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M ONTHLY

R EV IEW

O f Credit and Business Conditions

F E D E R A L

V o l u m e

36

R E S E R V E

B A N K

NOVEM BER

O F

N E W

Y O R K

1954

No. 11

M O N E Y M A R K E T IN O C T O B E R
The volume of reserves available to the banking system
moved up and down rather sharply at times during October,
owing to the influences of changes in float, currency, the
Treasury’s balance, and other money market factors. In line
with its general credit policy of '"active ease”, the Federal
Reserve System took steps to moderate the reserve losses and
to supply the net amount of funds needed to maintain bank
reserves in a comfortable position throughout October. As
a result, the volume of free reserves (excess reserves less mem­
ber bank borrowing) held by the banking system increased
from an average of about 700 million dollars in the five state­
ment weeks ended September 29 to approximately 810 million
in the four weeks ended October 27.
The most influential factors in the money market during
the early part of October were the payment on October 4 for
4.2 billion dollars of new V/s per cent Treasury notes of
May 1957 and the increase in required reserves on October 5
(approximately 400 million dollars) which stemmed from
the sale of the larger part of this issue to the commercial banks.
To prevent this increase in reserve requirements from putting a
strain on the money market, thus risking restriction of private
credit and financing, and to offset month-end drains on bank
reserves, the System Open Market Account purchased 275
million dollars of Treasury bills in the statement week ended
September 29 and an additional 535 million in the week ended
October 6. In the early part of the month, the Federal Reserve
Bank of New York temporarily supplied additional reserves
to the market through the purchase of short-term Treasury
obligations under repurchase agreements with dealers. Later
in the month, however, as bank reserves increased because of
net disbursements from Treasury deposits with the Reserve
Banks and a seasonal expansion in float, the System Open
Market Account allowed part of its holdings of maturing
Treasury bills to run off. The net amount of new reserves sup­
plied by the Federal Reserve System through open market
operations in the four weeks ended October 27 was 336 mil­
lion dollars.
Short-term money rates tended to ease slightly during Octo­
ber as a reflection of the growth of bank reserves. Average




issuing rates for Treasury bills in October ranged from 0.966
per cent to 1.009 per cent, compared with a range of 0.984
per cent to 1.024 per cent in September. Federal funds were
quoted at rates of 1 per cent or less more frequently than
they had been a month earlier, and rates on loans to Govern­
ment securities dealers were generally lower than in September.
The easing tendencies in the short-term market were not,
however, reflected in the intermediate and long-term markets.
Prices of Government bonds were steady to firm during the
first ten days of October but subsequently were marked down
as much as M of a point. In the last three days of the month,
however, there was a partial recovery, and by the end of
October, intermediate and long-term issues were down as much
as 1% 2 from their September 30 quotations. While a number
of factors contributed to the price decline, the primary ones
appear to have been the large volume of corporate and munici­
pal securities, as well as mortgages, which have continued to
reach the market, and the markets uncertainty concerning the
Treasury’s financing plans for the remainder of the calendar
year. Approximately 17.3 billion dollars of Government securi­
ties that mature or have been called for redemption in Decem­
ber will have to be refunded. Investors seemed to be staying
on the side lines during most of October waiting to see what
the Treasury would offer, and dealers by lowering quotations
at times tended to back away from the few offerings that came
into the market.
On October 22 the Commodity Credit Corporation (CCC)
announced that it was establishing a 1,150 million dollar pool
of crop loans in which banks would be offered participations

CONTENTS
M oney Market in O cto b e r....................................

141

Recent Balance-of-Payments Trends
in Latin A m erica ................................................. 144
E conom ic Patterns in 1954..................................

148

Department Store T ra d e ......................................

151

Selected E conom ic In dicators.............................. 152

142

M O N T H L Y R E V I E W , N O V E M B E R 1954

at a 1 Ys per cent interest rate. Subscriptions for the certificates
of interest in this pool were received on October 27; payment
is to be made on November 12. The certificates are scheduled
to mature on August 1, 1955, but they may be retired by the
CCC prior to that date or repurchased by the CCC upon
demand of the certificate holder at any time up to nine days
prior to maturity. The CCC will deposit the proceeds of the
sale of the certificates in the Treasury’s general account with
the Reserve Banks, and the Treasury has offered to deposit
in the Tax and Loan Accounts of banks purchasing the cer­
tificates an amount equal to their payments for the certificates.
Between October 1953 and January 1954, the CCC made three
separate offers of certificates of interest in crop pools. These
certificates were sold at rates of 2Vi> 2Va, and 2Vs per cent,
respectively, in an aggregate amount of 1,160 million dollars,
but these offerings were not accompanied by the feature of
redeposit in the Treasury Tax and Loan Accounts.
The earning assets of the weekly reporting member banks
rose sharply during October, reflecting for the most part the
commercial banks’ purchases of the new Treasury 1 Ys per cent
notes. The seasonal demand for business loans picked up some­
what in October, and commercial, industrial, and agricultural
loans increased 128 million dollars net in the four weeks ended
October 20. Last fall the increase in the comparable period
was 77 million and, in 1952, 551 million.
M em ber B a n k R eserve Positio n s

The banking system gained a substantial volume of reserves
during October from both the Reserve System’s bill purchases
and the operations of the regular market factors. While the
major part of these new funds was absorbed by increases
in required reserves, free reserves rose moderately.
Of the operating factors, fluctuations in float probably had
the greatest effect on the money market during October. The
day-to-day and week-to-week changes in the amount of float
outstanding were substantial and were considerably larger
than had been anticipated. Despite the fact that only six
Reserve Banks were open on Columbus Day, a large volume
of checks was collected on that day and the day following
(October 12 and 1 3 )— these checks had already been proc­
essed and credited to the reserve accounts of the member
banks— while the amount of new checks deposited was limited.
As a result, the volume of float outstanding declined 318 mil­
lion dollars during the week ended October 13 to the unusually
low level of 346 million. This contraction reduced the supply
of reserves available in the market, and a few banks in the
money centers, finding it difficult to meet their reserve require­
ments for the week, carried reserve deficiencies forward to the
week of October 20. Subsequently, float rose sharply, and
even though a reduction occurred before the end of the state­
ment week, a net increase of 387 million dollars was recorded
for the week ended October 20, as Table I indicates. In keep­
ing with the quickening pace of business and commercial
activity that normally develops in the fall months, float rose
98 million dollars on balance over the four weeks of October.




Table I
W e e k ly

C h a n g e s in F a c t o r s T e n d i n g to I n c r e a s e o r D e c r e a s e
M em b e r B a n k R e s e rv e s , O cto b e r 1 954

(In millions of dollars; (-}-) denotes increase,
(—) decrease in excess reserves)
Statement weeks ended
Factor

Four
weeks
ended
Oct.
27

Oct.
6

Oct.
13

Oct.
20

Oct.
27

Treasury operations*...........................
Federal Reserve float...........................
Currency in circulation........................
Gold and foreign account....................
Other deposits, e t c ................................

+ 141
+153
-1 2 9
- 67
- 48

9
-3 1 8
-1 0 8
+ 88
+
9

+ 31
+387
+ 104
- 17
+ 46

-1 2 4
+ 85
9

+ 16 3
+ 98
- 48
5
+
7

T o ta l........................................

+ 53

-3 4 0

+551

-

49

+ 21 5

75

+ 336

+ 29
+ 56

-1 2 4
- 29
+ 19

-

44

-

25

+ ~6

+ 491

+ 85

-1 3 4

-1 0 0

+ 34 2

Total reserves...............................................
Effect of change in required reserves^------

+ 544
-4 6 1

-2 5 5
+ 71

+417
-1 0 4

-1 4 9
- 24

+ 55 7
-5 1 8

Excess reserves' f ..........................................

+ 83

-1 8 4

+313

-1 7 3

+ 39

Daily average level of member bank:
Borrowings from Reserve B anks. . . .
Excess reserves!....................................

