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O f Credit and Business Conditions

V o lu m e









No. 10


The principal influence in the money market during Sep­
tember was the action of the Board of Governors of the Fed­
eral Reserve System raising the legal reserve requirements of
member banks, under the additional credit control powers
granted in legislation enacted by the special session of Con­
gress. The increases amounted to 2 percentage points on
demand deposits and 1J/2 percentage points on time deposits
of all classes of member banks. This action brought the re­
quired ratio on time deposits to the new legal limit of iV i per
cent, which is uniform for all member banks, and raised the
required ratios on demand deposits of the reserve city and
country banks to 22 and 16 per cent, respectively (or within
2 points of the new maximum limits for those two classes of
banks), and the central reserve city banks’ legal requirements
to 26 per cent (as compared with the new maximum of 30
per cent).
The higher requirements became effective during the re­
serve computation periods beginning September 16 for the
country member banks and September 24 for the other two
classes. Confronted with the sizable task of raising approxi­
mately 2 billion dollars of additional reserves during these
periods, member banks, in the aggregate, appear to have
disposed of approximately that amount of Government securi­
ties, although minor adjustments in their reserve positions
were also made in other ways. The member banks sold mainly
short-term securities, but they also sold sizable amounts of
bank eligible bonds; in both cases, some of these securities
were purchased by nonbank investors who, in turn, sold re­
stricted bonds. In addition, there was continued selling of re­
stricted bonds by institutional investors and others who either
found what seemed more profitable uses for their funds or
who became fearful that new measures of credit restraint might
endanger the support program for Treasury bonds. Thus,
sales of restricted bonds by the member banks must have been
negligible, especially since they held only small amounts of such
issues, and most of the bonds acquired by the System during the
month were restricted issues maturing in more than five years.
Pressure on the bond market was substantial in the weeks

following the announcement on September 8 of the change
in reserve requirements. As prices of restricted issues were
already at their support levels, this pressure was evident only
in small price declines in bank eligible bonds, the section of
the market in which trading was lightest. In the last state­
ment week of the month (ended September 29), selling of
long-term restricted issues receded and total Federal Reserve
purchases of Treasury bonds were considerably lower than
in the previous two weeks. While prices of the ineligible
issues remained unchanged, quotations on the eligible bonds
rose slightly.
M e m b e r B a n k R eserve P o s it io n s

Money market conditions during the past month were also
responsive to heavy net Treasury disbursements in the first
half of the month, and heavy net Treasury receipts in the sec­
ond half, as well as to the increase in member bank reserve
requirements and the large-scale sales of long-term Treasury
bonds by nonbank investors.
Substantial net Treasury disbursements, together with large
sales to the Federal Reserve System of long-term Treasury
bonds by institutional and other nonbank investors, only a part
of which were reinvested in Treasury bills acquired directly or
indirectly from the banking system (including the Reserve
System), brought substantial ease to the money market in
the first half of September. The banks’ needs for reserves were
small in this period, stemming principally from an increase in
required reserves. Thus, the banks were able to retain most
of their gains of funds, a portion of which they invested in
Treasury bills and other short-term securities purchased from
the Reserve System. Much the larger part of the banks’ gain
in funds was allowed to remain uninvested, and excess reserves
rose 900 million dollars in the two weeks to 1.8 billion on
September 15. This increase in idle funds was in recognition
of their temporary character, as they were largely consumed
by heavy payments of quarterly income tax instalments be­
ginning at the midmonth and by the increase in legal reserve
requirements of the country member banks. A part of this



temporary gain in excess reserves represented funds deposited
with the Reserve Banks by the larger city banks against the
temporary accumulation of demand deposits by their country
correspondents, but most of the increase represented funds
held by the country banks directly with the Reserve System.
In the second half of the month, the money market was
under severe strain. In addition to the increase in legal re­
serve requirements of member banks, the flow of Government
receipts increased rapidly as tax collections rose; Treasury dis­
bursements fell, and in the third and fourth weeks of Septem­
ber Treasury operations absorbed reserve funds approximately
equal in volume to those placed at the banks’ disposal in the
first two weeks of the month. Thus, Treasury balances with
the Reserve Banks toward the close of September were prac­
tically unchanged from the total at the beginning of the
month. The banks’ reserve position also derived less benefit
from the continued large nonbank investor sales of restricted
bonds to the Reserve System than in some past weeks, since
such sales were more closely balanced by purchases of Treasury
bills from the banking system or directly from the Treasury
on subscription (thus reducing the share held by the banks,
including the Reserve Banks). In addition, a substantial amount
of Treasury bills was acquired by nonbank investors out of
funds previously deposited in the banks.
The pressure on member bank reserves was so heavy that
member banks were compelled to dispose of very large amounts
of Government securities, temporarily increase their borrowings
from the Reserve Banks, and draw down their excess re­
serves sharply. A major part of the adjustment in member
bank reserve positions in the week ended September 22, dur­
ing which most of the increase in the legally required reserves
of the country banks was effected, came in the form of a 700
million dollar drop in excess reserves. Besides drawing upon
their idle balances at the Reserve Banks, country member banks
sold moderate amounts of bank eligible bonds and substan­
tially reduced their balances on deposit in reserve and central
reserve city member banks. Thus, they shifted part of the
adjustment of their reserve positions on to the latter banks,
which were compelled to sell short-term Treasury securities
(principally bills) to meet the withdrawals of their cor­
respondent banks and the large tax payments of their
The strain on the reserve and central reserve city banks
became more severe in the following week when they had to
meet the increase in their own reserve requirements, especially
because, in contrast to the country banks, they had had com­
paratively small amounts of excess reserves in the preceding
week. Liquidation of holdings of Treasury bills and other
short-term Government securities, mainly by the reserve and
central reserve city institutions, was therefore particularly large
and many of these banks increased their borrowings from the
Reserve Banks sharply for a few days. (Most of these loans

they paid off by the close of the month so as to show a mini­
mum of indebtedness in their third-quarter financial state­
ments.) Federal Reserve credit outstanding consequently in­
creased sharply.
Inasmuch as the reserve and central reserve city member
banks bore the brunt of the adjustment, their sales of shortterm Treasury securities, principally to the Reserve System,
were very large. Their holdings of such issues consequently
fell to such low levels relative to long-term securities and
other less liquid assets that it may well be that their initial
adjustment to the increased requirements may prove to be
M e m b e r B a n k C r e d it

Government security holdings of the weekly reporting mem­
ber banks rose substantially in the first half of September,
reflecting the ease of reserve positions, but declined sharply in
the succeeding two weeks as the money market tightened.
Although all other earning assets continued to expand rather
rapidly, the increase was not so large as in September 1947
(see the accompanying chart).
That the demand for funds upon the part of business and
others, however, is actually larger than before appears to be
indicated, in part, by the fact that new corporate security
flotations in the first nine months of this year were con­
siderably larger than in the same period of 1947. Apparently
other financial institutions, including the insurance companies,
are meeting a larger share of these needs, and in fact there apCumulative Net Changes in Loans and Investments (other
than Government Securities) of the Weekly Reporting
Member Banks and of Life Insurance Companies*
(Cumulated from December 31, 1946)

* W eekly reporting- member bank data also exclude loans on Government
securities and are as of the last W ednesday in the month (except for the last
figure plotted which is for September 15). L ife insurance com pany data are as
of the last day of the month and cover 49 companies holding 90 per cent of
the admitted assets of all American life insurance companies. T he changes
in life insurance com pany holdings for January 1947 and Aug,ust 1948 were
estimated by the Federal Reserve Bank of New York.
S ource: Board of Governors of the Federal Reserve System and the Life
Insurance Association of America.



pears to have been a considerable shift of borrowing from the
banks to other institutions. Life insurance companies, for ex­
ample, have increased their loans and investments other than
U. S. Government securities by about 3.9 billion dollars in the
first eight months of 1948 in contrast to an increase of 2.5
billion in the same period of 1947. The corresponding fig­
ures for the weekly reporting member banks were 1 billion
dollars and 2.4 billion dollars in the first eight months of
1948 and 1947, respectively. The smaller rise in 1948 at
the reporting banks was attributable in part to a more pro­
longed seasonal Recline in business loans early this year than
in 1947. More important, however, is the fact that the decline
probably reflects a substantial refunding of bank loans by
corporate borrowers with the proceeds of credit extended,
directly or indirectly, by other lenders.

