Full text of Economic Policy Review (Federal Reserve Bank of New York) : November 1950, Vol. 32, No. 11

The full text on this page is automatically extracted from the file linked above and may contain errors and inconsistencies.

MONTHLY REVIEW
O f Credit and Business Conditions
FEDERAL
V

o lum e

32

RESERVE

BANK

NOVEMBER

OF

NEW

YORK

1950

No. 11

MONEY MARKET IN OCTOBER
Money market conditions during October ranged from quite
tight to very easy, as the efforts of the Federal Reserve System
to keep a tight rein on the supply of reserve funds available
to the banking system, as a means of discouraging unnecessary
credit expansion, were offset temporarily at intervals by tech­
nical influences beyond the control of the Reserve System. On
the whole, however, the banks handled any additional funds
that became available to them with circumspection, and the
Reserve System appeared to be having some success in achiev­
ing its objectives.
A further decline occurred in prices of short-term Govern­
ment obligations, and was accompanied by additional declines
in prices of Government bonds, especially the bank-eligible
issues, during the first three weeks of October, but in the
latter part of the month prices of such bonds became steadier.
Prices of partially tax-exempt issues, on the other hand, showed
greater stability early in the month, apparently reflecting the
expectation of early action to increase tax rates further, but
had an accelerated decline later on.
During the month the Federal Reserve System supplemented
its actions designed to restrain general credit expansion by a
further tightening of restrictions on consumer credit, and by
the issuance, in cooperation with the Housing and Home
Finance Agency and the Veterans' Administration, of a new
regulation designed to restrict extensions of mortgage credit.
As these measures were taken around the middle of the month,
it is too early to appraise their effects in terms of the regularly
reported credit statistics, but the effects are expected to be sub­
stantial. The growth in business loans of reporting member
banks continued during the first three weeks of October, but
at a considerably reduced rate. Aside from further borrowings
by finance companies, the growth in business loans appeared to
have been largely a result of seasonal commodity financing.
The commercial banks* security operations during the past
month were apparently directed toward the objective of
improving the liquidity of their security positions, partly in
anticipation of a possible increase in legal reserve requirements
and partly reflecting uncertainty as to the future course of
interest rates. An increase in the yields on short-term Treasury




notes was interpreted in the market as a forerunner of further
increases in short-term money rates, and for a short time led
to an acceleration of bank sales of such issues. At the same
time, the banks tended to invest idle funds in Treasury bills,
which they purchased in substantial amounts following a tem­
porary large increase in their excess reserves in the third week
of the month.
M em b er B a n k R e s e rv e P o s itio n s

With the passing of the quarterly tax period in the latter
part of September, pressure on member bank reserve positions
lightened, and for several days after the first of October money
market conditions were very easy as a result of substantial net
disbursements by the Treasury in connection with the redemp­
tion of maturing securities that were not exchanged for new
Treasury notes. During the remainder of the first half of the
month, however, member banks lost reserve funds through
seasonal currency demands, payments to foreign accounts at
the Reserve Banks, and other factors, and the money market
turned decidedly firmer. New York City banks were subject
not only to these influences, but also to a substantial outflow
of funds to other parts of the country— first of business funds
and then of banking funds. There were indications that outof-town banks were building up their excess reserves in order
to be prepared for a rumored imminent increase in legal
reserve requirements. These banks sold Treasury bills and
other short-term securities in New York and apparently trans­
ferred the proceeds to their accounts in local Reserve Banks.

CONTENTS
Money Market in October ....................................................121
Private “Deficit Financing” and Inflation........................... 124
Restriction of Residential Real Estate Credit................. 126
The 1950 Housing Boom.................................................... ... 127
Nonfarm Real Estate Lending of Second District
Member Banks ................................................................ ... 129
Changes in Consumer Credit Control............................. ... 132
Canadian Foreign Exchange Developments....................... 132
Department Store T rade.................................................... ... 135

122

MONTHLY REVIEW, NOVEMBER 1950

Thus, most of the pressure was concentrated on the reserve
positions of the New York City banks. In making the neces­
sary adjustments in their reserve positions, the City banks sold
substantial amounts of short-term Treasury securities, largely
Treasury bills, and drew down their excess reserves. The
surplus balances of all other member banks rose about 240
million dollars in the two-week period ended October 11.
In the following week, the banks gained a large volume of
reserves, primarily through an exceptionally large increase in
the Federal Reserve float, and the money market became very
easy. The unusual magnitude of the float apparently was due
to transportation delays and to the occurrence of the Columbus
Day holiday and the mid-month at the end of a week, which
delayed the processing of checks. At first the banks held the
added funds at their disposal idle in their reserve accounts, and
excess reserves rose above 1.3 billion dollars for all member
banks. When the rumored increase in reserve requirements
failed to occur as early as had been feared, however, banks in
other parts of the country shifted part of their idle funds back
to New York and used some of them to purchase Treasury
bills. The resultant ease in the New York money market also
enabled the City banks to acquire Treasury bills. Most of the
banks’ purchases came indirectly out of the Reserve Banks’
bill portfolio, which was reduced by more than 500 million
dollars in the two weeks ended October 25. At the end of
this period the abnormal float was reduced rapidly, the excess
reserves of the central reserve New York City banks fell 245
million dollars, and those of all member banks fell 590 million,
in the week of October 19 to 25, and a rapid change to tighter
money market conditions followed.
In the remaining days of the month, moderate pressures
were exerted on member bank reserve positions as a result of
a month-end rise in currency in circulation, a further decline
in float, and net receipts into Treasury accounts with the
Reserve Banks.
G o v e r n m e n t Se c u r it y M a r k e t

Under the weight of demand for securities of the shortest
maturities a wider spread developed in October between yields
on Treasury bills and short-term Treasury certificates and
yields on securities maturing in one year or more. The demand
for Treasury bills from corporations investing cash balances,
and from other nonbank investors, was active during most of
the month. During the first half of October, banks in need
of reserves sold a substantial volume of bills, all of which were
taken by nonbank investors. Subsequently, with the easing
of reserve positions and reflecting the desire to maintain maxi­
mum liquidity in their portfolios as a precaution against higher
legal reserve requirements or higher interest rates, the banks
made substantial net purchases of Treasury bills. Yieids on
the new bill issues declined from 1.337 per cent for the new
issues dated October 13 and 19 to 1.316 per cent for the
issue of October 26, and yields on outstanding bills declined
even further, while yields on securities maturing in about oue




year approached IV2 per cent. A large part of the banks’
demands for bills was filled from sales out of the Reserve
Banks’ holdings, thus withdrawing funds from the market.
Short-term Treasury notes maturing through 1951 were
offered by the banks during the first part of the month, at
about the same time they were selling Treasury bills. These
offerings met with little market demand and ultimately found
their way into the System’s portfolio. Continued sales of notes
around the middle of the month by some banks in need of
funds, even though reserve positions in the aggregate had
turned easier, met with declining bids, and transactions were
effected on a rising yield basis. However, as the yield on these
issues approached IV2 per cent, selling subsided. With the
widening of the differential between the yields on notes and
bills, making the former more attractive to hold, banks and
others made moderate purchases on a rising scale of yields.
Net purchases of Treasury notes by the System rose from
40 million dollars in the week ended October 11 to about
100 million dollars in the following week, but declined to
19 million in the week of October 25.
Prices of Government bonds moved downward in sympathy
with the rise in yields on short-term Treasury notes. In keep­
ing with their preference for liquidity, the banks came into
the market for only small amounts of bank-eligible bonds.
Prices were marked down rather sizably by dealers on small
offerings, and losses of about Ys of a point occurred in the three
longest maturities over the month as a whole. Ineligible bonds
also were marked down in price as life insurance companies,
savings banks, and other institutional investors continued to
sell them in order to meet other commitments for funds. Some
selling of the ineligible bonds, moreover, was reported to
have originated out of decisions to purchase F and G Savings
bonds under the Treasury’s special offer during the first ten
days of the month. The two longest maturing issues, the June
and December 1967-72’s, remained unchanged in price, but
quotations on the other issues declined by from 7/32 to 15/32.
Purchases of Treasury bonds by the Reserve Banks amounted
to 285 million dollars in the four weeks ended October 25,
but, together with purchases of Treasury notes, were more than
offset by sales of Treasury bills, so that total Reserve Bank
holdings declined 124 million dollars.
M e m b e r B a n k Lo a n Ex p a n s i o n

The rate of expansion in loans of weekly reporting member
banks diminished considerably during the past month. The
increase in total loans of those banks during the three weeks
ended October 18 was less than one third as large as in the
preceding three weeks. The reduced rate of expansion is
attributable partly to a decline in loans to brokers and dealers,
especially on Government securities, but a factor of greater
importance was a slowing of the growth in business loans. In
the week ended October 18, the business loans of New York
City member banks showed an actual reduction because of
loan repayments by a utility company out of the proceeds of

FEDERAL RESERVE BAN K OF NEW YO RK

a new security issue. But other business loans of these banks
increased much less than in September, and the total increase
in the three weeks ended October 25 amounted to only 52 mil­
lion dollars, compared with an increase of 261 million in the
preceding three weeks. Business loans of other weekly report­
ing banks continued to expand rather rapidly in the two weeks
ended October 11, but showed .a smaller increase in the follow­
ing week, and for the three weeks as a whole the increase
amounted to 294 million, compared with 475 million in the
three weeks ended September 27.
The rate of expansion of real estate and "all other” (includ­
ing consumer) loans of the weekly reporting member banks
also diminished, but not to the same extent. The continued
expansion of real estate and "all other” loans may have been
influenced by anticipation of the adoption of real estate credit
restrictions and tighter consumer credit controls. Both of
these anticipated developments became facts during the month
with the issuance by the Federal Reserve Board and the Hous­
ing and Home Finance Agency of regulations relating to
mortgage borrowing on new homes, and with the tightening
of the Board’s Regulation W relating to consumer credit. It
is probable, however, that the volume of home mortgage
financing will continue to grow in the next few months owing
to the large volume of new housing started in the summer
which has yet to be completed and financed and which is not
covered by the new regulations. The influence of the tightened
provisions of Regulation W should be felt more promptly.
G o ld

and

Fo r e ig n A c c o u n t O p e r a t io n s

The monetary gold stock of the United States declined 184
million dollars further in the four weeks ended October 25.
This decrease, and the sizable decreases in August and Septem­
ber, reflected the acceleration of a development which started
a little over a year ago, just after the devaluation of the pound
sterling and of numerous other foreign currencies. On
September 21, 1949 the gold stock of this country had reached
an all-time peak of 24.7 billion dollars. Within 13 months,
it declined by 1,401 million dollars.
Despite substantial Government aid to foreign countries,
the United States monetary gold stock increased almost 4.7
billion dollars during the postwar years through September
1949. This large inflow of gold was the result of the huge
world demand for American goods and services, the low level
of production and exports in the war-devastated countries, and
inflationary conditions or overvalued currencies in some coun­
tries. As a result of American financial aid to Europe and
other areas, the gradual economic recovery in Europe, the
expansion of American imports accompanying capacity indus­
trial operations in the United States, growing foreign import
restrictions against American goods, and other factors, the
rate of growth in this country’s monetary gold declined after
1947. The increase in the first nine months of 1949 was
decidedly less than in the corresponding period of 1948,
despite a decline in United States imports.