62
950

74
804

99
1,023

72
762

77
885

Operating transactions

Direct Federal Reserve credit transactions

Government securities
Direct market purchases or sales..
Held under repurchase agreements
Loans, discounts, and advances.........
T o ta l....................................

+ 535
-

N ote: Because of rounding, figures do not necessarily add to totals.
* Includes changes in Treasury currency and cash,
f These figures are estimated.

Treasury operations added more to bank reserves during
October than float, but the day-to-day effects of these opera­
tions on the market were not so erratic. As was pointed out
in the previous issue of the Review, income taxes came in
faster than anticipated in the final week of September and,
as a result, the Treasury’s general account balance with the
Reserve Banks rose to the unusually high level of 769 million
dollars on September 29. The Treasury balance declined dur­
ing October, and in the process Treasury operations returned
some 163 million dollars to the banking system.
The seasonal rise in the demand for currency, on the other
hand, absorbed funds (48 million) during October. While
the net amount over the full month was not substantial, the
pattern within the month of an increase in currency circula­
tion in the first two weeks and a decline in the last two tended
to accentuate the swings in the supply of available reserves
resulting from the increase in required reserves and the changes
in float and Treasury deposits. Changes in bank reserves result­
ing from gold flows and other factors were minor in October.
T he M arket

for

G o v e r n m e n t Securities

During the first week of October all sectors of the Govern­
ment securities market were steady with some tendency for
prices to rise. Those subscribers to the new 1Ys per cent notes
who had planned to pay for the new issue by selling securities
already in their portfolios had largely completed their selling
programs. There was a demand for the 3^4’s of 1978-83 on
the part of a small group of pension funds, while the supply
was limited. In the intermediate maturities there was some
switching, primarily on the part of banks seeking to lengthen
their portfolios.

13
4

FE D E R A L RESERVE B A N K OF N EW Y O R K

In the second week, however, the earlier firmness gave way
to an easier tone, as market discussion was directed to the likely
terms of the Treasury’s December refunding and, particularly,
to reports that the exchange offerings might include a long­
term issue. The lack of any significant resistance to the mark­
down in prices for intermediate and particularly long-term
issues also reflected the competitive influence of the continu­
ing substantial demand for new capital on the part of corpora­
tions and, to an even greater extent, local governmental bodies
financing public improvements and toll projects. In contrast
to the rising yields (declining prices) for long-term Treasury
issues, the quotations for high-grade corporate and tax-exempt
bonds were steady to firm, thereby tending to bring the
rate differentials closer to what the market currently regards
as a more normal relationship.
As uneasiness concerning the market outlook grew, dealers
became more cautious and backed away from even the small
blocks of securities offered in the market. The bid quotation
on the new 1 Y per cent notes reached a high of 100% 2 on
&
October 8, but by the 18th it had slipped below par and gen­
erally remained % 2 or more below for the remainder of the
month. There was no large-scale selling pressure in the mar­
ket, although there was some institutional liquidation and
occasional selling of intermediate and longer issues by banks
and others against the purchase of December "rights”. Some
of those transactions were undertaken in the expectation that
the Treasury offering would facilitate replacement in port­
folios of the longer maturities which had been sold. A portion
of the selling also reflected the shifting of investment funds
into mortgages and the corporate and municipal securities cur­
rently reaching the market. The price decline uncovered little
buying interest until the last few days of the month when quo­
tations leveled off and rallied from their low points, particu­
larly the longer issues. However, prices of all Treasury bonds
were lower for the month. The 3 Vas , which had risen from
a closing bid on September 30 of I10is/s 2 to
on
October 8, closed on October 29 at 110% 2 * The bankrestricted Victory issue (the 2 V2 S of December 1967-72)
and the bank-eligible 2 ^ ’s (o f September 1967-72) were off
732 to 9 9 2 / 32.
/
1
Interest in the short-term area of the market, on the other
hand, was well sustained throughout October. Net purchases

regular certificates, however, weakened in the latter part of
October and closed on the 29th approximately % 2 below the
closing quotations on September 30.
M e m b e r B a n k C r e d it

As noted earlier, the Treasury’s sale of 4.2 billion dollars
of 1Ys per cent notes on October 4 dominated the changes
in bank loans and investments during October. The weekly
reporting member banks apparently purchased directly about
1.9 billion of these notes. In addition, they granted 413 mil­
lion dollars of new loans to dealers in the week preceding the
sale in order to help them carry securities purchased from
investors who wished to sell outstanding obligations to make
room in their portfolios for the new notes, as well as to enable
the dealers to take up their own allotments of the new issue.
In subsequent weeks, as Table II indicates, there was a further
net rise in dealer loans, bringing the total increase for the
four weeks ended October 20 to 454 million dollars. The
weekly reporting member banks sold close to a half billion
dollars of bills during these four weeks, partly to offset their
note purchases and partly for reserve adjustment purposes,
but on balance their Government securities holdings rose 1,495
million dollars over the four weeks.
The commercial, industrial, and agricultural loans of these
T a b le II
W e e k ly C hanges in P rin cip a l A s s e ts and L iabilities o f the
W e e k ly R e p o rtin g M em b er B anks

(In millions of dollars)
Change
from Dec.

Statement weeks ended
Item

Sept.

Oct.

Oct.

6

29

Oct.

20

13

Security loans...................

Heal estate loans.............
Other loans (largely
consumer).....................
Total loans adjusted*..

+ 10

87
26
5

+ 93
+ 95
+ 17

- 62
- 28
+ 31

- 2 ,2 4 7
+
269
+
474

+ 35

10

+ 27

- 12

-

+477

53

+ 233

-

72

- 1 ,6 6 5

103

-230

- 20

+ 93
- 54

+
59
+ 4 ,5 4 4

+ 43

+ 1 ,9 1 8
+
143

-2 50
- 64

+ 39
- 14

+ 4 ,6 0 3
+ 1 ,0 8 1

+ 25

+ 5 ,6 8 4

+ 41 3
+ 18

Investments:
U.S. Government securities:
Treasury bills.................. - 2 5 6
Other................................ + 44
Total.........
Other securities.

-212

Total investments...

+
+

-

+2,021

-169

+ 2 ,0 6 1

-3 1 4

in some contraction in dealers’ holdings, and there was addi­

+ 30 8

+ 2 ,1 1 4

-

81

47

tional substantial buying of bills and other short-term issues

Loans to banks.........................

- 66

+

10

+ 302

-1 0 8

by several nonbank investors temporarily investing the pro­

Loans adjusted* and “other”
securities................................

+ 520

+

196

+ 169

767

+ 396

ceeds of market financing. On the other hand, commercial
banks liquidated short-term issues on balance. The absorp­
tion of this selling, together with their tenders in the weekly
auctions, enabled dealers largely to replace their holdings of
Treasury bills and to meet the demand with a minimum
impact on the rate level. The March 1955 tax anticipation
certificates were steady throughout October.




Prices of the

to Oct.
20, 1954

A ssets

Loans and investments:
Loans:
Commercial, industrial, and
agricultural loans........

Total loans and investments
adjusted*.............................

o f Treasury bills for the System Open Market Account resulted

30, 1953

121

+ 4 ,0 1 9

+

91

-

584

747

Liabilities

Demand deposits adjusted...
Time deposits except
Government.......................
U. S. Government deposits..
Interbank demand deposits:
Domestic............................
Foreign...............................

+496

-

+ 798

-

-

6

-

75

+
48
+ 2 ,5 8 8

+ 12

-5 7 9

+ 16
-4 4 6

+ 1 ,8 1 4
+ 1 ,5 8 5

+
+

+ 6
+ 68

—256
+
4

+

-3 0 0

+ 5

767
23

74
65

* Exclusive of loans to banks and after deduction of valuation reserves; figures
for the individual loan classifications are gross and may not, therefore, add
to the total shown.

