of the Third War Loan drive, the increase Outside New York also, the increase during the Third War has Loan drive in loans to finance the purchase of securities was much larger than during the Second drive. Between Sep amounted to $6,600,000,000, even more than the $5,400,000,000 expansion which had occurred between the About one third tember 8 and October 6 the rise amounted to $621,000,000, of the increase after September 8 represented a rise in loans, while between April 14 and May 5 an expansion of only while in the earlier period total loans showed a net decline. $185,000,000 occurred. At the same time, commercial, industrial, and agricultural loans, which have been increasing gradually since June, end of 1942 and September 8 of this year. Considerably more than half of the increase in investments for the four weeks’ period ended October 20 represented bank purchases on October 15 of the new offering of Vs per cent accelerated their rise. certificates of indebtedness and the reopened 2 per cent bonds of the Third War Loan drive. Reporting member banks in New York City took roughly $600,000,000 of these new October 20 such loans for the weekly reporting banks in 100 cities outside New York rose $567,000,000, recovering nearly half the decline which had occurred between March, 1942, issues, of which about $350,000,000 were certificates, while and June of this year; for New York banks the increase from banks in the the low level of last June and July, amounting to about 100 other cities purchased approximately $1,080,000,000, fairly evenly divided between certificates and bonds. The reporting banks in New York and the other centers also continued to add to their Treasury bill holdings, and to make market purchases of already outstanding Gov ernment securities. The New York City banks increased BL I N I LO S O DLA S F OL R ------------------------------------------------------------------------------------10| From June 30, the low of the year, to $250,000,000, was equivalent to a recovery of one third of the previous decline. The recent expansion of commercial, industrial, and agricultural loans has been due to a variety of factors. Part of the increase, during the Third War Loan drive, reflected seasonal loans to finance the movement and BL I N I LO S O DLA S F OL R 8 ------------------------------------------------------------------------------------- 1941 1942 1943 Loans and Investments Other Thau U. S. Government Securities of Weekly Reporting Member Banks in New York City Loans and Investments Other Than U. S. Government Securities of Weekly Reporting Member Banks in IOO Leading Cities Outside New York City 84 MONTHLY REVIEW, NOVEMBER 1, 1943 storage of crops, part apparently has been due to further bor rowings by war contractors, and part may have been due to to $5,852,000,000, or $3,392,000,000 over the June 16-September 8 period. At the same time, banks outside the weekly unsecured loans to corporations to finance subscriptions to new Treasury securities. reporting member bank group and other investors added Reflecting payments by customers for the new securities sold during the War Loan drive, adjusted demand deposits continued to decline through the statement week ended Octo $433,000,000 net to their holdings, largely reflecting tempo rary investments in Treasury bills in anticipation of the Third War Loan drive. Although some recovery occurred after October 6, Associated with the reduction in bank reserve requirements which occurred during the drive, the weekly reporting member largely as a result of Government disbursements, such deposits banks enlarged their holdings of Treasury bills by about ber 6. on October 20 were about $4,900,000,000 below the pre $1,300,000,000 between September 8 and October 20. drive peak of September 8. Government deposits of the weekly reporting member banks continued to expand during bills were acquired, directly or indirectly, from Federal Reserve the four weeks ended October 20 as a result of book credit payments for new issues of Government securities sold to nonbanking investors during the Third War Loan drive and to commercial banks on October 15. For the reporting banks in 101 leading cities Government deposits rose $3,306,000,000 These Bank holdings to the extent of $663,000,000 and from banks outside the weekly reporting group and other investors to the extent of $638,000,000. The total volume of Treasury bills outstanding has remained unchanged at $13,000,000,000 since September 8. to $13,470,000,000 during the four weeks’ period. S E C U R IT Y M A R K E TS D IS T R IB U T IO N OF T R E A S U R Y BILLS Trading in Government securities diminished in October with the close of the Third War Loan drive and with the Treasury bill holdings of the weekly