The increase in legal reserve requirements during the past
month has not been confined to the member banks. Banking
authorities in several States have taken similar action with
respect to the legal reserve ratios of nonmember commercial
banks. State banking boards of two of the three States that
are included in whole or in part in the Second Federal Reserve
District have already increased the legal reserve ratios that
nonmember institutions are required to maintain against their
On September 30, the State Superintendent of Banks in New
York announced an increase, effective the next day, of \l/i
percentage points in reserve requirements against time deposits,
i.e., from 6 per cent to the legal maximum of IV2 per cent,
and a rise of 2 percentage points to the 26 per cent maximum
on demand deposits of all nonmember banks with offices in
Manhattan. No change was made in the legal ratios against
demand deposits of reserve city and country nonmember banks
in New York State, since these were already at their upper
limits of 20 and 14 per cent, respectively. However, it was also
announced that the Banking Department would, at the next
session of the State legislature in January, seek additional
powers over the reserve ratios of the nonmember banks.
The Connecticut banking authorities have lifted the legal
reserve requirements of nonmember commercial banks, also
effective October 1, from 12 to 16 per cent on demand deposits
and from 6 to IV2 per cent on time deposits.
Up to the end of September, the New Jersey banking au­
thorities had given no public notice of intention to raise the
reserve requirements against demand and time deposits of
nonmember banks in that State beyond the existing levels of
15 and 3 per cent, respectively. The legal maxima are 30 and
6 per cent on demand and time deposits, respectively, but
may not exceed the reserves currently required of the member
banks in that State.


The bumper crops that are being harvested throughout the
country have brought prices of some farm products down to the
levels at which the Governments agricultural price support
program becomes effective. This situation contrasts sharply
with that in recent years, when the wartime and postwar
increase in domestic and foreign demand pushed prices of
most agricultural commodities well above support levels. An
understanding of the existing legislation relative to the sup­
port of agricultural prices is particularly important today be­
cause price support for this year’s crops may necessitate the
spending, lending, or pledging of hundreds of millions of
dollars. To the extent that this program involves expenditure
of public funds, the Treasury’s cash surplus will be reduced,
further weakening an important anti-inflationary weapon. And
finally, and perhaps most important, is the concern of the pub­
lic with the present level of prices and the maintenance of
economic stability.
The principal points involved in price support policy are
the basic concept of parity for agricultural prices, the tech­
niques by which support levels are determined and prices
are supported, and the effects on the economy in general and
agriculture in particular.
T h e M e a n in g


P a r it y

In the price break following World War I, prices of farm
products fell much more sharply than other commodity prices,
and throughout the twenties and thirties farm prices remained
low in comparison with other prices. In response to the
demand for a comprehensive statistical measure of the posi­
tion of farm prices relative to other prices, the concept of
"parity” was gradually evolved. As defined in the Agricultural
Adjustment Act of 1938, " 'Parity’, as applied to prices for any
agricultural commodity, shall be that price for the com­
modity which will give to the commodity a purchasing
power with respect to the articles that farmers buy equivalent
to the purchasing power of such commodity in the base
period.” Thus the parity formula aims to relate the prices
which farmers receive to the prices farmers pay. In other
words, a farmer selling his products at the parity prices would
receive for each unit an amount sufficient to purchase the
same quantity of consumer goods or farm equipment as the
proceeds of the same unit bought during some past period
which has been accepted as a fair standard. For many com­
modities, the base period that is in use covers the five years
from August 1909 through July 1914, a period free from
major economic and political disturbances and characterized
by relative stability in both farm and nonfarm prices. This
period was generally a favorable one for agriculture.
The parity price formula is not intended to assure farmers
a certain level of income or a stable standard of living.



Since parity prices are expressed only as prices per bushel,
per pound, or per bale, a farmer’s total income naturally
depends on the quantities marketed as well as on the parity
prices for his crops, while his net return is also dependent
upon his efficiency of production. The formula does not
attempt to equalize the living standards of farm and non­
farm families; it is devised to indicate the prices of farm
products which will give farmers about the same purchasing
power per unit of output as they had in the base period.
C o m p u t a t io n


Average Prices Received by Farmers and Average Support Prices
for Selected Commodities, 1947-48 and 1948-49 Market Years
1947-48 Market year

“ Basic” commodities
W heat....................................
C orn ......................................
C otton *.................................
T ob a cco# ..............................
R ice........................................


“ Steagall” commodities
Flaxseed f ..............................
Dry peas...............................
D ry beans.............................
H og s ......................................
Irish potatoes......................


Other commodities
W o o l......................................


$ 2.29
. lO lp


3 .2 Sp
7 .15
15.60-16.15 J


A v e ra g e


$ 1.97
2 .16

$ 2 .00


6 .0 0
4 .7 2

* Average prices refer to all types; support prices are the average rate for 15/16
inch middling cotton.
# Flue-cured tobacco only.
t U. S. N o.l flaxseed, Minneapolis basis.
t $15.60 in April-September 1947; $16.15 in October 1947-April 1948.
** April-September 1948.
Source: U. S. Department of Agriculture, Bureau of Agricultural Economics.


P a r i t y P rices

Parity prices are calculated in terms of the prices received
by farmers in the local markets in which they ordinarily
sell. In computing the parity price of a commodity, the first
step is to determine the average price during the base period,
which for many commodities consists of the 60 months
beginning August 1909 and ending July 1914. For instance,
wheat averaged 88.4 cents per bushel at that time, corn was
64.2 cents per bushel, and cotton was 12.4 cents per pound.
The base prices for tobacco and many fruits and vegetables
are calculated for later periods owing to lack of adequate
data in the prewar period, to extensive changes in consumer
demand, or, in the case of some minor crops, to the influ­
ence of pressure groups seeking a more favorable base period
for their product.
As a second step, the relationship between the prices paid
currently by farmers and the prices they paid in the base
period is established by calculating an index of prices paid
by farmers. This index covers retail prices for 86 items used
in family living (food, clothing, furniture, household sup-

Com m odity

Index of Prices Paid by Farmers and Prices Received by Farm­
ers for Crops and for Livestock and Livestock Products
1929-45 Annually, January 1946-August 1948 Monthlyf
(August 1909-July 1914 average — 100 per cent$)

