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MONTHLY REVIEW o Ce ita dB s e sCn it n f r d n uin s o d io s S e c o n d F e d e r a l R e s e r v e D is tr ic t Federal E eserve Bank> New York Septem ber 1,1942 M o n e y M a r k e t in A u g u st Member bank excess reserves continued to decline during the first weeks of August. Substantial purchases of Government securities by the Federal Reserve Banks for the System Open Market Account largely offset the loss in member bank reserve balances occasioned by the persistent and heavy outflow of currency into circulation. But member bank holdings of Government securities continued to grow and the associated expansion in bank deposits operated to raise the level of reserve require ments. The net result of the interplay of all these factors was a further reduction in the level of excess reserves. The losses in excess reserves were not evenly dis tributed among various classes of member banks; rather, as in preceding months, they were heavily concentrated among the Central Reserve City banks of New York and Chicago. While excess reserves of all member banks, even at the lowest point of the month on August 19, still amounted to $2,100,000,000, these excess reserves were predominantly held by Reserve City and “ country” banks. Excess reserves of the Central Reserve New York City banks, which a year and a half ago had amounted to over $3,500,000,000, or more than half of the total for all member banks (and which as recently as April 15, 1942 had amounted to $720,000,000 which was a quarter of all excess reserves), were down to $180,000,000. This was the lowest amount of excess reserves at New York since the third quarter of 1937 and less than a tenth of the total excess reserves of all member banks. In Chicago, for the first time since 1937, the excess reserves of the Central Reserve City banks fell below $50,000,000. By way of contrast, excess reserves of the Reserve City and ‘ ‘ country ’ 9 banks, combined, still amounted to $1,900,000,000 on August 19, or well within the general range ($1,700,000,000 to $2,200,000,000) main tained by the excess reserves of these FOR VICTORY ★ Buy United States classes of banks during the preceding seven months. The fact that the main impact of the decline in excess reserves has fallen upon Central Reserve City banks is largely explained by net flows of funds from those centers to other parts of the country. All banks, in greater or less degree, have been tending to lose reserve funds through net currency withdrawals, and to experience growth in deposits— and thus in reserve requirements— through the effect of bank credit expan sion. But the Central Reserve City banks and their depositors have been lending to the Government, via participation in new security issues, at a faster rate than the money has returned to the areas served by them, and thus the banks in other sections of the country have tended to gain funds through the clearings. W ith drawals by out-of-town banks of deposits due them from Central Reserve City institutions have also been a factor, but a smaller one, in the net flow of funds from Central Reserve City banks to other member banks. To rectify partially, if only tempo rarily, the distribution of member bank excess reserves, as well as to readjust the relative reserve requirements of the different groups of banks, the Board of Governors of the Federal Reserve System on August 19 announced a modi fication in the schedule of member bank legal reserve requirement percentages. Reserve requirements were reduced from 26 per cent to 24 per cent of net demand deposits for Central Reserve City banks in New York and Chicago, to take effect as of the opening of business August 20. This action, which was in accordance with the Act of July 7, 1942, giving the Board the power to change reserve requirements of member banks in Central Reserve cities without changing requirements for member banks in other localities, still left a considerable spread between reserve requirement percentages against net de mand deposits for Central Reserve City and banks in other classifications. The change in reserve requirements, W ar Savings Bonds and Stamps MONTHLY REVIEW, SEPTEMBER 1, 1942 66 E x cess R eserves H eld b y the Central R eserve C ity M em ber B anks of N ew Y o rk and Chicago, and b y A ll O th er M em ber B anks taken by itself, had the effect in New York City of transferring $345,000,000 from required reserves to excess reserves; in Chicago the resultant increase in excess reserves amounted to about $70,000,000. In con sequence of the change in reserve requirements, excess reserves of New York City banks increased from $180,000,000 on Wednesday, August 19 to $525,000,000 at the opening of business on August 20, and for all member banks excess reserves rose from $2,100,000,000 to more than $2,500,000,000. By August 26, however, the excess reserves of New York City banks had been drawn down to $370,000,000, largely as a result of heavy Treasury withdrawals of Government “ war loan” de posits, which substantially exceeded the amount of Government