M O N T H L Y R E V IE W , N O V E M B E R 1954

144

banks showed a net increase of 128 million dollars during this
period and, in contrast to the preceding four weeks, the New
York City institutions accounted for most of the increase. As
might be expected at this time of year, food, liquor, and
tobacco concerns as well as commodity dealers continued to be
large new borrowers. In addition, substantial new credits were
extended in October to petroleum, coal, and chemical industries

and to retail and wholesale trade firms. Also, interbank loans
showed a net expansion of 138 million dollars in the four
weeks under review (the increase probably representing prin­
cipally a rise in Federal funds transactions). Exclusive of loans
to banks, total loans of the weekly reporting banks rose
691 million dollars during the four weeks ended October 20,
and total investments 1,603 million.

R E C E N T BALANCE-OF-PAYMENTS T R E N D S IN L A T IN A M E R IC A
The balance of payments of the twenty Latin American
republics as a whole1 has developed encouragingly during 1953
and 1954. Exports to the United States have been maintained
at record levels despite the slowing-down of United States
business activity, while sales to Europe have actually increased.
Over-all imports have remained relatively high, but have
dropped sufficiently below the inflated levels of the 1951 and
1952 import boom to restore the customary sizable trade
surplus. Many Latin American countries have consequently
added to their gold and foreign exchange reserves, while others
have at least been able to reduce their short-term liabilities.
Although it is difficult to generalize about Latin America as
a whole, certain broad tendencies and developments have
characterized most of the countries.
C u r r e n t -A c c o u n t

P o s it io n

w it h

the

U n it e d

St a t e s

Latin America’s exports to the United States have continued
in the last three years at the high level of over 3.5 billion dollars
first attained in 1951 (see Table I ) ; imports from the United
States, on the other hand, have declined from their 1951 peak
of 3.7 billion dollars to slightly over 3 billion. The net result
of sustained exports and reduced imports was a marked change
from a deficit in 1951 to surpluses in 1952 and 1953 in Latin
America’s trade balance vis-a-vis the United States.
In the first half of 1954 the picture was slightly less favor­
able. Exports to the United States fell somewhat below the
level of the comparable period of 1953. This develop1 Argentina, Bolivia, Brazil, Chile, Colombia, Costa Rica, Cuba, the
Dominican Republic, Ecuador, Guatemala, Haiti, Honduras, Mexico,
Nicaragua, Panama, Paraguay, Peru, El Salvador, Uruguay, and
Venezuela. Dependent territories of other countries are excluded.
T able I
Trade and C u rren t-A ccou n t B alances o f the Latin
A m erican R ep u b lics w ith the U nited S tates
(In m illions o f d o lla rs ; exp orts and im ports f.o .b .)
January-June
Item

1950

1951

1952

1953

3,091
2,718

3,510
3,746

3,569
3,474

3,570
3,049

1953
Exports to United States.........
Imports from United States*. .

Trade balance........................ +
Services (n et).............................. Current-account balance___ -

1954p

1,905
1,489

373 588 -

236 +
711 -

95 +
675 -

521 +
647 -

416 +
298 -

215 -

947 -

580 -

126 +

118 -

1,873
1,603
270
328
58

p Preliminary.
* Excludes imports from the United States of military supplies under aid programs.
Source: U. S. Department of Commerce, Survey o f Current B usin ess, June and
September 1934.




ment was primarily the outcome of several conflicting trends.
Such countries as Argentina, Bolivia, Chile, Mexico, and
Uruguay had lower dollar earnings from exports, as sales of
their tin, copper, zinc, and wool declined. Colombia and the
other coffee-producing countries, except Brazil, on the other
hand, substantially increased their earnings as a result of the
unprecedentedly high coffee prices in the first half of 1954.
Brazil’s dollar earnings during the first half of 1954 as a whole
compared favorably with 1953, primarily because of the high
prices of cocoa and coffee; but beginning with May 1954, in
spite of record coffee prices, earnings derived from coffee ex­
ports to the United States fell sharply because of marketing
difficulties that were related to certain features of the coffee
price-support program in Brazil.
Imports from the United States in the first six months of
1954 were somewhat higher than a year earlier, as some of the
severe import controls imposed in 1951 and 1952 were relaxed.
Imports by Brazil, Colombia, Mexico, and most Central
American republics, in particular, rose; however, decreases
were reported for Argentina, Chile, Cuba, and Peru. With the
rise in imports and the moderate decrease in exports, Latin
America’s surplus in United States trade fell substantially
below January-June 1953.
While Latin Americas trade surplus with the United States
increased in 1952 and 1953, the area’s net service payments
to the United States have remained markedly stable over recent
years; as a result, its current-account deficit with the United
States declined substantially from the 1951 peak (Table I).
During the first half of 1954, however, net service payments
to the United States were somewhat larger than in JanuaryJune 1953 and, with the reduced trade surplus, led to a
current-account deficit that contrasted sharply with the JanuaryJune 1953 surplus. In spite of this, a moderate recovery in the
inflow of United States long-term capital, which had virtually
halted during late 1953, and a parallel upturn in receipts of
short-term capital resulting from increased commercial credits
extended chiefly to Brazil and Colombia, enabled Latin America
to add 101 million dollars to its aggregate gold and dollar
holdings during the first half of 1954 (see Table II). Among
the individual countries, Argentina, Colombia, and Venezuela
substantially increased their gold and dollar holdings, while
Brazil, Chile, and Mexico incurred losses. Of the commercial
arrears that had been accumulated during 1951 and 1952 a
good part was liquidated in 1953, but a major portion of this

145

F E D E R A L R E SE R V E B A N K OF N E W Y O R K

Table III

liquidation was effected by Brazil with the aid of a 300 million
dollar Export-Import Bank loan.

"D ollar”
C o u n t r ie s

and

“N

ondollar”

The wide differences that have been noted in the balance-ofpayments positions of individual countries reflect certain
fundamental differences in the commodities produced and in
the direction of their exports, which in turn determine the ex­
tent to which their exchange receipts consist of dollars and
T a b le 11
Official G old R eserv es and O fficial and P riv a te S h ort-te rm
D ollar H old in gs o f th e L a tin A m erican R ep u b lics

(In millions of dollars)
1950

1951

June

June

June

Dec.

June

Dec.

Junep

122
536
224
489
311

124
609
352
449
344

138
635
266
503
391

194
515
375
519
374

197
579
339
530
461

237
531
341
595
390

319
532
287f
621
421

T otal.......... .................... 1,682

1,878

1,933

1,977

2,106

2,094

2,180

454
37
442
102
78
255

632
48
529
115
100
354

• 415
47
398
96
103
309

427
46
390
121
107
301

519
47
451
129
109
311

503
41
423
121
104
337

550
37
417
106
103
331

T ota l............................... 1,368

1,778

1,368

1,392

1,566

1,529

1,544

T otal Latin American
republics................................. 3,050

3,656

3,301

3,369

3,672

3,623

3,724

1952

1953

1954

Country

‘ ‘ Dollar’ ’ countries:*
C olom bia................................
C uba........................................
M ex ico....................................
Venezuela...............................
O thers!...................................

“ Nondollar” countries:!
Argentina...............................
B olivia....................................
B razil......................................
Chile........................................
Peru.........................................
Uruguay.................................