* Prices paid by farmers for commodities used in family maintenance and
in production, including interest and taxes.
t Data for September 1948, received too late for inclusion in the chart,
accentuate the recent shifts, as fo llo w s: prices paid, 250 ; prices received
for crops, 231 ; prices received for livestock and products, 343.
t See footnote 1 in the text.
Source: U . S. Department of Agriculture, Bureau o f Agricultural Econom ics.

plies, etc.) and 93 items used in farm production (feed,
fertilizer, farm machinery, trucks, equipment, seed, etc.). When
the base period used is that of 1910-14, interest charges and
taxes are also included in the calculation of the index. On
September 15, 1948, the index based on the 1910-14 average
stood at 250 per cent.1
The parity price is the average base period price adjusted
to the level indicated by the index of prices paid by farmers.
For wheat the parity price as of September 15 would be 250 per
cent of the base price of 88.4 cents, or $2.21 per bushel, and,
similarly, for cotton and corn the parity prices (250 per cent
of the base prices) would be 31 cents per pound and $1.60
per bushel, respectively. Since base prices for all products
are fixed, any changes in parity prices are wholly dependent
on the movements of the index of prices paid by farmers.
Thus, while the increase in support levels for the "basic”
commodities shown in the accompanying table is the direct
result of the rise in the parity price of each commodity, the
parity price rise in turn was occasioned by the year-to-year
gain of nearly 10 per cent in the index of prices paid by
The parity relationships for American agriculture as a whole
may be measured (as is done in the accompanying chart) by
1 Since monthly figures on prices paid by farmers were not available
for the period August 1909-July 1914, annual data for the five calen­
dar years 1910-14 were used instead.



expressing prices paid and prices received by farmers as index
numbers having equivalent base periods. When the index of
prices received by farmers is the same in relationship to the
base period as the index of prices paid, farm prices are at
parity. Until 1941, the indexes of prices received for crops
and livestock (including livestock products) moved below
the index of prices paid, indicating that prices of both types of
farm products were below parity as measured by the 1909-14
relationship. Since the lifting of price controls in July 1946,
prices of livestock and livestock products have shown a greater
relative increase than prices of crops, and they are now at
record levels. Crop prices, on the other hand, have been drop­
ping steadily for the past four months, and in August they
averaged below parity for the first time in six years.
D e t e r m in a t io n


P r ic e Su p p o r t L evels

The purpose of the price support program is to place a floor
under farm prices by assuring farmers minimum prices for
their commodities. During the war, the Government encour­
aged high levels of agricultural output by guaranteeing that
prices for certain commodities would be maintained at not
less than 90 per cent of the parity price. In order to facilitate
orderly adjustments from greatly expanded wartime farm pro­
duction to normal peacetime demand, these supports were also
guaranteed for at least two full years following the end of
hostilities. For about 20 major commodities, price support has
been mandatory, while optional supports authorized by the law
have been extended to various other commodities to the extent
that available funds permitted. Although a great many different
commodities have received price support at one time or another,
not all important farm products are supported each year. In
the past year, for instance, there was no support program for
beef cattle or for apples. Furthermore, although support pro­
grams may be announced for certain commodities, market
prices may be so high that operations are negligible. Although
support prices were announced for numerous commodities last
year, the only items on which support operations were needed
in any substantial volume were potatoes, eggs, and wool.
Support prices are generally computed by taking a certain
percentage (usually 90 per cent) of the parity price for a
specific date in the month preceding the marketing season.
Thus the wheat support level is 90 per cent of the parity
price prevailing on June 15. Since on that date in 1948 the
parity price of wheat was $2.22 per bushel, the average support
price for the 1948-49 crop has been set at $2.00. This repre­
sents the average rate to the farmer at local markets. Actual
support prices vary according to the location of the crop and
the quality of the grain; for instance, No. 1 hard winter wheat
is supported at $2.24 per bushel at the terminal market in
Kansas City, while the same type and grade of wheat at the local
markets in western Kansas and Nebraska is supported at only
$1.96 to $1.98, the difference representing largely freight

costs. For some commodities, such as potatoes, hogs, and eggs,
the support prices are varied throughout the year according
to normal seasonal fluctuations.
Prices of the six "basic” crops (wheat, corn, cotton, tobacco,2
rice, and peanuts) are supported at the fixed level of 90 per
cent of parity, except in the case of cotton, for which support
levels are set at 92.5 per cent of parity. For a group of four­
teen leading commodities,3 known as "Steagall” commodities,
support prices are required to be not less than 90 per cent of
parity. Since it was particularly desired to expand output of
these commodities during the war, the Secretary of Agriculture
was empowered in 1941 to set as high a support price as was
necessary to obtain production of the needed amount; this
power he still retains. Thus, while the parity price for flax­
seed (the source of linseed oil used in paint) was only $4.24
per bushel on August 15, 1948, the support price this season
has been established at $6.00 per bushel, or more than 140
per cent of parity. Under the Wool Price Support Act of
1948, the price of wool must be supported at a level which
will furnish wool growers a return equivalent to that received
for the 1946 clip. To the extent that funds are available,
other commodities may be supported in order to bring their
prices into a fair relationship with the "basic” and "Steagall”
M ethods


Su p p o r t in g P rices

Once the level at which prices for a given commodity will
be supported has been determined, there are several methods
by which the support can be made effective. The principal
method, particularly for "basic” commodities, has been the
nonrecourse loan. The Government will make a loan to the
farmer, or will guarantee a loan made by a local bank or other
private lending agency, in an amount calculated at the sup­
port price, secured by a chattel mortgage or a warehouse re­
ceipt covering certain commodities, provided they have been
stored under specified conditions. If the price rises above sup­
port levels, the farmer can sell his crop at the higher price and
pay off the loan plus interest; if the price stays low, the Gov­
ernment takes the commodity as full payment at maturity or
extends the loan.
Another method, relatively new, is the purchase agreement.
When the Government signs such an agreement with the
farmer, it stands ready during a limited period of time to
purchase at the support price a specified quantity of grain
of marketable quality, not exceeding the farmer’s total crop.
The farmer pays a small charge for this guarantee, and, de­
2 For certain types of tobacco (fire-cured and dark air-cured) sup­
port prices are fixed as a percentage of the support price for burley
3 These commodities include potatoes, sweet potatoes, hogs, milk,
butterfat, eggs, chickens (weighing over 3 Vi pounds), turkeys, certain
varieties of dried peas and beans, peanuts (for o il), flaxseed, soybeans,
and American-Egyptian cotton.



