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MONTHLY REVIEW
O

f

F E D E R A L

V o l u m e

34

C r e d it

a n d

R E S E R V E

B u s in e s s

B A N K

C o n d itio n s

O F

N E W

OCTOBER1952

Y O R K

No. 10

MONEY M ARKET IN SEPTEMBER

T he unrelieved tightness in the m oney m arket that had per cent certificates of indebtedness m aturing O ctober 1. (A t
prevailed over the sum m er m onths this year was still in the tim e of the opening of the books, the Federal Reserve
evidence during the early part of Septem ber. By the m id­ Banks held 6.8 billion dollars of the m aturing certificates so
dle of the m onth, how ever, the pressure on bank reserves that only 4.1 billion dollars w ere held by the m arket.) Books
had abated considerably, and in the next ten days the m arket were open from Septem ber 15 to 18, and exchange subscrip­
developed greater ease than has existed at any tim e since tions (including Federal Reserve subscriptions) were received
at least last June. T he im portant sources of funds in this totaling 97 per cent of the m aturing issue. O n Septem ber 24
period were: (1 ) substantial net Treasury disbursem ents the Treasury announced that it w ould offer on October 3
as the Treasury not only allowed its deposits w ith the approxim ately 2.5 billion dollars of tax anticipation bills to be
Federal Reserve Banks to run dow n in anticipation of cash dated O ctober 8 and to m ature M arch 18, 1953. T he new bills
receipts after the Septem ber 15 tax date but also borrow ed w ill be acceptable at face value in paym ent of incom e and
tem porarily on special certificates directly from the Federal profits taxes due M arch 15, 1953. Paym ent for the bills may
Reserve Banks, (2 ) the custom ary m idm onth grow th in be m ade in cash or, in the case of qualified depositary banks,
Federal Reserve float, and (3 ) Federal Reserve security by credit to the T reasury’s T ax and Loan Account.
purchases after the m iddle of the m onth in aid of the
Business loans of weekly reporting m em ber banks increased
Treasury’s refunding of securities m aturing on October 1. seasonally over the first three statem ent weeks in Septem ber,
In the rem ainder of the m onth the Treasury and float influ­ w ith the largest part of the increase concentrated in loans to
ences were reversed, tending to restore a degree of firmness com m odity dealers, food, liquor, and tobacco firms, and
to the m oney m arket.
sales finance companies. R eductions in bank holdings of G ov­
Yields on short-term issues in the G overnm ent security ernm ent securities over this period offset a large part of
m arket tended to m irror the developm ents in the m oney the increase in the total of business loans, real estate loans,
m arket. T he m arked firmness early in the m onth was and consum er loans, how ever, so that the total loans and
reversed, and m arket yields, particularly on Treasury bills, investm ents of reporting banks were only m oderately higher
m oved low er after the books were opened on Septem ber 15 for Septem ber (through the 1 7 th ).
for the Treasury’s exchange offering for its certificates
m aturing October 1. As m oney becam e som ew hat less easy
tow ard the end of Septem ber, short-term yields m oved up
CONTENTS
nearer to their earlier levels. Prices of interm ediate and
Money Market in S e p te m b e r ...............................141
long-term issues, both bank eligible and restricted, tended to
m ove steadily low er over the m onth, reflecting further adjust­
The Pressures on P r i c e s ...................................... .144
m ent to the higher level of yields on new corporate and
Selected E conom ic Indicators ........................... .147
m unicipal bond offerings and the higher rates offered on
Recent E conom ic and Financial Developments
new issues of shorter-term Treasury securities.
in France ............................................................. .147
T he Treasury’s financing program in Septem ber involved an
offering of 2 Y s per cent fourteen-m onth Treasury notes to
Department Store Trade .................................... ..151
m ature D ecem ber 1, 1953 for the 10.9 billion dollars of V/s




142

MONTHLY REVIEW, OCTOBER 1952
M em ber B a n k R eserv es

Excess reserves held by m em ber banks on Septem ber 3, the
close of the first statem ent week of the m onth, totaled only
242 m illion dollars, one-fourth as m uch as the 968 m illion
dollars of m em ber bank indebtedness to the Federal Reserve
Banks. In that week, currency in circulation had increased by
m ore than a quarter of a billion dollars to m eet the m onthend and Labor Day w eek-end dem and for currency, as shown
in the accom panying table. In the follow ing week the pres­
sures on bank reserves eased considerably, largely as the result
of a sizable volum e of funds supplied to the m arket through
Treasury outlays in excess of receipts in its accounts w ith the
Federal Reserve Banks.
T he easing in bank reserve positions that had begun in the
statem ent week ended Septem ber 10 was further extended in
the follow ing week. Federal Reserve float, which had begun
to increase early in the m onth, expanded rapidly over the
m iddle of Septem ber, reaching a peak on Septem ber 18 nearly
600 m illion dollars higher than the end-of-A ugust total. The
Treasury p u t additional funds into the m arket in the week of
the 17th, m aking a two-w eek total of approxim ately one bil­
lion dollars from this source. T he net outlay grew out of the
fact that the Treasury lim ited calls on its com m ercial bank
depositaries im m ediately prior to the tax collection period
w hile m eeting its expenditures by draw ing on its Reserve
Bank deposits, w hich were created in part by selling short­
term special certificates to the Federal Reserve Banks.
Funds supplied through the purchase of G overnm ent securi­
ties by the Federal Reserve System, including m arket purchases
of short-term securities for System A ccount and purchases from
dealers by the Federal Reserve Bank of N ew Y ork under
W e e k ly Changes in F actors Tending to Increase or D ecrease
M em ber B ank R eserves, Septem ber 1952
(In m illions of d o llars; ( + ) denotes increase,
(— ) decrease in excess reserves)
Statement weeks ended
Sept.
3

Sept.
10

Sept.
17

Sept.
24

Four
weeks
ended
Sept.
24

Operating transactions
Treasury operations*...................
Federal Reserve float...................
Currency in circulation..............
Gold and foreign account..........
Other deposits, e tc .......................

- 11
+ 51
-2 6 2
+ 34
- 12

+376
+ 98
+ 27
+ 26
+ 94

+343
+432
+ 72
- 32
- 32

-2 5 0
-4 5 3
+ 45
+ 92
+ 19

+458
+ 128
-1 1 8
+ 120
+ 69

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

-1 9 8

+622

+782

-5 4 8

+658

+
+

90
71

+
-

47
89

+511
-5 6 6

+

25
87

+623
-4 9 7

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

+161

-

42

-

+

62

+126

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

- 37
+127

+580
3

+727
-3 4 2

-4 8 6
+ 29

+784
-1 8 9

Ex ce ss reserves.....................................

+

+577

+385

-4 5 7

+595

Factor

D irect Federal Reserve credit trans­
actions
Government securities................
Discounts and advances.............

90

55

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




repurchase agreem ent, were another im portant source of bank
reserves at one tim e or another in the first three statem ent
weeks of Septem ber. T he largest part of such purchases fell
in the third week w hen substantial purchases of the certificates
m aturing October 1 were m ade in order to aid the Treasury
in its refunding operation. These purchases were partly offset
by resales of short-term securities to dealers. T he net release
of Federal Reserve credit (other than through float) was
reduced, how ever, since reserves released through System
security operations were offset in large part by a reduction of
bank borrow ing from the Reserve Banks.
D uring the last third of Septem ber, the factors that earlier
had created ease were reversed and a m arked loss of bank
reserves occurred. T he Treasury w ithdrew funds from its bank
depositaries to rebuild its balances w ith the Reserve Banks and
retire the special certificates, and float receded sharply from its
m idm onth levels. D espite the substantial drain on bank re­
serves in the latter part of the m onth, how ever, m em ber banks
were still in an easier reserve position at the end of Septem ber
than they were at the end of A ugust, as evidenced by a low er
volum e of borrow ings from the Federal Reserve Banks and by
the increase in excess reserves held by m em ber banks.
Federal funds rates in the N ew Y ork m oney m arket,
w hich had held alm ost continuously at l 1:L/ {e per cent for
two m onths prior to m id-Septem ber, reflected the easing
in bank reserves at that tim e, and funds were traded at
rates as low as Vs o f 1 per cent. N ew Y ork City banks,
which had entered Septem ber in a tight reserve position,
were able, by the third statem ent week, to repay alm ost all of
their indebtedness to the Federal Reserve Bank. City banks
tended to lose reserves through an outflow of funds during the
period w hen the m arket was easing, as receipts from the
Septem ber 15 Treasury interest paym ent and from the sale of
G overnm ent securities in the m arket were transferred out of
N ew York, but losses of reserve balances from this source
w ere m ore than com pensated by Treasury and Federal Reserve
outlays. Excess reserves held by N ew Y ork City banks con­
tinued to increase through the fourth statem ent week, and the
N ew Y ork m oney m arket rem ained com paratively easy until
the closing days of the m onth.
T r e a s u r y Fi n a n c i n g a n d t h e G o v e r n m e n t
Se c u r it y M a r k e t

