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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 Caution is necessary in comparing the movements of components of the by cost-of-living escalator clauses in their wage contracts. A t Note: consumers’ price index with their counterparts in the wholesale price index, since 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 of less than one half of one per cent. already seeking to m atch the wage increases recently gained by Source: U. S. Bureau of Labor 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 such as rayon yarn or cotton sheeting, the increases have lowed by an increase in the ceiling price of steel products which represented only a partial recovery of the price cuts or con varied for different types and grades but averaged out to around cessions which had been m ade earlier to help m ove heavy 5 per cent. ( T he com posite base price of finished steel, as com inventories. T he recent wage settlem ent in coal m ining raises puted by T h e Iro n A g e , rose from $82.62 per ton to $87.52.) the possibility of some increase in fuel costs, although heavy Subsequently, iron ore and pig iron prices were also increased. stocks above ground have kept coal prices below their ceiling. For m any m etal-fabricating plants, however, m eeting the steel 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 1951. W holesale and retail prices rose roughly 25 per cent at a wage-price spiral, as well as, beginning in the preceding 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 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 Outstanding bank credits to 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. 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 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.......................................................... 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, wras suspended. 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 w7as financed mainly 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 isales 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 1952 1951 Item 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 showTed a year-to-year 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. August July June August 76 1 02 69 95 95 98 80 106 107 102 1 11 116 105 113 125 129 January.............. February............ July..................... Total sales 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 INDUSTRIAL PRODUCTION 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 LOANS AT MEMBER BANKS IN LEADING CITIES 1 1 >CHANGES FC)R SELECTED INDUS>TRIES (CUMULATIVE 51 NCE MARCH 2 8 , 19E>0 METALS 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.