pending on market conditions, he may decide to sell to the
Government all, or part, or none of the specified quantity.
Other methods of supporting the market, employed chiefly
in the case of perishable commodities, have included direct
purchase programs, loans to dealers who paid support prices,
and inventory take-out commitments to processors or dealers,
i.e., promises to purchase inventories of commodities for which
farmers were paid support prices or of products made from
such commodities. Milk prices are supported through mar­
keting orders which fix minimum prices to producers at a
level tending to yield a parity return after allowing for feed
prices and other economic factors.
These direct support measures are often supplemented by
various indirect means, such as purchases by the Government
for the armed services and for foreign relief. Other farm-aid
legislation facilitates the support of farm prices by limiting
disposal of the Governments stocks of farm products, regulat­
ing production and marketing of agricultural commodities,
or encouraging their consumption.
Funds available for carrying out: these programs total billions
of dollars. The Commodity Credit Corporation, which has
responsibility for price support operations, has authority to
borrow 4,750 million dollars "on the credit of the United
States” to finance its operations. The CCC has a capitalization
of 100 million dollars and a reserve of 430 million for post­
war price support operations. Any impairment of the capital
of the CCC must by law be restored annually by the U. S.
Since most of the loans under the price support program are
guaranteed by the Government rather than made directly, any
substantial increase in such commodity loans would be reflected
in an expansion of private credit rather than in increased
Government outlays. However, should the banks need these
funds for other purposes or become dissatisfied with the IV2
per cent interest which they receive on the guaranteed loans,
the CCC must be ready to purchase the loans on demand; in
any case the CCC takes over unredeemed loans at maturity.
Since this season’s loans and purchase agreements for wheat
do not mature until next spring and those for cotton and corn
mature next summer and fall, sizable outlays by the Govern­
ment may not be necessary until some time in 1949.
The Department of Agriculture may require certain condi­
tions of eligibility for price-supporting loans on the basic
commodities. When it appears that the supply of a com­
modity will be excessive, the Government may try to bring
supply into line with demand by proclaiming acreage allot­
ments or marketing quotas for the next crop year. Producers
not cooperating with respect to these allotments or quotas are
not eligible for regular loans or purchase agreements; they can
obtain loans on only a portion of their crop and only at a sub­
stantially lower price. Marketing quotas are subject to the

approval of at least two thirds of those voting in a referendum
of the producers of the commodity involved. If more than one
third disapprove, no quotas are imposed, but in such a case the
Government has no obligation to support prices. Marketing
or acreage restrictions have not been imposed on major crops
since the war, except that potato producers have had to con­
form to acreage requirements before obtaining support bene­
fits, while tobacco producers have approved marketing quotas.
Under the terms of the Agricultural Act of 1948, the sup­
port program for "basic” commodities will continue in its
present form until June 30, 1950, except that the 1949 cotton
crop will be supported at only 90 per cent of parity. The sup­
ports for several "Steagall” commodities (milk, hogs, chickens,
and eggs) will be maintained at 90 per cent of "parity or
comparable price”4 until January 1, 1950. Irish potatoes will
be supported at 90 per cent until the crop harvested before
January 1,1949 is marketed. Potatoes harvested after that date,
and the other "Steagall” commodities, will be supported
through January 1, 1950 at not less than 60 per cent of parity
and not more than the support level in 1948.
The Agricultural Act of 1948 also contains a long-range
program. One principal change in this program involves
adjusting parity prices for each crop to reflect the relationship
during the past ten years between the level of prices for that
commodity and the level of all farm prices. In general, parity
prices for livestock and livestock products will be raised by
the new formula, while the parities for grains will be lowered.
Another change will make the level at which support prices
are established dependent upon the relationship of current
supply to "normal” supply and upon whether or not marketing
quotas have been voted. Without marketing quotas, minimum
support levels will range from 60 per cent of parity when
supply is over 130 per cent of normal to 90 per cent when
supply is 70 per cent or less of normal; when supply is equal to
"normal”, the support level in most cases will be 75 per cent
of parity.
If and when this new system of revised parity prices and
variable support levels takes effect, it should answer many,
though not all, of the criticisms which have been made of the
present price support program. By taking into account the
recent price experience of each product in determining its
parity, the parity formula will make allowance for changes in
production techniques and for shifts in consumer demand
between the different types of agricultural products. But in
continuing to link parity for all farm products combined to
T h e A g r ic u l t u r a l A c t


"Comparable prices” are established for products when a lack of
data or highly significant economic changes affecting the price of a
commodity necessitate use of an alternative method in computing
base period prices.


the 1909-14 relationships with the prices paid by farmers, the
new formula fails to take into account the relative changes in
farm and nonfarm production and distribution techniques—
and consequently in farm and nonfarm price relationships—
over a period of nearly 40 years. Nor does the new parity
formula revise the index of prices paid by farmers to allow for
changes in the relative importance of the items farmers buy or
to include factors not presently covered by the index, such as
farm wages.
Ec o n o m i c E f f e c t s


P r ic e Su p p o r t s

The relatively high levels of support prices during the war
may have been helpful in insuring the nation against possible
shortages of essential food, and they may have served the same
purpose in the postwar period, when foreign demands were
so pressing. It can also be argued that there is considerable
justification for the continuation of support prices during a
period of transition on a basis that will enable farmers who
increased their production to meet war demands to readjust
to peacetime conditions without undue loss. Continuation of
the present program of high support prices, however, might
have the effect of perpetuating wartime production patterns
rather than encouraging a shift to meet peacetime demands.
A long-term program, similar to that in the Agricultural Act
of 1948, embodying relatively low levels of support prices
which vary according to the size of the supply and which are
geared to a modernized parity formula, would seem more likely
to bring supplies into line with current levels of domestic and
foreign demand.
The farm price support program has been criticized in recent
years as a cause of high food prices. However, since 1942,
prices of crops and livestock have been on the whole well
above levels necessitating support operations except for the
past few months, so that any influence of the support program
on the general level of food prices must have been indirect.
Prices of most major crops averaged well above support levels
during the 1947-48 season, as shown in the accompanying
table. Only a few crops, notably potatoes, required extensive
support directly resulting in higher prices to the consumer
than would normally have been the case. But for the bulk of
the food items in the consumer’s budget, the price rises of
the postwar years have arisen from causes largely independent
of the farm price support program. In fact, by encouraging
increased production, the support program during and after
the war may have resulted in less extreme prices than would
otherwise have been the case. It is possible, however, that the
influence of price supports in the coming year may keep farm
prices higher than they otherwise might be, although in some
cases the magnitude of the current harvest and the lack of
suitable storage space have actually driven prices below support



Since last February, when its underlying rationale and prin­
ciples were discussed in these columns,1 the European Recovery
Program has formally come into existence and a new stream
of aid to Western Europe has started to flow. The decisive step
was taken on April 2, when Congress passed the Foreign As­
sistance Act of 1948; Within a week thereafter, an Economic
Cooperation Administration had been set up, Mr. Paul G. Hoff­
man had been appointed Administrator, and the new organiza­
tion had commenced its aid program by authorizing the pro­
curement of 21 million dollars of food for particularly needy
European countries.
That the new agency was able to begin operations so quickly
was due to the fact that considerable spade work had been
done in Paris by the Committee of European Economic Co­
operation and in Washington by various branches of the Gov­
ernment, and that personnel of other agencies, especially the
State Department, was at the ECA’s disposal for the initial
operations. The ECA, however, had to build up its own organ­
ization, not only in Washington and in Paris—the headquar­
ters of the United States Special Representative in Europe, Mr.
W. Averell Harriman—but also in the individual recipient
countries, where missions were established. This organizational
process, which even to date has not been fully completed,
tended to slow down operations in the first months of the
ECA’s operations.
The money for the first year of ERP operations (April 3,
1948 to April 2, 1949), moreover, was not appropriated until
June 20, when Congress passed the Foreign Aid Appropria­
tion Act, 1949. Thus, uncertainty with respect to the amount
which Congress would actually appropriate was another factor
slowing down operations of the ECA in its first months. The
ECA was in a position to authorize immediate aid in favor of
the recipient countries only because Congress, in an earlier
measure, had appropriated stopgap aid of 55 million dollars
(which was distributed by the State Department in collabora­
tion with the ECA), and, in the Foreign Assistance Act of 1948,
had authorized the Reconstruction Finance Corporation to ad­
vance 1 billion dollars to the ECA, pending appropriation of
ERP funds by Congress.
Disregarding the 55 million dollars of stopgap aid, the
ECA has at its disposal for the year ending April 2, 1949 an
aggregate of 5 billion dollars. Of this total, 4 billion dollars
has been appropriated, and 1 billion has been authorized as the
amount which the ECA may borrow from the Treasury for the
granting of ERP loans through the Export-Import Bank until
April 2, 1949. The 4 billion dollars is available until June
30, 1949, with the qualification that the entire amount may be
obligated and expended during the 12 months ending April 2,
1 The European Recovery Program, in the February 1948 issue of
this Review.