T he m arket for short-term G overnm ent securities was rela­
tively quiet during the first twelve days of Septem ber as the
m arket w aited for the Treasury announcem ent on the refund­
ing of the O ctober 1, 1952 certificates of indebtedness. M arket
yields on Treasury bills and certificates m oved m oderately
low er early in the m onth as bank selling tapered off and non­
bank buying continued in some volum e, but a reversal of these
influences had brought yields back to their end-of-A ugust

F ED ER AL R ESER VE B A N K OF N E W Y O R K

levels by the tim e of the Treasury refunding announcem ent
on Septem ber 12. A m odest volum e of short-term securities
was acquired by the Federal Reserve Bank of N ew Y ork under
repurchase agreem ents at this tim e to aid dealers in carrying
their positions.
Subscription books were open from Septem ber 15 to 18 on
exchange of the m aturing O ctober 1 certificates of indebtedness
for the Treasury offering of 2 Vs per cent Series A notes of
D ecem ber 1, 1953. As indicated by the accom panying chart,
the term s on the new offering were in line w ith m arket yields,
and a small prem ium on the "rights” was established in the
m arket during the refunding period. T he m arket m aintained
a sm all prem ium on the new issue in "when-issued” trading
over the rem ainder of the m onth. H owever, the general rate
uncertainty and the desire of some corporate investors (unw ill­
ing or unable to accept exchange into a security of m ore than
one-year m aturity) to effect their ow n "refunding” in the m ar­
ket created the possibility of substantial cash redem ptions of
the m aturing certificates. In view of this situation, the Federal
Reserve System engaged in m arket purchases to help the m ar­
ket carry out an orderly redistribution of the "rights”.
Funds acquired by the sellers of the m aturing issue were
reflected in a strong reinvestm ent dem and for other short-term
issues, particularly Treasury bills, and active trading took
place at steadily declining m arket rates. T he effect on bill
yields in the week ended Septem ber 17 is strikingly illustrated
in the chart. Yields were further influenced by bank dem and
for bills as bank reserve positions eased at m idm onth. M oney
m arket ease and the reinvestm ent of nonbank funds derived
from sales of the "rights” continued to be an influence in the
m arket after the books closed, and only in the last few days
of Septem ber did short-term yields m ove appreciably higher.
Average issue rates on new bills followed the pattern of m ar­
ket yields, declining from 1.884 per cent and 1.850 per cent
on the issues dated Septem ber 4 and 11, respectively, to 1.774
per cent on the Septem ber 18 issue and to 1.635 per cent on
the bill dated Septem ber 25. T he issue to be dated O ctober 2,
offered for bids Septem ber 29, was awarded at 1.760 per cent
average issue rate.
Prices of interm ediate and long-term taxable G overnm ent
securities, after rem aining steady in thin trading during the
early part of Septem ber, turned low er throughout the list in
the second statem ent week. T his m ovem ent largely reflected
further adjustm ent to the rising pattern of short-term yields
this sum m er, uncertainty as to the outlook for interest rates
generally, and the slowness w ith w hich recent issues of cor­
porate and m unicipal bonds had m oved out of underw riters’
hands. Prices of the interm ediate and long-term securities
continued their dow nw ard adjustm ent through the rem ainder
of Septem ber, registering losses for the m onth of as m uch as
lV/k to 1 Ys points in the case of the longest bank-eligible and




143

Market Bids on Treasury Bills and Estimated Yields* on
T w elve-M onth Certificates of Indebtedness
(W ednesday figures, June 18-September 24, 1952)

* Owing to the fact that at most times there is no single issue exactly twelve
months from maturity, estimated twelve-month yields have been derived
from a plotted curve of actual yields on securities around this maturity.

restricted issues. A fair volum e of two-way trading developed
in the interm ediate bank-eligible bonds during the last half
of the m onth, but the ineligible m arket rem ained inactive.
M e m b e r B a n k C r e d it

Commercial, industrial, and agricultural loans of the weekly
reporting m em ber banks in 94 large cities w ere increased by
597 m illion dollars in the three weeks ended Septem ber 17,
follow ing a gradual uptu rn in the preceding four weeks. This
brought the net increase in this form of bank credit since
m idyear (Ju ne 25) to 732 m illion dollars. In the correspond­
ing period in 1951, betw een June 27 and Septem ber 19, such
loans increased by 718 m illion dollars. In 1950 they increased
by 1,915 m illion dollars betw een June 28 and Septem ber 20.
Borrowings by com m odity dealers and the food and tobacco
m anufacturing group have increased som ew hat m ore this year
than last, w hile borrow ings by m etal products m anufacturers
have shown net reductions since June this year (presum ably
due to the steel strik e), contrary to the tendency last year.
In the first three statem ent weeks real estate and consum er
loans of the weekly reporting banks also continued to increase,
by 61 m illion dollars and 88 m illion dollars, respectively. For
the year through Septem ber 17, 1952, real estate loans held
by reporting banks have increased 198 m illion dollars and
"other loans”— largely consum er loans— have risen 561 m il­
lion dollars. In the corresponding period last year, real estate
loans increased 325 m illion, but "other loans” increased only
28 m illion, reflecting the restrictions on consum er credit then
in force.

MONTHLY REVIEW, OCTOBER 1952

144

W hile the net increase since June 25 in loans held by the
weekly reporting m em ber banks am ounts to some 940 m illion
dollars and investm ents in "other” securities have increased
by another 226 m illion dollars, the increase in total loans and
investm ents of these institutions over this period am ounts to
but 606 m illion dollars, reflecting a sharp reduction in G overn­
m ent security holdings. In the first m onth of the period—
betw een June 25 and July 30— despite a small decrease in
loans, the total of loans and investm ents in this group of banks
increased by 702 m illion dollars. This was largely the result
of bank purchases on original subscription and through the

m arket of large quantities of the new 2 Ys per cent interm edi­
ate Treasury bonds issued on July 1. Since July 30 a bank loan
expansion of some 1,200 m illion dollars has been m ore than
offset by bank sales of G overnm ent securities totaling approxi­
m ately 1,340 m illion dollars. T he prim ary cause was the credit
policy of the Federal Reserve System w hich m ade it necessary
for the banks to dispose of investm ents and also to borrow
to obtain additional reserves during m ost of the period. The
result has been a net decline in loan and investm ent credit
of the weekly reporting banks over the period of seasonal loan
expansion thus far this year.

