The full text on this page is automatically extracted from the file linked above and may contain errors and inconsistencies.
M O N T H L Y REVIEW O f Credit and Business Conditions F E D E R A L R E S E R V E V ol. 26 OCTOBER M O N E Y M A R K E T The heavy flows of funds characteristic of Federal income tax periods have occurred again during the past month. Income tax collections amounted to approximately 4.5 billion dollars up to the end of September, writh substantial additional amounts still to be cleared during the early part of October. Actual cash payments totaled approximately 3.3 billion dollars, while payments in the form of Treasury Savings notes amounted to 1.2 billion or about 27 per cent of the total. Because of the high rate of Government expenditures, however, there were only a few days on which tax collections exceeded Govern ment disbursements; in the week ended September 20 Treas ury balances with the Reserve Banks increased by more than 300 million dollars, but subsequently disbursements exceeded tax collections and the Treasury balance was drawn down again. On September 15, before the clearance of tax checks reached its maximum volume, Treasury disbursements substantially exceeded receipts because of two factors: interest payments on the Government debt and cash redemptions of maturing securities which were not exchanged for new issues. Interest payable on September 15 amounted to about 500 million dollars (not all of which was actually cleared on that day, however), and cash redemptions of Treasury notes and certi ficates of indebtedness were in excess of 100 million dollars. Because of the large receipts from taxes, the Treasury was able to suspend withdrawals of funds from War Loan deposit accounts in the banks after September 16, and did not resume such withdrawals until September 28—and then on a limited scale as tax checks were still being collected in substantial volume. As usual, the heavy flows of funds during the tax period fell disproportionately on the New York City banks. Before and during the tax period there was an outflow of business funds to other parts of the country, associated in part with a seasonal flow of funds to the interior, presumably to finance the marketing of crops, and in part with transfers of corpora tion funds from New York City to other districts to meet in come tax payments. In addition, there was some corporation selling in the New York market of Government securities, chiefly certificates of indebtedness, to raise funds for tax pay ments. For the month as a whole, the New York City banks B A N K 1, IN O F N E W Y O R K 1944 No. 10 SEPTEM B ER sustained a net loss of funds through Treasury operations and they, like other banks, continued to be subject to public de mands for currency and to increasing reserve requirements. A substantial amount of Federal Reserve credit was required to meet the needs of individual banks for reserves, although all member banks continued to hold between 800 million and 1 billion dollars of excess reserves during the month. Between August 30 and September 27, total Federal Reserve credit out standing increased by 776 million dollars. The funds were supplied largely through direct purchases of Treasury bills from banks in need of reserves, but partly through purchases of Treasury certificates of indebtedness in the market, and at times through loans to member banks. Total holdings of Treasury bills by the Reserve Banks increased 528 million dollars, and certificates of indebtedness 161 million dollars, while Reserve Bank holdings of Treasury notes and bonds were reduced by 13 million and 26 million, respectively, reflect ing market demands for those types of securities. The demands for Federal Reserve credit were concentrated to a considerable extent in New York City, because of the disproportionate losses of funds by the New York City banks through the outflow of commercial funds and Government transactions, as well as currency and other demands. The weekly reporting New York City banks made net sales of 420 million dollars of Treasury bills to the Reserve Bank dur ing the three weeks ended September 20, which reduced their bill holdings to 558 million dollars, but in the following week they were able to increase their holdings by 134 million. Im p a c t of the W ar on the N ew Y ork M oney M arket An article under this heading in the August 1943 issue of this Review pointed out that the New York City banks had been subject to a very heavy drain on their reserves since the beginning of the war, which had been due in large part to a substantial excess of Treasury sales of securities and tax col lections over Government disbursements in New York, but partly to the almost continuous public demands for currency, to business withdrawals of funds from their New York bal ances prior to 1943, and to net losses of funds through gold and foreign account operations in 1943. As a result of these M O N T H L Y R E V I E W , O C T O B E R 1, 1941 74 Changes in Reserve Balances of Member Banks developments, the New York City banks by the middle of Since December 31, 1940 (In millions of dollars) 1943 had lost approximately half of their reserves and no longer held any appreciable amount of excess reserves, while banks in other parts of the country on the whole had gained reserves in substantial volume, and continued to hold fairly sizable amounts of excess reserves. Correspondingly, the growth of deposits in other parts of the country had been far more rapid than in the New York City banks. In general, the same tendencies have continued during the past year, but the rates at which the various major factors have affected the reserves of the banks in this District have changed materially in some cases, and the disparities between changes loss of funds through the total of all of the transactions men in the reserves and deposits of New York City banks and other above, as to other factors. First of all, the New York member banks have been less wide. As the first of the accom tioned City banks the beginning of 1943 still held approximately panying tables indicates, the net loss of funds to banks in this V2 billion ofatexcess reserves, whereas at the beginning of 1944 Factors of Gains and Losses of Reserve Funds to Member Banks they had very little. Furthermore, in the early part of 1943, in the Second Federal Reserve District (In millions of dollars) the elimination of reserve requirements against Government War Loan deposits released a substantial amount of