1949, if the President, upon recommendation of the ECA,
deems such action necessary. That the full amount may in fact
be spent within 12 months was suggested by the Presidents
request in his midyear budget message for an additional 1.5
billion dollars to cover the months April-June 1949.
During the first three months of ECA operations, the par­
ticipating countries could qualify for aid by signing so-called
"letters of intent”, in which they signified, in general terms,
their adherence to the purposes of the Foreign Assistance Act
of 1948, gave assurance of continuing efforts to accomplish a
joint recovery program, and expressed their intention to con­
clude formal agreements with the United States as provided for
in the Act. Such bilateral agreements, which qualified the par­
ticipating countries for aid after July 3, 1948, were sub­
sequently concluded between the United States and all the
European countries receiving American aid under the ERP.
These agreements specify the obligations of the contracting
countries, including commitments regarding financial stability
and the utilization of the so-called "counterpart funds” (the
local currencies that are paid into special, restricted accounts in
amounts equivalent to that part of ERP aid which is made
available in the form of grants).
In its report of September 22, 1947, which formed the basis
for the ERP discussions in Washington, the Committee of
European Economic Cooperation had estimated the aggregate
prospective balance-of-payments deficit of the cooperating
countries with the Western Hemisphere in the years 1948 to
1951, but had not made any suggestions concerning the geo­
graphical distribution of the proposed American aid. On the
basis of its own revision of the Paris estimates, however, the
State Department released on April 8, 1948 a breakdown of
the prospective aid by recipient countries. These estimates,
while designated as "illustrative” and not intended to prejudge
the views of the Administration, have become the pattern for
future aid under the ERP.
To make planning possible on the side of the recipient
countries, and to facilitate the work in the various divisions
of its own organization, the ECA has made quarterly allotments
permitting the commitment of funds on behalf of the various
recipient countries. In this way the ECA has allotted to the
individual recipient countries for the first three quarters of its
operations (April to December 1948) a total of 4,332 million
dollars in grants and loans, which, after allowance for 68
million of expenses and certain other outlays, leaves (of the
total available 5 billion) an uncommitted amount of 600 mil­
lion dollars for the first three months of 1949. For the last
three months of the calendar year 1948, relatively liberal allot­
ments (1,769 million) have been made in order to permit the
foreign governments to adopt the practice of making forward
commitments of funds in advance of purchase negotiations or

While the over-all programs for the distribution of aid have
to date been worked out in Washington in cooperation with
the recipient countries, the ECA has shifted the respon­
sibility for planning aid distribution to the participating coun­
tries themselves through the medium of the Organization for
European Economic Cooperation (OEEC), which those coun­
tries set up in Paris in April. In order to stimulate greater
initiative and cooperation among its members, Mr. Hoffman
requested the OEEC in June to draft a plan for the distribution
of ERP aid from July 1, 1948 to June 30, 1949. On September
11 the OEEC released provisional distribution schedules ag­
gregating 4,875 million dollars for that period. To become
effective, however, these schedules still require the ECA’s stamp
of approval.
It is a well known fact that payment difficulties have slowed
down intra-European trade and thus have contributed to an
uneconomic use of European resources. The OEEC, in col­
laboration with the ECA, has, therefore, worked out a plan
for increasing intra-European trade through mutual aid. Under
this plan, participating countries with active current account
balances vis-a-vis all other participants will receive part of their
dollar aid in the form of so-called "conditional” allotments. In
receiving these allotments, such countries must set aside
equivalent amounts in their own currencies for the purpose of
extending credits to participants with which they have active
balances. The OEEC, in dividing the aid for the fiscal year 1949,
Table I
Over-all Program for the Distribution of ECA Aid by Countries
(In millions of dollars)

Recipient country

United K ingd om .............

O EEC program (revised)
July 1948-June 1949
State Dept. E CA program
April 1948
A p rilUnited States Intra-Euro­
-M a r. 1949
Dee. 1948
pean aid**
1 ,2 5 0.9
1,0 7 8.6

1 ,2 3 5.0

1,2 6 3 .0
4 9 6 .Of

-2 8 2 .0
+ 3 2 3 .3
- 2 0.3
+ 7 1.7

4 1 3 .7
8 8 .7

3 6 3 .0
7 7 .3

4 1 4 .0
1 0 0 .0

8 7.0
6 0.0
7 2.0
6 .3

7 9.0
8 4.0
4 7.0
1 1.0
5 0.0

- 10.2
-2 0 7 .5
+ 6 3.5
6 .8


9 8.5
2 9.6
2 4.6
9 .8
9 .8

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

4 ,9 2 5 .0

4 ,3 3 1 .6

Germ any...........................
U. S .—British Z o n e .. . .
French Z o n e ..................
Belgium-Luxembourg. . .


+ 6 6.8
+ 31.8
- 2 5 .0



4 ,8 7 5 .0

* The figures in this column are recomputations of the State Department
estimates. The latter estimates had been made on the assumption that Con­
gress would make available 5,300 million dollars for the period April 1, 1948 to
March 31, 1949. Of this amount 5,222 million dollars was allocated for aid to
participating countries and 78 million for administrative and other expenses.
Since Congress made available 5 billion dollars only, the State Department
figures have been recomputed on the latter basis, after deducting 75 million
for expenses.
# As of September 22, 1948.
t Including 30 million dollars for Netherlands East Indies for the last quarter
of 1948.
t Including 84 million dollars for Netherlands East Indies.
** The figures for countries receiving “ conditional dollar allocations” and granting
intra-European aid are marked with a ( —) sign; figures for countries which are
recipients of such aid are marked with a ( + ) sign.



Table II
ECA Program and Procurement Authorizations by Countries
Contemplated aid program
April-September 1948 (revised#)
In millions of dollars

Recipient country


United Kingdom..................



United S tates-B ritish Zone
French Z o n e ........................