THE PRESSURES ON PRICES

T he rapid recovery of production from the effects of the
long steel strike has once again em phasized the enorm ous
strength and adaptability of the A m erican economy. Partly as
a result of the need to catch up on production after the strike, a
high level of industrial activity, backed by strong dem and from
consumers, business, and governm ent, seems assured for the
rem ainder of 1952 and the early m onths of 1953. A t the same
tim e, prices of some im portant raw m aterials, wages in basic
industries, and freight costs have all been rising in recent
m onths. C onsidering the pattern of rising costs and the high
level of dem and in prospect for the m onths ahead, there would
seem to be grounds for apprehension concerning the possible
recurrence of the w age-price spiral w hich characterized the
Prices and W ages Since the Start of the K orean W ar
(June 1950=100 per cent)

* Average hourly earnings of wage earners in nonagricultural industries;
August 1952 index partly estimated.
Sources: Price indexes from U . S. Bureau of Labor Statistics; earnings index
from Federal Reserve Bank of New York. A ll series converted to June
1950 base by the Federal Reserve Bank of New York.




early postw ar years. O n the other hand, there are now strong
forces w orking against inflation, the m ost im portant of which
are the nation’s increased capacity to m eet both defense and
civilian demands, the continued cautious buying by business­
m en and consumers, and a m onetary policy better equipped to
cope w ith an inflationary situation.
C o n t r a s t in g P r ice

and

W

age

M ovem ents

In appraising the im pact of recent price increases in basic
m aterials, it should be rem em bered that we have just passed
through a period w hich illustrates clearly that changes in basic
com m odity prices do not necessarily have a com m ensurate
im pact at retail levels. D u rin g the first tw o years of the K orean
war, consum ers’ prices and wholesale prices both rose 11 per
cent. But, as the accom panying chart shows, the m ovem ents of
these two index num bers were anything but parallel during this
period. Prices paid by consumers have risen gradually but
alm ost steadily for m ore than tw o years. W holesale prices, on
the other hand, rose m uch m ore sharply at first, b u t subse­
quently experienced a protracted decline. T he advance and sub­
sequent drop in prices of a selected group of basic com m odities
was even m ore extrem e.
These contrasting m ovem ents are not so paradoxical as they
may seem at first glance. Prices of finished goods at retail tend
to lag behind and are traditionally m ore stable than the prices
of raw and sem ifinished m aterials (w hich constitute the
bulk of the wholesale price in dex). R ising wages, freight rates,
and other costs have increased the costs of processing and dis­
tributing consum ers’ goods, in some cases m ore than offsetting
the decline from the peak in costs of m aterials. A t the same
time, because of the m ethod of collecting data, the consum ers’
price index has not fully reflected the decline in actual selling
prices of certain types of goods through special prom otions,
m arkdowns, or discounts. In addition, rents and prices of mis
cellaneous services, w hich have contributed strongly to the rise

FED ER AL RESER VE B A N K OF N E W Y O R K

145

Changes in W h o le s a le and C onsum ers’ Prices
in the consum ers’ price index, are not included in the index of
Since the Start of the K orean W a r
wholesale prices.
Per cent change
T he decline in wholesale prices betw een the record set in
February 1951 and the subsequent low in June 1952 was a
June 1952
February
June 1950
Index number
to August
to February
1951 to
general but gradual one, am ounting to 5 per cent over the
1952
June 1952
1951
sixteen-m onth period. As shown in the accom panying table, Consumers' prices
+ 3
+ 8
+ 1
wholesale prices of foods and m ost other consum er goods cate­
+ 2
+ 2
+11
*
0
+ 9
gories declined som ew hat less than that. In the same period,
*
- 3
Housefurnishings..................................
+13
Fuel, electricity, and refrigeration.
+ 2
+ 3
+ 1
the index of consum ers’ (retail) prices increased 3 per cent.
*
+ 6
+ 2
*
+ 6
Miscellaneous.........................................
+ 6
This rise reflected further increases in retail food prices and a
steady rise in rents and prices of m iscellaneous goods and serv­ Wholesale jjrices
- 5
+ 16
+ 1
+ 3
- 2
+17
All foods...................................................
ices. In the last few m onths, both indexes have advanced about
- 1
- 4
+13
*
-1 1
Footwear..................................................
+21
1 per cent. T he increase in consum ers’ prices has been centered
Furniture and other household
0
- 3
durables................................................
+11
in food, fuel, and rents, and there has been continued weakness
*
- 1
Fuel, power, and lighting materials
+ 5
in prices of apparel and housefurnishings.
Basic commodity prices
*
-2 5
+46
General (28 commodities).....................
T he rise in the cost of living has resulted in wage increases
-1 2
+22
+ 2
Foodstuffs................................................
for autom obile, railroad, and textile workers and others covered
comparing the
the
by cost-of-living escalator clauses in their wage contracts. A t Note: Caution is necessary intheir counterpartsmovements of components ofsince
consumers’ price index with
in the wholesale price index,
the commodities included in each category and the weights assigned to them
the same tim e, it has lent added em phasis to dem ands of unions
are not the same.
* Change
one half
already seeking to m atch the wage increases recently gained by Source: U.ofS.less than of Labor of one per cent.
Bureau
Statistics.
steel and alum inum workers and coal m iners. These develop­
m ents seem likely to extend the fairly steady advance in the
Prices of the other tw o m ajor m etals have also gone up.
general level of hourly wages in nonagricultural industries since T he alum inum industry granted wage increases roughly equiv­
the outbreak of w ar in Korea. T he over-all increase in this alent to those in the steel industry and has also been allowed
period has been slightly greater than the rise in either w hole­ a price increase of approxim ately 5 per cent. A lthough the
sale or consum ers’ prices. M ost of this net gain has been basic price of dom estic copper has not been changed, the
achieved since the beginning of 1952. D uring the first year Office of Price Stabilization has allowed higher prices for
and a half of the K orean war, the rate of increase in nonagri­ im ported copper and for the output of certain high-cost dom es­
cultural wages barely kept pace w ith the percentage rise in the tic producers. T he OPS has also ruled that m anufacturers may
cost of living, and lagged well behind the increase in wholesale raise their prices to pass along increased costs resulting from
prices.
the higher prices of steel, copper, and alum inum . Lead p ro­
ducers have recovered part of their earlier price cuts, while
T h e "P u s h ” o n P rices
T he large-scale w ork stoppages and wage negotiations in the price of zinc has declined, recovered, and declined again
recent m onths have brought about m arked increases in business in little m ore than tw o m onths.
Prices of some basic nondurable goods have also been
costs, through both higher wage rates and higher costs of raw
advancing after a prolonged decline. For m any of these item s,
m aterials. In the steel industry, the strike settlem ent was fol­
lowed by an increase in the ceiling price of steel products which such as rayon yarn or cotton sheeting, the increases have
varied for different types and grades but averaged out to around represented only a partial recovery of the price cuts or con­
5 per cent. ( T he com posite base price of finished steel, as com ­ cessions which had been m ade earlier to help m ove heavy
puted by T h e Iro n A g e , rose from $82.62 per ton to $87.52.) inventories. T he recent wage settlem ent in coal m ining raises
Subsequently, iron ore and pig iron prices were also increased. the possibility of some increase in fuel costs, although heavy
For m any m etal-fabricating plants, however, m eeting the steel stocks above ground have kept coal prices below their ceiling.
industry wage pattern and paying higher m ill prices was only
A ltogether, the upw ard pressure on prices from rising costs
the beginning of the increase in costs. T he dislocations and is a strong one, em bodying higher raw m aterials, labor, dis­
unbalanced inventories caused by the steel strike entailed extra tribution and overhead costs for m any lines. A t the same
costs in procuring scarce item s needed to keep production roll­ tim e, the push of higher costs is augm ented by the pull of
ing and in piecing out lim ited allotm ents through purchases of increased dem and. D efense spending is still rising and is
foreign or "conversion” steel at prem ium prices. (H ow ever, scheduled to continue increasing until the m iddle of 1953.
m any firms have been reluctant to enter into prem ium price M oreover, the prospect continues for a considerable shortfall
arrangem ents la stin g beyond the next few m onths, indicating of G overnm ent cash revenues below cash expenditures, w ith
their belief in an early easing of steel supplies.)
the related possibility that this deficit may be financed in some




146

MONTHLY REVIEW, OCTOBER 1952

degree by a further expansion of bank credit. Businessm en
have also recently indicated their intention of m aking recordbreaking expenditures on new plant and equipm ent during
the second half of 1952. M ost of the em barrassingly large
inventories w hich depressed prices in 1951 and early 1952
have now been w orked off, and as a result processors and
distributors have stepped up their purchases to a rate which
is m ore closely in line w ith current sales volume. M any mills
w hich a year ago w ere operating on a hand-to-m outh basis
now have com fortable backlogs of orders. C onsum er dem and
has also show n signs of picking up after a long period of
subnorm al buying interest. Incom es and savings, except in
areas affected by the steel strike, have been at or near record
levels. R etail sales of nondurable goods were close to a record
in A ugust ( after adjustm ent for seasonal variation). Some
increase in the dem and for durable goods also appeared earlier
this year, particularly after the lifting of consum er credit
controls. In the last few m onths, however, the reduced sup­
plies of autom obiles ow ing to the steel strike have cut into
retail sales of durable goods. A recent survey indicates that
an increasing num ber ( though still a m in o rity ) of consumers
are becom ing reconciled to current price levels and think that
this is "a good tim e to buy”.
R estr a in ts o n P r ice R ises
N evertheless, current dem and by business and consumers
cannot com pare in intensity w ith the surges of scare buying
which followed the outbreak of w ar in Korea. Today, both
businessm en and consum ers tend to retain m uch of the cautious
attitude in buying w hich they learned from their experiences in
those scare-buying sprees. It is w orth noting that recent short­
ages of some m akes of passenger cars, together w ith the possi­
bility of an increase in prices, have failed to touch off a buying
rush. Consum ers are in a m uch better position to defer their
purchases than they were during m ost of the postw ar period,
and m ost of them are still extrem ely price conscious. D istribu­
tors have tended to be cautious in their ordering, despite their
anticipation of a good fall season. Some retailers are reported
to be losing sales because they are understocked.
In fact, there appears to be genuine reluctance on the part of
some m anufacturers to raise prices, even w here the OPS has
suspended controls or allowed a pass-through of higher costs.
C om petition is still keen, and the m em ory of last years price
resistance is still fresh. In some cases, however, the squeeze of
higher costs on profits w ill m ake price increases virtually
unavoidable.