123

United States Gold Stock and Foreign Deposits in the
Federal Reserve Banks, 1948-50*
Billions
o f d o lla rs

B illio n s
o f d o lla r s

1948

1949

1950

* Wednesday dates; latest figures are for October 25, 1950.

The decrease in the United States gold stock since Septem­
ber 1949 reflects basically an improvement in the cash trade
position of European and other countries with the United
States to a point where, beginning with the third quarter of
1950, American imports of goods and services have exceeded
the value of exports which other countries have had to pay for
out of their own dollar earnings or balances (i.e., exports
which were not financed through grants and credits of the
United States Government). Since the start of the Korean
war, this trend has become more pronounced as a result of
our increasing imports and some movement of private capital
to a few countries, notably Canada.
The acceleration of the decline in the gold stock in the past
three months (over 800 million dollars, compared with about
550 million in the previous ten months), however, has reflected
in part a more rapid conversion into gold of dollars acquired
by foreign countries than in previous months, and has not
involved proportionately large withdrawals of funds from the
money market. In the earlier period, between September 1949
and the beginning of August this year, foreign authorities
kept a larger part of the dollars that came into their possession
in their accounts with the Federal Reserve Banks. Foreign
deposits with the Reserve Banks in this period rose 774 mil­
lion dollars and this rise, together with foreign purchases of
gold from the Treasury of over 550 million, resulted in a
drain of over 1.3 billion dollars on member bank reserves.
During the past three months, on the other hand, foreign
gold purchases were partly financed with funds on deposit
with the Reserve Banks. Thus, of the decrease of 846 million
dollars in the United States gold stock between August 2 and
October 25 of this year, 137 million dollars reflected foreign
gold purchases financed by a decrease in foreign deposit
accounts with the Reserve Banks, and the net drain on the
money market amounted to 709 million dollars.

124

MONTHLY REVIEW, NOVEMBER 1950

In addition to building up their deposits in the United
States and purchasing gold, foreign countries have returned a
part of their dollar accumulations to the money market by
investing them in Government securities, mainly Treasury bills.

PR IV A T E “ D E FIC IT FIN A N C IN G ”
A ND IN FLATIO N
In recent years, inflationary pressures have prevailed inter­
mittently and in varying degree in the United States. At the
end of the war, economic conditions were ripe for inflation
defined as a rise in the general level of prices stemming from
an increase in expenditures not accompanied by a correspond­
ing expansion of the flow of goods available for purchase.
Wartime-deferred demands of business, consumers, State and
local governments, foreign countries, and others for great quan­
tities of all sorts of goods and services could be satisfied only
after several years of capacity output. Backed by large backlogs
of liquid reserves and augmented by credit easily obtainable,
these demands pressed strongly on the market. A sharp rise
in commodity prices resulted.
Following their virtual cessation in 1949, inflationary
pressures began to reappear early in 1950, and since June
they have been intensified as a result of the publics reaction
to the Korean war and to the adoption by this country of
a large rearmament program. Once again, therefore, the
attention of the business community, of government officials,
and of the general public is focussed on the problem of
combating inflation.
In the discussion of the problem, Treasury deficit spending
has been placed in rhe forefront among the factors making
for inflation, and higher Federal taxes have therefore been
one of the major solutions proposed. While the prescription
of a balanced Federal budget is certainly sound, it deals
directly with only one of the possible sources of inflation­
ary developments. When the economy is operating at or
near capacity, deficit spending may well be the prime cause
of inflation, especially if the deficit is financed through the
banking system. But deficit spending by the Federal Govern­
ment is only one of the possible causes of inflation. Expendi­
tures in excess of current income by business, consumers, or
State and local governments or by any other major economic
group are, if financed through bank credit, just as inflation­
ary as bank-financed Government deficits. The emphasis on
Treasury deficits as a cause of inflation is no doubt associated
with the fact that historically major periods of inflation in
nearly all countries have been connected with Government
deficits, with the excessive issuance of currency, or with sub­
stantial Government borrowing from the commercial or
central banks. The current discussion of the impact of the
remobilization of American economic and military resources
frequently proceeds in terms inherited in large part from the
public discussion of World War II financing.




The Government-generated process of inflation in wartime
has been described frequently. Armament expenditures absorb
materials and manpower in activities which do not satisfy
the normal wants of individuals or add to the current standard
of living. If an amount equivalent to the income generated
by military spending is promptly recaptured through taxes
or through borrowing from nonbank investors, the funds avail­
able for civilian goods are held within existing supplies and the
general price level is held reasonably stable. When a Treasury
deficit arises and business and individuals are not willing to
reduce their spending and to lend part o f their current incomes
to the Government, Government financing through the bank­
ing system becomes necessary. The resulting expansion of
bank credit increases the demand for scarce supplies and,
since the volume of goods available to the civilian economy
is limited, results in rising commodity prices.
The inflationary process is by no means peculiar to war­
time periods. Peacetime Government deficits financed through
the banking system during a period of capacity operations tend
to have the same inflationary effects as wartime deficits. Nor,
as already indicated, is Government finance the only potential
source of inflation. Expenditures by any important elements
in the private economy, when financed through the banks,
have been the source of inflation in the past as well as in
recent years. Spending by any one group in the economy in
excess of its income is normally financed through tapping the
current savings of other groups. If the latter are not willing to
keep their aggregate consumption below their current income
and to turn over the difference to the group that incurs a
deficit, the spenders will seek to borrow from the banks. At
a time when the total volume o f goods available is restricted
through limitations of capacity or for some other reason, the
resulting expansion o f bank credit, if permitted, merely leads
to an increase in prices and thus to inflation.
Excessive private expenditures, rather than Government
deficit spending, were the major generating force behind the
most recent rise in commodity prices. As a matter of fact,
this has been true for the postwar period as a whole. Over
the postwar years, the net profits of business enterprise after
taxes and dividends were not sufficient to finance all business
expenditures for plant and equipment expansion and inven­
tory accumulation. Business spending on plant and equip­
ment and inventories, like Government spending for military
purposes, absorbs materials and manpower in activities which
do not immediately yield goods to satisfy the consumer demand
which is supported by income generated by such expenditures.
Since depreciation allowances and current retained earnings
could finance only a part of business expenditures for new
production facilities, the other part had to be financed through
the use of accumulated business savings (mainly through the
liquidation o f Government security holdings), through the
sale of shares in the capital markets, and through borrowing.
However, individuals were not willing to reduce their con­
sumption sufficiently to meet all business needs for funds, by
purchasing from business concerns Government securities, new

FEDERAL RESERVE B AN K OF NEW YO RK

corporate issues, or other forms of investment. The banking
system (including the Federal Reserve Banks indirectly) was,
therefore, called upon to meet the residual demand for funds.
In other words, business was able to finance only a part
of its deficit spending through borrowing the savings of
nonbank investors. The incomes generated by business capital
expenditures consequently tended to augment the demand for
consumer goods at the same time that capital expenditures
were limiting the supply of goods available for consumers.
The volume of such expenditures fluctuated during the post­
war period, and the inflationary pressures arising from this
source likewise varied.
Deficit spending of State and local governments, to the
extent that it was not financed through nonbank investor
purchases of new municipal security issues offered in the
capital markets, also acted in the same direction. Purchases
of merchandise in this country by foreigners, to the extent
that they were not offset by sales of goods to the United
States, by U. S. Government grants and credits (financed by
taxpayers and nonbank purchasers of Government securities),
or by private grants and nonbank credits, also tended to
absorb goods that otherwise would have been available foi
domestic use. To the degree that such purchases were financed
through shipments of gold to the United States, they not only
augmented the funds available in this country for the purchase
of a given amount of goods but also increased the banks’
capacity to make loans and to add to their investments.
Under such circumstances, inflation could have been avoided
only if the general body of American consumers had been
ready to limit its current expenditures correspondingly. This
consumers were not ready to do after several years of wartime
shortages. On the contrary, consumers have made, since the
end of the war, substantial deficit expenditures for new
housing and durable goods. However, the aggregate savings
of all consumers exceeded the substantial deficit spending
o f some groups of consumers. In other words, the combined
net savings of all consumers exceeded the net increase in
the mortgage and consumer indebtedness and the liquidation
of Government securities of those who spent in excess of
their current incomes.

the economy was a sharp rise in commodity prices. By means
of this price rise, the market "rationed” goods and services
to receivers of current incomes, who frequently found them­
selves unable to make purchases freely out of their income at
stable prices.
Rather than a source of inflationary pressures, Federal Gov­
ernment operations in most of the postwar period have been a
major anti-inflation force. As shown in the accompanying
chart, Government transactions have resulted in a net cash
surplus during most o f the postwar period. While the Treas­
ury’s cash operating income and outgo were approximately in
balance during the calendar year 1946, the Treasury was
able to retire (out of substantial cash balances consisting
mainly of the proceeds of the Victory Loan drive toward the
end of 1945) large amounts of called and maturing obligaU. S. Government Net Cash Operating Income or Outgo
1946-September 1950*
(Cumulated m onthly from Decem ber 31, 1945)

* ( + ) indicates net income; (— ) net outgo.
Source: U . S. Treasury Department; September 1950 estimated by the
Federal Reserve Bank of New York.