reserves and there has been no development having such an effect in 1944. After losing nearly half of their reserves between the end of 1940 and the end of 1943, the New York City banks have increased their reserves slightly this year, as the second table indicates. This increase has been necessary to cover a moder ate rise in their reserve requirements incident to the growth in their deposits. Other banks in the Second District had a substantial increase (proportionately) in their reserves during the three years 1941-43, and they have had a further small District through Treasury transactions from the beginning of increase this year. Member banks in other Federal Reserve 1944 through September 20 was somewhat over i y 2 billion districts, after gaining reserves rapidly up to the end of 1943, dollars, compared with nearly 3 Vi billion in the correspond largely at the expense of New York City banks, have gained ing period in 1943. The volume of Government checks reserves somewhat less rapidly in 1944. The final table shows the relative growth in deposits of deposited in banks of the District has been larger in 1944 than in 1943, and of the total funds obtained by the Treasury member banks in the Second Federal Reserve District and in through the sale of Government securities, a smaller propor other districts since the end of 1940. As the data indicate, tion has been raised in the District this year than last (not New York City banks had an expansion of 31 per cent in because of reduced sales in the Second District, but because their total deposits between the end of 1940 and the end of 1943, whereas the deposit growth for other member banks in of greater increases in sales in other parts of the country). On the other hand, commercial and financial transfers have this District was nearly 67 per cent, and for all other Federal resulted in a relatively small outflow of funds from the Dis Changes in Total Deposits of Member Banks Since December 31, 1940 trict thus far this year, whereas in the corresponding period (Dollar amounts in millions) last year there was a substantial flow from other parts of the country. The demand for currency has been of much the same magnitude this year as last, but gold and other foreign account transactions have resulted in a considerably greater loss of funds to banks in this District for the elapsed portion of 1944 than in the similar period last year. A substantially greater volume of Federal Reserve credit has been needed to maintain the reserves of Second District banks at the required levels than was the case in 1943—about 3.3 billion dollars this year, compared with 1.9 billion last year. The disparity has been due, not so much to a greater C han ge D e c. 31, D e c . 31, S ept. 20, 1940 1944 1943 Second F ederal R eserve D istr ic t. . Central reserve N ew York C i t y . . Other Second D istric t....................... 1941 1 942 1943 - 49 0 -2 ,2 6 0 -4 ,4 3 0 -3 ,4 5 0 -1 ,5 8 0 C om m ercial and financial tra n s actions ................................................... -1 ,7 4 0 -1 ,9 3 0 + 1 ,0 8 0 + 1 ,3 9 8 - 30 5 C urrency m o v e m e n t s ........................ - 51 0 - 68 0 -1 ,0 0 0 - 59 0 - 62 0 G o ld and foreign accou nt trans actions ................................................... + 76 0 + 65 0 - 21 0 - 21 0 - 65 0 + 150 + - 20 — R eserve B a n k tra n sa c tio n s............ + M e m b e r b an k reserve b a la n c e s. . -1 ,9 2 0 60 50 5 + 3 ,4 6 0 + 3 ,7 5 0 + 1 ,9 2 0 + 3 ,3 1 5 - - - + 61 0 77 0 4 ,2 6 4 3 ,6 0 1 66 3 4 ,4 0 1 3 ,7 0 0 701 -3 ,2 9 3 - 3 ,4 6 1 + 168 +137 + 99 + 38 O ther Federal R eserve D istr icts. . 6 ,4 6 9 8 ,6 2 2 9 ,0 4 4 + 2 ,1 5 3 +422 U n ited S tates t o t a l ..................... 11,026 12 ,886 1 3 ,4 4 5 -1 ,1 4 0 +559 1943 1944 (through (through Sept. 22) Sept. 20) T re asu ry t ra n sa c tio n s....................... N o n m e m b er and other deposit a c c o u n ts............................................... 7 ,5 5 7 7,0 62 49 5 D e c. 31, D e c. 31, 19 43 19 40 to to D e c. 31, Sept. 20 , 1944 1943 94 0 140 P ercen tage increase D e c . 31, 1940 Second Federal R eserve D is t r ic t . . $ 2 1 ,1 8 6 Central reserve N ew York C i t y . . . 1 7 ,7 4 4 3 ,4 4 2 Other Second D istrict.......................... D ec. 31, D e c . 31 , 19 40 1943 to to D e c . 31 , A u g. 19 43 1944 D e c. 31, 1 943 Aug. 19 4 4 * $ 2 8 ,9 9 0 2 3 ,2 5 6 5 ,7 3 4 $ 3 1 ,4 4 1 2 5 ,0 4 9 6 ,3 9 2 3 8 .8 3 1 .1 6 6 .6 8 .5 7 .7 1 1 .5 3 5 ,2 4 4 6 3 ,2 7 2 7 0 ,2 1 7 7 9 .5 1 1 .0 U n ited S tates t o t a l ........................ $ 5 6 ,4 3 0 $ 9 2 ,2 6 2 $ 1 0 1 ,6 5 8 6 3 .5 1 0 .2 O th er F ed eral R eserve D istr ic ts. . . * D aily average for the month. FE D E RA L R E SERVE B A N K OF N EW Y O R K Reserve districts nearly 80 per cent. For the first eight months of 1944, the disparity was much less wide—the growth of deposits of New York City banks was at least two-thirds as great as the increase either in other banks in the District or in all other districts. The increase in Second District banks outside New York City was slightly greater than the aver age for banks in other districts. The diminishing disparity between New York City banks and other member banks may be attributable at least partly to a less uneven distribution of Government expenditures in various parts of the country, and in part to the increasing success in selling Government securi ties in other parts of the country during War Loan drives. NEWCORPORATEFINANCING The upward tendency in the volume of corporate financing through new security issues, which has prevailed for more than a year, has recently been sharply accelerated. A prelimi nary compilation of the new issues publicly offered or privately placed during the month of September indicates that the months total, at $442,000,000, was the largest of any month in nearly eight years; for the three months ended September 30 the aggregate of $899,000,000 was the greatest for any quarter since 1940. Although the bulk of the new financing continued to be for refunding purposes, the monthly average for new capital raised during the past quarter exceeded that of any other quarter in the last two years and compared favorably with monthly averages for the years immediately preceding this country’s entry into the war. (See accompanying chart.) If the present tendency continues, which seems likely in view of announcements of forthcoming new issues, total new financing for the entire year 1944 may exceed $2,500,000,000, the averMonthly Average Volume of Domestic Corporate Security Issues for Refunding and for New Capital* Year Quarter Quarter 1943 * F ig u res for S ep tem b er in th ird quarter o f R e serve B a n k o f N e w Y o r k . S o u r c e : C om m ercia l and F in a n cial C h ro n icle.