The m ajor force which should keep these price increases
w ithin reasonable lim its is the n atio n s ever-grow ing capacity
for production. In the last few years, industry has dem on­
strated its ability to m eet defense and civilian needs sim ultane­
ously— not only to provide both “guns and b u tter”, but at the
same tim e to expand capacity and build up inventories. In fact,
we have come through a prolonged defense build-up w ith vir
tually no accum ulated backlog of dem and for consum er durable
goods. Basic industrial capacity is still being expanded and
strengthened; w hether or not next years plant and equipm ent
expenditures m atch the 1952 record, they will still constitute a
significant addition to facilities. A t the same tim e it should be
rem em bered that, although defense expenditures will continue
to rise well into 1953, the physical dem ands w hich the present
defense program will m ake on m aterials, m anpow er, and facili­
ties are already nearing their peaks. Thus, the potentially infla­
tionary pressure of the defense program , in term s of existing
defense plans, will not continue to increase m uch longer,
although it is expected that defense spending will rem ain at
this high level for at least tw o years more.
Agriculture, as well as industry, has increased output.
D espite a declining farm labor force and drought conditions in
some areas, this years harvest prom ises to be the second or
third largest on record. T he num ber of livestock on farms
is the highest since 1946. C attle m arketings have been u n ­
usually heavy, and, w ith the easing of fears of even m ore
extensive drought damage, farm prices drifted slightly lower
in A ugust and Septem ber, offsetting part of the im pact on
the general wholesale price level of increased prices of metals.
In fact, farm prices in the fourth week of Septem ber were
at the lowest level since N ovem ber 1950.
On the whole, then, the price level will be subject to strong
pressures from both directions. Some further spread of the
price increases w hich have already occurred may be expected
if only because of the pinch p u t on the profits of m any cor­
porations by the rising costs of labor and m aterials. A dditional
wage increases are already in prospect, w hich w ill only add
to the pressure on a price situation in which there are cur­
rently few noticeable weak spots. Nevertheless, the n ation s
huge and still grow ing industrial capacity appears m ore than
capable of m eeting the very high level of dem and in prospect
for the m onths ahead. M any lines of business are still highly
com petitive, and consum ers are still price conscious. Barring,
of course, a drastic change in the international situation which
could cause a sharp expansion of the defense program or a
shift in consum er attitudes, a sustained resum ption of strong
inflationary pressures does not seem likely.

F E D ER AL R ESER VE B A N K OF N E W Y O R K

147

S E L E C T E D E C O N O M IC IN D IC A T O R S
U nited S tates and Second Federal R eserve D istrict

Percentage change
1952
Item

1951

Unit
August

July

June

August

Latest month Latest month
from previous from year
month
earlier

U N IT E D STATE S
Production and trade

Industrial production*......................................................................
Electric power output*.....................................................................
Manufacturers’ sales*........................................................................
Manufacturers’ inventories*...........................................................
Manufacturers’ new orders, to ta l...................................................
Manufacturers’ new orders, durable g o o d s ..................................
Retail sales* j 'f ....................................................................................
Nonresidential construction contracts*........................................

1935-39 =
1947-49=
1947-49=
billions of
billions of
billions of
billions of
billions of
1947-49=
1947-49 =

100
100
100
$
$
$
$
$
100
100

215p
148
—
—
—

—
—

13.3 p
198p
16 lp

193
140
8‘Jp
21. <p
42. lp
22. Op
1 1 .2p
13.5
196
165

204r
141
91
21.8
4 2 .2r
2 4.8
13.0
14.0
193
158

217
136
105
21.7 r
40.6
23. Or
1 1 .Or
13.1
176
143

+ 11
+ 6
— 9
1
- 9
-1 4
- 1
+ 1
- 2

- 1
+ 9
-1 9
+ 2
+ 6
#
— 8
+ 2
+ 13
+ 13

P ric e s, wages, and employment

Basic com m odity p rice s f..................................................................
Wholesale p ricesf...............................................................................
Consumers’ p ricesf............................................................................
Personal income (annual ra te)**....................................................
Nonagricultural em ploym ent*........................................................
Manufacturing em ploym ent*..........................................................
Average hours worked per week, m anufacturingf.....................
Unem ploym ent...................................................................................

Aug. 1939 = 100
1947-49 = 100
1935-39= 100
billions of $
1939= 100
thousands
thousands
hours
thousands
millions of 3
millions of $
millions of $
millions of $
millions of %
1947-49= 100
millions of $

293.6
1 1 2 .lp
191.1
—
46,756 p
15,782p
4 0 .2p
1,604

293.3
111.8
190.8
2 84 .2p
235p
46,200
15,397
39.9
1,942

293.3
111.2
189.6
266.7
235
4 6 ,405r
1 5 ,6Q0r
40.4
1,818

325.0
113.7
185.5
256.7
226
4 6 ,555r
1 5 ,893r
40.4
1,578

76,240 p
60,210p
9 5 ,760p
29,145
83,822
116.7
—

77,040
59,720
95,740
29,086
91,674
113.4
14,732p

75,204
59,233
94,766
28,988
88,986
118.3
14,405

71,870
55,160
91,410
28,007
86,346
115.6
13,045

—

-

#
1
#

+ i

+ 3
+ 1
-1 7

-1 0
- 1
+ 3
+ 4
+ 4
#
- 1
#
+ 2

Banking and finance

Total investments of all commercial banks.................................
T otal loans of all commercial banks..............................................
Total demand deposits adjusted.....................................................
Currency outside the Treasury and Federal Reserve B an k s*..
Bank debits (U. S. outside New York C it y )* ............................
Velocity of demand deposits (U. S. outside New York C ity)*. .
Consumer instalment credit outstandingf...................................
United States Government finance (other than borrowing)

Cash incom e........................................................................................
Cash ou tg o..........................................................................................
National defense expenditures........................................................

millions of $
millions of $
millions of $

4,876p
5,648p
3,533

+

1
1
#
#
- 9
+ 3
+ 2

+
+
+
+
+
+

6
9
5
4
3
1
14

3,593
6,233
4,367

9,989
6,978
4,024

4,600
5,565
3,373

+ 36
- 9
-1 9

+ 6
+ 1
+ 5

124

124
174
134

126
154
141

+ 6
- 6
+ 9
#
+ 1
#
-1 7

+ 4
+ 12
+ 8

SECON D F E D E R A L R E SE R V E D IS T R IC T
Electric power output (New York and New Jersey)*...................
Nonresidential construction contracts*............................................
Consumers’ prices (New York C it y ) f ...............................................
N onagricultural employment*...................................................................
Manufacturing employment*....................................................................
Bank debits (New York C ity )*..........................................................
Bank debits (Second District excluding N. Y . C. and Albany)*. .
Velocity of demand deposits (New York C it y )* ...............................