Procurement authorizations
April-September 22, 1948*

4 .0
3 4 .5


4 0 .0

In millions
of dollars


2 07.2



1 1. 1

3 7.0
3 0.0



3 8.1


9 0 .8
3 6.5

2 5.0

4 0 .0



2 .3

2 .3


9 .0

2 ,0 3 8 .3


In per cent
of total

T otal

2 ,5 6 2 .6

1 ,7 2 5 .9

9 .1

0 .7

2 .2

In per cent of con­
templated aid for
each country

7 3.3


9 1.3

0 .4

7 3.3



5 .3

# As of September 22, 1948.
* Latest available breakdown.

allocated, in addition to the direct aid granted by the United
States, the aid which individual countries would give in local
currencies on the basis of conditional allotments. An an­
nouncement concerning the latter is expected to be made by
the ECA when the OEEC has completed a reconciliation of cer­
tain discrepancies in the estimated debit and credit positions
of the countries in intra-European trade.
Table I gives a survey of the original State Department
program, the ECA program for the first three quarters of
operations, and the OEEC program both for dollar aid and
intra-European aid. The figures in the three sets of estimates
are not strictly comparable, because the time periods to which
they relate are not identical and the concept of aid has under­
gone a change. It is clear, however, that Britain and France
are the largest recipients of aid. Other major recipients are
the Bizone (i.e., the American and British-occupied zones of
Germany), Italy, and the Netherlands.
As can be seen from Table II, a little more than two thirds
of the ECA program for the first half year (April-September)
had actually been carried out through September 22 through the
issue of procurement authorizations.2 Close to the average of
authorizations for all countries were Italy and the Netherlands.
Authorizations were above the average for Austria, Denmark,
France, Greece, Norway, Trieste, and the Western Zones of
Germany, but below the average in the cases of Belgium-Luxem­
bourg and Britain. That the ECA, in its first half year of opera­
tions, reached only about two thirds of its goal may be at­
tributed to a variety of circumstances, including organizational

difficulties, uncertainty concerning Congressional appropria­
tions in the early months, procurement delays, and difficulties
over loan negotiations with foreign countries.
"Offshore” purchases, i.e., purchases made with ECA dollars
in countries other than the United States, had been estimated
in the Administrations "Outline of a European Recovery Pro­
gram” (December 1947) at about 40 per cent of the ag­
gregate amount of ERP aid to be made available in the period
April 1948-June 1949. Of the 1,124.2 million dollars of
procurement authorizations (excluding freight) issued up to
the end of August, 620.8 million or about 55 per cent had been
issued for purchases in the United States, and 503.4 million
or about 45 per cent for offshore purchases. The ratio of 40
per cent for offshore purchases originally envisaged by the
Administration is, therefore, being roughly observed.
The largest beneficiaries of offshore procurement authoriza­
tions to date have been Canada, with 222.6 million dollars
(mainly wheat, bacon, and aluminum), the "Bizone” with 43.1
million (mainly coal and coke), Iran with 34.3 million
(petroleum), Belgium with 27.2 million (mainly equipment,
steel, and phosphates), and the Netherlands West Indies with
21.7 million (petroleum). An aggregate of 146.4 million dollars
was authorized in the participating countries themselves and
76.7 million in Latin America.3 Very little procurement has
been authorized to date from Argentina because of price con­
ditions, but on August 12 the ECA announced that it was
giving serious study to procurement possibilities in Argentina
in view of the fact that that country had declared its willing­
ness to sell cereals and other products at world market prices.

2 With procurement allocations lagging behind, actual expenditures
have also lagged. Up to September 22 the Treasury had disbursed
3 This amount included 20.4 million dollars in Chile, 18.7 million
under ERP only 646 million dollars, which is about 38 per cent of
in Mexico, 14.6 million in Venezuela, 11.5 million in Cuba, 6.7 mil­
the procurement authorizations issued up to that date.
lion in Brazil, and 4.8 million in other Latin American countries.



In mid-September it was reported that freight cars had been
ordered for the "Bizone” from Hungary (2.3 million dollars)
and from Czechoslovakia (3 million dollars). These items
represent the first large orders under the ERP from countries
in the Russian sphere.
A breakdown by commodities of the 1,725.9 million dollars
of procurements authorized by the ECA through September 22
shows that 422.0 million had been allocated for wheat and
wheat flour, and 260.4 million for other foodstuffs. Other im­
portant items were coal (149.8 million), petroleum products
(151.4 million), and nonferrous metals (117.5 million). Ex­
ports of machinery, vehicles, and equipment (85.3 million)
and of such industrial raw materials as cotton (95.6 million),
were still on a rather moderate scale.
The expected improvement in world supplies of cereals and
later of dairy produce may allow certain ERP countries to
economize in their use of dollars for imported foods. A shift
in the commodity composition of ERP imports from food to
equipment would, therefore, seem desirable. But such a shift
assumes that equipment can be readily procured, which is
doubtful in view of the existing heavy demands on the Ameri­
can steel industry. The prospect, therefore, is that the ERP na­
tions may have to turn increasingly to one another in order to
obtain the industrial equipment needed for reconstruction and
development. This gives additional emphasis to the program
of allocating ECA dollars in such a way as to foster intraEuropean trade.
As noted above, Congress has authorized the ECA to borrow
1 billion dollars from the Treasury for the granting of loans
through the Export-Import Bank,4 and has appropriated an
additional 4 billion for the ERP. While loans may also be
made from the latter fund, it is generally believed that roughly
four fifths of the total of ERP funds will be made available in
the form of grants, and only about one fifth in the form of
loans. As can be seen from Table II, the ECA has followed this
ratio in its programming for the first half year of operations
by allocating 2,038.3 million dollars to grants and 524.3 mil­
lion to loans.5 According to these allocations, most countries
will receive both loans and grants. Austria, Greece, Trieste, and
the Western Zones of Germany will receive grants only;
Eire, Iceland, Sweden, and Turkey will be given loans only;
while Portugal and Switzerland will receive neither grants
nor loans, but will be able to obtain American goods in
short supply, otherwise unobtainable, through the procurement
and allocation systems set up under the program.
4 The 1 billion dollar fund may be reduced by the amount of guaran­
tees (of no more than 300 million) which the ECA may give to
encourage private investment projects within the framework of
the ERP.
5 The ECA’s program for the last three months of 1948 has not yet
been broken down by grants and loans. A breakdown will be released
when the ECA has completed its review of the OEEC program for
fiscal 1949.

To date, however, virtually all the aid actually extended
by the ECA has taken the form of grants. The only country
with which a loan agreement has been concluded is Iceland,
which has borrowed 2.3 million dollars for the acquisition
of fishing equipment. The loan agreement with Iceland pro­
vides for an interest rate of 3 per cent and for repayment in 10
years; principal payments are to start approximately three
years from the date of the first advance under the credit. Nego­
tiations on additional ECA loans, aggregating 700 million dol­
lars, are reported to be under way with Britain, Denmark,
Eire, France, Italy, the Netherlands, the Netherlands East
Indies, and Norway.