- 1944 1944 estim ated by F ederal 75 age annual figure for the period 1939-41. In each of the first two years that this country was at war, corporate financing amounted to about $1,050,000,000. Refunding operations of public utility companies account for about one third of the increase in refunding issues that occurred in the first eight months of 1944, compared with the corresponding eight months of 1943. Railroads and the metals industries also were responsible for a substantial part of the advance. More than half of this year’s increase in the total amount of new capital financing resulted from operations of com panies classified by the Commercial and Financial Chronicle as "other industrial and manufacturing” and "miscellaneous”. The remainder of the increase was accounted for chiefly by the railroads and the oil group. A large number of operating utilities which were not in a position to undertake refunding measures before the war apparently are financially stronger now and are taking advan tage of the continued low interest rates to reduce charges on funded debt. Other utilities have announced plans for redis tributing control under the terms of the Holding Company Act, which in some cases have involved new financing. Some industrial companies are expected to float new issues to obtain capital for postwar needs, while others may be influ enced by low interest rates to refund outstanding issues. As restrictions on obtaining materials are removed, the railroads may place larger amounts of equipment trust certificates on the market. Despite the increased volume of corporate financing, the demand for new issues continues to be strong and flotations are quickly absorbed by investors. It is expected, however, that offerings will diminish in volume during the coming Sixth War Loan drive. FOREIGNEXCHANGES Accompanying the Allied liberation of part or all of several European countries and the invasion of parts of Germany, a number of currency arrangements and the relative rates of exchange to be used tentatively by the Allied forces were announced during the past month. Acccording to statements issued jointly by the United States Treasury and War Depart ments, officials of the United States and British Governments and representatives in London of the Belgian and Netherlands Governments completed arrangements some time ago for sup plying the liberating forces with the currencies of the liberated countries at established rates of exchange. The Belgian franc has been fixed at a rate of 43.773 to the dollar, or equivalent to $0.0228 per franc. Compared with the level prevailing prior to the suspension in May 1940 of New York trading in Belgian exchange, the new rate represents a depreciation of slightly over 30 per cent. In terms of pounds sterling, the Belgian franc has been fixed at 176% francs to the pound. MONTHLY REVIEW, OCTOBER 1, 1944 76 Inasmuch as Belgian currency was in general use in Luxem bourg before the war and the currencies of the two countries were freely interchangeable, the exchange rates established for the Belgian franc have also been made applicable in Luxem bourg, at the instance of the Luxembourg Government. The Netherlands Government has selected rates of 2.64957 guilders to the dollar—equivalent to $0.3774 per guilder—and 10.691 to the pound sterling. These rates also represent a depreciation of about 30 per cent from the pre-invasion level. Press reports have indicated that Allied occupation marks have been issued at the rate of 10 to the dollar (equivalent to 10 cents a mark) and at 40 to the pound. Although the "free” mark was quoted at about 40 cents prior to the freezing of German accounts in this country, the registered mark which had more limited uses was then quoted in New York at around S U R VE Y OF O W N E R S H IP OF B U S IN E S S A N D In continuation of the Reserve System program of surveys, at approximately six-month intervals, of the ownership of demand deposits of individuals, partnerships, and corpora tions, this bank has compiled reports from 137 member banks in the Second Federal Reserve District, as of the end of July 1944. The deposit accounts classified by the banks were the larger accounts, the minimum size of account classified vary ing according to the size of bank, as indicated in Table IV. Classified accounts represented 65 per cent of the total dollar volume of total demand deposits of individuals, partnerships, and corporations in the cooperating banks.1 These surveys contribute substantially to an understanding of the character of the wartime growth in bank deposits, and are useful to the banks in analyzing the types of accounts in which changes in their deposits are occurring. The changes since July 1943 and February 1944, as re ported by 106 identical banks, may be seen in Table I. Since the War Loan drives absorb large amounts of these deposits, the level of deposits at specific times depends, to a great extent, upon the relationship of the dates of the deposit surveys to the War Loan drives. This fact must be kept in mind when the figures for the three dates are compared, since the last two dates were just after the Fourth and Fifth War Loans, whereas the one in 1943 preceded the Third War Loan by a little more than one month. Between February and July 1944, the larger deposit accounts (those classified by the banks) increased less than 1 Vz per cent and remained about 5 per cent below a year ago. The rise between February and July was due mainly to growth in deposits of trade accounts and financial businesses other than insurance companies. The manufacturing and mining group 12 cents, and various other types of marks at rates ranging from about 4 to 17 cents. In the New York foreign exchange market, the only fluc tuations of any consequence in recent months have occurred in the unofficial quotation for the Canadian dollar. Appar ently reflecting some slackening in demand for Canadian securi ties on the part of American investors, the Canadian dollar declined in the unofficial market here, to be quoted on Sep tember 12 at $0.8875—the lowest since last December. Sub sequently, there has been some recovery but the present rate, at $0.89871/2, is still more than one cent below the 1944 high reached in May. Among the