1947-49 = 100
1947-49= 100
1947-49= 100
1935 -39 = 100

thousands
thousands
millions of $
millions of $

1947-49= 100

Note: Latest data available as of noon, September 30.
p Preliminary.
r Revised.
#
* Adjusted for seasonal variation.
J
t Seasonal variations believed to be minor; no adjustment made.
tf
Source: A description of these series and their sources is available from the

131
—
—
185.7
—

2,6 9 2.6p
48,501
3,759
134.7

164 ~
o
147 p

1 85.9

7 ,4 7 7.7p
2,6 8 0.4
58,216
4,062
134.0

1 83.6

7 ,4 3 4 .7
2 ,6 6 7 .8r
50,854
3,963
140.0

180.9

7 ,3 9 6 .3r
2,6 5 7.4r
46,475
3,832
115.8

_ 7
+

1

+

+
+
+
+

3
1

1
4
2
16

Change of less than 0.5 per cent.
Revised back to January 1949.
Revised back to January 1951.
Domestic Research Division, Federal Reserve Rank of New York, on request.

R E C E N T E C O N O M IC A N D F I N A N C I A L D E V E L O P M E N T S I N F R A N C E
T he slackening of inflationary pressure that began in 1951 control inflation. In the French case, as in m any others, a wide
in m uch of the W estern w orld appeared in France only in the range of anti-inflationary measures have had to be utilized, w ith
spring of 1952. T he persistence of m arked inflation in France the form and application of each necessarily adapted to the
throughout 1951 reflected for the m ost part the continuation of conditions peculiar to the individual country; however, in all
excessive dem ands upon the resources of the French economy cases a significant part has been played by general restraint
and a lag in the application of internal control measures. The upon the availability of m oney and credit.
reversal that became evident last M arch, w hen a new govern­
T h e S i t u a t i o n P r i o r t o M a r c h 1952
m ent was form ed under M. Pinay, was associated w ith fresh
France was faced w ith particularly difficult problem s during
efforts to reduce the budget, roll back prices, and interrupt the
wage-price spiral, as well as, beginning in the preceding 1951. W holesale and retail prices rose roughly 25 per cent at a
October, w ith a tightening of m onetary policy. W hile the h alt­ time w hen sim ilar prices in m any other countries were begin­
ing of inflation in France has been of too short duration to ning to decline. T he protracted drain on resources and m an­
justify complacency for the future, and w hile the persistence of pow er for m ilitary action in Indo-C hina, the stepping-up of
governm ent deficits and of an unfavorable trade balance points French plans for participating in E uropean defense, and the
tow ard further problem s ahead, the French experience provides large continuing program of dom estic governm ent investm ent
another interesting chapter in the record of recent efforts to produced a substantial budget deficit in 1951. In addition, the




MONTHLY REVIEW, OCTOBER 1952

148

extension of bank credit to business and individuals rose during
the year by roughly 40 per cent. It was hardly surprising in
these circumstances that prices should have continued to rise.
The further price inflation in the fall of 1951 appeared to have
its im m ediate roots partly in a large increase in the governm entcontrolled price of w heat, w hich led to a 30 per cent rise
in the price of bread, and partly in a 15 per cent increase in the
legal m inim um wage, w hich induced a general round of wage
and price increases. It also apparently originated in part in
attitudes and habits acquired during the four decades of cur­
rency instability, w hich prom pted the French businessm en to
"protect” themselves against future currency depreciation by
raising their selling prices in anticipation of cost and tax in ­
creases. Furtherm ore, the prolonged experience of the French
public w ith past inflation m ade it particularly sensitive to fears
of new inflation.
G overnm ent finances gave rise to particularly troublesom e
problem s, although it was the m ethod of financing the deficit
rather than its m ere size that appeared to be a m ajor inflation­
ary factor at the year end. O rdinary governm ent revenue in
1951 covered 82 per cent of total governm ent expenditures, or
a larger portion than in any postw ar year; an additional 5 per
cent of governm ent expenditures was financed by counterpart
funds originating in A m erican aid; and only 13 per cent was
financed by dom estic borrow ing. H ow ever, long-term and
m edium -term loans brought in very little, as the rate of savings
slowed dow n last year. T he m ain source of funds therefore
was short-term borrow ing from the banking system, w hich was
particularly heavy in the third quarter of 1951 and in the first
quarter of 1952, as m ay be seen from Table I. T he funds the
Treasury borrow ed from the banking system were largely
derived in the last instance from the Bank of France. O n the
other hand, the latter took no action to raise its lim it for direct
advances to the Treasury, except tem porarily in M arch 1952.
T he m ain factor in m onetary expansion was the grow th of
credit to business and individuals. As is apparent from Table I,
T able I
M oney Supply and B ank Credits
(June 1 9 5 0 = 1 0 0 )
Money supply

Outstanding bank credits to

Total

Note circu­
lation only

Government

Business and
individuals

100
110
113
117
123
130
133
137
n.a.
n.a.

100
114
115
121
130
135
137
139
142
141

100
102
105
104
113
116
126
128
n.a.
n.a.

100
106
108
119
126
149
157
162
n.a.
n.a.

End of
1950— June..........................
Decem ber...............
1951— M arch......................
June..........................
September..............
Decem ber...............
1952— M arch......................
June..........................
Ju ly..........................
August.....................

n.a,.

inou

avaiiauit;.

Source: Computed by the Federal Reserve Bank of New York from data published
in the annual reports of the Conseil National du Credit and in the Bulletin
M ensuel de Statistique of the Institut National de la Statistique et des Etudes
Economiques. Data for recent months are provisional.




the granting of bank credit to business and individuals in ­
creased, beginning w ith A pril 1951, m uch faster than would
seem to have been w arranted by the relatively m oderate in ­
creases in production and em ploym ent that occurred during the
rem ainder of the year; credit inflation was particularly sharp
during the last quarter of 1951. France retained the m achinery
for quantitative credit restriction that had been instituted in
Septem ber 1948, but by m id-1951 the use m ade of these con­
trols appeared no longer adequate to cope w ith a renew al of
credit inflation.
T h e I n t e r n a t i o n a l P a y m e n t s C risis

T he continuance of inflationary pressures in France at a tim e
w hen the post-K orea inflationary sw ing was subsiding in the
U nited States and m ost W estern European countries tended to
accentuate France’s balance-of-paym ents difficulties. T he aver­
age m onthly trade deficit of M etropolitan France w ith for­
eign countries rose from 26 m illion dollars in 1950 to 172 m il­
lion in the first quarter of 1952, as show n in Table II. W hile
the m erchandise exports of M etropolitan France covered 86
per cent of its im ports in 1950, only 53 per cent w ere thus
covered in the first quarter of 1952. This relapse was m ainly
the outcom e of a great increase in im ports, w hich apparently
could not be held dow n in face of rising inflationary pressures;1
at the same tim e, exports declined, partly because the sharp rise
in French prices adversely affected France’s com petitive trade
position, partly because the inflationary conditions tended to
induce an increase in hom e consum ption that absorbed export­
able products, and partly also because France’s exports were
going increasingly into the sheltered m arkets of the overseas
franc area.
D uring the fourth quarter of 1951 and the first tw o m onths
of 1952, w hen the paym ents crisis reached its culm ination, the
deterioration in France’s paym ents position, especially vis-a-vis
the European Paym ents U nion, appears to have been larger
than could be accounted for by com m ercial transactions, and
presum ably reflected a considerable flight of capital. T he aver­
age m onthly deficit w ith the E PU rose from the equivalent of
36 m illion dollars in the third quarter of 1951 to 95 m illion
in the fourth quarter, and increased to 129 m illion dollars in
February 1952. France’s cum ulative surplus w ith the EPU,
which am ounted to 272 m illion dollars at the end of M arch
1951, had been entirely w iped out by O ctober 1951, or w ithin
seven m onths; and by the end of M arch 1952 France had
incurred an E PU cum ulative deficit equivalent to 458 m illion
dollars. As far as can be seen from the Bank of France’s ow n
foreign exchange holdings, w hich up to O ctober 1951 included
France’s balance w ith the EPU, the drain was so large that by
l
Imports rose also because France had drawn heavily on its
commodity stocks in the second half of 1950, resulting in a greater
need for imports in 1951, and because of a liberalization of French
commercial policy.

FEDERAL RESERVE BANK OF NEW YORK

M arch 1952 the bank’s holdings w ere near exhaustion; in addi­
tion, other foreign assets available to the m onetary authorities
were also being draw n on. T he settlem ent of F rances February
deficit w ith the E PU required an em ergency credit from the
EPU of 100 m illion dollars.