Preliminary.
* Countries conducting an overwhelming proportion of their trade in dollars and
other convertible currencies.
f Includes latest available figure for gold reserves (April 30). Estimated change
in reserves in M ay and June is included in “ Others” .
J Includes Paraguay which, although a “ nondollar” country, is not reported
separately.
§ Countries conducting a significant proportion of their trade in nonconvertible
currencies.
p




1952

Item

The improvement that has marked Latin America’s balance
of payments with the United States has also generally charac­
terized its position with other countries. Latin America thus
attained an unusually large over-all trade surplus during 1953
and the first half of 1954 (see Table III). This surplus was
the outcome primarily of an import decline from the 1951
level, a major part of the decline involving, as already noted,
the United States; at the same time, an increase in exports,
chiefly to countries other than the United States, also con­
tributed.
Imports declined in 1953, largely as the result of direct
import restrictions. Apart from Colombia, Ecuador, Peru, and
certain of the Central American republics, all Latin America
contributed to the decline. However, roughly one third of the
total decrease was accounted for by Argentina, where severe
import restrictions were imposed, accompanied by a restrictive
monetary and fiscal policy. Brazil’s imports also declined sub­
stantially. In the first half of 1954, however, import restric­
tions were relaxed in many countries and imports consequently
rose somewhat.
in

A m e r ic a n R e p u b lic s

(In m illions o f d olla rs)
January-June

O v e r - A l l T r a d e P o s i t io n

D iv e r g e n t T r e n d s

F o r e ig n T r a d e o f th e L a t in

1953
1954*

“ Dollar” countries:
Exports (f.o .b .)........
Imports (c.i.f.).........
Trade balance-----

3,855
3,208

3,257
2,521
+

“ Nondollar” countries:
Exports (f.o .b .)........
Imports (c.i.f.)........

736

+

647

3,919
3,344
+

575

3,367
2,852

3,979
4,492

1,961
1,557

3,857
3,305
+

3,188
4,254

552

+

515

513

-1 ,0 6 6

6,624
5,373

7,834
7,700

7,107
7,598

Trade balance-----

+ 1 ,2 5 1

134

491

+ 1 ,1 7 8

+

7,594
6,416

Trade balance___

+

+

+

626

+

267

+ 202
4,028
3,304

3,654
2,983
+

671

522
1,833
1,631

1,693
1,426

3,737
3,111

T otal:
Exports (f.o .b .)........
Imports (c.i.f.)........

404

2,195
1,673

+

724

* The 1954 data are partly estimated.
Source: Adapted from International Monetary Fund, International Financial
Statistics, November 1954.

other convertible currencies. On the basis of these differences,
the Latin American countries may conveniently be divided
into two groups. One group— the “dollar” countries— com­
prises countries whose trade is oriented primarily toward the
United States, and which produce such commodities as petro­
leum, coffee, fruit, and sugar. This group may be regarded
as including Colombia, Ecuador, Mexico, Venezuela, and the
Central American and Caribbean republics. The second group
— the “nondollar” countries— consists of Argentina, Bolivia,
Brazil, Chile, Paraguay, Peru, and Uruguay. Their trade is
oriented much less extensively toward the United States, and
includes, on the export side, such primary commodities as tin,
copper, and wool.
Exports of the “dollar” countries as a group to the rest of
the world have been running at about 3.9 billion dollars annu­
ally, while imports have continued at about 3.3 billion dollars.
The group has therefore been enjoying a substantial over-all
trade surplus during recent years (see Table III). During the
first half of 1954, the “dollar” countries, largely as a result of
sharply increased coffee and cocoa prices, had an over-all trade
surplus markedly above January-June 1953. In their trade with
the United States, however, these countries have run a deficit,
although one that declined from 221 million dollars in 1950
to only 61 million in 1953. During the first half of 1954, on
the other hand, the “dollar” group actually achieved a 29
million dollar surplus with the United States. The earlier
deficit with the United States had not given rise to any par­
ticular difficulties since the exports of the “dollar” countries
generally commanded hard-currency payment even when sold
in “nondollar” markets. Their over-all trade surplus has ac­
cordingly enabled the “dollar” countries as a group to add
steadily to their gold and dollar holdings, although the hold­
ings of Cuba and Mexico have shown considerable fluctuations
(see Table II).
The “nondollar” countries have done somewhat less well.
Their exports and imports have fluctuated considerably; fol­
lowing the Korean outbreak wide swings occurred in the prices

146

M O N T H L Y R E V I E W , N O V E M B E R 1954

of the major exports of those countries, while imports, which
were unusually large in 1951 and 1952, were sharply cut back
in 1953. Thus, the usual trade surplus became a deficit in 1951
and 1952, but the surplus reappeared in 1953 and the first half
of 1954 (see Table III). Increases in exports in 1953 were most
pronounced for Argentina where agricultural output recovered
after drought had severely limited the country’s exportable
surpluses in 1952, and also for Brazil and Uruguay. During the
first half of 1954, the groups exports were higher than during
the corresponding period of 1953. It is probable, however, that
’ nondollar” countries’ exports have declined rather sharply
since mid-1954, as a result of the difficulties that Brazil ex­
perienced in marketing its coffee. Imports during the first part
of 1954 rose substantially above January-June 1953, and the
over-all export surplus declined to 202 million dollars, com­
pared with 267 million during January-June 1953; the surplus
in trade with the United States fell more sharply, from 405 to
242 million dollars.
M o n e t a r y , Fiscal ,

and

T rade Policies

Despite the generally favorable trends in the trade and pay­
ments of Latin America as a whole during the last two years,
many of the twenty republics, including some of the major
ones, have encountered serious economic and financial diffi­
culties, both domestically and internationally. These difficulties,
however, have varied widely both in character and in magni­
tude as between the "dollar” and the "nondollar” countries.
The "dollar” countries, whose exports have, as already noted,
remained high and stable, have had no serious balanceof-payments problems. When a tendency to import in excess
of exchange availabilities has occasionally developed, import
demand has been restrained by such measures as the requiring
of prior deposits on purchases of foreign exchange, increases
in tariffs, and exchange surtaxes. Most of these countries have
not had to resort to direct import and exchange controls. Only
a few— chiefly Colombia, Costa Rica, Ecuador, and Nicaragua
— have employed multiple exchange rates and direct trade
controls; however, more recently such controls have been re­
laxed and the exchange rate structures simplified.
Many of the "dollar” countries have nevertheless had to deal
with the problem of the inflationary impact of export surpluses
on their domestic economies. Colombia, Ecuador, Haiti, and
El Salvador have raised their export taxes on coffee and other
export products as foreign prices have risen, and on occasion
have accompanied such steps with monetary measures that have
increased the reserve requirements against commercial bank
deposits, as in Colombia, or have otherwise restricted credit
expansion. Less frequently, taxes have been increased in order
to reduce budgetary deficits. In a few instances, as in Cuba
and Mexico, development programs have been temporarily
slowed down.
For "nondollar” countries the problems that have arisen in
recent years have been more difficult, since exports, as indi­
cated earlier, have fluctuated substantially. The "nondollar”




countries, in order to adjust themselves to such changes in
their balance-of-payments positions, have resorted principally
to direct quantitative controls on imports, especially imports
of a "nonessential” nature. Such restrictions, particularly in
Argentina, Brazil, and Uruguay, have been chiefly responsible
for the sharp reduction in imports during recent years. Some of
the "nondollar” countries appear also to have varied their multi­
ple exchange rate systems in such a way as to maintain localcurrency receipts when export prices are rising or falling.
It is partly for this reason that Argentina, for example, fre­
quently shifts commodities from one exchange rate category
to another.
In addition, some "nondollar” countries have given increased
attention during the past two years to the inflationary impact
of earlier monetary and fiscal policies. Government borrowing
from the central banks has been curtailed in a number of
instances, and measures have been taken to bring under more
effective control the steady expansion of commercial bank
credit. Peru, for example, has raised commercial bank reserve
requirements, while Chile has endeavored to limit credit ex­
pansion to a specified maximum rate, and Brazil has twice
increased its rediscount rate. Nevertheless, inflation remains
a serious problem in some of the "nondollar” countries.
The increased emphasis on reducing government deficits is
apparent in a number of ways. The execution of largescale development programs has at times been slowed down,
for instance in Argentina and Peru. Taxes in many cases have
been raised, and tariffs have been increased with the combined
objective of securing additional government revenue, reducing
imports, and encouraging the local production of goods previ­
ously imported.
Ex c h a n g e R a t e A d j u s t m e n t s

A number of Latin American countries also have modified
their exchange rate structures; in particular, Bolivia, Brazil,
Chile, Mexico, and Paraguay have all devalued or permitted
partial depreciation of their currencies within the past two
years.
Brazil in October 1953 instituted an exchange auction
system that in effect resulted in a devaluation of the cruzeiro.
Imports have been divided into five classes according to essen­
tiality, and importers must bid at periodic auctions for the
right to purchase foreign exchange for each import class.
The resulting substantial premia, of course, tend to deter
imports. In addition, however, the auction system has restored
the price mechanism in the allocation of import licenses and,
through the implicit taxation of importers’ profits, has pro­
vided both a method for absorbing a portion of incomes and
a source of government revenue. Exporters, on the other
hand, continue to surrender their foreign exchange receipts
at the official rate, but also receive additional payments
(bonuses) in local currency. An August 1954 modification
increased the local-currency bonuses paid to exporters, thus
furnishing an additional export incentive.