reporting member banks of New York City reached their maximum, of reduction in selling by investors to obtain additional funds for investment in new issues offered in the drive. Prices and $2,373,000,000, on June 16 of this year as indicated in an accompanying chart, and holdings by all other banks and yields remained firm during the first week of the month, but prices declined slightly in the following week when announce investors (exclusive of Federal Reserve Banks) were also at ment of allotments to commercial banks was made and trading in the new issues offered during the drive began. All three a maximum, $6,626,000,000, on June 16. Between June 16 and September 8, just prior to the opening of the Third War Loan drive, bill holdings of the weekly reporting member of the new issues were immediately quoted at fractional pre miums on the first day of trading. After the middle of the banks showed a net contraction of $2,234,000,000 to $3,570,000,000 as banks, most particularly in New York City, month, prices of Government securities fluctuated only slightly met increased needs for reserves through net sales of Treasury bills to the Federal Reserve Banks. Total Treasury bill holdings close of the month, yields on long term tax-exempt and inter mediate taxable bonds were a little higher than at the begin ning while other bonds were virtually unchanged. Yields on certificates of indebtedness tended to decline, especially the yields on the shorter maturities which had become out of line with the general structure of short term rates on Government securities during September. of the Federal Reserve Banks increased from $2,460,000,000 and showed little net change through the month end. At the As in the two preceding months, stock trading on the New York Stock Exchange during October was slow and prices moved irregularly. After October 1, stock prices declined for several days, but the major portion of this loss was recov ered during the remainder of the month. At the end of October, Standard and Poor’s index of 90 combined stocks was about 1 per cent lower than a month earlier. Activity in the corporate bond market increased during October and bond prices in general advanced, with medium and lower grade railroad bond prices registering the greatest gains. Moody’s index of yields on Aaa corporate bonds de clined from 2.71 to 2.69 per cent, and the index of yields on Baa bonds from 3.83 to 3.81 per cent. Standard’s index of municipal bond yields declined from 1.92 per cent on Sep J A S O N ‘ 1942 D J F M A M J J A S O N 1943 Outstanding Treasury Bills, Classified as to Ownership D tember 29 to 1.86 per cent on October 20, a record low for the index, and remained at that level on October 27. FEDERAL RESERVE BANK OF NEW YORK RESULTS OF T H E T H IR D W A R LO A N 85 D R IV E On October 18, the Treasury announced in a final report that sales in the Third War Loan drive totaled $18,313,000,000 (excluding $630,000,000 to Federal agencies and trust ac counts, which were not included in the $15,000,000,000 of corporations and other investors (including State and local governments) reached $7,915,000,000 in the recent drive as compared with $5,648,000,000 in April and $2,793,000,000 in December. The bulk of these purchases, as previously, quota). The amount realized was substantially in excess of went into certificates and Series C Savings notes, in the sales to nonbanking investors, other than Federal agencies, in amounts of $3,177,000,000 and $2,288,000,000, respectively; either the Second or the First War Loan drive, when receipts in addition, purchases amounting to $1,483,000,000 were made from such investors were $13,085,000,000 and $7,591,000,000, of the 2 per cent bonds. respectively. Individuals and nonfinancial corporations accounted for drive, allowance should be made for shifts in ownership of most of the increase over the previous drive. Particular em phasis had been placed on selling the greatest possible amount outstanding securities from nonbanking investors to the com mercial banks shortly before and during each drive. In the to individuals in order to absorb funds which might other November-December period, commercial banks and the Fed wise be spent for goods and services, and, as the accompanying eral Reserve Banks acquired in the market about $1,500,000,000 of Government securities previously held by other investors; table indicates, the increase in sales to individuals was pro portionately greater than the increases in sales to most other classes of investors and investing institutions. A goal of In order to obtain a complete picture of the results of the and in March-April such purchases amounted to somewhat under $2,000,000,000. During the Third drive commercial $5,000,000,000 had been set for