Ownership of the Interest-Bearing Public Debt
December 31, 1945-July 31, 1950

Personal saving, however, was not sufficiently large to
meet the postwar deficit spending in the United States of
business, State and local governments, and foreigners. De­
mands for bank credit have been consequently very heavy ever
since the end of the war, with Government securities becoming
an important vehicle of bank credit expansion. Institutional
investors, finding that the demands for their resources exceeded
the net increase in savings deposited with them by individuals,
sold Government securities to the banking system, while busi­
ness and consumers also liquidated or redeemed Governments
in order to enlarge their expenditures.
The expansion of bank credit enabled all groups in the
economy to bid for a limited (although growing) volume
of supplies. The result of the heavy deficit expenditures of




125

* Excludes holdings of Government agencies and trust funds,
f Federal Reserve and commercial banks.
Source: U . S. Treasury Department.

126

M ONTHLY REVIEW, NOVEMBER 1950

tions held by the banking system and others. In the succeeding
period through March 1949, the Treasury was able to apply
approximately 17 billion dollars of net cash receipts toward
debt retirement and, by redeeming Government securities
held by the Federal Reserve System, to bring pressure on the
commercial banks’ reserves. Although Government disburse­
ments have exceeded receipts since the first quarter of
last year, most of the resultant increase in the public debt
has been financed by private saving, i.e., has been borrowed
from nonbank investors, as shown in the lower chart.
In fact, in the period since the start of the war in Korea,
Government receipts have exceeded disbursements, and the
accentuated inflationary pressures have clearly been the direct
result of accelerated private spending, much of it financed by
credit. It is true, of course, that such spending has been
stimulated by fears of later shortages of civilian goods as a
result of the national defense program, and to some extent
by fears of further inflationary price advances growing out of
Government deficit financing.
Looking forward, it is obvious that either large-scale econo­
mies in Federal nonmilitary expenditure or much higher taxes
than those recently enacted by Congress will be necessary if the
cash outlays, augmented by large appropriations for the financ­
ing of rearmament, are to be balanced by receipts. If neither
the economies nor the additional taxes are forthcoming, financ­
ing through sales of securities entirely to nonbank investors
will be difficult because, in the absence of rationing and direct
price and production controls, peacetime rearmament expendi­
tures are likely to be accompanied by deficit spending by
business firms and others. Under the present policy of the
Government, it is the task of the monetary authorities to
combat such deficit spending through the use of general and
specific credit controls.

R E STR IC TIO N OF R E SID E N T IA L
R E A L ESTATE C R ED IT
On October 10, the Board of Governors of the Federal
Reserve System issued Regulation X, which restricts the
granting of credit on new residential construction, other
than loans insured, guaranteed, or made by Government
agencies.1 Similar restrictions on Government-aided resi­
dential financing were announced at the same time by the
Administrator of the Housing and Home Finance Agency
and by the Veterans’ Administrator. The restrictions on both
types of loans became effective October 12.
The new regulations were issued under authority of the
Defense Production Act of 1950 and the President’s Executive
Order No. 10161 of September 9, 1950. They are designed
to lessen inflationary pressures by reducing the current record
volume of residential construction and the further expansion

of mortgage credit. A gradual reduction in the volume of
residential construction will make materials and labor available
for the defense program as that program gains momentum.
The goal in the field of residential construction credit
control is to cut the number of new housing units produced
in 1951 about one-third below the current record level, or to
between 800,000 and 850,000. Both the Chairman of the
Board of Governors of the Federal Reserve System and the
Administrator of the Housing and Home Finance Agency have
signified their intention of keeping the situation under close
review to determine whether developments in the field of
production and credit make later modification of this goal
necessary.
The new regulations apply only to loans on one and twofamily houses (including loans to finance additions and im­
provements, where the loan amount is more than $2,500),
but they govern credits extended to finance construction as
well as credits granted for the purchase of completed new
homes. They do not apply to the financing of existing
residential property where a conventional ( non-Governmentaided) mortgage is employed. Neither are they applicable
to conventional loans on construction begun before noon
on August 3 or to loan commitments made prior to October
12. The financing of existing residential properties using
Government guaranteed or insured mortgages, however, is
subject to the new regulations. Limitations on the granting
of construction credit on multiple-family projects and non­
residential properties and restrictions on the granting of other
types of real estate credit are expected to follow as soon as
the terms of control can be worked out.
Virtually all future loans on new construction of one and
two-family houses will be affected by the regulations announced
October 10, which require down payments ranging from 10
per cent for homes priced at $5,000 or less to 50 per cent
for those priced at $24,250 or over. (In the case of veterans,
down payments may be lower by 5 or 10 percentage points.)
Maximum maturities, as well as minimum amortization
requirements, are specified. Thus, loans are limited to a
maximum term of 20 years, except that loans on properties
having a value (as defined in the regulations) of $7,000 or
less may be made under a contract providing for complete
amortization in 25 years. However, loans on properties valued
in excess of $7,000 and amortized at a minimum annual rate
of 5 per cent of the original amount of the loan may be
exempt from further amortization when the outstanding
balance has been reduced to 50 per cent (or less) of the
value of the property as of the time the credit was granted.

In determining the maximum amount that can be loaned,
lenders must take into account all credit previously granted
in connection with the property and still outstanding. Minimum
down payments on new residential construction must be made
1 Inquiries concerning Regulation X and requests for copies of the
from the borrower’s own funds, and not from the proceeds
Regulation should be directed to the Real Estate Credit Department
of supplemental mortgages or personal loans.
of this bank or (in branch territoryX to the Buffalo Branch.




FEDERAL RESERVE BANK OF NEW YO RK

THE 1950 HOUSING BOOM
This country has been experiencing a housing boom of
unprecedented proportions. Whatever the effect of the recent
restrictions on mortgage credit (described in the article
’'Restriction of Residential Real Estate Credit” ), the number of
new homes started in 1950 is certain to set an all-time record.
During the first nine months alone, more than 1,100,000
nonfarm dwelling units were started, compared with the
full-year record of 1,025,100 set in 1949, and the 937,000
units started in 1925 at the peak of the housing boom of the
twenties. In each of the nine months, the number of homes
started has exceeded the number in comparable months of
all previous years by a considerable margin. The average
gain during the first nine months of this year over the com­
parable 1949 period has been nearly 50 per cent. It seems
likely that, for the year as a whole, the number of new
homes started will total approximately 1,400,000.
In dollar volume, too, 1950 will be a record-breaking year.
Private nonfarm residential construction expenditures for the
first nine months of 1950 total 9-1 billion dollars, compared
with 8.3 billion in the entire year 1949 and the record of
8.6 billion dollars in 1948. Part of the increase between
1949 and 1950 is accounted for by the rise in construction
costs, but by far the larger share reflects the increase in the
physical volume of housing construction.
The boom in home building has in fact been under way
since the end of World War II. To a large extent it
reflects the lag in new housing during the depression of
the thirties and the restrictions placed on construction during
the war. At the same time housing demand has been accent­
uated by a sharp increase in marriages and in the birth rate
during the war and postwar periods and by the generally
high level of postwar incomes and the sizable savings which
many families have accumulated. Thus a considerable deficit
in the supply of housing has existed since the end of the war.
Moreover, the Government has encouraged home ownership
through the promotion of easy financing. Government insured
or guaranteed mortgages made it possible, prior to July 1950,
for families to buy houses by means of low down payments
( in some cases even without down payments), and to amortize
the cost at lower interest rates and over longer periods than
had previously been customary. Rental housing was encour­
aged, too, but the bulk of postwar construction has been con­
centrated in single-family homes.
Despite the construction of about three and a half million
nonfarm dwellings in the postwar period through the end of
1949 and the availability of perhaps a million and a half
more in the form of temporary units, the conversion of
existing structures, and trailers, there was still considerable
unfilled demand at rhe beginning of 1950. Both the Federal
Reserve Survey of Consumer Finances and an analysis by the
U. S. Department of Commerce indicated at that time that
the market for new homes was still far from saturated.




127

In the spring of 1950, before the outbreak of hostilities
in Korea, the number of new dwelling units started reached
record-breaking proportions. To some extent, the increase
in demand received its impetus from families who had
previously held back from buying homes at inflated postwar
prices. However, when the 1949 recession failed to bring
any sizable reduction in prices of new houses, these families
came into the market. The Korean war and the announce­
ment of a long-term defense program by the United States
sharply accentuated this buying rush. Many prospective home
owners feared increased prices, while others anticipated short­
ages of materials and restrictions on construction similar to
those in World War II.
The shortages of materials soon appeared, caused in part
by the unprecedented number of homes undergoing construc­
tion. But, to a large extent, builders and suppliers helped
to create the very shortages they feared by rushing to buy
ahead. When builders attempted to stock up on all the
potentially scarce items they would need to complete projects
barely under way, factories which normally could have made
delivery over a period of several months found themselves
unable to meet the sudden surge in demand. Prices rose,
and in some cases 'gray” markets appeared. For certain
items, such as steel, the competition from other industrial
users stretched the available supplies even thinner.
The construction industry was one of the first to become
subject to regulation as a result of the Korean crisis. Presi­
dent Truman on July 18 requested restriction of housing credit
"to conserve building materials which may be needed for
national defense and to curb inflation”. The Federal Housing
Commissioner and the Veterans’ Administrator carried out
this directive, chiefly through increasing down payment re­
quirements. Because this action coincided with a rush of new
and eager customers into the market, the impact of the restric­
tions was not readily ascertainable. Sales still boomed, but it
became evident that many marginal buyers had been forced
out of the market. One large builder in this area reported
that 25 per cent of his nonveteran customers canceled their
applications when the new requirements increased their re­
quired down payments by $640.
The real estate credit restrictions announced jointly on
October 10 by the Federal Reserve System and other home
financing agencies were far more stringent in their provisions.
The administering agencies announced that their goal was to
cut 1951 housing starts to not more than 800,000 to 850,000
new units, a reduction of at least one third from current levels.
The initial reaction of some builders was that the cut caused
by the new regulations might be even sharper. In any case, the
effectiveness of the restrictions will not be fully reflected in
the number of new starts or in the volume of activity for some
months, because a very large volume of financing commitments
under the old terms is still outstanding, and work is progress­
ing on many recently started projects. The actual impact of
mortgage credit curbs will be further obscured by the influence

128

MONTHLY REVIEW, NOVEMBER 1950

of the seasonal decline in new starts which ordinarily occurs
in the last third of the year, by the effects of the building
materials situation, and by the expectation, held in some
quarters even before the Korean situation developed, that
some decline in homebuilding activity would be likely in 1951
as the market in many areas would approach saturation at pre­
vailing prices. One consequence of the announcement of the
regulations and the general anticipation of a substantially lower
rate of activity next year has been the more ready availability
of some building materials, in some cases at lower prices, as
hoarded supplies have come into the market.