FE D E RA L RESERVE B A N K OF N EW Y O R K

Peru, which has employed very few direct trade controls in
recent years, has permitted its currency to fluctuate in free
markets in response to demand and supply. On the whole, the
Peruvian authorities have been able to prevent wide fluctua­
tions in the exchange markets by occasional central bank pur­
chases and sales of foreign exchange. However, during most
of 1953 and early 1954, the Peruvian currency was subjected
to sustained pressure and underwent a sizable depreciation.
The country then strengthened its internal corrective policies
and obtained stand-by credits totaling 30 million dollars from
the International Monetary Fund (IM F ), the United States
Treasury, and a New York commercial bank. Since the con­
clusion of those agreements in February 1954, Peru’s exchange
rates have fluctuated within narrow limits.
Mexico received a stand-by credit for 50 million dollars
from the IMF last April, at the time of the devaluation of the
Mexican peso from 8.65 to 12.50 pesos per dollar. By the end
of that month, Mexico had drawn 22.5 million dollars on the
credit. The devaluation itself appears to have been a response
primarily to Mexico’s external difficulties, which were mani­
fested in increased trade and current-account deficits and an
outward movement of capital that assumed crisis proportions
in the weeks immediately preceding the devaluation. In recent
months, however, Mexico’s external position has improved
perceptibly.

C o n c l u d in g R em ar ks

General economic conditions in Latin America appear to
have improved noticeably over recent years. High levels of
exports and imports, substantially above those prevailing
before the Korean outbreak, reflect the continuing firm foreign
demand for Latin American export products and the resulting
sustained capacity to import. The favorable over-all balanceof-payments position is indicated by the increase of 674 mil­
lion dollars in the area’s gold and dollar holdings during the

147

ploying such measures as credit restrictions, tariff changes,
export taxes, and alterations in multiple exchange rate struc­
tures, most of the "dollar” countries of Latin America have
been able both to minimize inflationary pressures and gener­
ally to maintain balance-of-payments stability.
For most of the ''nondollar” countries as well as for certain
"dollar” countries like Mexico, on the other hand, the prob­
lems of achieving internal and external stability have been
more complex. First, although export receipts continue to
exceed the pre-Korea level, they have generally neither risen
proportionately so high nor remained so stable as those of
most "dollar” countries. Secondly, several large Latin American
countries have been the scene of accelerated domestic economic
development in recent years. They have had considerable
difficulty, however, in devising and implementing coordinated
fiscal, monetary, and exchange policies that would make it
possible to combine high levels of private and public invest­
ment with a minimum of inflation and a reasonably satisfac­
tory balance-of-payments position. In fact, continuous and
rapid inflation has often tended to create such strong import
demands that very serious balance-of-payments difficulties have
frequently arisen despite unprecedented export earnings. In
the absence of adequate anti-inflationary fiscal and credit
policies, trade and exchange controls continue as the major
instrument for securing balance-of-payments stability, as well
as for effecting changes in income distribution and the alloca­
tion of resources.
Another important development worth noting has been
the increased ability of Western European countries to supply
goods at competitive prices, and at attractive credit terms, to
Latin America. Further, this development has coincided with
an improved supply from Europe’s overseas currency areas of
many products that compete with Latin America’s exports.
As a result, some European countries apparently are now seek­
ing to abandon the bilateral trade-and-payments arrangements
under which much of their trade, particularly with "nondollar”

four years ended June 30, 1954. Moreover, many individual
countries have been able to relax considerably their quantita­
tive import controls and, in some cases, to simplify their for­
eign exchange rate systems. At the same time, an increase in
industrial and agricultural output and a greater diversification
of production and of export markets have occurred throughout

Latin American side, a reduction of bilateralism frequently
involves the elimination of, or at least a substantial reduction

much of the area.

even more necessary for Latin American countries to deal with

The favorable over-all position, however, tends to obscure

Latin America, has been transacted in recent years. On the

in, the premium prices that have been secured for commodities
exported under bilateral agreements. It has therefore become
the problems of inflation. These developments not only tend

marked differences in the situations of individual countries and
groups of countries. The '’dollar” countries account for 498

to lead to the adoption of stronger anti-inflationary measures,

million dollars of the 674 million increase in gold and dollar

of overvalued currencies. The resulting lessened rate of infla­

but also become important factors hastening the realignment

holdings; their exports command in general such favorable

tion and more rapid adaptation of exchange-and-trade arrange­

prices that their export receipts far exceed pre-Korea levels.
Further, the inflationary pressures resulting from the high ex­

ments to changing external conditions would aid the Latin
American countries in achieving economic growth with fewer

change receipts have not been seriously aggravated by such

distortions and with reduced strains on their balances of

internal factors as accelerated industrialization efforts. By em­

payments.




M O N T H L Y R E V IE W , N O V E M B E R 1954

148

E C O N O M IC P A T T E R N S IN 1954
Since early in 1954 the indicators of over-all economic
activity in the United States have displayed remarkably little
change. During the first few months of the year there was
a continuation of the general business contraction that started
in mid-1953, and in some sectors of the economy declines
persisted well into the current year, but in other sectors there
was a leveling-off or improvement by the close of the first
quarter that roughly offset the downward movements.
Following a 4 per cent decline from the second quarter of
1953 to the first quarter of 1954, gross national output of
goods and services has been moving sideways on a seasonally
adjusted basis. Similarly, adjusted industrial production, after
declining about 10 per cent in the eight months following
July 1953, has since moved within a very narrow range. The
general level of prices, moreover, which seemed to be little
affected by the boom conditions of early 1953 as well as by
the subsequent contraction, have been steady for an even
longer period. Most recently there have been some indica­
tions of an upturn in business activity— such as the latest de­
clines in unemployment and the pickup in steel output— but
signs pointing to a more-than-seasonal improvement are not
yet sufficiently pronounced or widespread to denote a strong
upward movement in the economy.
D iv e r g e n t T ren ds

The over-all pattern of stability during most of 1954 tends
to conceal, however, the changes and adjustments that have
taken place within the broad aggregates. Thus, cuts in defense
spending and declining outlays for producers’ durable equip­
ment have been offset by a marked increase in residential con­
struction activity, a continued rise in State and local govern­
ment spending, and some further gains in personal consump­
tion expenditures. The declining components represented a
continuation of trends that had played an important part in the
business contraction that began after mid-1953. Inventory
liquidation, which had been one of the major initiating forces
in the slackening of business activity after the middle of 1953,
persisted during 1954, but at a fairly steady pace, and conse­
quently did not generate additional deflationary pressures.
Spending categories that have expanded since early 1954 were
generally those that had also been increasing, or had at least
been fairly stable, during 1953. The balancing-out of activity
since early in 1954 has thus reflected minor changes in the rates
of decline or expansion of activity in various sectors rather
than radical shifts in the direction of movement for any of
the major components.
L ow er Spending f o r D e fe n s e a n d C a p ita l E qu ipm en t