Sales of furniture stores in the Second Federal Reserve
District have continued to expand substantially in recent
months, as have those of housefurnishings departments in the
department stores and sales of durable goods generally. During
the first eight months of 1948, furniture stores that report
their sales to this bank did 15 per cent more business, measured
in dollars, than in the same period of 1947. Inasmuch as the
rise in average prices of furniture and of other housefurnish­
ings was well below 15 per cent (as indicated by the best
available price indexes), it appears that as much as half of this
rise in dollar sales may be attributed to increased physical vol­
ume. The still considerable backlog in demand, the further
rise of personal incomes, the growth of new housing, an easier
supply of merchandise of improved quality, and the availability
of consumer credit have all contributed to this increased volume
of furniture store sales.
An expansion of credit sales, practically all on an instalment
basis, has been a conspicuous factor in the growth of total
sales. Whereas during the first eight months of this year credit
sales of stores reporting by type of transaction increased 25
per cent over the corresponding period of 1947, cash sales were
only 1 per cent larger and were actually less than in 1946.
It may be noted that, although credit sales have expanded con­
tinuously since the end of the war, cash sales during 1947 had
already declined below the 1946 volume. Cash sales in both July
and August of 1948 were 24 per cent below cash sales in the
corresponding months of 1946, in contrast to gains of more
than 30 per cent in credit sales during the same interval.
Credit sales during the first eight months of 1948 ac­
counted for 79 per cent of total sales, against 75 per cent
during the same period last year. However, in 1941, the only
prewar year for which comparable data are available, credit
sales accounted for the unusually large proportion of 88 per
cent of that year’s total sales.
Along with the growth of credit sales, both accounts
receivable and collections have expanded. Because consumers
have tended more and more to take advantage of the full life

Sales and Stocks of Second District Furniture Stores*

Percentage change
1947 to 1948


End-ofmonth stocks





4 .2
3 .9
5 .2
4 .8

4 .3
4 .2
5 .4
5 .0

M onth
M a y ................................
A ug.................................

* Pertains only to the group of stores for which both sales and stocks data
are available.

of purchase contracts rather than to repay ahead of schedule,
and because in some cases there has been a lengthening of
terms, accounts receivable have risen faster than collections.
As a result, the collection ratio for an identical group of stores
has fallen, on the average, from 16 per cent in the first eight
months of 1947 to 14 per cent in the corresponding period this
The increased easiness of the furniture market at wholesale
and manufacturing levels is suggested by the prevalence of
enlarged store inventories despite rapidly advancing retail
sales. As a matter of fact, stocks expanded even more than
sales during late spring and early summer and the stock-sales
ratio rose accordingly.
Sales at Second District department stores during Septem­
ber rose less than seasonally, according to preliminary reports.
For the third quarter as a whole, sales on a seasonally adjusted
basis were almost 10 per cent greater than in the first quarter,
but somewhat less than in the second quarter.
Stocks increased somewhat more than seasonally during
August and at the end of that month were 12 per cent greater
in value than one year previous.
The dollar volume of new orders placed during August by
a group of the larger stores was less than that of a year ago;
this was the first year-to-year decrease in new orders in 12
months. As has been the case for most of 1948, these stores
also reported a lower volume of outstanding orders for the
end of August than for the corresponding time last year.
1948 Sp r in g Se a s o n
Second District department stores increased their dollar
sales by 6 per cent during the 1948 spring selling season
(February through July) in comparison with the spring
season of 1947. This was much the same increase as had
occurred last year, but the pattern of change among types of
goods was quite different, as can be seen in the accompany­
ing chart. Basement store sales this year did not duplicate
the large gains made during the previous spring season, while
main store sales conversely widened their gains. Housefur­
nishings exceeded last year’s fairly large increase and accounted
T he


for the largest share of this year’s expansion of total sales. In
apparel there was a decided shift towards women’s wear,
reflecting the success of the new styles which experienced
their first spring season this year, the end of restocking by
veterans, and some resistance to men’s apparel prices. Owing
to consumer resistance to advancing prices, the season was
characterized by widespread promotions and intensified com­
petition, particularly after the failure of Easter sales to meet
Accounting for close to one fourth of aggregate sales this
season, housefurnishings contributed practically one half of the
expansion in total sales. All departments in this group, with
two minor exceptions (oriental rugs and linoleum), partici­
pated in the increase. Sales of basic furniture—bedding and
upholstered pieces—were fully one-fifth larger than a year
ago. After evidence of lagging consumer interest at the turn
of the year, refrigerators made the most substantial gain in
the entire store, although other major household appliances
(washers, stoves, ironers) advanced but little. The radio
department improved by more than 10 per cent, largely because
of strong demand for television equipment. Trade sources
report the market for conventional radios to be very slow.
While the new styles in women’s clothing were generally
accepted, as indicated by a much wider gain for apparel than
for accessories, many customers were guided by price con­
siderations. Inexpensive dress lines more than doubled the
gain of better dress departments. Main store sales of coats
improved only to the same extent as better dresses (6 per
cent) and suits fell short of last year’s sales, in sharp contrast
Spring Season Sales at Second District Department Stores*
(Percentage increase 1946 to 1947 and 1947 to 1948)

X /Z //11946 TO 1947

^ 1 9 4 7 TO 1946






Wt ym r

H j





* The spring season covers the six months February through July.



Sales at Second District Department Stores During the
1948 Spring Season, by Major Departmental Groups


of sales

Percentage dis­
tribution of the
increase in sales
from 1947 to 1948







Total store.............................................................
M a i n ...................................................................
B a sem en t ............................................................
W om en’s wear......................................................
M en’s wear...........................................................
All other.................................................................

of the U. S. Bureau of Labor Statistics. The sharpest gains were
in housefurnishings departments, a result of greatly improved
supply as well as continued consumer demand. Ready-to-wear
stocks were in most instances enlarged, with the usual wide
differences among departments.
Department and Apparel Store Sales and Stocks, Second Federal Reserve
District, Percentage Change from the Preceding Year
Net sales

to basement sales, which showed a 13 per cent improvement
in coats and suits combined. Fur sales declined by fully 15
per cent. In accessories, the best season-to-season improve­
ment was in sales of hosiery, an item radically affected by the
change in styles. Many other accessories departments declined
or at best only equaled last year’s performance. On the whole,
sales of accessories were 3 per cent better compared with 8
per cent in the case of apparel.
Men’s wear barely exceeded last year’s dollar volume, and
men actually bought fewer units of clothing than they did in
the spring of 1947. In the spring of 1947 veterans were still
replenishing wardrobes, consequently buying in greater quan­
tity than normal replacement needs, and sales then were
markedly above the preceding year’s, as the chart shows. This
year’s sales are thus compared to those of an exceptional period.
Furthermore, the general pressure on consumer budgets from
other needs and from rising prices appears to have affected
the family outlay for men’s clothing. Retailing opinion is
that reduced prices will greatly enhance sales of men’s wear.
This has been indicated to some extent by the rapid move­
ment of specially promoted merchandise, and the better show­
ing in basement departments.
Inventory was dollarwise 11 per cent greater at the end of
the 1948 season than it had been a year before, when it
reflected several months of deliberate stock pruning by the
stores. Concerned over the possibility of price declines as
well as the need to liquidate fashion stocks in preparation for
the introduction of new styles in the following fall season,
stores had reduced their inventories during the 1947 spring
season. At the end of the spring season, inventories in physical
terms may have been about 2 per cent larger than a year ago,
judging by the LIFO department store inventory price indexes

August 1948
Department stores, Second D istrict-----

+ 5

+ 6


New York C ity ......................................
Northern New Jersey...........................

+ 3
+ 6
+ 5
- 9
- 5
- 7
+ 5
+ 8
+ 17
+ 12
+ 5
+ 5
+ 8
+ 6
+ 8
+ 3
- 2
+ 11

+ 5
+ 6
+ 5
+ 2
+ 1
- 1
+ 9
+ 11
+ 9
+ 7
+ 6
+ 9
+ 9
+ 5
+ 11
+ 6

+ 11
+ 8
+ 21
+ 21



+ 2

Westchester C ounty.............................
Fairfield C o u n ty ....................................
Lower Hudson River V alley...............
Upper Hudson River V alley...............
Central New Y ork S tate.....................
Mohawk River V alley.....................
Northern New Y ork State..................
Southern New Y ork State...................
Western New Y ork State....................
Niagara Falls......................................
Apparel stores (chiefly New Y ork C ity ).