The New York metropolitan area has felt the effects of the
1950 housing boom, but perhaps not so much as some other
areas, since homebuilding in 1949 was already at a very high
level in this region. The number of new dwelling units started
in the first eight months of 1950 was one-third greater than in
the corresponding months of 1949. Some of the major charac­
teristics of the housing market in this area are indicated by
the chart. In New York City, as might be expected, the num­
ber of single-family residences built is relatively unimportant.
In 1949, over 90 per cent of the new dwelling units started
in New York City were apartment houses or other multi­
The latest available data
family dwellings. About
New Permanent Dwelling Units Started in New York City
on construction activity,
half
of these were built
and in the Metropolitan Area Outside New York City
covering the month of Sep­
Percentage Distribution by Type, 1949 and Jan.-Aug. 1950
with public funds to pro­
tember, bear out the ex­
vide homes for families of
pectation that the dollar
low or moderate income.
NEW YORK CITY
JAN.-AUG. 1950
1949
volume of work on hous­
The 19,660 public housing
ing will continue at a high
units started in New York
level for some time after
City in 1949 were more
the number of new dwell­
than were begun that year
ing units started begins to
in all the rest o f the United
drop. The value of resi­
States. However, as a re­
dential construction put
sult of a lag during the
into place in September set
early part of the year, pub­
a new all-time record of
lic housing accounts for a
much lower percentage of
1.3 billion dollars. The
number of new homes
all housing started in the
METROPOLITAN N.Y. OUTSIDE NEW YORK C ITY
started in September, how­
City so far during 1950.
1949
JAN.-AUG. 1950
During the third quarter
ever, dropped 18 per cent
of 1950, however, several
to 115,000, and the dollar
volume of residential con­
new projects got under
way and nearly 4,200 units
struction contracts dropped
even more. This drop
of public housing were
started. At least nine more
largely reflected seasonal
projects are planned for
factors and the extraordi­
next year, including some
narily high level of starts
in the preceding months.
deferred from 1950 because
of President Truman’s re­
Despite a decline of 26,000
units from August, Sep­
quest to limit public hous­
ing starts this year. Private
tember “starts’* were still
Source: U. S. Bureau of Labor Statistics.
apartment building was
the highest for any Sep­
tember on record. In each of the four months, May through
stimulated earlier this year by the rush to take advantage of
the liberal financing provisions of Section 608 of the National
August, more than 140,000 dwellings had been started,
Housing
Act, and approximately the same number of apart­
whereas prior to 1950 no month on record had even as many
ment
units
were started in the first nine months of 1950 as
as 105,000 ‘ starts”. The completion of this record-breaking
number of new dwellings will keep builders extremely active

in the entire year 1949. Activity was sustained even after

the rest of this year. The dollar volume of construction expen­

Section 608 expired on March 1, 1950, because many com­
mitments were still outstanding.

ditures will be further swelled in many areas by the increased
prices of many building materials and by recent wage increases

In the metropolitan area outside New York City, single­

for construction workers. The rapid climb in building costs

family homes dominate the housing picture, as in the rest of

is illustrated by the E. H. Boeckh index of residential build­

the country. The importance of public housing is negligible.

ing costs in 20 cities, which in September 1950 was 12 per

Apartment house construction in the suburbs has lagged

cent higher than in September 1949 and 8 per cent greater

behind the 1949 rate so far this year and accounts for less

than in April 1950.

than one sixth of the 60,900 suburban dwelling units started




FEDERAL RESERVE BAN K OF NEW YO R K

in the first eight months of 1950. The construction of single­
family homes, particularly in the low and middle price brackets,
has been booming. A total of 50,700 one-family homes had
been started in the New York suburban area by the end of
August, compared with 42,540 in all of 1949.
The New York metropolitan homebuilding industry has been
geared to the sale of moderately priced homes under liberal
financing terms. A survey made by the Bureau of Labor Statis­
tics indicates that in the last six months of 1949 half of the
single-family homes completed in the New York area sold for
less than $10,000. Two thirds of all homes were bought by
families with annual incomes of less than $5,000. N o down
payment was made by one fifth of the home buyers, and an ad­
ditional one fourth made down payments of less than $1,000.
Two thirds of the purchasers of houses priced under $10,000
made no down payment or paid less than $1,000, but among
those who bought homes for $14,000 or more 80 per cent
made down payments of at least $5,000.
On Long Island and in Northern New Jersey, large-scale
builders, who depend upon assembly-line construction of large
projects for efficient operation, have been particularly active.
One of the largest of these builders has announced that he
plans to cut his 1951 program to only half his 1950 output.
This decision was probably affected as much by the prospects
for building materials as by the effects of credit restrictions.
Even before the recent regulations were issued, a number of
builders were reported cutting down on their future plans
because they were afraid that shortages of materials would
catch them with a row of unfinished houses. Some builders
were also forced to curtail plans because institutional lenders
have been tightening up on their mortgage credit policies
since midsummer. The full extent of the curtailment in
building caused by all these factors will not become apparent,
however, until the backlog of projects already under way is
worked off.

N O N FAR M R E A L E STA TE LEN DIN G OF
SECOND D ISTR IC T M E M BE R BAN KS
The record volume of new construction that has taken place
since the end of World War II has been accompanied by an
unprecedented increase in the volume of outstanding mortgage
debt. The growth in mortgage debt has reflected not only the
increase in the physical volume of building and the accom­
panying sharp postwar advances in labor and material costs,
but also the additional debt incurred in the turnover o f older
buildings at advancing prices. Total nonfarm mortgage debt
in the United States at the end of 1949 has been estimated by
the Department of Commerce at 58.4 billion dollars, or 26.7
billion dollars (84 per cent) greater than the total outstanding
at the close of 1945 and 20 billion dollars (52 per cent) above
the volume outstanding during the prewar peak attained in
1930. The burden of carrying the current debt is relatively




129

less than in prewar years, however, because of the even greater
growth in incomes, the decline in interest rates, and the length­
ening of periods of amortization.
Nonfarm mortgage loans of the commercial banks in the
1945-49 period grew twice as fast as those of all other lenders
combined. Commercial bank holdings of this type rose from
4.2 billion dollars in 1945 to 10.7 billion in 1949, or by 155
per cent; all other lenders combined increased their nonfarm
mortgage loans from 27.5 billion dollars to 47.7 billion in
the same period, or by 73 per cent. Relative to total outstand­
ing nonfarm mortgages of all lenders, commercial bank hold­
ings equaled 18.3 per cent at the end of 1949 as compared
with 13.2 per cent at the close of 1945. For the Second Federal
Reserve District, statistics on mortgage holdings by type of
lender are not available, but the growing participation in the
field by commercial banks in this area is indicated by nonfarm
mortgage recordings of $20,000 or less for the Second Federal
Home Loan Bank District, comprising the entire States of
New York and New Jersey. Commercial bank recordings in
these two States were 14.4 per cent of those for all lenders in
1945 and 17.0 per cent in 1949, proportions differing only
slightly from those applying to holdings of commercial banks
nationally.
Among the individual Federal Reserve Districts, the greatest
percentage gains in nonfarm mortgage holdings by member
banks between 1945 and 1949 have occurred in the districts
o f Atlanta, Dallas, Kansas City, and San Francisco. The heavier
increases in these four districts doubtless arose out of the larger
housing needs accompanying a greater growth in industry and
population than in other districts. The smallest postwar
increases have occurred in the more settled districts of Boston,
Chicago, Philadelphia, and Cleveland. In the New York Dis­
trict, the rise (155 per cent) has paralleled that occurring in
the country as a whole, although the absolute increase of
800 million dollars was greater than that in any Reserve
District but San Francisco.
During the first six months of 1950, nonfarm mortgage
lending by commercial banks in the United States is estimated
to have risen an additional 900 million dollars to 11.6 billion.
Of this total, the loans extended by Reserve System members
accounted for 9.0 billion, or 78 per cent. Between June 30
and the end of September, commercial bank nonfarm real
estate lending continued to increase at an accelerated pace.
The third-quarter increase in all commercial banks in the
United States is estimated at 850 million dollars, of which 700
million was in member banks. In this District the rise in
member bank nonfarm real estate credit equaled 170 million
dollars during the first six months of 1950, while the JuneSeptember rise is estimated at 240 million dollars.
Residential construction has been the mainspring of the
postwar building boom and of the nonfarm mortgage lending
by member banks, both in the country as a whole and in the
Second Federal Reserve District. On June 30, 1950 roughly
five sixths o f the nonfarm real estate loans of member banks

MONTHLY REVIEW, NOVEMBER 1950

130

were secured by residential property and only one sixth by
business and other properties. However, business proper­
ties, particularly manufacturing plants, have generally been
financed by recourse to the capital markets or by the rein­
vestment of earnings. Relative to total loans, residential
real estate loans have assumed a place of considerable
importance. As of June 30, 1950 they equaled one fifth of
total member bank loans in the country and 12 per cent of
the total in the Second District. In the central reserve New
York City banks, residential real estate loans have always been
overshadowed by the heavy volume of business and security
loans and even today’s sizable volume, 323 million, equals only
4 per cent of the City banks’ aggregate loan portfolios. In
the other member banks of the Second District, however, resi­
dential real estate loans represent no less than one third of
all loans outstanding.
Recognizing the growing importance of such housing credit,
the Federal Reserve System, in cooperation with the Comp­
troller of the Currency and the Federal Deposit Insurance Cor­
poration, obtained new information as of June 30, 1950 con­
cerning the kinds of residential loans held by commercial
banks, the extent to which banks are directly financing resi­
dential construction, and the extent to which they are indirectly
financing real estate by loans to other real estate lenders.
Table I shows the aggregate number and dollar volume of
residential real estate loans held by the various-sized member
banks in this District on June 30, 1950. It reveals that these
banks had outstanding 211,300 residential real estate loans
aggregating 1,289 million dollars. Permanent financing by the

member banks in the form of residential mortgage holdings
accounted for 72 per cent (925 million dollars) of the total
dollar amount and 96 per cent (202,100) of the total number
of such loans. Loans for the construction of residential real
estate were relatively few in number, 7,600, and were mostly
confined to portfolios of the larger banks; nevertheless, since
they were individually large, they totaled one quarter of the
dollar amount of all real estate loans, or 326 million dollars.
Indirect financing of real estate by loans to other lenders such
as savings and loan associations, mortgage companies, mort­
gage brokers, etc., was a minor factor tin the over-all member
bank real estate financing and accounted for only 38 million
dollars (3 per cent of the dollar volume) and 1,400 individual
loans (less than one per cent of the total number).
Although accounting for three fourths of the total dollar
volume of residential construction loans of the District mem­
ber banks, the large central reserve New York City banks did
not engage in much permanent financing of residential prop­
erty. Relatively, the large City banks have a much smaller
volume of time deposits than the other Second District banks
and thus they are inclined to place a smaller volume of avail­
able funds in long-term real estate mortgages. Also, because
of their great resources, they are better able to handle large
construction loans; the average amount of individual construc­
tion loans by the big City banks was nearly $350,000. These
loans are principally rental housing loans insured under Title
VI, Section 608, of the National Housing Act. They are
carried by the banks for the duration of construction, usually
12 to 15 months, and bear a rate of 4 per cent. When a