sales to individuals*, including banks and the Federal Reserve Banks apparently absorbed $3,000,000,000 of Series E bonds. roughly $3,500,000,000 of securities sold by nonbanking in The over-all goal was exceeded as individuals subscribed a total of $5,377,000,000 vestors. as compared with $3,290,000,000 and $1,593,000,000 in the Second and First drives; but sales of Series E bonds fell short that the absorption of Government securities by nonbanking investors was considerably greater in this drive than in either of the established goal, although the total amount sold of the previous ones. Even allowing for this factor, however, it is clear ($2,472,000,000) was considerably greater than in either of Each of the three States, all or part of which are within the two preceding drives ($1,473,000,000 and $726,000,000). Subscriptions by individuals to the marketable issues of bonds the Second Federal Reserve District, exceeded their over-all quotas for the Third drive. and certificates were higher than the quota established for State amounted to $5,580,000,000, according to the final re such securities, with the greatest increase over the previous port released by the Treasury, as compared with an original drive occurring in the 2 per cent bonds. quota of $4,709,000,000. to individuals amounted to Sales of these bonds $1,220,000,000 as against $472,000,000 in the April drive. Insurance companies and mutual savings banks purchased a total of $4,127,000,000 of securities as compared with $3,603,000,000 in April. For these groups only slight in creases in subscriptions were to be expected since their supply of available new investment funds is limited by the compara tively steady growth of premium incomes and savings de posits. These accumulated funds have been supplemented in each of the drives by sales of outstanding securities to commercial banks and others. In the Third drive, as in the Second, the heaviest purchases of the insurance companies were the 2Vi per cent bonds. The mutual savings banks, particularly those in this District, concentrated more on the 2 per cent bonds as against an approximately equal distribu tion between the 2 and 2^2 per cent bonds in April. Allotments to dealers and brokers in the Third drive amounted to $894,000,000. Net sales credited to New York New Jersey sales amounted to $710,000,000 in comparison with a quota of $585,000,000; and Connecticut sales, to $511,000,000 compared with a quota of $453,000,000. Sales to individuals of $851,000,000 in New York State were slightly in excess of the quota for such sales. New Jersey and Connecticut were slightly under their quotas in this respect, with $78,000,000, respectively. Series States were substantially higher drive; but as in the majority of sales of $167,000,000 and E bond sales in the three than during the previous the other States they fell short of the Treasury goal which for most States called for at least doubling the sales of the April drive. Series E sales of $246,000,000 in New York and $76,000,000 in New Jersey were 50 per cent higher than in April, while Connec ticut sales of $42,000,000 were double the previous total. The accompanying table shows a comparison for the Second Federal Reserve District of sales by type of investor in each of the three drives. Total sales to nonbanking investors, Comparable figures for the April credited to this District, amounted to $6,343,000,000 in the drive are not available, since at that time dealer purchases of Third War Loan drive as compared with $5,302,000,000 in securities earmarked for distribution to nonbanking investors the Second and $3,815,000,000 in the First. were allocated to the appropriate group of investors instead three drives, purchases by insurance companies, savings banks, of being included under dealers and brokers. and other corporations have bulked particularly large in the Subscriptions * Partnerships and personal trust accounts are included with individuals. District totals. In each of the Third drive purchases by insurance companies MONTHLY REVIEW, NOVEMBER 1, 1943 86 Comparison of Sales to Nonbanking Investors in the First, Second, and Third W ar Loan Drives (In millions of dollars) T R A N SP O R T A T IO N Since the outbreak of war in 1939, and particularly since S econ d F ederal R e s e r v e D is t r ic t U n it e d S ta te s T y p e o f in v e s t o r portation system of this country has carried an increasingly D e c ., 1 94 2 A p r i l, 1 94 3 S e p t ., 194 3 D e c ., 1 94 2 A p r il, 1 94 3 S e p t ., 1943 I n d i v i d u a l s , p a r t n e r s h ip s , a n d p e rso n a l tru s t a c c o u n ts . . . . I n s u r a n c e c o m p a n i e s .................... M u t u a l s a v in g s b a n k s ................. D e a le r s a n d b r o k e r s * .................. S t a te a n d lo c a l g o v e r n m e n t s . . C o r p o r a t io n s a n d o t h e r in v e s t o r s .......................................... 