other Western Hemisphere curencies, the free Argentine peso has held fairly steady around $0.2500, despite the political tension between Argentina and the United States. PER SO N A L D EM A N D D E P O S IT S JU LY 1944 and the public utilities, transportation, and communications group showed further reductions in bank balances. Insurance companies’ deposits and trust funds of banks changed very little in the six-month period and were substantially smaller than in July 1943. Large personal deposits declined slightly further. The smaller, unclassified deposits, which represent mainly accounts of individuals and unincorporated businesses, showed a greater increase than the classified deposits since February and were larger than a year ago. It would appear that the War Loan drives have not been as successful in reaching these smaller deposits as they were in tapping large deposit accounts. Table I D em and D eposits o f Individuals, P artnersh ip s, and Corporations, Classified b y T y p e o f Ow ner, in 1 06 B anks in the Second Federal R eserve D istrict, Ju ly 1 9 4 3 , February 1 9 4 4 , and Ju ly 1 9 4 4 (In m illions o f dollars) Type of owner July 1943 Feb. 1944 July 1944 Manufacturing and mining.......................... Public utilities, transportation, and com munications ................................................. Retail and wholesale trade and dealers in commodities................................................ All other nonfinancial business, including construction and services......................... All financial business*, other than insur ance companies and trust funds of banks 4,761 4,578 1,071 1,033 4,538 m' 981 629 590 701 282 283 306 507 421 506 T otal............................................. 7,250 6,905 7,032 Insurance companies..................................... Trust funds of banks..................................... 672 473 545 351 542 347 Nonprofit organizations................................ 129 133 130 Personal (including farmers)....................... 565 555 550 Total classified deposits................................ 9,089 8,489 8,601 Total unclassified deposits............................ 4,540 4,586 4,752 Total demand deposits of individuals, partnerships, and corporations............... 13,629 13,075 13,353 * Including investment, loan, insurance agency, and real estate businesses, etc. 1Approximately the same banks reported in this survey as in the February 1944 survey, the results of which were published in the April 1 issue of this Review. Results of the two previous surveys were discussed in the July 1943 and the October 1943 issues, and those for the country as a whole have been published from time to time in the Federal Reserve Bulletin. C o r p o r a t e a n d O t h e r B u s in e s s e s For the first time an effort was made in the July survey to obtain a breakdown of business deposits to show the relative FEDERAL RESERVE BANK OF NEW YORK tionship existed for all groups of depositors but it was most pronounced for the manufacturing and mining and public utility groups. No doubt many noncorporate accounts are smaller than the minimum balances classified by the reporting banks, and are therefore included among unclassified deposits (shown at the bottom of the table). The distribution of corporate and noncorporate accounts at the end of July 1944 in the different size banks reporting in the survey (Table III) shows that the proportion of corpo rate accounts, as might be expected, was greater the larger the bank, and was especially high in the manufacturing and mining group and the public utilities, transportation, and communications group. For trade accounts and nonfinancial businesses other than those specifically mentioned the non corporate accounts in banks with deposits of less than 10 million dollars were larger in the aggregate than corporate accounts. In general, the smaller banks have a considerably greater proportion of personal deposits and deposits of unin corporated businesses than the larger banks, even when allow ance is made for the probable ownership of unclassified accounts. Table II E stim a te s o f D em and D eposits o f Individuals, P artnersh ip s, and Corpora tions, Classified b y T y p e of Ow ner, for A ll M em ber B anks in Second Federal R eserve D istrict, Ju ly 1 9 4 4 * Per cent of total deposits Millions of dollars Type of owner Corporate Other Corporate Other Manufacturing and mining................... Public utilities, transportation, and communications................................... Retail and wholesale trade and dealers in commodities.................. .................. All other nonfinancial business, includ ing construction and services. . . . . . All financial business f other than in surance companies and trust funds of banks................................................. 5,407 148 32.5 0 .9 1,189 17 7.2 0.1 841 197 5.1 1.2 356 73 2 .1 0 .4 436 193 2 .6 1.2 T otal................................................... 8,229 628 49.5 3 .8 3. 7 2. 4 608 401 Insurance companies............................. Trust funds of banks.............................. Nonprofit organizations......................... 191 1. 1 Personal (including farmers)................. 902 5.4 Total classified deposits......................... 10,959 65.9 Total unclassified deposits..................... 5,663 34. 1 Total demand deposits of individuals, partnerships, and corporations......... 16,622 100.0 77 * Estimated on basis of 137 banks in survey. t Including investment, loan, insurance agency, and real estate businesses, etc. amounts in accounts of incorporated and unincorporated busi nesses—the latter including partnerships and self-employed proprietors. The estimated distribution of total demand de posits of individuals, partnerships, and corporations in all member banks in the Second District at the end of July 1944 (based upon data for banks reporting in the survey) indicate that total classified corporate accounts were many times larger than noncorporate business accounts (Table II). This rela- D istribution o f Deposits by Size o f A c c o u n t and by Size o f Bank In general, the variation in the proportions of classified deposits held by various types of owners in different size banks remained about the same in the present survey as in that of last February. As indicated in Table IV the distribu tion of the classified accounts varied sharply from one deposit range to another within each group of banks and among banks T a ble III P ercentage D istribu