Table I
Number and Dollar Amount of Residential Real Estate Loans by Different-Sized Member Banks
in the Second Federal Reserve District on June 30, 1950
(Dollar amounts in thousands)
|
|

Number of loans

Dollar amount

Member banks outside New York City
Deposit size:

Member banks outside New York City
Deposit size:

Type of loan
New York
New York
Total
Total
Under
City cen­ Over $20 $5 to $20 12 to $5
Under
City cen­ Over $20 $5 to $20 $2 to $5
Second
Second
$2 million
million
$2 million
million
tral reserve million
million
District
District tral reserve million
million
(25 banks) (82 banks) (267 banks) (243 banks) (148 banks) (765 banks) (25 banks) (82 banks) (267 banks) (243 banks) (148 banks) (765 banks)
I. Real estate loans secured by residential
properties
A. Secured by 1 to 4-family properties
1. Insured by FHA................................
2. First lien insured or guaranteed by VA
3. Junior lien guaranteed by VA...........
4. Not insured or guaranteed by FHA
or VA
(a) Amortized....................................
(b) Not amortized..............................
B. Loans secured by 5 or more family
properties
1. Insured or guaranteed by FHA or VA.
2. Not insured or guaranteed by FHA or
VA
(a) Amortized....................................
(b) Not amortized.............................

2,900
441
639

32,877
16,858
6,963

11,334
19,212
1,028

2,465
7,386
506

316
1,759
27

49,892
45,656
9,163

17,239
2,952
832

161.657
102,919
10,076

47,373
108,025
1,798

9,929
34,822
717

1,114
6,416
34

237,312
255,134
13,457

715
28

27,743
411

38,698
1,175

19,888
843

4,992
486

92,036
2,943

3,343
343

106,563
1,241

142,673
3,246

56,962
1,776

9,991
748

319,532
7,354

74

175

15

4

2

270

19,156

42,594

164

12

13

61,939

372
44

1,020
19

583
9

123
3

45
6

2,143
81

9,753
1,607

13,583
173

3,781
86

712
23

122
10

27,951
1,899
156

C. Loans secured by vacant residential lots.

24

17

19

12

72

24

77

38

17

Total loans secured by residential properties.

5,237

86,083

72,073

31,230

7,633

202,256

55,249

438,883

307,184

104,970

18,448

924,734

11. Loans for construction of residential prop­
erties........................................................ !
709
94
III. Loans to nonbank mortgage lenders*......... 1
IV. Total residential real estate financing......... ! 6,040

4,890
1,222
92,195

1,423
98
73,591

511
11
31,752

102
1
7,736

7,635
1,426
211,317

244,405
22,887
322,541

69,871
13,667
522.421

8,775
1,527
317,486

2,320
94
107,384

464
5
18,917

325,835
38,180
1,288,749

* Loans the proceeds of which will be used for nonfarm residential building.




-

i

-

131

FEDERAL RESERVE B AN K OF NEW YO RK

construction loan is made, permanent financing in many
instances has already been arranged with other lenders, such
as insurance companies and savings banks, whose main
interest is in long-term investments. The largest banks out­
side New York City also have a rather good volume of
construction loans (70 million dollars on June 30, 1950).
A review of the individual reports shows that 12 banks, 6
in New York City and 6 outside New York City, carried
88 per cent of all construction loans in the entire Second
District.
The member banks were asked to report also as of June 30,
1950 the dollar amount of undisbursed commitments on resi­
dential construction loans. These commitments, in the case
of insured loans, are entered into by the bank and the builder
after the Federal Housing Administration approves the build­
er’s application for insurance. The provision for insuring
real estate loans under Section 608 of the National Housing
Act has expired except for applications filed prior to March 1,
1950, which are still subject to approval. The FHA is process­
ing such applications and when this task is completed, no
further Section 608 financing will be undertaken. The banks,
therefore, can look forward to a decline in the not too distant
future in commitments and in the related construction loans.

As of June 30, undisbursed commitments by the New York
City banks amounted to 419 million dollars, while the largest
banks outside New York City (those with total deposits of
20 million or more) had 106 million, and all other Second
District member banks had but 5 million.
In the Second District banks outside New York City, per­
manent mortgage holdings, rather than real estate construction
loans, were of major importance. In fact, 373 of these banks,
or approximately one half, showed no construction loans on
their books on June 30, 1950. The absence of construction
loans on a bank’s books, however, does not necessarily mean
that the bank does not engage in the financing of real estate
construction. In some cases a prospective home owner will
borrow against a collateral note and execute a permanent mort­
gage upon completion of the project. In other cases he may
execute a mortgage immediately and the bank will make pay­
ments to the builder as construction progresses to certain
points. To the extent that this may be done, a part of the
banks’ mortgage holdings in reality represents construction
loans.
Table II shows the percentage distribution of the number
and dollar volume of the various types of residential mortgages
held by the different-sized member banks in the Second Dis­

Table 11
Percentage Distribution, by Type of Loan, of the Number and Dollar Volume of Residential Real Estate Loans by Different-Sized
Member Banks in the Second Federal Reserve District on June 30, 1950
Dollar amount

Number of loans

Member banks outside New York City
Deposit size:

Member banks outside New York City
Deposit size:
Type of loan

New York
Total
New York
Total
Under
$2 to $5
City cen­ Over $20 $5 to $20
Second City cen­ Over $20 $5 to $20 $2 to $5
Under
Second
million
$2 million
million
million
million
$2 million
tral reserve million
District tral reserve million
District
(25 banks) (82 banks) (267 banks) (243 banks) (148 banks) (765 banks) (25 banks) (82 banks) (267 banks) (243 banks) (148 banks) (765 banks)
I. Real estate loans secured by residential
properties....................................... .......
II. Loans for construction of residential
properties...............................................
III. Loans to nonbank mortgage lenders*...........
IV. Total residential real estate financing.........
I. Real estate loans secured by residential
properties
A. Secured by 1 to 4-family properties
1. Insured by FHA.........................
2. First lien insured or guaranteed by VA.
3. Junior lien guaranteed by VA_____ _
4. Not insured or guaranteed by FHA
or VA
(a) Amortized....................................
(b) Not amortized............. ................
Total 1 to 4-family properties.......
B. Loans secured by 5 or more family
properties
1. Insured or guaranteed by FHA or VA.
2. Not insured or guaranteed by FHA
or VA
(a) Amortized....................................
(b) Not amortized.............................

86.7

93.4

97.9

98.4

98.7

95.7

17.1

84.0

96.7

97.7

97.5

71.7

11.7
1.6

5.3
1.3

2.0
0.1

1.6
t

1.3
t

3.6
0.7

75.8
7.1

13.4
2.6

2.8
0.5

2.2
0.1

2.5
t

25.3
3.0

100.0

100.0

100.0

100.0

100.0

100.0

100.0

100.0

100.0

100.0

100.0

100.0

55.4
8.4
12.2

38.2
19.6
8.1

15.7
26.7
1.4

7.9
23.7
1.6

4.1
23.0
0.4

24.7
22.6
4.5

31.2
5.3
1.5

36.8
23.5
2.3

15.4
35.2
0.6

9.4
33.2
0.7

6.0
34.8
0.2

25.7
27.6
1.5

13.7
0.5

32.2
0.5

53.7
1.7

63.7
2.7

65.4
6.4

45.5
1.5

6.1
0.6

24.3
0.3

46.4
1.1

54.3
1.7

54.2
4.0

34.5
0.8

90.2

98.6

99.2

99.6

99.3

98.8

44.7

87.2

98.7

99.3

99.2

90.1

1.4

0.2

t

t

t

0.1

34.7

9.7

0.1

t

0.1

6.7

7.1
0.8

1.2
t

0.8
t

0.4
t

0.6
0.1

1.1
t

17.7
2.9

3.1
t

1.2
t

0.7
t

0.7
t

3.0
0.2
9.9

Total 5 or more family properties..

9.3

1.4

0.8

0.4

0.7

1.2

55.3

12.8

1.3

0.7

0.8

C. Loans secured by vacant residential lots.

0.5

t

t

t

0

t

t

t

t

t

0

t

Total loans secured by residential properties.

100.0

100.0

100.0

100.0

100.0

100.0

100.0

100.0

100.0

100.0

100.0

100.0

Mortgages insured or guaranteed by FHA
or V A .....................................................
Mortgages not insured or guaranteed by
FHA or VA........................... ................

77.4

66.1

43.8

33.2

27.5

51.9

72.7

72.3

51.3

43.3

41.1

61.5

22.6

33.9

56.2

66.8

72.5

48.1

27.7

48.7

56.7

58.9

38.5

* Loans the proceeds of which will be used for nonfarm residential financing,
f Less than 0.05 per cent.