1 .5 9 3 1 ,6 9 9 620 886 200 3 ,2 9 0 2 ,4 0 8 1 ,1 9 5 544 5 03 5 ,3 7 7 2 ,6 2 0 1 ,5 0 8 894 795 387 1 ,0 3 8 405 817 29 737 1 ,4 2 6 730 439 71 1,0 2 1 1 ,6 0 0 895 629 116 2 .5 9 3 5 ,1 4 5 7 ,1 2 0 1 ,1 3 8 1 ,8 9 2 2 ,0 7 2 T o t a l n o n b a n k in g (e x c lu d in g F e d e r a l a g e n c i e s ) .................. F e d e r a l a g e n c ie s .............................. 7 ,5 9 1 270 1 3 ,0 8 5 391 1 8 ,3 1 3 630 3 ,8 1 4 1 5 ,2 9 5 7 6 ,3 3 4 9 T o t a l .................................................. 7 ,8 6 0 1 3 ,4 7 6 1 8 ,9 4 3 3 ,8 1 5 5 ,3 0 2 6 ,3 4 3 * F o r t h e A p r i l d r iv e , d e a le r s ’ a llo t m e n t s e a r m a r k e d f o r d is t r ib u t io n t o n o n b a n k in g in v e s to r s w e re c r e d it e d t o t h e a p p r o p r ia t e n o n b a n k in g in v e s t o r cla s ses. I n t h e o t h e r t w o d r iv e s , n o s u c h r e d is t r ib u t io n w a s m a d e . N ote: the entry of the United States in 1941, the commercial trans F ig u r e s a re r o u n d e d a n d d o n o t n e c e s s a r ily a d d t o t o t a ls . heavy volume of traffic. From the summer of 1939 to the middle of this year, total commodity and passenger traffic (measured by the Department of Commerce’s adjusted index) more than doubled, with 60 per cent of the rise occurring after December, 1941. Distribution of the enlarged output of industrial products, shipment of supplies to the armed forces, troop movements, and curtailment of private transpor tation facilities have contributed to the increased business of commercial carriers. Commodity transportation at mid-1943 was about 100 per cent above that four years earlier. By far the largest increases have been shown by the railroads and the airlines, although and savings banks were nearly $350,000,000 greater than in about the same amount if allowance is made for the fact that shipments of commodities by motor trucks, and oil and gas pipe-line traffic, also have risen substantially. Water-borne traffic has dropped sharply, reflecting primarily the curtailment dealer purchases of IVz per cent bonds were allocated to other of coastwise shipping. corporations in the Treasury report in the April drive but not railroads in 1942 is estimated to have constituted 68 per cent April, and other corporations increased their purchases by in the September drive. Individuals increased their participa tion by about $300,000,000, largely in Series E bonds and 2 per cent bonds. F i n a n c i n g Su b s e q u e n t to the The volume of freight carried by the of total ton-miles of freight moved, compared with 62 per cent in 1939. The growth of passenger traffic has been even more striking D rive On October 6, after the close of the Third War Loan drive, commercial banks were offered about $1,500,000,000 each of Vs per cent certificates of indebtedness due October 1, 1944, and 2 per cent Treasury bonds of 1951-53. Both issues were oversubscribed by a wide margin, with subscriptions totaling $5,386,000,000 for the certificates and $5,531,000,000 for the bonds. Subscriptions of $50,000 or less, amounting to $190,000,000 on the certificates and $252,000,000 on the bonds, were allotted in full. Larger subscriptions were allotted on a 26 and 25 per cent basis for certificates and bonds, respec than the expansion in freight volume. After increasing rather gradually from 1939 through the first half of 1941, the volume of passenger transportation on commercial carriers has risen sharply in the past two years and is currently two and one-half times its 1939 volume. The chief factor in this development has been the shift of passenger traffic from private automobiles, which in 1939 are estimated to have carried 85 per cent of all passenger traffic; but military travel, and increases in civilian travel, arising from a variety of factors, also have contributed substantially to the larger volume. The accompanying chart shows clearly that the burden of tively. The Second District portions amounted to 35 per cent of the $1,579,000,000 allotted on the certificates (compared with 31 per cent of the offering to banks in the April drive), the added passenger travel, like the enlarged freight volume, has fallen heavily upon the railroads. Railroad travel other and to 32 per cent of the $1,626,000,000 allotted on the than commutation averaged about 50 to 55 million passenger bonds (compared with 27 per cent in April). miles per day in 1939 and 1940. By the spring of 1942 the Two exchange offerings also were made on October 6. daily average (after seasonal adjustment) had reached 100 Holders of $1,400,000,000 