tion , b y T y p e o f Owner, of C lassified D em and D eposits o f Individuals, P artnersh ip s, and Corporations, A ccordin g to Corporate and O th er A ccou n ts in D ifferen t Size B an k s, Second Federal R eserve D istrict, J u ly 1 9 4 4 Size of bank measured by range of deposits in millions of dollars Type of owner Manufacturing and mining.................................... Public utilities, transportation, and communi cations ..................................................................... Retail and wholesale trade and dealers in com- 10-50 (18 banks) 1-10 (69 banks) Under 1 (30 banks) 50-250 (8 banks) Over 250 (12 banks) Corporate Other Corporate Other Corporate Other Corporate Other Corporate 12.5 4 .2 27.0 3 .6 42.0 1.5 43.7 6 .0 53.3 0 .4 2 .8 0 .7 4 .3 0 .3 10.3 0 .1 Ff 8 .4 0.1 12.0 0.1 6 .2 Other 16.7 10.2 11.3 12.5 3 .4 9.1 3 .2 6 .9 0 .4 All other nonfinancial business, including con struction and services.......................................... All financial business* other than insurance companies and trust funds of banks................ 2.1 7 .6 3 .3 3 .8 4 .5 1.6 3.2 0 .9 3.1 0 .2 0 .7 1.4 4 .2 ; 1.6 4 .4 1.6 4 .6 1.3 3.9 1.8 T otal................................................................ 24.3 30.6 20.6 73.7 8 .2 69.0 11.5 7 9.2 2 .9 49.0 Insurance companies................................................ Trust funds of banks............................................... t t 0 .9 2 .0 2 .9 2 .6 4 .5 2 .3 Nonprofit organizations........................................... 2 .1 3 .2 3 .0 2 .8 Personal....................................................................... (a) Farmers........................................................... (b) Other personal accounts.............................. 43.0 17 .4 25.6 24 .3 3 .5 20.8 9 .6 t t 9 .9 Total classified deposits.......................................... 100.0 100.0 100 .0 100.0 Classified deposits as percentage of total de mand deposits of individuals, partnerships, and corporations................................................... 73 .5 65 .3 63 .6 73 .0 * Including investment, loan, insurance agency, and real estate businesses, etc. t Less than one tenth of one per cent, i Not reported. 1 :.2 1.4 6i.6 4 5».7 t t 100.0 ;.o 65 78 M O N T H L Y R E V I E W , O C T O B E R 1, 1944 of different sizes. As might be expected, the proportion of de posits owned by manufacturing and mining industries rose in direct relationship to the size of the account reported, and there was the same ascending tendency in public utility accounts. On the other hand, the trade accounts and personal accounts, in general, showed the reverse tendency. In banks with deposits of under 1 million dollars, farmers’ accounts made up a considerable portion of the classified personal accounts. In attempting to estimate from these deposit classifications the ownership distribution of deposits of all banks in the District, it should be borne in mind that limiting the classifica tion to the larger accounts in the different groups of banks tends to overemphasize the importance of the balances of large business organizations and to minimize the importance of personal and small trade accounts. Undoubtedly a sub stantial part of the unclassified accounts falls into the last two categories. Also, it should be remembered that the break downs covering the lower ranges of deposits are based upon data supplied by the smaller institutions, while those for de posits over 100 thousand dollars are based upon data supplied by the larger banks. For example, deposits within the range of 3 to 10 thousand dollars in the larger banks may differ significantly from the distribution of the deposits within this range in the smaller banks. Nevertheless, it is very probable that for the larger banks the distribution of deposits within the 3 to 10 thousand dollar range is closer to that of deposits within this range for the smaller banks than it is to the dis tribution of their own deposits of more than 100 thousand dollars. It is at least safe to conclude that a much greater proportion of total demand deposits of all member banks in the District consists of business accounts than of personal accounts, and that corporate accounts represent a much larger proportion than accounts of unincorporated businesses; also that further growth in deposits during the past year has been largely confined to the distributive trades and to the smaller, unclassified accounts—probably mainly deposits of individuals and unincorporated businesses. FINANCINGWARCONTRACTTERMINATION On September 12, 1944, the Board of Governors of the Federal Reserve System announced the inauguration of a pro gram of guaranteed loans and commitments pursuant to the Contract Settlement Act of 1944 and General Regulation No. 1 of the Office of Contract Settlement. Under the program, termination (T) loans, based on the assignment of moneys due and to become due on terminated contracts, will be made by commercial banks and other financing institutions to war contractors. Such loans will carry the guarantee of the Gov ernment contracting agency having the preponderant interest in the borrower’s war contracts. The guarantees will be exe cuted in behalf of the War and Navy Departments and the Maritime Commission by the Federal Reserve Banks as fiscal agents of the United States Government. The purpose of the T loan program is to provide war con tractors, whose contracts have been terminated, with prompt financing where working capital would otherwise be frozen pending settlement of termination claims. Thus T loans rep resent a logical extension of the V and VT guaranteed loan Table IV Percentage Distribution, by Type of Owner, of Classified Demand Deposits of Individuals, Partnerships, and Corporations, According to Size of Accounts in Different Size Banks, Second Federal Reserve District, July 1944 Size of bank measured by range of deposits in millions of dollars Manufacturing and mining............... Public utilities, transportation, and communications............................... Retail and wholesale trade and deal ers in commodities.......................... All other nonfinancial business, in cluding construction and services. All financial business* other than insurance companies and trust funds of banks................................. T otal.............................................. Insurance companies.......................... Trust funds of banks.......................... $1,000 to $3,000 1-10 10-50 50-250 Over 250 Accounts of Accounts of Accounts of Accounts of Accounts of $3,000 to $10,000 Over $10,000 $3,000 to $10,000 $10,000 to $25,000 Over $25,000 $10,000 to $25,000 $25,000 Over to $100,000 $100,000 $10,000 to $25,000 $25,000 to Over $100,000 $100,000 Over $100,000 2.2 8 .0 41.7 6 .8 19.0 52.5 15.7 29.4 60.2 30.0 39.4 56.7 53.7 2.2 2 .0 4.2 1.8 4.1 6 .9 2.7 4 .3 16.3 1.5 2 .9 11.6 12.0 17.8 26.0 25.0 25.5 31.2 14.0 24.8 24.7 8 .2 21.5 19.0 8 .4 7 .3 6.7 12.0 10.4 9 .1 00 00 Type of owner Under 1 5 .0 10.5 9 .0 3.1 6 .6 6 .4 2.9 3 .3 2 .2 2 .0 — 4 .5 5 .8 6 .7 8 .9 11.0 2.5 8 .6 8 .4 4 .5 5.8 31.1 50.0 81.3 47.7 68.9 85.1 62.6 78.4 90.3 68.2 76.1 84.1 82.1 __ — __ — __ — 0 .5 1.6 1.3 0 .7 1.3 3 .0 2.7 4.1 4 .4 0 .3 2.2 3 .3 1.8 0.1 3 .4 0.1 5 .3 3 .5 6 .6 4 .2 Nonprofit organizations..................... 