Reductions in national security expenditures and, to a lesser
extent, in private outlays for durable equipment, which were
among the principal factors contributing to an economic de­
cline after mid-1953, continued during 1954. In the second
quarter of 1953, Federal spending for national security




(including foreign aid) was at a post-Korea peak, reaching
an annual rate of 54.3 billion dollars. A year later such spend­
ing was reduced to 44.7 billion, with most of the drop con­
centrated in the first half of 1954. Further reductions occurred
in the third quarter of this year, and the recent revision of
Federal spending plans for the fiscal year 1955 suggests an
additional decline through mid-1955, although the rate of re­
duction is expected to be less than during the past year.
The greatest part of the cuts, past and prospective, affects
spending for major procurement items such as tanks, warships,
airplanes, and other "military hard goods”. These items have
long production lead-times and only limited similarity to
civilian-type goods, which tends to make the readjustment
process more difficult.
Meanwhile, private producers’ expenditures for durable
equipment declined from 24.8 billion dollars (seasonally ad­
justed annual rate) in the third quarter of 1953 to about
22.0 billion in the July-September quarter of this year. A
recent survey of plant-and-equipment expenditure intentions
suggests a further decline in the final quarter of the year.
Primary metals producers and railroads are two industries that
have experienced particularly sharp drops in investment
outlays.
Reductions in capital expenditures may be traced in part
to the cuts in national security outlays. In other cases, com­
pletion of the bulk of expansion and modernization plans
accounts for the decline. Removal of the excess profits tax
and the more liberal amortization procedures under the new
tax law may have helped to limit the decline in investment
spending.
R ecord C o n s t r u c t io n O u t l a y s

Strong gains in construction activity, especially in resi­
dential building, have helped to offset declines in the output
of capital and defense goods. Private outlays for new con­
struction, seasonally adjusted, have risen in each quarter of
1954 and in the third quarter were about 2 billion dollars
greater, at an annual rate, than during the second quarter of
1953. New residential building, which has been favored by
an easier mortgage market and by more liberal terms for
Federally guaranteed loans, accounted for most of this increase.
Private nonresidential construction outlays have also been high
during this year, despite somewhat lower spending on indus­
trial building and farm construction.
Meanwhile, public construction outlays, apart from those
made directly by the Federal Government, were also increasing.
Large bond issues, floated in the easier money market by State
and local governments and by local authorities created to
administer large construction projects such as turnpikes and
bridges, have made possible these increased expenditures.
Total construction activity, thus aided in both the private and
public sectors by policies of active monetary ease, has risen
to record levels, showing a substantial margin of increase over
the year-previous figures. In September aggregate outlays for

149

F E D E R A L R E SERVE B A N K OF N EW Y O R K

new construction were 8 per cent above September 1953, and
the recent high levels of new contract awards and new hous­
ing starts provide some assurance that the construction boom
will continue at least in the immediate future.
Pe r so n al C o n s u m p t io n M a in t a in e d

A mainstay of economic strength during 1954 has been
the steady stream of consumer spending. From the first to
the second quarter of the year, such spending rose slightly
more than 1 per cent (seasonally adjusted) and this was
nearly enough to offset the much greater percentage drop in
government outlays. Approximately the same level of expendi­
tures appears to have been maintained during the third quarter
of this year.
The maintenance of consumer spending has been largely
attributable to the steady flow of personal income receipts
and to the increase in disposable income which followed the
income tax cut at the beginning of this year. A reduction in
many Federal excise taxes last April has also helped to bolster
sales. The firmness of total personal income in 1953-54, in
turn, has been in part the result of increased "transfer” payments
(such as unemployment insurance) and larger property in­
come, which offset the drop in farm income and in wage
and salary receipts.
Consumer spending patterns during 1954 do not appear to
have shown marked changes, although sales of automobiles
and certain other consumer durables are now well below those
of a year ago. There has been a moderate rise during 1954 in
sales of nondurables, however, in which the ground lost after
mid-1953 has been recovered. Spending for services, mean­
while, continued to rise during the year, although at a some­
what slackened pace, as rents and the prices of other services
tended to level off.
St ead y In v e n t o r y D e p l e tio n

An outstanding feature of economic developments in 1954
has been the steady liquidation of stocks held by manufac­
turers of durable goods. From a high level of 27 billion
dollars (seasonally adjusted) in the autumn of 1953, such
inventories fell to about 24 billion at the close of last
August. Manufacturers’ sales of durables also declined during
this period, however, owing especially to smaller sales of
military hardware, producers’ durable equipment, and pas­
senger cars; the ratio of stocks to sales consequently changed
little for the period as a whole.
Stocks held by wholesalers and retailers of durable goods
declined by about 1 billion dollars during the year ended
last August but, in the nondurable goods field, inventories
underwent little net change on a seasonally adjusted basis,
since lower holdings by manufacturers were offset by higher
stocks in the hands of dealers. The reduction in total business
inventories from the 1953 high of 82 billion dollars to 78
billion at the end of last August was thus heavily concentrated
in the durable goods manufacturing sector.




The size and duration of inventory depletions suggest, in
terms of past experience, that the liquidation process may by
now be well advanced. Up to the end of August, the drop in
the value of total inventories was about 5 per cent, compared
with a maximum drop of 6 per cent during the 1948-49 re­
cession; in physical terms, moreover, the extent of recent
inventory liquidation may already equal or exceed the declines
in the earlier period, which partly reflected price cuts.
As regards manufacturers’ inventories, moreover, the recent
data show that stocks of finished goods have begun to decline
while stocks of purchased materials seem to be leveling off;
up to the middle of 1954, the inventory drop had been con­
centrated in stocks of purchased materials and goods in process
while finished goods continued to pile up. The more recent
developments may mark the final phase of the inventory liqui­
dation process— although, to be sure, it might be an extended
last phase.
In addition to evidence contained in the over-all statistics,
reports from a number of key industries also support the view
that stocks have been reduced to more manageable levels.
Steel producers, for example, have noted a significant reduc­
tion in users’ stocks of this commodity. Also, the output of
some major groups of durable consumer goods such as furni­
ture and television sets, which earlier in the year had fallen
well below sales, has risen significantly since last spring. This
may indicate that cutbacks in new output have permitted busi­
nessmen to work off excessive stocks and to resume produc­
tion more in line with current sales.
Pa t te r n s

in

Pr o d u c t io n

and

Em p l o y m e n t

Declines in spending for defense equipment and for private
producers’ equipment naturally have impinged most directly
on the sales and output of durable goods. Changes in the
composition of consumption spending added to this effect since
automobile sales dropped appreciably; on the other hand, sales
of most other consumers’ goods have been relatively steady,
and output trends for nondurable goods helped offset the more

150

M O N T H L Y R E V I E W , N O V E M B E R 1954

protracted decline in the case of durables, as may be seen in
Chart I.
The net result has been that total industrial production,
seasonally adjusted, has remained between 123 and 125 per
cent of the 1947-49 average from January through September
1954. Moreover, since early spring output of durable and
nondurable goods has exhibited little more than seasonal
changes, remaining respectively about 15 per cent and 5
per cent below the peak 1953 months. Movements within
these broad categories have nevertheless continued, apparently
reflecting in part the economy’s shift away from defenseoriented industries and the decline in passenger car sales.
Among the most pronounced changes during the year have
been the rise since May in the output of electrical machinery
and the nearly steady fall since January in the production of
transportation equipment. In addition, there were sharp de­
clines in the output of the lumber and rubber industries,
largely because of labor disputes.
The employment picture during 1954 has reflected not only
the pattern of changes in production, but also increases in the
labor force and advances in productivity. Factory employment,
seasonally adjusted, dropped by about 1.2 million persons
(7 per cent) from July 1953 to March 1954 and by a fur­
ther 0.5 million between March and August, after which there
seems to have been some improvement. Roughly three fourths
of the reduction occurred in durable goods industries, with
the rate of decline for durables relatively more pronounced
during the latter portion of this period. In the broader area
of employment in all nonagricultural establishments, there was
a decline of 1.5 million jobs from July 1953 to March 1954,
and another drop of 0.5 million through August, after sea­
sonal adjustment. The employment decline thus came to be
more and more concentrated in manufacturing and particularly
in the making of durable goods.
Within the durable goods field, employment dropped in all
major components after July 1953, with especially sharp
percentage cuts occurring in ordnance and transportation
equipment. In nondurable goods manufacturing, the sharpest
employment declines were in the textile and apparel industries.
Employment in mining has dropped steadily and substantially
for more than a year, but in other sectors of nonagricultural
employment the changes have been relatively minor and largely
offsetting.
In the meantime, unemployment has varied largely in
response to seasonal influences since last spring, although the
September-to-October decline was more than usual. A sharp
rise in the closing months of 1953 and early 1954 produced a
peak last March, but unemployment subsequently declined fairly
steadily. The Bureau of the Census estimated unemployment
at 2.7 million persons in early October, or about 1.6 million
more than a year previous; the increase between these two
periods was approximately equal to the rise in the civilian
labor force. October unemployment amounted to 4.2 per cent
of the civilian labor force, compared with a postwar October
average (1946-53) of 3.0 per cent.