of 3 V per cent bonds of 1943-45, a called for redemption October 15, were given the option of million passenger miles, and at the middle of this year it was exchanging for either 2 per cent bonds of 1951-53 or IVz level of 1939 and about twice that of 1920, the preceding per cent bonds of 1964-69, except that the latter option was peak year. not available to commercial banks. by a considerably smaller amount than the "long haul” traffic handled by the commercial transportation system. The greater A total of $1,128,000,000 was exchanged for the 2 per cent bonds and an additional approaching 240 million miles— four and a half times the Commutation travel on the railroads has risen The other exchange need for daily transportation has been met not only by the offering provided holders of $2,035,000,000 certificates matur railroads but also by local transit lines. In 1942 the rise in local ing November 1 with the option of exchanging for the new bus and railway transportation was extremely sharp. Although certificates maturing October 1, 1944. some restrictions were placed on lines in certain cities during $58,000,000 for the 2Vi per cent bonds. Adjustment of interest was made for the overlap of coupons on the two issues. total exchanged amounted to $1,936,000,000. The the first half of the current year because of the need of con serving essential materials, local transit transportation did not FEDERAL RESERVE BANK OF NEW YORK M LO S O I IN F L P SE GR M E A S N E —I S L 87 is estimated to have advanced even further in September. An increased rate of activity at cotton textile mills resulted in a fairly sharp rise, above the relatively low levels of July and August, for daily average consumption of cotton. Among those industries in which declines occurred, after allowance for seasonal factors, were chemicals and anthracite mining. The decrease in chemical production reflected labor shortages. In anthracite mining, September is a month in which a moderate rise usually occurs, but this year, output failed to show the customary seasonal advance. The number of air planes produced in September totaled 7,598 as compared with 7,612 in August, and the number of merchant ships delivered was 160 as compared with 164 in August. The September record for merchandise distribution, like that for industrial production, presents a mixed picture. Ton- miles of railway freight are estimated to have fallen below the August level. Sales of department stores failed to show the usual seasonal advance, and the adjusted index dropped sharply. Adjusted sales of grocery chains, variety chains, and mail order houses, on the other hand, increased. Daily Average Number of Passengers Carried One Mile by Railroad, Air, and Intercity Bus Lines, Adjusted for Seasonal Variation (Railroad and airline series are those of the Federal Reserve Bank of New York; bus lines data have been estimated from Department of Commerce seasonally adjusted index of intercity motor bus transporta tion. Plotted on ratio scale to show proportionate changes.) The civilian labor force declined from 54,900,000 persons in August to 53,300,000 persons in September, according to re ports of the Bureau of the Census; and total civilian employ ment is estimated to have decreased from 53,900,000 workers to 52,500,000. The declines, which were seasonal and resulted fall below that in late 1942, and in recent months further in part from the return of students to schools and colleges, were considerably smaller than in the corresponding period last year. increases have occurred. Many students have undoubtedly been retained in industry During the past three years passenger travel on intercity either on a full-time basis or as part-time employees under the bus lines has risen fairly steadily, despite some curtailment special work-school program inaugurated this year in various of facilities due to the shortages of gasoline and rubber since 1941. The rise in airline travel was halted suddenly in May, 1942 when the Government inaugurated a priority system sections of the country. The estimated number of unemployed in September (800,000 persons) was the lowest on record. covering airline traffic, reduced the number of flights, and diverted planes to other uses. While a sharp contraction in airline passenger travel then occurred, some recovery has taken place in the past year but the upward movement has been very PR ODU CTION, T R A D E , A N D E M P LO YM E N T September was a month of markedly diverse movements among important manufacturing, mining, and* distribution While some industries producing materials of war showed even further gains above the high levels attained earlier this year, other industries evidenced declines. The seasonally adjusted volume of electric power generated appears to have risen approximately 1 per cent. Other im portant advances were shown by the steel, petroleum, and cotton textile industries. In the steel industry, several new furnaces were placed in operation, and daily average output reached a new high rate of 249,600 net tons. Crude petroleum production, which in August had been the largest on record, Sept. 1943 July Aug. Sept. Indexes of Production and Trade* (100 = estimated long term trend) Index of Production and Trade................. 