149
Table u
Foreign Trade

(M on th ly a v e r a g e s ; in m illions of d o llars; excluding trade of
M etropolitan France w ith French overseas territories)

Period

Exports

Imports

Balance

Exports as
percentage
of imports

1938..........................................................
Po l ic ie s

for

H a l t in g

In f l a t io n

Since the larger im ports and reduced exports that aggravated
the balance-of-paym ents deficit w ere clearly linked w ith the
expansion of bank credit to business and individuals, general
m onetary restriction seemed particularly appropriate. Recourse
to central bank credit was therefore m ade m ore costly in
October and N ovem ber 1951 through tw o successive increases
in the discount rate, w hich w ent up from 2 l/ i to 4 per cent; and
the Bank of France announced that, in contrast to previous
practice, it w ould enforce strictly its rediscount ceilings and
security reserve requirem ents. As may be seen from T able I,
the expansion in bank credit to business and individuals slowed
dow n during the second quarter of 1952.
In M arch 1952 w hen the Pinay G overnm ent came into
power, a new anti-inflationary policy was initiated. T he first
line of approach aim ed at reducing the budget deficit. A n
increase in taxation was rejected in the light of earlier experi­
ence lest— especially if in the form of indirect taxes— it merely
touch off another price rise. Frances tax burden last year
equaled tw o fifths of its estim ated national income, com pared
w ith one fifth at the beginning of the reconstruction period in
1946; and as already noted, a larger portion of total govern­
m ent outlays was covered by current revenue in 1951 than in
any other previous postw ar year. T he governm ent, while leav­
ing tax rates unchanged (although endeavoring to increase
collections), concentrated on cutting or postponing expendi­
tures. Since m ost of the ordinary expenditures could not be
substantially cut and defense expenditures had to be increased,2
it was inevitable that alm ost all the cuts should come out of
capital expenditures, m uch of it at the expense of investm ent in
basic industries. A large portion of the reduced deficit was to
be financed by raising funds from w hat were, at least in the
first instance, nonbank sources. Deficit financing involving a
direct expansion of bank credit was to be avoided.
A new governm ent long-term loan, the first one since early
1949, was issued in May. It carried im portant fiscal privileges,
but its m ost distinctive feature was the linking of its redem p­
tion value (b u t not its coupon interest) to the price of the
French 20-franc gold coin on the official free gold m arket in
Paris. T he loan, bearing 3 Vi per cent interest and redeem able
over the next sixty years although callable after June I960, was

53

80

27

66

1948..........................................................
1 949..........................................................
1950..........................................................
1951..........................................................

91
132
163
222

204
204
189
303

-1 1 3
- 72
- 26
- 81

45
65
86
73

1951— January-M arch.....................
April-June................................
July-Septem ber.....................
October-December...............
1952— January-M arch.....................
April-June................................
Ju ly-A ugu st............................

228
237
204
219
194
194
184

255
318
309
329
366
306
249

- 27
- 81
-1 0 5
-1 1 0
-1 7 2
-1 1 2
— 65

89
75
66
67
53
63
74

-

Source: Converted by the Federal Reserve Bank of New York from data published
in the B ulletin M ensuel de Statistique of the Institut National de la Statistique et
des Etudes Economiques.

issued at par; in m id-Septem ber it stood at 99.50. T he loan
brought in 195 billion francs in fresh m oney; of this am ount,
15 billion (o r 42 m illion dollars) were subscribed w ith funds
received from the sale of privately held gold. Prior to the issu­
ance of the loan, a fiscal am nesty was announced for past tax
evasion and foreign-exchange-control violations, coupled w ith
m ore severe regulations and penalties for the future.
T he second line of approach aim ed at rolling back key prices.
The governm ent set the exam ple last spring by reducing prices,
or canceling previously scheduled price increases, of products
and services under its control, such as coal, steel, electricity, gas,
and railway rates. It decided last July to m aintain unchanged
for the 1952 harvest the price of wheat, and therefore the price
of bread; sim ultaneously w ith the fixing of the w heat price, it
announced a series of reductions in the prices of goods and
m aterials used in agriculture. T his direct governm ental action
was accom panied last spring by a cam paign for voluntary price
reductions by m anufacturers and traders; it m et w ith a gener­
ally encouraging response, although food price reductions by
retailers did not fulfill the expectations of the authorities. In
the face of a new rise in retail prices, w hich will be noted later,
a ceiling was established last m onth on all prices at their
A ugust 31 level. N ew legislation passed last July prohibited
m inim um price agreem ents by producers. W ith a view to
wage stability, a law adopted last July provided for a new
sliding-scale form ula, under which the m inim um legal wage
was to be increased only if the cost of living rose by 5 per cent
above its level in D ecem ber 1951 and then only after two
m onths’ delay; further wage raises are to be granted only after
additional 5 per cent cost-of-living increases, and then only
after four m onths’ intervals.
In the field of foreign trade and paym ents the governm ent
had recourse to various direct-control measures, some of which
2
Budgeted defense expenditures were increased from 857 billion
francs (2,450 million dollars) in 1951 to 1,269 billion francs (3,625
were of a stopgap character. M easures were taken to prevent
million dollars) this year; they now represent 36 per cent of total
prepaym ents for im ports and delayed paym ents for exports, and
budgetary expenditures.




150

MONTHLY REVIEW, OCTOBER 1952

the tourist allowance was also cut. Capital movements with
EPU countries, which had been previously freed to a large
extent, were made subject to new control. Certain steps were
taken to reimburse exporters for taxes and social insurance pay­
ments falling on exports, in order to make possible a reduction
of export prices to more competitive levels. The liberalization
of trade with Western European countries, which had been
inaugurated in 1949 under OEEC auspices, was suspended.
r
T he A batem en t

of

I n f l a t i o n a r y P ressu re

Within a month of the Pinay Governments formation,
Frances financial atmosphere had changed markedly. This
change was reflected in the decline in the price of gold on the
Paris gold market; the 20-franc gold piece, for instance, fell
from over 5,000 francs in February to 3,860 francs at the end
of June when the subscriptions to the gold-guaranteed loan
were closed; it stood at about 3,850 francs at the end of Sep­
tember. The altered atmosphere was also reflected in the behav­
ior of prices: wholesale prices, which had been rising at the
rate of 2 per cent monthly, fell from February through June by
6 per cent; in July and August, however, they rose again by
about 1 per cent, largely because of higher food prices. The
reduction in wholesale prices was aided by the decline in the
prices of imported raw materials, but prices of French agricul­
tural and industrial products also fell noticeably. However, the
price reductions by producers were apparently not fully passed
on to consumers, since retail prices declined only by 4 per cent
from February through July 1952, and actually increased again
by over 1 per cent in August.
The expansion in the money supply tapered off by mid-1952,
as may be seen from Table I. Bank credit expansion to govern­
ment and business and individuals, though not entirely halted,
slowed down by June 1952. The proceeds of the gold-guaranteed
loan, along with other nonbank borrowing, were report­
edly sufficient to enable the Treasury to balance its operations
for the time being. Notwithstanding the decline in prices, in
recent months the proceeds from taxes on business transaction
and gross commercial earnings, which represent half of total
government ordinary revenue, have shown an increase.
Industrial production attained a new high in the first half of
1952, at about 7 per cent above the corresponding period of
1951, and some 50 per cent above prewar. However, although
the fall in prices apparently did not bring about any marked
slowing down in economic activity, industrial production seems
to have declined somewhat more than seasonally during the
summer vacation period. The wheat harvest was better than
last year, although drought conditions and the further spread of
foot-and-mouth disease reportedly had some adverse effects on
the food supply.