4 .4 2 .0 2.1 4 .3 3 .4 2 .2 4 .3 5.1 1.4 3 .2 3 .7 2.5 1.4 Personal................................................. (a) Farmers...................................... (b) Other personal accounts......... 64.5 26.7 37.8 48.0 20.0 28.0 16.6 6.2 10.4 45.9 5.9 40.0 25.7 4 .4 21.3 8 .4 1.4 7 .0 26.3 t t 11.8 t t 2 .8 t t 26.7 t t 16.7 t f 4.6 t f 5 .7 t t Total classified deposits..................... 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 * Including investment, loan, insurance agency, and real estate businesses, etc. t Not reported. 79 FED ERAL RESERVE B A N K OF NEW Y O R K programs which have provided funds to contractors to finance war production. In addition to war production, VT loans have financed contract termination, but they have been available only prior to cancellation of contracts. T loans provide such financing after cancellation, but commitments may be obtained prior to termination. A new schedule of charges generally lower than those in effect under previous arrangements has been adopted for T loans, and has been made applicable also to all new VT loans made under the revised 1944 guarantee agreement effective September 15. The maximum interest rate has been reduced from 5 to 4 l/z per cent per annum. The maximum commit ment fee which may be charged by the lending institution has likewise been cut from Vi to V4 per cent of the average unused portion of the commitment (or alternatively a flat fee not to exceed $50), but it is no longer shared with the guarantor. Guarantee fees payable by the borrower as a part of the interest charge also have been reduced. Financing institutions may obtain reimbursement from borrowers for out-of-pocket expenses in connection with the loan. The amount of the T loan made to an applicant is to be based on the following items related to terminated war con tracts: (1) accounts receivable from Governmental contract ing agencies and from others; (2) reimbursable expenditures for inventory including only direct labor, cost of raw mate rials, purchased parts and supplies, and manufacturing and administrative overhead; and (3) reimbursable amounts for payments of claims settled with subcontractors. The amount to be loaned on these items is, of course, the subject of nego tiation between banker and contractor. The total will be reduced by any unliquidated advance payments made by the contracting agencies to contractors, by partial payments, and by any amounts which have been disallowed by the con tracting agency. T loans constitute one of two major forms of termination financing prescribed in the Contract Settlement Act. The other form, partial payments to war contractors by Federal contracting agencies, represents merely a payment on account based chiefly on contractors’ estimates of costs. The cost items upon which the amount of partial payment is based are the same as those used in determining the amount of the T loan. Partial payments with respect to settlement payments made or to be made on subcontractors’ claims, however, are based on the subcontractors’ own statements of costs submitted through the contractual chain to succcessively higher tiers of contractors. The proportion of costs allowable runs generally from 75 per cent to 90 per cent. The T loan is expected to be of particular assistance to subcontractors who may experience delay in receiving partial payments from the contracting agencies because applications for such payments and cost estimates, as noted above, are sub mitted through the contractual chain. It may also be of mate rial help to the contractor who has a great number of con tracts and who, therefore, might have to deal with a consider able number of procurement officers in order to secure partial payments. The T loan is based on all terminated contracts regardless of the awarding officer or the contracting agency. RECENT CHANGES IN EMPLOYMENT A small proportion of the nation’s working population is now being released from industries where war contracts have been completed or cut back. As yet the placing of these workers elsewhere is no great problem, since most of them are being reabsorbed by other key industries where programs have been stepped up because of revised military requirements. The armed forces continue to take about 100,000 men a month, and many women are withdrawing entirely from the labor force. The total number of employees in nonagricultural in dustries in August was 38,771,000, compared with 39,860,000 a year earlier. Most of the decrease in the past year has occurred in manufacturing plants and in the construction industry; the numbers engaged in transportation, finance, and service industries have increased. In New York State, as in the country, factory employment has declined fairly steadily since the latter part of last year. The employment index compiled by the State Department of Labor for August was 145.6 per cent of the 1935-39 average, compared with 160.2 per cent for August 1943. Declines in plants manufacturing transportation equipment and machinery have been chiefly responsible for the downswing; in 1943 these two groups combined accounted for more than a quarter of total factory employment in the State. The sharp decreases in these two industries this year (see accompanying chart) reflect the loss of a substantial number of workers in plants in the Buffalo region, but losses were reported also for the Indexes of Factory Employment, Selected Industries, N ew Y ork State* (1935-39 average=100 per cent) Per cent 800 700 .Transoortciiion EauiDment 600 500 \ Per cent 800r 700-.Machinery 600 500 400 300 300 200 200 i i i I i I 1940 1941 150 l I l . .1 IJ 1942 1943 11! 1944 i i i 1940 Food 1940 l. i i ._.i i i 1941 1942 J.. .J i J .1.1.. 