120 126 126p 125p Production................................................. irregular. fields. 1942 129 132 133p 133 p Producers’ goods— total...................... Producers’ durable goods............... Producers’ nondurable goods......... 163 195 126 165 194 132 166p 195p 133p 166 p 19 bp 134p Consumers’ goods— total.................... Consumers’ durable goods............. Consumers’ nondurable goods. . . . 87 36 103 27 108 26 p 109p 108p Durable goods— total.......................... Nondurable goods— total................... 148 113 145 118 145p 119p llSp Primary distribution................................ Distribution to consumer....................... Miscellaneous services............................. 134 89 134 163 85 175 161 p 84p 176 p 174p 118 124 123 124p 143 153 154p 69 85 6 8 8 8 8p 8 87 p 25p U5p 158p 8 2p 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. 76 * Adjusted for seasonal variation. 6 8 77 8 8 94 MONTHLY REVIEW, NOVEMBER 1, 1943 88 P RC N E ET D E P A R T M E N T STORE T R AD E Sales of reporting department stores in this District increased between September and October by more than the usual sea sonal amount and the adjusted index rose to approximately the August level. During the first three weeks of October, de partment store sales were 10 per cent greater than in the cor responding 1942 period; and apparel store sales in New York City advanced 30 per cent. Thus far this year, sales of department stores in this Dis trict have been running 7 per cent above those in the first ten months of 1942, and 35 per cent above those in 1939, the year in which the war began in Europe. Increases since 1939 have varied widely for the five major cities in the District: Buffalo, 70 per cent; Syracuse, 60 per cent; Rochester, 41 per cent; New York, 31 per cent; and Newark, 25 per cent. Among the various Federal Reserve Districts, sales this year in the San Francisco, Dallas, and Atlanta Districts have been approximately twice those in 1939, sales in the Richmond and Kansas City Districts have risen about 80 per cent, and those in St. Louis more than 70 per cent. The increase for the New York District is the smallest of any of the 12 Districts. Indexes of Sales of W om en's and M isses' W ear and of House furnishings in Department Stores in Second Federal Reserve District ( 1 9 3 5 -3 9 = 1 0 0 . Figures cover twelve months ending January, except those for 1943 which are based on the eight months, February-September. Plotted on ratio scale to show proportionate changes.) the 1942 and 1943 increases have been due to the high level of sales of women’s and misses’ wear. As indicated on the Changes in sales over the war period have reflected not only accompanying chart, housefurnishings sold in department price advances but also consumer demand and the types of merchandise available for purchase. During 1940 and 1941 the increase in total sales in this District was accounted stores in 1941 were 26 per cent above the 1939 level, while in 1943 (based on data for the first eight months, FebruarySeptember, of the store year) they dropped 7 per cent below for primarily by the sharp gain in housefurnishings, whereas the 1941 figure and were only 17 per cent above sales in 1939. Department and Apparel Store Sales and Stocks, Second Federal Reserve District, Percentage Change from the Preceding Year Sales of women’s and misses’ wear, after increasing 11 per N e t sa le s L o c a li t y S e p t ., 1 94 3 S tock s on J an . th ro u g h hand S e p t ., 1 94 3 S e p t . 3 0 ,1 9 4 3 D e p a r tm e n t stores, S e co n d D is t r ic t .. . . + N e w Y o r k C i t y ............................................... N o r t h e r n N e w J e r s e y .................................. N e w a r k ........................................................... W e s t c h e s t e r a n d F a ir fie ld C o u n t ie s . . B r i d g e p o r t .................................................... L o w e r H u d s o n R i v e r V a l l e y .................. P o u g h k e e p s ie ............................................... U p p e r H u d s o n R i v e r V a l l e y .................. A l b a n y ............................................................ S c h e n e c t a d y ................................................. C e n t r a l N e w Y o r k S t a t e .......................... M o h a w k R i v e r V a l l e y ........................... U t i c a ............................................................ S y r a c u s e ......................................................... N o r t h e r n N e w Y o r k S t a t e ....................... S o u t h e r n N e w Y o r k S t a t e ....................... B i n g h a m t o n ................................................. E l m i r a .............................................................. W e s t e r n N e w Y o r k S t a t e ......................... B u f f a l o ............................................................. N ia g a r a F a l l s ............................................... R o c h e s t e r ....................................................... + 6 0 — 1 — 2 — 9 +14 +18 + 1 + 5 — 1 + 7 + 7 +11 + 7 — 2 + 9 +18 — 4 + 8 +12 +16 + 2 + 7 — 2 — 1 — 2 — 5 + 5 + 7 — 1 — 5 + 5 +11 + 13 + 12 +10 + 4 +11 +16 — 2 +11 + 13 +30 + 7 — — — — — — A p p a r e l s t o r e s (c h ie f ly N e w Y o r k C i t y ) +21 +21 + 5 + — 20 6 + — — — 23 24 26 14 19 1 — 0 — 4 6 14 — 1 — + 6 — — 9 — 5 — 4 — 16 6 cent from 1939 to 1941, have risen further in the past two years; sales for 1943 are estimated as 45 per cent above 1939 and 30 per cent above 1941. In past years housefurnishings and women’s and misses’ wear together have accounted for approximately 60 per cent of all department store sales in the District. During 1927-41 women’s and misses’ wear repre sented about 35 per cent of total sales, and housefurnishings, 25 per cent. In 1943, however, the proportion of women’s and misses’ wear has ri^n to 40 per cent, whereas the propor tion for housefurnishings has fallen to 20 per cent. Although stocks of reporting department stores in this Dis trict have risen month by month since last April, they were still, at the close of September, 20 per cent below those of a year earlier. Stocks of apparel stores, on the other hand, were 6 per cent higher than on September 30, 1942. showed a net increase of 58 per cent, and apparel store stocks 67 per cent, at retail values. Indexes of Department Store Sales and Stocks, Second Federal Reserve District (19 23 -2 5 average = ) 100 1 94 2 S ep t. J u ly A ug. S ep t. S a les (a v e r a g e d a i ly ) , u n a d j u s t e d ..................... S a le s (a v e r a g e d a i l y ) , s e a s o n a lly a d j u s t e d . . . 1 20 112 91 128 95 126 127 118 S t o c k s , u n a d j u s t e d ...................................................... S t o c k s , s e a s o n a lly a d j u s t e d ................................... 164r 1 59 r 106 117 123 127 128 123 At the September, 1943 rate of sales, stocks for both department and apparel stores repre sented approximately iVi months’ supply. Outstanding orders on September 30 for merchandise pur chased by department stores in this District but not yet deliv 1943 Item r Revised. As compared with September 30, 1939 department store stocks ered to them, although slightly lower than at the close of August, were still about 2Vi times as large as on September 30, 1942. Outstanding orders plus stocks on hand increased 13 per cent during the twelve months’ period. FED ERAL RESERVE BAN K OF N EW Y O R K MONTHLY REVIEW, NOVEMBER 1, 1943 General Business and Financial Conditions in the United States (Summarized by the Board of Governors of the Federal Reserve System) activity showed little change in September and in the first half of October. Distribution of commodities continued in large volume and prices remained steady. I NDUSTRIAL I n d u s t r i a l Pr o d u c t i o n Indexes o f Value of Department Store Sales and Stocks, A djusted for Seasonal Variation (1923-25 average —100 per cent) Indexes of W holesale Prices Compiled by Bureau o f Labor Statistics (1926 average= 100 per cent; latest figures are for October 16) Physical volume of industrial production as measured by the Board’s seasonally adjusted index, as recently revised, was 243 per cent of the 1935-39 average in September, compared with 242 in August and 239 in July. There were increases in output in the iron and steel and transportation equipment indus tries while activity in other durable goods industries showed little change or declined slightly. Open hearth and Bessemer steel production exceeded its previous peak level, reached in March of this year, and output of pig iron likewise established a new record. In the machinery industry as a whole activity was maintained at the level of recent months although there was some further curtailment of output of machine tools and machine tool accessories. Total output of nondurable manufactures continued at the August level. Cotton consump tion, which had