Im proved Fo reign T rade B a l a n c e

The foreign trade deficit declined from a monthly average of
172 million dollars during the first quarter of 1952 to 65 mil­
lion during July-August, as appears from Table II, and the
proportion of imports covered by exports went up during the
same period from 53 per cent to 74. This somewhat better
balance was the outcome of a sharp decline in imports; exports
continued to decline somewhat. However, the reduction in the
foreign trade deficit, along with the seasonal peak of tourist ex­
penditures, sufficed to enable France to improve its position
vis-a-vis the European Payments Union. Its EPU accounts were
almost balanced by April; in June it had a surplus of 22 million
dollars and repaid the emergency credit granted in February. In
July, however, it had a minor deficit of 3 million, and in August
one of 23 million. With the dollar area, Frances trade deficit
declined from a monthly average of 59 million dollars during
the first quarter of 1952 to 29 million in July-August, but this
too was the result of a sharp reduction in imports, since exports
also showed a downward trend. The deficit was largely covered
by receipts of United States aid.
On the other hand, Metropolitan France’s surplus in trade
with the French overseas territories during the first half of
1952 ran even higher than last year. France’s imports from
the overseas franc area showed a steady upward trend, but
exports, which averaged the equivalent of 119 million dollars
monthly in the first half of 1951, went up to 152 million dur­
ing the first half of this year. This surplus was financed mainly
7
by French capital exports, on both official and private account.
Frances surplus with the French overseas territories offset to a
considerable extent its deficit with foreign countries. However,
Metropolitan France had also to finance the deficit of its over­
seas territories in their own trade with foreign countries; a
large part of this deficit was incurred by Indo-China where pro­
duction and export are being greatly hindered by the war.

C o n c l u s io n

By and large, the inflationary pressure which carried French
prices to new high peaks by the beginning of 1952 has sub­
sided in the last six months. True, the internal balance thus far
achieved must still be considered tentative, the balance-ofpayments deficit still remains large, and monetary reserves are
low; nevertheless, rampant inflation and the crisis in external
payments have been halted. The problem that France is facing
today is essentially one of maintaining— in a situation greatly
dependent on psychological factors— effective restraints on
government and private expenditures. A government budget
that avoids net inflationary effects is very difficult for a country
that is bearing the burdens of armed vigilance in Europe and of

FEDERAL RESERVE BANK OF NEW YORK
the war in Indo-China. Equally difficult is the deferring of
investment in industrial plant, agriculture, and housing in a
country where, despite the high rate of investment in recent
years, the output of goods exceeds the peak interwar year of
1929 by only about one fifth, or much less than in most other

151

industrial countries. Yet, important gains have been shown in
reconciling the many demands on the French economy with the
need for controlling inflation— gains sufficiently impressive to
suggest reasonable hope for a durable stability in French economic affairs.

D E P A R T M E N T ST O R E T R A D E
On a daily average basis, estimated figures for September
showed that dollar sales of Second District department stores
had fallen 5 per cent below sales in September 1951, making
the tenth consecutive month that the bank’s adjusted index
failed to equal year-earlier levels. Spurred by continued lag­
ging sales performance, department and apparel stores both in
New York City and various other Second District localities are
joining the nation-wide trend toward increased night openings
in an attempt to persuade consumers to part with more of their
dollars.
Commitments outstanding for new merchandise increase
from the end of July to the end of August by 3 per cent in
addition to the usual seasonal rise experienced during the
month.
T rends

in

H o m e f u r n is h in g s

During recent months year-to-year increases in dollar sales
made by Second District furniture stores have given an indica­
tion of renewed consumer interest in household durables, des­
pite the fact that sales of that type of merchandise by District
department stores have fallen noticeably below year-ago levels.
In May, instalment buying in furniture stores, stimulated by
the lifting of Regulation W , rose 24 per cent above May 1951.
causing a sizable increase in total sales. In the following month,
a year-to-year gain of 13 per cent in instalment sales more than
offset a decline of 21 per cent in cash sales. A contraseasonal
decline in dollar volume of total sales from May to June sug­
gested that part of the large dollar volume in May might have
been "borrowed” from the following month. In July, however,
a year-to-year increase of 11 per cent reassured furniture dealers
that consumers were still interested in durable homefurnishings.
Major homefurnishing departments in District department
stores, the most important competitors of the furniture
stores, were still unable to find such encouragement— sales of
the furniture, floor covering, major appliance, and radio and
television departments of Second District department stores
showed substantial year-to-year declines in sales for the four­
teenth consecutive month.1 (In July these declines by depart­
ments were 14, 31, 1, and 27 per cent, respectively.)
l With the exception of a slight year-to-year increase in sales of
the furniture departments in July 1951 and the radio and television
departments in November 1951.




The extent of consumer demand for household durables
is far from clear; despite considerable sales promotion,
furniture retailers were disappointed by the smaller-thanexpected sales in August which resulted in a 4 per cent
decrease from last Augusts figures. (In evaluating the change
in unit sales it should be noted, however, that "housefurnishing” prices in August, as measured by the Bureau of Labor
Statistics, were 4 per cent lower in New York City and 3 per
cent lower in the country as a whole than they were 12 months
before.) Once again department stores fared less well than
furniture stores with figures for August showing declines of
11, 16, 28, and 47 per cent, respectively, in the four hardgoods departments previously mentioned. The large decline
in the major household appliance departments was particularly
unexpected since those departments had shown by far the
most favorable year-to-year comparison in the previous month.
The relatively poor showing of department store homefur­
nishing departments is partially the result of unfavorable yearto-year comparisons with months of unusually strong depart­
ment store activity in 1950-51 during the two scare-buying
Departm ent and A pparel Store Sales a rd S tock s, Second F ederal Reserve
D istrict, P ercen tag e C hange from the P reced in g Y ea r
Net i
sales
Locality
Aug. 1952
Department stores, Second D istrict.. ..
New York C ity * ....................................
Nassau C ou n ty......................................
Northern New Jersev...........................
Westchester C ounty..............................
Fairfield C ou n ty....................................
B ridgeport...........................................
Lower Hudson River V aliev...............
Poughkeepsie......................................
Upper Hudson River V alley...............
Schenectady........................................
Central New York S tate.....................
Mohawk River V alley......................
Syracuse...............................................
Northern New York State..................
Southern New York State...................
Binghamton........................................
Western New York State....................
B uffalo.................................................
Niagara Falls......................................
Apparel stores (chiefly New York C ity ).

-

8

—12 ( —9)
n.a.
— 7
-1 0
+ 2
- 1
- 2
+ 1

+

-

7
4

1
-1 0
- 2
0
- 2

Stocks on
J a n .th ro u g h
hand
Aug. 1952 Aug. 31, 1952
-

8

-1 K -9 )
n.a.

“ 5
-

+
+

+
+
+
-

1
1
1
2
2
2

4

-1 5
—18( —15)
n.a.
-1 7
-1 8
- 6
- 2
-1 3
-1 3
- 9
-1 5

2

0

3

- 7
-1 5
-1 6
- 3
-1 5

2
0
4

- 4
+ 16
+ 4
-f 4
-f 4
- 3
- 2
+ 2
- 6

_

+
- 5

-

-

-

-1 1

5

+ 2
+ 1

+
+
-

1
1
2
0
2

1

-1 1

—15
- 5
- 9
-1 0
8

n.a. N ot available.
* The year-to-year comparisons given in parentheses exclude the 1951 data of a
Brooklyn department store that closed early in 1952.

152

MONTHLY REVIEW, OCTOBER 1952

waves and the price war. This 'abnormal” comparison had
definitely ended by July, however, and continued sizable
declines from year-ago figures have pointed up the relatively
better sales performance of Second District furniture stores.
In the past, there has not always been too close a correlation
between the sales trends of these two competing types of stores.
Between the census years of 1939 and 1948 the increase in
sales of homefurnishings in New York State department stores
was slightly lower than that in total sales by furniture stores in
the State. (As was pointed out in a study in the November
1951 Monthly Review, both of these retail store groupings
failed to match the spectacular increase recorded by their rela­
tively new competitors, the home appliance stores.) From
1948 to 1949, sales of homefurnishing departments of District
department stores fell approximately 10 per cent but District
furniture store sales were only slightly below the peak level of
1948. In 1950, however, department stores bettered their sales
performance markedly while furniture stores, sharing less
heavily in the scare buying following the outbreak of the
Korean conflict, were able to increase sales for 1950 as a whole
by only 2 per cent over the previous year. This modest gain,
however, was enough to set a new sales record. Department
store homefurnishing departments continued to achieve yearto-year gains greater than those of furniture stores in early
1951, but, after midyear, comparison with the scare-buyinginflated sales following June 1950 formed a pattern of continu­
ous year-to-year declines for the department stores which have
persisted (with only the minor exceptions previously noted)
up to the present. Furniture stores, which had shown smaller
increases the year before, showed smaller declines during late
1951 and early 1952, after which increases began to appear.