1943 1944 Appai-el 100 J * /A _L..I 1 / \ i i i i i 1941 1942 !_J...t 1 1 1 1943 1944 V _1 L..I .I I I 1940 1941 rOt / r '■y, V i i i _i . i i L..L..I . 1942 1943 1944 * Plotted on ratio scale to show proportionate changes. Source: Industrial Bulletin, New York State Department of Labor. MONTHLY REVIEW, OCTOBER 1, 1944 80 Albany, Elmira, and Utica areas. The slight upturn in the index between July and August this year resulted from the addition of workers at a few plants making aircraft, ships, railroad equipment, munitions, and office machines. The largest increase was in the Elmira area. In some regions, particularly the Buffalo-Niagara Falls area, difficulties in re cruiting the necessary types of labor continue. That area is still classified by the War Manpower Commission as one of acute labor shortage. In the nondurable goods group, the most important decline this year has been in the apparel industry, reflecting primarily a reduction in the number employed by New York City firms. The food industry is the only one in either the nondurable or durable goods group in which employment in August this year was above that a year ago. Indexes of B u sin ess 1944 1943 Index Industrial production*, 1935-39 = 100 . . . . (Board of Governors, Federal Reserve System) Munitions output, 1943 = 100..................... (War Production Board) Electric power output*, 1935-39 = 1 0 0 ........ (Federal Reserve Bank of New York) Ton-miles of railway freight*, 1935-39 =100 (Federal Reserve Bank of New York) Sales of all retail stores*, 1935-39 =100. . . . (Department of Commerce) Factory employment United States, 1939 = 1 0 0 ........................... (Bureau of Labor Statistics) New York State, 1935-39 = 1 0 0 ................ (N ew York State Dept, of Labor) Factory payrolls United States, 1939 = 1 0 0 ........................... (.Bureau of Labor Statistics) New York State, 1935-39 = 1 0 0 ................ (N ew York State Dept, of Labor) Income payments*, 1935-39 = 1 0 0 ................ (Department of Commerce) Wage rates, 1926 = 1 0 0 .................................... (Federal Reserve Bank of New York) Cost of living, 1935-39 = 1 0 0 ......................... (Bureau of Labor Statistics) Velocity of demand deposits*, 1935-39 =100 (Federal Reserve Bank of New York) New York C ity ............................................. Outside New York C ity............................. * Adjusted for seasonal variation. Aug. June July Aug. 242 235 231 232p 105 115 113 115p 195 198 198 198p 235 232 231p 168 171 178p 171 159 158 159p 160 148 145 146p 322 318 310p 291 283 274 215 233 232p 155 164 165p 123 125 126 67 77 88 87 90 85 (In m illions o f d o llars) City Estimated 1944 Annual average 1935-39 New York City........................................ Newark....................................................... Buffalo.........................................; ............ Rochester......................... ......................... Syracuse..................................................... Bridgeport................................................. 415 70 65 40 20 12 287 54 35 24 11 8 Department store stocks rose sharply during August because of exceptionally heavy receipts of merchandise on order. The seasonally adjusted index of stocks was almost 20 per cent above the low level of last April and the highest since Novem ber 1942. When comparison is made with the all-time high of July 1942, however, stocks are 25 per cent lower. Out standing orders for merchandise purchased by the stores but not yet delivered to them at the end of August equaled the dollar amount of stocks on hand; two years ago such orders amounted to about one third of stocks on hand. D epartm en t and Apparel Store Sales and S tock s, Second Federal R eserve D istrict, P ercentage C hange from th e Precedin g Y e a r 279p 126 p 83 78 p Preliminary. DEPARTM ENT STORE TRADE September was the third consecutive month in which the seasonally adjusted index of department store sales in this District held close to 150 per cent of the 1935-39 average. The only month on record with an index higher than the average for the third quarter is March 1944, with a peak figure of 158. District sales are now estimated at an annual rate of about 800 million dollars, compared with a yearly rate of 543 million dollars in the 1935-39 base period. For six of the largest cities of the District, estimated sales for 1944, based on the experience of the year to date, are given below, together with the annual averages for 1935-39New York City sales this year have accounted for 52 per cent of the Districts total sales, a slightly lower percentage than that for the 1935-39 period. The proportion of District sales made in Newark also has diminished, while the percentages for Buffalo, Rochester, and Syracuse have increased. Bridge port’s share has remained unchanged. Net JSales Locality Stocks on Jan.through hand August 1944 August 1944 Aug. 31, 1944 Department stores, Second District. . . New York C ity .................................... Northern New Jersey......................... Newark.............................................. Westchester and Fairfield Counties. . Bridgeport......................................... Lower Hudson River Valley............. Poughkeepsie.................................... Upper Hudson River Valley............. Niagara Falls.................................... Rochester........................................... +16 +21 +18 +18 + 3 + 1 +13 +10 + 3 + 4 + 4 + 6 + 5 + 5 + 6 +10 +10 +15 - 1 + 8 + 4 +10 +12 +11 + 4 + 2 - 2 - 6 +15 +13 - 1 + 3 - 4 + 9 + 1 + 4 +13 + 8 + 7 + 7 + 8 + 6 + 5 + 2 + 7 Apparel stores (chiefly New York City) +19 + 8 Schenectady...................................... Central New York State.................... Mohawk River Valley.................... Utica............................................... Northern New York State................ Southern New York State................. Binghamton...................................... Elmira................................................. Western New York State.................. + 9 + 4 + 3 + 2 + 3 + 1 - 4 +21 + 3 + 1 + 9 + 3 +12 0 — + + + + — 5 6 9 3 + 8 Indexes o f D epartm en t Store Sa les and S tocks Second Federal R eserve D istrict 1944 1943 Item Aug. June July Aug. 1935-39 average = 100 Sales (average daily), unadjusted. ............... Sales (average daily), seasonally adjusted. . 98 135r 132r 142r lOOr 149r 110 151 1923-25 average =100 Stocks, unadjusted........................................... Stocks, seasonally adjusted............................ 