Pronounced Stability

of Prices

Prices in general have continued to show the marked
stability which has characterized the entire period since the
reaction to the post-Korea rise. The consumer price index
has moved between 113 and 116 per cent of the 1947-49 aver­
age since the middle of 1952, and the index of wholesale
prices has scarcely changed since the beginning of 1953. The
economy has not experienced this degree of extended price
stability, particularly in the wholesale markets, since wartime
price controls were in effect.
Again, however, there has been divergence within the totals,
as may be seen in Chart II. Wholesale farm products prices
have responded largely to changing supply conditions (some
of which were seasonal) during the last year and a half by
falling during most of 1953, recovering during the early
months of 1954, and then falling again, while indexes for
processed foods and for other commodities have, on the whole,
moved very little either way. Consumer prices have also dis­
played diverse movements within the aggregate. Declines in
transportation costs during 1954, reflecting primarily the
intensive competition in the sale of automobiles, were offset
by slightly higher rents and increased prices for medical and
personal care, while food and apparel prices underwent only
very minor fluctuations.
The decline in farm prices during 1953 centered mainly
on livestock, as heavy sales of cattle for slaughter exerted
downward pressure on prices throughout the year. In the
autumn, seasonally large supplies of pork added to this pres­
sure in the market. Grain prices were also lower during the
year, owing to large carry-overs, lower exports, and new crops
of near-record size. By April of this year, farm prices had
risen again to nearly the highest point reached in 1953, with
a seasonal rebound in livestock and a sharp increase for coffee.
These changes far more than offset a drop of about 40 per
cent in wholesale egg prices from October 1953 to April 1954.
After April, however, hog prices fell sharply since increased

11
5

FED ERAL RESERVE B A N K OF NEW Y O R K

slaughtering was anticipated, pulling down the average for all
farm prices. Among the processed foods, dairy product prices
in 1954 have been lower than last years levels, but again they
have been offset by rises in cereal and bakery products, sugar
and confectionary items, and packaged materials.
Within the total for commodities other than farm and food
products, the divergence has been less marked. Firm demand
in world commodity markets and the usual "stickiness” in the
prices of highly fabricated items have generally helped to
minimize price fluctuations. Also, the Government program
for stockpiling strategic materials has served to buoy the prices
of some commodities, despite the occasional unsettling effect
of uncertainty in the market about the extent and timing of
the program. In addition, the relatively easy availability of
funds has probably facilitated the orderly liquidation of inven­
tories, thus helping to avoid precipitous price declines for
some items. There were, however, some fairly pronounced
price movements. Prices for hides, skins, and leather goods in
the last year and a half have followed much the same pattern
as livestock prices, although with smaller amplitude of change.
Lumber and wood product prices dropped 5 per cent from
early 1953 until the summer of 1954, and then turned up
sharply as industrial disputes in the Northwest reduced sup­
plies. With declines in petroleum prices, the cost of fuel,
power, and lighting has fallen since early this year.

C

o n c l u s io n

The view of most observers currently is that the economy
is likely to experience continued crosscurrents for some months
ahead. Many look forward to a significant retardation or
cessation of inventory liquidations, but the favorable effect
may be substantially offset by further cutbacks in defense ex­
penditures and in new plant and equipment outlays. High
construction activity in the months immediately ahead seems
assured by the recent record levels of new contract awards,
although if there is no over-all rise in economic activity the
basis for continued record-breaking performance in the con­
struction sector may become weaker. There is a widespread
tendency, supported in part by the results of recent surveys
of consumer purchase intentions, to look toward some expan­
sion in consumer spending.
It will, of course, require some increase in economic activity
merely to keep the country's expanding labor force and pro­
ductive potential as fully employed as it is today; an even
greater rise in economic activity would be required to reduce
unemployment substantially. It seems fair to say that a rise
from current levels of output and employment may depend
heavily on continued advances in personal consumption spend­
ing. Such spending tends to rise along with population growth
even in periods of over-all stability, and this may provide one
firm base for renewed expansion.

DEPAR TM EN T STORE TRADE
Second District department store sales in October, on a
seasonally adjusted, daily average basis, rose an estimated 2
per cent above September and equaled sales in October 1953.
Sales at New York City department stores in October were
3 per cent under September and were 1 per cent lower than
in October a year ago.
On the basis of year-to-year quarterly comparisons, depart­
ment store sales throughout the country have shown gradual
improvement since the beginning of 1954. For the nation as
a whole, seasonally adjusted, daily average sales were 5 per
cent below 1953 in the first quarter of the year; 3 per cent
below in the second quarter; and equal to 1953 sales in the
third quarter. Moreover, sales in each of the twelve Federal
Reserve Districts have conformed to this same general pattern
of improvement.
Indexes o f D epartm ent S tore Sales and S tock s
Second F ederal R eserv e D istrict
(1 9 4 7 -4 9 a vera g e—100 per cen t)
1954

1953

Item
Sept.

Aug.

July

Sept.

Sales (average daily), un adjusted................
Sales (average daily), seasonally ad ju sted ..

106
102

80
105

73
101

102
98

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

120
115

111
115

104
117

123
118r

r Revised.




Second District department stores had a better sales record
over the first three quarters of the year than stores in any
D epartm ent and A pparel S tore Sales and S to ck s, S econd F ed eral R e se rv e
D istrict, P e rce n ta g e C hange from the P re ce d in g Y ea r

Net sales
Area

Departm stores, Second District.............
ent
New York—N
ortheastern New Jersey
M
etropolitan Area...........................
New York City...................................
Nassau County...................................
W
estchester County............................
N
orthern New Jersey..........................
Newark...........................................
Fairfield County.................................
Bridgeport..........................................
Low Hudson River Valley.................
er
Poughkeepsie......................................
U
pper H
udson River Valley....................
Albany-Schenectadv-Troy
M
etropolitan Area.......................
Albany............................................
Schenectady....................................
Central New York State.........................
Utica-Rom M
e etropolitan Area............
Utica..............................................
Syracuse M
etropolitan Area.................
N
orthern New York State.......................
Southern New York State.......................
Bingham M
ton etropolitan Area............
Elmira................................................
W
estern New York State........................
B
uffalo M
etropolitan Area...................
Buffalo............................................
Niagara Falls...................................
R
ochester Metropolitan Area...............
Apparel stores (chiefly New York City)......