As a result of the increase in instalment sales in furniture
stores, accounts receivable on August 31 were 10 per cent
above those a year earlier. Owing partly to lengthened
repayment periods of instalment contracts which are no longer
under regulation, collections lagged 8 per cent behind those
during August 1951.
The dollar value of stocks on hand in Second District furni­
ture stores has remained well below comparable 1951 levels
during all of this year. As the stocks-sales ratios in the accom­
panying table indicate, furniture stores succeeded quite well in
the difficult task of reducing top-heavy inventories which had
been swollen as a result of widespread misjudgment of con­
sumer demand for durable merchandise and of the availability
of supplies last year. In August, however, the decline in sales
from the previous year was almost equal to the year-to-year
drop in stocks, bringing the stocks-sales ratio for the month up
to last years figure of 5.3.
Sales and Stocks of Second District Furniture Stores*
Percentage change 1951 to 1952

Indexes of Department Store Sales and Stocks
Second Federal Reserve District
(1947-49 average=100 per cent)

Month
Total
sales

1952

1951

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

It is apparent that different credit and trade-in policies of
these competing retail outlets can affect their relative sales
trends, regardless of the similarity of their merchandise. The
discontinuation of consumer instalment credit control in May
of this year brought an immediate increase in use of "time”
payment plans, which traditionally account for over three
fourths of all furniture sales. For the three-month period of
May, June, and July, instalment sales showT a year-to-year
ed
gain averaging 19 per cent compared with a decline of 14 per
cent in cash sales. Although comparable figures are not avail­
able for homefurnishing departments of District department
stores, the lapse of Regulation W does not seem to have acted
as a notable stimulus to sales of those departments.

July

June

August

76
1 02

69
95

95
98

80
106

107

102

1 11

116

105
113

125
129

January..............
February............

July.....................

Instalment
sales

- 9
- 1
- 6
+ 2

- 5
+ 2
- 2
+ 11
+24
+13

+12
+ 2
+11

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




4

+20

+ 3

End-ofmonth
stocks

Stocks-sales ratio

1952

1951

-1 2

6 .0

6 .3

-1 5
-1 6
-1 5
-1 4
—13
- 9
— 5

5.6
5.1
5 .3
4 .4
4 .5
5 .7
5 .3

5 .9
6 .4
5 .8
5 .3
7 .1
5 .3

6 .6

* Total sales comparisons are based on a larger number of stores than are those
for instalment sales, stocks, and stocks-sales ratios.

NATIONAL SUMMARY OF BUSINESS CONDITIONS
(Summarized by the Board of Governors of the Federal Reserve System, September 30, 1952)

Industrial production recovered sharply in August and
rose further in September to its previous postwar high. In
September, seasonally adjusted sales at department stores are
estimated to have declined following a marked rise in August,
while expanded output has permitted some recovery in auto­
mobile sales. Wholesale prices declined somewhat after midAugust, reflecting largely heavy marketings of livestock.
Consumers’ prices continued at record levels.

and petroleum refining, which was already close to earlier peak
rates in August, rose further in September. Total meat pro­
duction since mid-August has averaged 8 per cent above a
year ago, with production of beef and veal up by about a fourth
and pork down considerably.
Minerals output has increased sharply in August and
September with resumption of iron ore mining and marked
gains in output of crude petroleum and coal.

I n d u s t r ia l P r o d u c t io n

The Boards index of industrial production increased to 215
in August from 193 per cent of the 1935-39 average in July,
reflecting mainly the rapid return to full-scale operations at
steel mills and a marked gain in nondurable goods output.
According to preliminary estimates, industrial production has
risen further in September to 223.
Steel production rose in August to 92 per cent of rated
capacity and by late September was scheduled at a new record
rate of 104 per cent. Activity in machinery and transportation
equipment industries showed only a limited recovery in August
but has apparently increased substantially in September.
Passenger auto assemblies this month are estimated to have
totaled about 445,000 units, the largest monthly output since
June 1951. A substantial pick-up in production of television
sets and major household appliances in August and September
reflected earlier large inventory declines and increased con­
sumer buying.
Expansion in nondurable goods output in August reflected
principally greater-than-seasonal increases at textile and paper­
board mills. There was also a sharp recovery in coke output,

C o n s t r u c t io n

Value of construction contract awards declined slightly in
August as awards for public nonresidential work dropped
sharply following three months of steady increases. Value of
new construction put in place was the same as in July, after
allowance for seasonal influences. The number of housing units
started in August declined more than seasonally to 99,000
from 104,000 in July, but was 11 per cent larger than in
August 1951.
Em p l o y m e n t

Employment in nonagricultural establishments, after allow­
ance for seasonal changes, rose in August to 46.8 million,
an all-time high. In steel-consuming industries the number
employed and employee working time increased but remained
below pre-strike levels. Average hourly earnings of factory
workers were up about one per cent from July to $1.66— the
level of other recent months. Unemployment declined in
August to 1.6 million, reflecting in part the end of the steel
strike and in part seasonal factors.
PRICES AND TRADE

IN U IAL PR D C N
D STR
O U TIO
PERCENT

1948
Federal Reserve indexes.




M onthly figures, latest shown are for August.

1 9 4 7 -4 9 = 100

1949

1950

1951

1952

1948

P ERC EN T

1949

1950

1951

1952

Seasonally adjusted series except for prices. W holesale prices, Bureau of
Labor Statistics indexes. Consumer prices, total retail sales, and dis­
posable personal income, Federal Reserve indexes based on Bureau of
Labor Statistics and Department of Commerce data. Department store
trade, Federal Reserve indexes.

D istr ibu tio n

Sales at department stores, which had shown a greater-thanseasonal rise in August, increased less than seasonally in the
first three weeks of September but remained close to year-ago
levels. Reflecting in part the rise in sales, seasonally adjusted
stocks at department stores are estimated to have declined
somewhat in August. Sales of new passenger cars have risen
from the sharply reduced August rate and, with output con­
siderably expanded, dealers’ stocks are being replenished.
C o m m o d it y P rices

The general level of wholesale commodity prices declined
somewhat from mid-August to the third week of September.
BUSINESS LO S A M BER BANKS IN L A IN CITIES
AN T EM
ED G
1
1
>CHANGES F )R
C
SELECTED IN U >TRIES
DS
(CUMULATIVE 51 NCE
MARCH 2 8 , 19E>
0

M
ETALS

PETROLEUM,/
/
— ETC. -J—i SyFOODS.ETC_____

[W "
x

l

VV'COMMODITY^
DEALERS

1948

1949

1950

1951

1952

1951

1952

Data for selected industries reported by over 2 0 0 of the largest weekly report­
ing member banks. “ Metals” includes metal products, machinery, and
transportation equipment. “ Petroleum, etc.” includes coal, chemicals, and
rubber products. “ Foods, etc.” includes liquor and tobacco. W ednesday
figu res; latest shown are for September 17.




The major decreases were in livestock and products owing
partly to a considerable expansion in marketings of cattle.
Prices of industrial commodities generally showed little change.
The consumers’ price index rose further by 0.2 per cent in
August. Average prices of foods again advanced and rents
and fuel prices increased, while prices of apparel declined
slightly further.
B a n k C r ed it

Total bank credit outstanding at weekly reporting banks
showed little change between mid-August and mid-September.
All major types of loans increased, but holdings of U. S.
Government securities declined. Business loans increased about
three quarters of a billion dollars, reflecting largely credit for
marketing crops as well as some borrowing in connection with
tax payments in mid-September.
Bank reserve positions continued tight until mid-September,
and borrowings from the Federal Reserve generally exceeded
excess reserves. Thereafter, borrowings were reduced as banks
obtained reserve funds as a result of a decline in Treasury bal­
ances at the Reserve Banks and System purchases of U. S.
Government securities in connection with the October 1 cer­
tificate refinancing.

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

Yields on Treasury bills declined during the first three
weeks of September, while yields on long-term Treasury bonds
rose somewhat. The Treasury offered 2 Vs per cent 14-month
notes in exchange for the 10.9 billion dollars of certificates
maturing October 1, 1952, and has also announced an offering
of 2.5 billion of 161-day tax anticipation bills to be dated
October 8 and to mature March 18, 1953.