123 127 113 118 109r 120r 128 131 r Revised. FEDERAL RESERVE BANK OF NEW YORK MONTHLY REVIEW, OCTOBER 1, 1944 General Business and Financial Conditions (Summarized by the Board of Governors of the Federal Reserve System) I output and employment showed little change in August. Retail trade was at a new high level for the month. There was a small further rise in retail commodity prices. NDUSTRIAL In d u s t r i a l P r o d u c t i o n Index o f P h ysical V o lu m e o f Industrial Production, A d ju ste d for Seasonal V ariation , 1 9 3 5 -3 9 A v erage = 1 0 0 Per Cent (G roups show n are expressed in term s o f points in the total index) Output at factories and mines was 232 per cent of the 1935-39 average in August as compared with 231 for July, according to the Board’s seasonally adjusted index of industrial production. Steel production was maintained, while output of nonferrous metals continued to decline. Over-all, activity in the metal fabricating industries continued at the level of the preceding month. There were large increases in output of heavy trucks, tanks, and some other critical ordnance items in August; aircraft production showed little change; while shipbuilding declined. Output increased in the shoe, woolen and worsted, and paper industries in August following a drop in July which reflected chiefly the curtailment of operations around the Fourth. Output of manufactured foods, after allowance for seasonal changes, declined in August, largely reflecting decreases in output of meats, dairy products, and sugar products. Distilleries were shifted for the month of August from production of industrial alcohol for war purposes and output of about 50,000,000 proof gallons of beverage spirits was reported. Production of other nondurable goods was maintained at the level of the preceding month. Minerals output in August rose 2 per cent from July, reflecting increases in coal and crude petroleum. Crude petroleum production was at a rate 11 per cent above the same month last year. D is t r ib u t io n Value of department store sales, according to the Board’s seasonally adjusted index, was larger in August and the first half of September than in the first half of 1944 and averaged 12 per cent above the corresponding period of last year. In the third quarter the index at 90 per cent above the 1935-39 average has been at the highest level on record. Carloadings of railroad freight were maintained in large volume in August. During the first three weeks in September loadings were slightly less than during the same period a year ago, owing to decreases in all classes of freight except merchandise in less than carload lots and miscellaneous shipments. Indexes of V alu e of D epartm en t Store Sales and Stock s, A d ju ste d for Seasonal Variation ( 1 9 3 5 -3 9 a v e ra g e= 1 0 0 per cen t) C o m m o d i t y Pr ic e s Wholesale prices of farm products and foods showed small seasonal decreases from the middle of August to the middle of September. Maximum prices of such industrial goods as cotton fabrics, cement, and bricks were increased. Retail prices of food and other cost of living items increased slightly in August and the average of all items was 2 per cent higher than a year ago, according to the Bureau of Labor Statistics index. A g r ic u l t u r e Crop prospects improved during August and the early part of September and harvests of most major crops are expected to be larger than last season. Marketings of livestock products, which were at a record level earlier this year and 15 per cent higher than during the first six months of 1943, have declined in July and August to about the same level as that prevailing last year. B a n k C r e d it M em ber B anks in Leading C ities. Dem and D eposits (A d ju s te d ) Exclude U . S. G overn m ent and In ter bank D eposits and Collection Item s. G overn m ent Securities Include D irect and Guaranteed Issu es (L a te s t figures are for Septem ber 1 3 ) BILLIO N SO FD O LLAR S M em ber B ank R eserves. Breakdow n betw een R e quired and E x cess R eserves P a rtly E stim ated (L a te s t figures are for Septem ber 2 0 ) Bank deposits of businesses and individuals, as well as currency in circulation, have increased since the end of the Fifth War Loan Drive. This increase in the money holdings of businesses and individuals is largely a reflection of the expenditures made by the Treasury from its War Loan accounts built up during the drive. Adjusted demand and time deposits at member banks in leading cities increased by nearly 4 billion dollars between the close of the drive and mid-September, or by over three-quarters of the amount of reduction in such funds during the drive. Deposits at nonreporting banks probably increased by nearly 2 billion dollars. Treasury War Loan accounts at banks declined by nearly 8 billion dollars. In the same period loans and investments at weekly reporting member banks in 101 lead ing cities declined by 2.2 billion dollars. Loans to brokers and dealers for purchasing and carrying Government securities declined to a level approximately equal to that of the pre-drive period. There was, however, a temporary increase in such borrowings in late August and early September presumably associated with market transactions stemming from the Treasury offer to exchange certificates maturing on September 1 and notes maturing on September 15 for new issues. Loans to others for purchasing and carrying securities declined steadily, but on September 13 were still well above the pre-drive level. Government security holdings showed a net decline of 800 million dollars over the period, reflecting mainly substantial bill sales by reporting banks partially offset by some increase in bond holdings. As the result of the increase in deposits of businesses and individuals, the average level of required reserves at all member banks rose by about a billion dollars between the close of the Fifth drive and mid-September. In addition, a billion dollar increase in money in circulation and some further decrease in gold stock served to absorb reserve funds. Member bank needs for reserves due to these factors were met largely through an increase of 1.7 billion dollars in the Government security portfolio of the Federal Reserve Banks and there was also a slight increase in Reserve Bank discounts. Excess reserves declined from an average level of 1.4 billion at the close of the drive to somewhat less than a billion by early September.
@FedFRASER