27.3

132

MONTHLY REVIEW, NOVEMBER 1950

trict. In the case of real estate loans secured by residential
properties, 61.5 per cent of the entire dollar volume is com­
posed of mortgages insured or guaranteed by the Federal
Housing Administration or the Veterans’ Administration.
Adding the construction loans, which are virtually all FHAinsured, 69.3 per cent of all member bank residential real
estate financing is covered by Government insurance or guar­
antee. From the standpoint of the lender, this insurance or
guarantee of course minimizes the possibility of future losses
on this type of risk asset. It is also noteworthy that the socalled conventional mortgages ( those not guaranteed or insured
by a Government agency) which the banks hold, predomi­
nantly contain amortization provisions. Neither of these safety
factors prevailed before the early thirties, when heavy losses
were sustained on mortgage investments. Mortgages not guar­
anteed or insured accounted for 27.3 per cent of the total
dollar volume of mortgage holdings in the large City banks,
and for 58.9 per cent of the holdings of the smallest banks.
The largest banks in the District, those with the greatest
capitalization and resources, held the bulk of the larger resi­
dential mortgages, covering properties of 5 or more families.
This was true for both guaranteed and insured mortgages and
for conventional mortgages. The proportion of the mortgage
portfolio invested in 1 to 4-family FHA mortgages also was
greatest in the largest banks. The smaller banks, on the other
hand, carried relatively more 1 to 4-family conventional
amortized mortgages and more first liens guaranteed or insured
by the Veterans’ Administration. Apparently, the smaller the
bank, the less it tends to deal with builders who initiate FHA
mortgages and the more it deals with individual home owners
handling their own financing. Each of the three groups of
banks with deposits under 20 million dollars held about one
third of their mortgage portfolio in VA-guaranteed or insured
liens.
Conventional mortgages without provision for amortizing
the principal represented only 1 per cent of the aggregate
member bank mortgage portfolio as of June 30. The smaller
banks generally held a large proportion of the unamortized
conventional mortgages on 1 to 4-family properties, while on
the larger properties such lending was confined to the large
central reserve New York City banks almost exclusively. Mort­
gage loans secured by vacant residential lots, which normally
are considered as carrying the greatest degree of risk, num­
bered only 72 in the entire Second District, and accounted for
a negligible percentage of the dollar volume of all financing.

CHANGES IN CONSUMER C R E D IT C O N TROL
In the light of persistent upward pressure on prices and
the continued growth of bank and consumer credit since the
reissuance of Regulation W on September 18, 1950, the Board
of Governors of the Federal Reserve System announced on
October 13 the adoption of Amendment No. 1 to Regulation
W . This amendment became effective on October 16.




Major household appliances, such as radios and television
sets, washing machines, and air conditioning units, now
require a minimum down payment of 25 per cent instead
of 15 per cent, as originally provided by the new Regulation
W . Purchases of household furniture and soft surface flooring
formerly requiring a down payment of 10 per cent now require
15 per cent down.
The maximum maturity for both these categories and for
unclassified instalment loans has been lowered from 18
months to 15 months. Maximum maturity on instalment
purchases of passenger cars has also been reduced to 15
months, from the original 21-month maturity requirement.
The down payment requirements, which had been applicable
only to articles costing $100 or more, now apply to articles
selling for $50 or more. However, both the down payment
and the maturity requirements still do not apply to articles,
other than automobiles, when the credit extended exceeds
$2,500.
N o change was made with respect to the terms of home
improvement credits; for these, the maximum maturity
remains at 30 months and the minimum down payment at
10 per cent.
C A N A D IA N FO RE IG N E XC H A N G E
DEVELOPM ENTS
On September 30 the Canadian Government abolished the
par value of the Canadian dollar, which since September 19,
1949 had been 90.909 U. S. cents.1 N o new fixed par value
was established, the government having decided that the
exchange rate should be allowed to move in accordance with
supply and demand. Subsequently, the offered price in the
New York market for the Canadian dollar rose to a peak of
95.625 U. S. cents on October 3. It stood at 95.31 on October
30. Thus it has moved to a position about midway between
parity with the United States dollar, where the official rate in
Canada had stood during the period from July 1946 to Sep­
tember 1949,2 and the official rate that was adopted at the
time of the devaluation of sterling in the latter month.
In order to maintain orderly Sterling-United States dollar
cross rates, the Canadian Foreign Exchange Control Board
has announced that it is prepared to buy sterling from and
sell it to the Canadian banks against United States funds at
the official rates, i.e., U S $ 2 . 7 a n d US$2.80Vs. It is under­
stood that such transactions are to be with the head offices
only, and that dealings in sterling against United States dollars
with correspondents outside of Canada are not permitted.
The decision to let the Canadian dollar fluctuate was
accompanied by a government announcement that import
restrictions, many of which have been lifted during 1950,
-----------i
1 In the New York exchange market, the ’'unofficial” offered quo­
tation for the Canadian dollar since September 19, 1949 had ranged
between 87.50 U. S. cents and parity.
2 During this period the New York offered quotation ranged between
87.625 U. S. cents and 99.188 U. S. cents.

133

FEDERAL RESERVE B AN K OF NEW YO R K

would be further relaxed as of the beginning of next year.
Subsequently the government increased the allowance of
foreign exchange to Canadians for travel abroad. There
were, however, no major changes in the exchange control
structure, which will be maintained, according to Minister
o f Finance Douglas Abbott, as a defense against possible
adverse conditions in the future. In particular, banks and
other authorized agents are to continue to deal in foreign
exchange as official agents of the Foreign Exchange Control
Board, and all receipts and expenditures of foreign exchange
will thus remain subject to the board’s regulations. More­
over, Canadian residents still require permits in order to
export capital from Canada, and such permits are not normally
granted except for necessary business operations and for
remittances in limited amounts by immigrants. Similarly,
withdrawals of capital from Canada by nonresidents still
require licenses and these are normally not granted except in
the case o f the liquidation of fixed assets in Canada or of
other investments made since 1939 and recorded with the
Foreign Exchange Control Board. Nonresidents are still able,
however, to freely transfer Canadian currency, securities, and
other assets among themselves. A nonresident holding Canadian
dollars, for example, may dispose of them to his bank in
the United States as heretofore.
Gold held by the Canadian authorities continues to be
valued at the price of US$35 per ounce, converted into the
Canadian dollar equivalent weekly at the average o f the noon
rates for Monday through Friday. This average rate determines
the price in Canadian dollars paid for gold by the Royal
Mint. Thus, with the United States dollar at its October
30 premium of 4.92.per cent relative to the Canadian dollar,
Canadian sellers would receive Can.$36.72 (i.e., Can.$35
plus a premium of 4.92 per cent) per ounce of gold
delivered to the mint, compared with Can.$38.50 prior to
September 30. W ith a view to offsetting, at least in part,
the depressing effect of the reduced Canadian dollar mint
price on Canadian gold production, the government increased
its assistance to the gold mining industry as from October 1.
The changes in Canadian foreign exchange policy were
made at the end of a period, approximately a year, during
which the country’s foreign trade had undergone significant
changes. Before 1939 and during the early postwar years
Canadian merchandise trade had been characterized by heavy
annual deficits with the United States, accompanied by off­
setting surpluses with nondollar countries, principally the
United Kingdom. Before the war this trade pattern had been
sustained by the convertibility into United States dollars o f
the sterling and other nondollar exchange acquired by Canada
in payment for its exports. The convertibility o f sterling in
turn had been dependent upon the similarly triangular pattern
o f the British balance of payments, as a result o f which
the United Kingdom earned sufficient gold and dollars in
the overseas sterling area and other third markets to cover




Table I
Canadian Official Holdings of Gold and United States Dollars

End of
December
December
December
March
June
September
December
March
June
September

1946......................................................
1947.......................................................
1948.......................................................
1949......................................................
1949......................................................
1949........................... .........................
1949......................................................
1950...................................................
1950......................................................
1950......................................................

Millions of U. S. dollars*
1,245
502
998
1,067
977
985
1,117
1,192
1,255
l,789p

* Excludes proceeds of 100 million dollar loan floated by the Government of
Canada in the United States in August 1949.
Preliminary.
ource: Dominion Bureau of Statistics, Canadian Statistical Review, September
1950, p. 97.

the British deficits with the United States and Canada. There
had also appeared more or less consistently in the prewar
period a third triangular pattern under which certain Con­
tinental European countries that had deficits with Canada
settled such deficits by means of their sterling surpluses.
During the four years immediately following the end of
the war the United Kingdom did not earn sufficient United
States dollars to close even its trade deficit with the United
States, much less develop surplus dollar earnings with which
to finance its import balances with Canada. This dislocation
of the British prewar trade pattern inevitably disturbed the
Canadian balance of payments. In 1947 the Dominion’s trade
deficit with the United States amounted to more than 900
million Canadian dollars, and its gold and dollar reserves
declined during that year from 1,245 million United States
dollars to 502 million (see Table I ). Somewhat smaller
deficits with the United States developed in 1948 and 1949,
but Canada succeeded in closing these primarily with '‘ECA
dollars”, earned from those Canadian exports to the United
Kingdom and other European countries which were financed
under the offshore-purchase authorizations o f the Economic
Cooperation Administration.
During 1950, Canada’s international economic problem has
been very much eased by a movement toward balance in
which both the trade surplus with nondollar countries and
the trade deficit with the United States were considerably
reduced. Whereas in 1948 and 1949 Canada’s trade surplus
with the sterling area exceeded 400 million Canadian
dollars annually, this surplus dropped during the first half of
1950 to an annual rate of only 80 million (see Table II).
Incomplete figures for the third quarter suggest that the
surplus may even be replaced by a small deficit. The closer
balance in nondollar trade has been achieved through the
combination of declining Canadian exports and rising Canadian
imports.
Since the devaluations of September 1949 there has also been
a spectacular change in Canada’s trading position relative to
the United States. Whereas during the 1949 business recession
in the United States, both United States prices for Canada’s
major exports and the value of Canadian exports to the United
States showed downward trends, these movements have been

134

MONTHLY REVIEW, NOVEMBER 1950
Table II
Canadian Foreign Trade by Major Areas
(In millions of Canadian dollars; annual rates; excluding gold)
Contin­
Union of ental
South Western
Africa Europef

Year or quarter

United
States

Sterling
area*

EXPORTS#
1946.............................
1947.............................
1948.............................
1949.............................
1949-3rd quarter . . . .
1949-4th quarter . . . .
1950-lst quarter . . . .
1950-2nd quarter . . . .
1950-3rd quarter! . . .

901
1,057
1,516
1,529
1,363
1,924
1,694
1,987
2,046

825
1,047
929
933
971
907
580
708
587

68
67
83
76
80
57
38
58
38

:m p o r t s
1946..............................
1947..............................
1948..............................
1949..............................
1949-3rd quarter . . . .
1949-4th quarter . . . .
1950-lst quarter . . . .
1950-2nd quarter . . . .
1950-3rd quarter § . . .