Stocks
on hand
Jan. through Feb. through Sept. 30,
Sept. 1954 Sept. 1954
Sept. 1954
1954
+ 4

+1

+1

—2

+ 5
+ 6

+1
+1

+2
+1

—2
—3

+ 4

+5
—1
—1
—5
—6
+3
+2
—2

+5
0

+ 5
+ 1
0
~ 3

0

—2
—2
—3
+ 9
+ 8
+ 1
+ 1
+ 4
—3
—1
0
+ 6
—l
+ 4
+ 1
4- 4
—6
+ 1
0

—l
+ 8
+ 3
+15

—2
—1
—2
—2
0

—1
—6
—2
—1
—7
0

0

—5
—6
+3
+2
-1
—1
—1
—1
—2
—4
0

-1
—6
—1
—1
—6
0

—2

—2

—3

—3

+3
+4

+4
+4

+2

+2

—5
—8
- 8
—8
-13
- 1
—4
_ 2
- 1
—5
—4
—4
—3
—9
+ 1
_ 1
- 1
+ 4
~ 5

M O N T H L Y R E V I E W , N O V E M B E R 1954

152

other District except Boston. Sales were even with 1953 in
the first quarter, and following a slight (1 per cent) decline
in the second quarter, they rose 2 per cent in the third quarter.
Consequently, for the nine-month period (which included the
same number of trading days in 1954 as last year), total
Second District sales were 1 per cent above 1953, as were
sales in the Boston District. The other ten Districts, despite
their improved sales performance from quarter to quarter this
year, showed declines from 1953 for the first nine months that
ranged from 1 per cent in the Atlanta, Kansas City, Minne­
apolis, and St. Louis Districts to 10 per cent in the Cleveland
District.
In the Second District, seasonally adjusted, daily average
sales data for the first three quarters of 1954 are available for
six local trading areas— four cities (New York City, Newark,
Buffalo, and Bridgeport) and two metropolitan areas (Roch­
ester and Syracuse). As the accompanying table shows, sales
in each of these trading areas improved over last year between
the first and third quarters of this year.
At the end of September, inventories held by Second Dis­
selected

trict department stores were slightly (2 per cent) below the
year-earlier level. The dollar value of outstanding orders, how­
ever, which had been consistently below year-ago levels since
July 1953, rose to a point 5 per cent above last years figure
at the end of September. Also, the value of new orders placed
by Second District department stores increased sharply in
September; the total for the month was 23 per cent higher
than for September 1953.
D epartm ent Store Sales b y Q u arters in S elected L oca lities o f the
Second F ederal R e se rv e D is tr ic t, 1954*
(P e rce n ta g e ch an ge fro m p re ce d in g y e a r)
Locality

Jan.-Mar.

Apr.-June

July-Sept.

Cities

New York C ity .......................

+1
0

+3

-4
-1
-6

+1
-2

+2
-2

B ridgeport................................

-1

-5
-7

-1

-4

Metropolitan areas

+5

+4
0

* Computed from indexes of average daily sales; adjusted for seasonal variation.

e c o n o m ic

in d ic a t o r s

U nited S tates and S econ d Federal R eserv e D is trict

1954
Item

1953

Percentage change

Unit
September

August

July

September

Latest month Latest month
from previous from year
month
earlier

U N IT E D STATES
Production and trade

Industrial production* ........................... ................ ..
Electric power output 55 . .................................. .................. ..
*
Ton-miles of railway freight*..........................................................
Manufacturers’ inventories*.................................. .................... .. •
Manufacturers' new orders, tota l*.............................. ..................
Manufacturers’ new orders, durable good s*...............................
Residential construction contracts*..............................................
Nonresidential construction contracts*........................................
Prices , wages, and employm ent
Wholesale pricesi*....................................... .. ....................................
Composite index of wages and salaries*.......................... ..
Nonagricultural em ploym ent*........................................................
Manufacturing em ploym ent*..........................................................
Average hours worked per week( manufacturing*}".....................
Banking and finance

Total investments of all commercial banks.................................
T otal demand deposits adjusted.....................................................
Currency outside the Treasury and Federal Reserve Banks*.
Velocity of demand deposits (338 centers)*........... .................. ..
Consumer instalment credit outstanding"}*...................................

1947-49=
1947-49 =
1947-49 =
billions of
billions of
billions of
billions of
billions of
1947-49=
1947-49 «■

100
100
100
$
$
$
$
$
100
100

1947-49 = 100
1947-49 - 100
1947-49= 100
billions of $
1939 = 100
thousands
thousands
hours
thousands
millions of $
millions of $
millions of $
millions of $
millions of $
1947-49= 100
millions of $

124p
172
23.7 p
4 3.6 p
2 4 . 2p
11.3 p
254 v
218 p
9 0.8
1 1 0 . Op
114.7
__
48,031p
15,769p
3 9.7 p
3,099

— 7
+ 7
— 14
— 7
— 7
+ 7

14.0
180
243

#
— 2
#
+ 1
— 1
+ 7
+13
- 1
_j_ 4
+ 8

88.9

#

1 1 1 .0

#
4

+ 2
— 1
#

124
176
89 p
2 3.5
43.9

123r
176
89
24.1
44.2

2 2 .6
1 0 .0

2 2 .6

2 5.4
47.1
22.7

9 .7
14.3
233
188

1 4 .2p
244
202

9 1.2
110.5
115.0
285 .4p
257p
47,939p
15,736p
39.7
3,245

83,330p
67,250p
1 0 1 ,180p
29,931p
62,554
119.4p

8 3 ,040p
66,450p
9 9 ,400p
29,986
63,591
123.1
21,310

5,280
5,364
3,297p

5,376
7,788
3,761

91.5
110.4
115.2
285.7
257
47,982
15,775
39.4
3,346

133
161
1 00

1 0 .1

+12

+ 1
-1-41
— 10

115.2
287.7
252
49,707
17,263
39 9
1,246

#
— 5

30,028
6 3 ,408r
119.4
21,246

76,730
66,310
97,700
30,267
61,698
118.8
21,347

#
+ 1
+ 2
#
- 2
— 3
#

2,956
5,142
3,585

6,373
6,294
4,222

- 2
-3 1

-1 7
-1 5

-1 2

-2 2

— 1
-1 3
+ 5
#
#
- 1
-1 4
+ 2
-1 5

+ 1
-1 6
#
— 3
- 9
+ 3
- 1
+ 1

79,990p
6 7 ,290p
1 0 0 ,000p

#
#
#

+
—
—
-

3
3
9
1

+ 9
+ 1
+ 4
- 1
+ 1
+ 1
#

United States Government finance {other than borrowing)

millions of $
millions of $
millions of $
SEC ON D F E D E R A L R E S E R V E D IS T R IC T
Electric power output (New Y ork and New Jersey)*.. . . . . . . . .
Residential construction contracts*...................................................
Nonresidential construction contracts*............................................
Consumer prices (New Y ork C ity )’!’..................................................
Nonagricultural em ploym ent*............................................................
Manufacturing em ploym ent*..............................................................
Bank debits (New York City) ...........................................................
Bank debits (Second District excluding New Y ork C it y )* .........
Velocity of demand deposits (New Y ork C ity )*.............................

1947-49= 100
1947-49 = 100
1947-49 = 100
1947-49= 100
thousands
thousands
millions of $
millions of $
1947-49 = 100

136
__
112.7
__
57,317
4,278
150.4

137
157p
189p
113.0
7 ,4 3 7 .Op
2 ,5 7 6 .6 p
67,030
4,177
176.3

138
181
180
113.3
7 ,4 6 7 .2
2 ,6 0 7 .4
63,046
4,304
163.0

136
135
248
113.2
7 .6 0 0 .1
2 .7 5 8 .2
55,442
4,313r
149.6

N ote: Latest data available as of noon, November 1, 1954.
p Preliminary.
# Change of less than 0.5 per cent.
Revised.
* Unemployment figures for September 1953 are on the basis of the old sample and, therefore,
* Adjusted for seasonal variation.
not necessarily comparable with the figures shown for 1954 which are on the new sample
f Seasonal variations believed to be minor; no adjustment made.
basis; consequently, a percentage change from a year ago is not shown.
Source: A description of these series and their sources is available from the Domestic Research Division, Federal Reserve Bank of New York, on request.
r