Industrial production*, 1935-39 = 100........



















(Board o f Governors, Federal Reserve
S ystem )

Electric power output*, 1935-39 = 100........
(Federal Reserve B a nk o f N ew York)

Ton-miles of railway freight*, 1935-39 = 100
(Federal Reserve B a nk o f N ew York)

Sales of all retail stores*, 1935-39 = 100........
(Department o f Commerce)

Factory employment
United States, 1939 = 100..........................











360 p

















(Bureau o f Labor Statistics)

New York State, 1935-39 = 100................
( N .Y .S . D iv. o f Place, and U nem p. In s.)

Factory payrolls
United States, 1939 = 100..........................
(Bureau o f Labor Statistics)

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


(N . Y .S . D iv. o f Place, and Unem p. In s.)


(Department o f Commerce)

Indexes of Department Store Sales and Stocks
Second Federal Reserve District
(1 9 35 -3 9 average ~ 100 per cent)

Composite index of wages and salaries*!,
1939 = 100......................................................
(Federal Reserve B ank o f N ew York)

Consumers’ prices, 1935-39 = 100 ................
(Bureau o f Labor Statistics)




+ 8
+ 2

Indexes of Business

Personal income*#, 1935-39 = 100................


Stocks on
J a n .th ro u g h
August 1948 Aug. 31, 1948

Velocity of demand deposits*, 1935-39 = 100
(Federal Reserve B a nk o f N e w York)





Sales (average daily), unadjusted.................
Sales (average daily), seasonally a d ju sted ..





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





r Revised.

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

* Adjusted for seasonal variation.
p Preliminary.
r Revised.
# Revised beginning January 1944.
J A monthly release showing the 15 com ponent indexes of hourly and weekly
earnings in nonagricultural industries computed by this bank will be sent upon
request. Tabulations of the monthly indexes, 1938 to date, may also be pro­
cured from the Research Department, Dom estic Research Division.




National Summary of Business Conditions
(Summarized by the Board of Governors of the Federal Reserve System, September 28, 1948)
T NDUSTRIAL output in August and the early part of September regained most of the decline which
J- occurred in July. Department store sales showed about the usual marked seasonal increase. Prices
of some additional industrial products were raised, while prices of farm products and foods generally
declined somewhat from the beginning of August to the latter part of September.
I n d u s t r i a l Pr o d u c t i o n

Federal Reserve indexes. Monthly figures; latest
shown are for August.

The Board’s seasonally adjusted index of industrial production was 190 per cent of the 1935-39
average in August, as compared with 186 per cent in July and 192 per cent in June. Most of the
increase in August reflected larger output of nondurable goods, but activity in these lines was about 2
per cent below the June rate.
Steel production increased in August and was at a rate of 93 per cent of capacity. During Sep­
tember steel mill activity has been scheduled at a somewhat higher rate. Output of lumber and of
stone, clay and glass products was somewhat larger in August than in the preceding month. Activity
in the automotive industry, however, decreased in August and in the early part of September, prima­
rily as a result of work stoppages at plants of parts suppliers and shortages of sheet steel. Output of
most other durable goods continued in August at about the July rate.
Production in nondurable goods industries in August recovered most of the decline shown in
July, when plant-wide vacations sharply reduced output of textiles, leather, paper, and some other
products. Cotton consumption rose 11 per cent in August but was at a rate somewhat below the same
month a year ago. Shoe production showed a marked seasonal gain in August, according to trade
estimates. Activity also increased in the paper and printing, chemicals, and rubber products industries.
Output of manufactured foods, on the other hand, declined in August, reflecting mainly a further
sharp reduction in the volume of meat production and a less than seasonal rise in the canning industry.
Production of fuels increased in August and was at a rate 7 per cent above the same period a year
ago. Output at metal mines remained at the July rate. In the early part of September crude petroleum
output declined somewhat as a result of a West Coast refinery strike.
Co n s t r u c t io n

Bureau of Labor Statistics' estimates adjusted for sea­
sonal variation by Federal Reserve. Proprietors
and domestic servants are excluded. Mid­
month figures; latest shown are for

Value of construction contracts awarded in August, according to reports of the F. W . Dodge Cor­
poration, declined moderately from the high levels of recent months. The number of new nonfarm
dwelling units started in August was 83,000, as compared with 94,000 in July and a peak of 98,800
in April, according to preliminary estimates of the Bureau of Labor Statistics. Value of construction
activity on jobs under way continued to increase during August.
D is t r ib u t io n

Department store sales during August and the first half of September showed about the usual
marked seasonal expansion and the Board’s adjusted index for the third quarter is likely to be slightly
higher than the level during the second quarter, when the index was 309 per cent of the 1935-39
Loadings of railroad revenue freight increased in August, largely as a result of increased loadings
of coal and miscellaneous merchandise. Shipments of grain decreased somewhat from the high July
level, and livestock shipments increased less than normally for this season.
C o m m o d i t y P r ic e s

The general wholesale price index declined 1 per cent in the latter part of August but advanced
again in the middle of September, reflecting chiefly fluctuations in meat prices. In the latter part of
September wholesale prices of farm products and foods, including meats, were somewhat lower than
in the early part of August, while average prices of industrial products were higher.
The consumers’ price index increased further by one-half per cent from mid-July to mid-August,
reflecting advances in prices of all major groups of items except foods. Retail food prices, following
a rise of 7 per cent from March to July, have apparently shown little change since that time.
Ba n k
Bureau of Labor Statistics' indexes. “ All items” in­
cludes housefurnishings, fuel, and^ miscellaneous
groups not shown separately. Midmonth fig­
ures; latest shown are for August.

In t e r e s t R a t e s

Wednesday figures; latest shown are
for September 22.

C r e d it

Federal Reserve System support purchases of United States Government bonds sold by insurance
companies and other nonbank investors continued heavy in August and the first half of September.
System sales of short-term Government securities both to banks and others were also large, and the
total portfolio of Government securities was little changed. In the first half of September bank
reserves were substantially increased by a decline in Treasury balances at the Reserve Banks,
but in the third week of the month these balances were rebuilt by large tax receipts.
In the early part of September the Board of Governors announced an increase in reserve require­
ments of 2 percentage points on net demand deposits and l */2 percentage points on time deposits,
effective September 16 for member banks outside reserve cities and September 24 for reserve city and
central reserve city banks. This action increased by 2 billion dollars the amount of reserves that mem­
ber banks are required to hold.
Pursuant to legislative authority granted in August, the Board of Governors reinstituted the regu­
lation of consumer instalment credit, effective September 20.
Commercial and industrial loans increased by 700 million dollars at banks in leading cities in
August and the first half of September. Real estate and consumer loans also expanded further. Bank
holdings of Government securities were little changed, despite the retirement for cash of about 400
million dollars of bank-owned Government bonds on September 15.

S e c u r it y M a r k e t s

Interest rates showed little further change in the first three weeks of September, following a rise
in short-term money market rates in August. Common stock prices showed further moderate weak­
ness, but prices of high-grade corporate and municipal bonds changed only slightly.