1,405
1,975
1,806
1,952
1,848
1,925
1,834
2,184
2,075

262
339
490
490
493
455
477
650
662

8
4
4
4
3
3
5
4
4

3ALANCE
1946.............................
1947..............................
1948..............................
1949..............................
1949-3rd quarter . . . .
1949-4th quarter . . . .
1950-lst quarter . . . .
1950-2nd quarter . . . .
1950-3rd quarter § .. .

-

504
918
290
423
485
1
140
197
29

-j+
+
+
+
+
+
+
-

563
708
439
443
478
452
103
58
75

+
+
+
+
+
+
+
-1+

60
63
79
72
77
54
33
54
34

-I+
+
+
+
+
+
+
+

All
otherj

Total!

304
310
307
254
266
230
136
174
226

280
314
291
231
222
247
191
255
216

2,379
2,796
3,125
3,022
2,903
3,367
2,640
3,181
3,112

40
64
77
83
76
88
70
101
124

150
188
260
232
235
276
211
274
305

1,864
2,570
2,636
2,760
2,654
2,748
2,597
3,214
3,170

254
246
230
171
190
142
66
73
102

130
126
31
1
— 13
—
29
—
20
—
19
— 89
+
+
+

+
+
+
+
+
+
+
-

515
226
489
262
249
619
43
33
58

* United Kingdom, Eire, India, Pakistan, Burma, Australia, New Zealand, Ice­
land, Ceylon, Iraq, and British dependencies.
f Including colonies.
t Trade with Newfoundland included through March 1949, prior to union with
Canada. In 1948 Canada’s exports to Newfoundland were valued at 55.1
million Canadian dollars while imports from Newfoundland were 11.1 million.
# Including re-exports.
§ Estimates on the basis of incomplete data.
Note: Because of rounding figures do not necessarily add up to the totals shown.
Source: Bank of Canada, Statistical Summary, September 1950, p. 153; Govern­
ment of Canada, Trade of Canada: Exports, August 1950, and Trade of Canada:
Imports, July 1950.

reversed in 1950. With the revival of business activity here,
United States wholesale prices for commodities important in
Canada’s export trade rose markedly. The index of paper and
pulp prices increased from 156 to 164 between January and
August 1950 (1 9 2 6 = 1 0 0 ), nonferrous metal prices from
129 to 156, timber prices from 288 to 357, and food prices
from 155 to 175 (see Table III). Simultaneously, Canadian
exports to the United States expanded from an annual rate
of 1,363 million Canadian dollars in the third quarter of
1949 to almost 2,000 million in the second quarter of this
year, and probably more in the third quarter (see Table II).
On the other hand Canadian imports from the United States
expanded only moderately in spite of the progressive relax­
ation of the Dominion’s controls over such purchases. From
an annual rate of 1,848 million Candian dollars in the third
quarter of last year, such imports rose to 2,184 million in
the second quarter of 1950; the annual rate for July and
August combined was somewhat under 2,100 million.
Thus Canada’s trade deficit with the United States was
more than halved between the third quarter of 1949 and
the second quarter of this year, falling from an annual rate
of 485 million Canadian dollars to only 197 million.

It

Concurrently with this improvement, Canada’s gold and
dollar reserves have risen to 1,789 million United States
dollars on September 30, 1950, from 985 million a year
earlier. Although the rise in reserves has been in part a
reflection of the country’s improved trade position vis-a-vis
the United States, and of some net inflow of long-term
investment capital, it reflects also, to a considerable extent,
a flow of speculative funds from residents of the United
States who, in the light of Canada’s increasing economic
strength, anticipated an appreciation of the Canadian currency.
After the outbreak of the Korean war and the adoption of
an expanded United States defense program, this flow of
speculative capital to Canada seems to have become particu­
larly heavy. During the third quarter of 1950 alone Canadian
gold and dollar reserves rose by 534 million United States
dollars, and more than half of this increase took place in
September.
This movement of speculative capital has not been looked
upon with favor by the Canadian authorities. On September
30, 1950 Minister of Finance Douglas Abbott stated that:
An influx of funds on this tremendous scale would, if
it continued, be likely to exercise an inflationary influence
in Canada at a time when government policy in all
fields is directed to. combating inflationary developments.
Moreover, the accumulation of foreign exchange under
such conditions would mean that Canada was in effect
incurring a substantial increase in its gross foreign debt
and annual service charges without any corresponding
increase in its productive resources or ability to export.
In addition to the inflow of speculative funds, an upward
movement in the prices of Canada’s principal imports during
1950 also has exerted inflationary pressure on the country’s
economy. In the United States, where Canada purchases more
than half of its imports, the general wholesale price index
increased during the first eight months of this year from
152 to 166 (1 9 2 6 = 1 0 0 ), and there were similar upward
movements in the prices of most of Canada’s major imports
from this country (see Table IV ). There were also consider­
able advances during the first eight months of the year in
Table III
United States Wholesale Prices for Commodity Groups Important in
Canada's Export Trade
(19 26 = 100)

Selected months,
1949 and 1950
January
March
June
October
January
March
June
July
August

1949...........
1949...........
1949...........
1949...........
1950...........
1950...........
1950...........
1950...........
1950...........

Paper and
pulp

Nonferrous
metals

Lumber

Foods

168
167
160
157
156
156
155
160
164

173
168
129
132
129
127
148
151
156

300
295
281
282
288
296
323
338
357

166
163
162
160
155
156
162
171
175

appears likely that in the third quarter of this year the
deficit was almost completely eliminated.




Source: United States Department of Labor, Average Wholesale Prices and Index
Numbers o f Individual Commodities, various issues in 1949 and 1950.

FED ER AL RESERVE B A N K

Table IV
United States Wholesale Prices for Commodity Groups Important in
Canada's Import Trade

OF N E W Y O R K

135

October were only about 5 per cent above those of October
1949.

(1926 = 100)

Selected months,
1949 and 1950

General
index

Textile
products

Bituminous
coal

Petroleum
and pro­
ducts

January 1 9 4 9 ...
March 1949.. .
June
1 9 4 9 ...
October 1949.. .
January 1950. ..
March 1 9 5 0 ...
June
1 9 5 0 ...
July
1 9 5 0 ...
August 1 9 5 0 ...

161
158
155
152
152
153
157
163
166

146
144
139
138
139
137
137
143
149

197
195
189
191
196
199
192
192
193

121
116
110
110
109
109
114
116
117

Iron and
steel
169
168
165
163
167
169
169
170
170

Source: United States Department of Labor, Average Wholesale Prices and Index
Numbers of Individual Commodities, various issues, and Board of Governors of
the Federal Reserve System, Federal Reserve Bulletin (October 1949 and Sep­
tember 1950).

the prices of Canada’s principal imports from countries other
than the United States, notably coffee and rubber.
While the new foreign exchange policy was probably
expected to put downward pressure on the Canadian dollar
prices of imports, its primary aim according to the Minister
of Finance was to stop the influx of speculative capital from
the United States. In searching for a means of achieving
the latter objective, the Canadian authorities rejected a restor­
ation of the Canadian dollar to a fixed parity with the United
States dollar. The attitude of the Canadian Government was
explained on September 30 by Mr. Abbott, who stated that
while such a measure ’ would probably bring to a stop the
inward movement of speculative capital”, a revaluation of
the Canadian currency to parity with the United States dollar:
would not necessarily be justified by fundamental con­
ditions and might be found to require reversal or further
adjustment within the not too distant future. To move
the Canadian exchange rate to any other fixed point
than parity with the United States dollar would be
open to the same objections.
In adopting its new foreign exchange policy, the Canadian
Government consulted the International Monetary Fund. The
government intends, Mr. Abbott has stated, "to remain in
consultation with the Fund and hopes ultimately to conform
to the provisions of the [Fund’s] articles of agreement which
stipulate that member countries should not allow their
exchange rates to fluctuate more than one per cent on either
side of the par value from time to time established with
the Fund”. In a statement dealing with the new exchange
rate policy the Fund indicated that it recognized the exigencies
of the situation that had led to the Canadian action and
took special note of the intention of the Canadian Govern­
ment "to re-establish an effective par value as soon as circum­
stances warrant”.

A recent survey conducted by this bank among department
stores in the New York City area revealed a decided slacken­
ing in the sales volume of many of the durable housefurnish­
ings lines. During the three weeks ended October 21, sales
of major household appliances, for example, were 8 per cent
below those of the comparable period a year ago. In the
radio-television departments, dollar sales for the week ended
October 21 were only 13 per cent above those of the
same week in 1949. (For the weeks ended October 7 and
14, the year-to-year increases were 66 and 39 per cent, respec­
tively.) The restrictions on consumer credit, which were
stiffened during the latter part of this three-week period,
were largely but by no means solely responsible for the lag
in sales of hard goods. The color television controversy, the
reaction from the large volume of anticipatory buying in
the summer and early fall, and other developments also
influenced the sales volume of consumers’ durables.
R e c e n t In v e n t o r y P o l i c y

As the final quarter of 1950 got under way, retailers in
this District, as elsewhere in the United States, were uncertain
about the effect on retail trade of the enlarged defense program
and the accompanying economic measures. W ill the tightened
restrictions on instalment buying, which affect almost exclu­
sively durable goods sales, stimulate consumer interest in
the soft goods lines, particularly men’s and women’s apparel?
What will be the net effect of the new regulations governing
residential mortgage credit on the retail sales of housefurnish­
ings and appliances and on sales in general? How will the
rearmament program affect supply conditions for consumers’
goods? These are some of the questions which department
store executives were trying to answer. The significance of
these problems varies in the different sections of the country
according to the nature of the local economy. For example,
in this District, particularly in New York City, personal
income is less sensitive to a sudden expansion or contraction
in the durable goods industries than it is in many other
sections of the country.
Since the start of the war in Korea, the accumulation of
inventories has been a major concern of the retailers. In
this District, however, it was not until the end of September
that the year-to-year increase in department store stocks out­
distanced the rise in sales. With the midsummer sales volume
at a record seasonal peak, the stores in July began to increase
sharply the volume of their orders to manufacturers, in order

D E PA R TM E N T STORE TR A D E
The year-to-year gain in the dollar sales volume of Second
District department stores during October was the smallest
since June. Preliminary estimates indicate that sales during




not only to make up for the rapid depletion of their stocks
but also to provide a safety margin against possible future
shortages. As the chart shows, outstanding orders at the end
of July were more than double those recorded as of June

136

M ONTHLY REVIEW, NOVEMBER 1950

Estimated Receipts of Merchandise and Outstanding Orders
of Second District Department Stores, 1948-September 1950*
(W ithout adjustment for seasonal variation)

Indexes of Department Store Sales and Stocks
Second Federal Reserve District
(1935-39 average=100 per cent)

M illio n s
o f d o lla r s

M illio ns
o f d o lla rs

1949

Item

1950

Sept.