been declining since May, rose 6 per cent from August to September, but was 9 per cent below the high level of a year ago. Shoe production was maintained at the level of recent months and was slightly larger than a year ago. The output of manufactured food products rose seasonally. Petroleum refining continued to rise in September and was at a rate about double the 1935-39 average. The Board’s index of this industry is substantially higher than the old index because greater weight is given to aviation gasoline and other special war products. Output in the chemical industry as a whole declined in August, as some further expansion in industrial chemicals was more than offset in the total by reductions elsewhere, reflecting readjustment of the war program. Newsprint consumption rose less than is usual at this season, in the face of increasing supply difficulties, and a further 5 per cent cut in permitted consumption of newsprint was ordered, beginning October 1. Crude petroleum production continued to rise in September, reflecting further improve ment of transportation facilities for petroleum products. Output of crude petroleum in August and September exceeded the earlier peak levels reached in December, 1941 and January, 1942. Coal production continued at a high level. In September the value of construction contracts awarded in 37 Eastern States was at about the same low level as in July, according to reports of the F. W. Dodge Corporation, and was considerably smaller than in August when there was a temporary increase because one exceptionally large contract was placed in that month. D is t r ib u t io n Department store sales increased less than seasonally in September, following an unusually large volume of sales in July and August, and the Board’s seasonally adjusted index declined from 142 to 132. During the first half of October sales showed a gain over September although usually there is some decline at this season. Railroad freight traffic in September and the first part of October was maintained at the high level of previous months. Coal shipments exceeded the record movement of last July and loadings of grain and livestock were 10 per cent higher than a year ago. C o m m o d i t y P r ic e s Prices of grains advanced from the middle of September to the middle of October. Live stock prices were slightly lower, reflecting partly the establishment of Federal maximum prices for live hogs and sharply increased marketings of cattle. Wholesale prices of most other com modities continued to show little change. U. S. Government Security Holdings o f W eekly Reporting Member Banks in 101 Leading Cities, Excluding Guaranteed Issues (Latest figures are for October 13) A g r ic u l t u r e BINFOA IL S DLS L O LR O Crop prospects showed little change during September, according to official reports. There was a further small improvement in prospects for the corn and potato crops, while the previous forecast for cotton production was lowered slightly. Aggregate crop production is expected to be 7 per cent below the peak volume of last season but higher than in any other previous year. B a n k C r e d it rufn - DAJTO S E(DpPl MDE) T NS S AUD E V UT U.G* SC IIS .S OTE R E / LAS O N -- f : DOS K ES PI T f 1942 \ N i 1943 Member Banks in Leading Cities. Demand De posits (A djusted) Exclude U. S. Government and Interbank Deposits and Collection Items. Gov ernment Securities Include Direct and Guaran teed Issues (Latest figures are for October 13) During the five weeks ended October 13, Government security holdings at reporting banks in 101 leadings cities increased by about 2.5 billion dollars reflecting substantial open market purchases during the Drive, and also, some purchases of bills on subscription from the Treasury. Loans showed a net increase of 2.2 billion dollars over the same period. Over two thirds of the total amount represented loans to brokers, dealers, and customers for purchasing or carrying securities; in the last week of the period there were some declines, however, as repayments were made on the liquidation of the securities. Commercial loans, which have been increasing steadily since June, rose further by 540 m illion over the five weeks. Holdings of Government securities by the Federal Reserve System showed little change from the end of September to the third statement date of October, but there were some shifts among the kinds of securities held. Treasury bills held under option declined by 200 million dollars between September 30 and October 20, while holdings of certificates of indebtedness and of Treasury bills outside of the option accounts increased by about 200 million. Total holdings of United States Government securities by the Reserve System on October 20 were 8.9 billion dollars.