July

August

Sept.

Sales (average daily), unadjusted................
Sales (average daily), seasonally adjusted..

247r
242r

192
274

202
277

267
262

Stocks, unadjusted........................................
Stocks, seasonally adjusted..........................

227r
215r

194
218

226
226

256
243

r Revised.

By the end of August, the value of orders outstanding at
Second District department stores reached the highest level
since November 1946, and the dollar volume of receipts
during September surpassed that of the previous month. How­
ever, the amount of new orders fell off substantially during

* For a group of stores whose 1949 sales equaled more than half of the
estimated Second District total. Outstanding orders are end-of-month data,
receipts are monthly totals.

30, 1950, and new orders were almost 60 per cent higher.
During August the flow of incoming merchandise to the
stores increased markedly, and the ability of manufacturers
and suppliers to fill promptly orders for most merchandise
lines dispelled the fears of immediate shortages in con­
sumer goods.

September from the August level, so that on September 30
the value of outstanding orders was slightly below the August
peak. By this time, the retail value of stocks held by Second
District department stores was the greatest since November
1948, when the dollar amount of inventories had reached
its all-time high.
Indexes of Business

1949
Index
Industrial production*, 1935-39 = 100........
(Board o f Governors, Federal Reserve

1950

Sept.

July

August

Sept.

174

196

209

211 p

255

288

297

298

System)
Department and Apparel Store Sales and Stocks, Second Federal Reserve
District, Percentage Change from the Preceding Year

Electric power output*, 1935-39 = 1 0 0 ....
(Federal Reserve Bank o f New York)

Ton-miles of railway freight*, 1935-39 = 100

Locality

Sept. 1950
Department stores, Second District—

+ 8

New York C ity.................................
Northern New Jersey.......................
Newark..........................................
Westchester County.........................
Fairfield County................................
Bridgeport.....................................
Lower Hudson River Valley............
Poughkeepsie.................................
Upper Hudson River Valley............
Albany...........................................
Schenectady...................................
Central New York State..................
Mohawk River Valley..................
Utica...........................................
Syracuse.........................................
Northern New York State...............
Southern New York State...............
Binghamton...................................
Elmira............................................
Western New York State.................
Buffalo............................................
Niagara Falls.................................
Rochester.......................................

+ 7
+10

Apparel stores (chiefly New York City)




Sales of all retail stores*, 1935-39 = 100.......

Stocks on
Jan. through
hand
Sept. 1950 Sept. 30,1950

+2

+ 8
+13
+13
+13

+ 6
+ 6
+ 5
+8

+ 2
+14
+17
+16
+12
+6
+13
+10
+21

+8

+ 5
+14

+10

+ 9

151

188

193p

337r

394r

394

376p

144

148

156

158p

118

113

121

125p

335

367

394

400e

283

277

306

308p

297

322

326p

202

208

210p

170

173

173

174

106
89

113
97

145r
102

130
102

(Federal Reserve Bank o f New York)

Net sales

+14

+
+
+
+
+
+
+

2
1
1
0
1
6
6
6
5

+ 3
+ 4

+ 2
+10
+ 2
+ 1
+ 7
+ 4

Factory employment
(Bureau o f Labor Statistics)

+16
+10
+ 9

New York State, 1935-39 = 100...............
(N Y S Div . o f Placement and Unemp. Ins.)
Factory payrolls
United States, 1939 = 100........................

+1 1

New York State, 1935-39 = 100...............

- 2

+8

(Department o f Commerce)

+13

+ 6
+ 8
+ 3
- 2
+12
+11

(Bureau o f Labor Statistics)
(N Y S Div. o f Placement and Unemp. Ins.)

Personal income*, 1935-39 = 100.................
(Department o f Commerce)

Composite index of wages and salaries*^,
1939 = 100..................................................
(Federal Reserve Bank o f New York)

+12
+21

Consumers’ prices, 1935-39 = 100................

+ 11
- 1

Velocity of demand deposits*, 1935-39 = 100

+ 9
+10
+ 5
+17
+21

+11

+12
+12

(Bureau o f Labor Statistics)
(Federal Reserve Bank o f New York)

New York City..........................................
Outside New York C ity...........................

* Adjusted for seasonal variation.
p Preliminary.
r Revised.
e Estimated by the Board of Governors of the Federal Reserve System.

J A monthly release showing the 15 component indexes of hourly and weekly
earnings in nonagricultural industries computed by this bank will be sent upon
request. Tabulations of the monthly indexes, 1938 to date, may also be pro­
cured from the Research Department, Domestic Research Division.

N A T IO N A L SU M M ARY OF BUSINESS CONDITIONS
(Summarized by the Board of Governors of the Federal Reserve System, October 27, 1950)

Industrial activity, employment, and payrolls increased some­
what further in September and early October. Business and
consumer demands for goods were less active after mid-Sep­
tember and wholesale commodity prices showed little change.
Retail prices continued upward, reflecting in part earlier ad­
vances in wholesale markets. Credit to business, consumers,
and real estate owners expanded considerably further. Con­
sumer credit regulations, which became effective on Septem­
ber 18, were tightened on October 16 and housing credit
restrictions were put into effect October 12.
I n d u s t r ia l P r o d u c t io n

Industrial production showed a small further increase in
September and early October, following the sharp advance in
August. Reflecting mainly continued gains in output of iron
and steel and their products, machinery, and crude petroleum,
the Board’s seasonally adjusted index rose from 209 in August
to 211 in September. In October, a further small increase is
likely, as a result chiefly of expanded output of steel and of
producers’ durable goods and military equipment.
Steel production increased in September to a level slightly
above the June rate, and in October has advanced about 3
per cent further to a new record. The gain in activity in
machinery industries in September was much smaller than in
August, mainly because labor disputes curtailed operations in
some important plants. Automobile production continued
close to the high level of recent months. In view of the
growing volume of defense production and the limited supply
of metals and certain other industrial materials, the National
Production Authority has established a priority system for
defense orders.
Output of textile, paper, rubber, and petroleum products
in September was maintained at the exceptionally high levels
reached in August. Meat production rose much more than

index.




M onthly

figures;

latest

Output of crude petroleum advanced further to a new
record rate in mid-September but subsequently leveled off.
Coal output showed little change and production of iron ore
was maintained in record volume over this period.
C o n s t r u c t io n

Contracts awarded in September for most types of private
and public construction declined more than seasonally from
the record summer level. The number of housing units
started in September was estimated to be 115,000. This was
28,000 fewer units than the average number started during
the summer months but 12,000 more than in September
1949.
Em p l o y m e n t

The total number employed in nonagricultural industries
was at an all-time high of about 45 million in September,
2 million more than in September 1949. Unemployment
declined moderately further to 2.3 million and was at the
lowest level since late 1948.
D is t r ib u t io n

Consumer buying showed less than the usual seasonal in­
crease in September and early October from the peak rates
reached during the summer. Value of purchases, however,
remained substantially above year-ago levels, reflecting in
part higher prices. Purchases of durable goods continued
above the high levels reached during the first half of this
year. Distributor stocks of most goods have increased further
in this period following a reduction in July. At department
stores value of stocks by the end of September was about
one-fifth above the relatively low level reached a year ago.

DEPARTMENT STORE SALES AND STOCKS

IN D U STR IA L PRODUCTION

Federal Reserve
September.

seasonally. In mid-October, the National Production Authority
announced more stringent measures to curtail consumption of
rubber in civilian products.

figure

shown

is

for

Federal Keserve indexes.
M onthly figures;
Septem ber; latest for stocks is August,

latest

figure

for

sales

is

C o m m o d it y P rices

The average level of wholesale prices changed little from
mid-September to the third week of October, as livestock
and meat prices showed seasonal declines and increases in
prices of nonfood commodities slowed down. Prices of
industrial materials leveled off as buying became less urgent,
and increases in finished goods were less numerous.
The consumers price index rose 0.5 per cent from midAugust to mid-September, reflecting mainly marked increases
in retail prices of apparel and housefurnishings. Since that
time additional advances in these and other goods have been
announced.

Treasury deposits at Federal Reserve Banks, which were
large in late September owing to tax collections, were drawn
down in the first three weeks of October, thus supplying a
substantial volume of reserve funds. Outflows of currency
into circulation and of gold and cash redemption of part
of the maturing Treasury bills held by the Reserve Banks
absorbed some of these funds. Commercial banks, however,
continued to sell Government securities, in part to the Federal
Reserve System, and built up their excess reserve balances.
An increase in interest rates to bank customers, initiated
in New York City in late September, became more wide­
spread in early October.

B a n k C red it

S e c u r ity M a r k e ts

Total loans and corporate and municipal security invest­
ments of commercial banks showed further sharp increases
during September and the first half of October. The expan­
sion at banks in leading cities totaled 1.8 billion dollars and
brought the total rise at these banks since June to almost
4 billion. Business loans increased much more than seasonally
while loans to real estate owners and consumers continued
to rise substantially.

Common stock prices, after rising somewhat further in
the first two weeks of October to the highest levels since
September 1930, showed little change during the following
10 days. Yields on most bank-eligible Treasury securities
increased further in the first three weeks of October, while
yields on Treasury bills declined somewhat. There was little
change in yields on long-term Treasury and high-grade cor­
porate bonds.

CO NSUM ERS’ PRICES

Bureau of Labor Statistics’ indexes. “ All items” includes housefurnishings,
fuel, and miscellaneous groups not shown separately. Midmonth figures;
latest shown are tor September.




LOANS AND INVESTMENTS AT MEMBER BANKS IN LEADING CITIES

Commercial loans include commercial, industrial, and agricultural loans.
Wednesday figures ; latest shown are for October 18.