checks deposited in these banks. Member Bank Reserve Requirements Classes of deposits and banks On net demand deposits: Central Reserve C ity .................. Reserve C it y ................................... C ountry............................................. On time deposits: All member banks......................... Basic statutory require ments 13 10 7 3 Apr. 16, 1938-O ct. 31, 1941 22 H 17 H 12 5 N ov. 1, 1941-A ug. 19, 1942 Effective Aug. 20, 1942 26 20 14 24 20 14 6 6 During August both Government expenditures and bor rowings were at exceptionally high levels. W ar expendi tures, which are currently accounting for nine tenths of Government disbursements, reached $4,800,000,000, a figure which compares with $4,500,000,000 in July and $1,450,000,000 in November, 1941, prior to our entrance into the war. As was also the case in July, new money borrowings by the Government (exclusive of special issues to Government trust funds) substantially exceeded $4,000,000,000. Securities sold during August included $1,609,000,000 of % per cent certificates of indebtedness, $1,236,100,000 of the “ tap” issue of 2 % per cent Treas ury bonds, 1962-67, reopened for a twelve day period, approximately $1,050,000,000 of War Savings bonds and tax anticipation notes, and $500,000,000 (net) of Treas ury bills. On the certificate of indebtedness issue, the book credit method of payment was employed to approxi mately the same extent as on the June offering of % per cent certificates; in the Second Federal Reserve Dis trict the proportion of book credit payments was again somewhat over 80 per cent, while for the country as a whole the proportion of two-thirds book credit and one-third cash, which obtained on the June issue, was repeated on the August issue. On the “ tap” 2 % per cent bonds of 1962-67 (excluding $135,000,000 for Gov ernment investment accounts) cash payments were made to the extent of 15 per cent in this District as compared with somewhat over 35 per cent for the country as a whole. As a result of use of the book credit method of payment for bonds, certificates of indebtedness, and tax notes sold during August, the Treasury received aggregate credits to war loan accounts carried with qualified depositaries of approximately $2,000,000,000. On the other hand, frequent calls were issued for repayment of funds from those accounts on days when the Treasury was not receiving considerable direct cash proceeds from new security issues. The repayments, in fact, exceeded new credits to war loan account with the effect of reducing somewhat the aggregate of accumulated Government bal ances with war loan depositaries. Reflecting high per centages of participation by Second District banks and investors in recent market issues of Government obliga tions, together with greater use in this District of the book credit method of payment, a disproportionately high percentage of the repayments was made by Second District institutions, New York City banks in particular. Of the aggregate of $2,100,000,000 called for repayment during August, $1,200,000,000 was drawn from banks in New York City. Net purchases of Government securities for the Sys tem Open Market Account, which had amounted to $382,000,000 during the four statement weeks ended July 29, came to $338,000,000 during the three weeks ended August 19. In the succeeding week, following the reduction in legal reserve requirement percentages applicable to the Central Reserve City banks, there was a net decrease of $60,000,000 in System Account hold ings, primarily as a result of the redemption, without replacement, of Treasury bills maturing August 26, and as a result of the resale by System Account of bills which had been acquired under a “ repurchase” option. Provision was made earlier in the month by the Federal Open Market Committee for the acquisition by Federal Reserve Banks of Treasury bills subject to the granting to the sellers of such repurchase options, as announced by the Board of Governors of the Federal Reserve System on August 7. The announcement covering this action, which has the effect of making it possible to liquidate Treasury bills to meet temporary needs for cash, is reproduced on the following page. M e m b e r B a n k C redit As a result of further large purchases of new issues of United States Government securities, total loans and investments of weekly reporting member banks in 101 leading cities rose $1,121,000,000 during the four weeks’ period ended August 19. The increase in holdings of Government securities amounted to $1,207,000,000, of which $373,000,000 was in the New York City banks. Reflecting purchases of the new % per cent issue, cer FEDERAL RESERVE BANK OF NEW YORK tificates of indebtedness held by reporting banks in 101 cities rose $797,000,000, of which slightly over one third was accounted for by the New York City banks. There was also a considerable increase in holdings of Treasury bills, $356,000,000, about equally divided between the New York City banks and those in the other reporting centers. During the four weeks’ period the group of reporting banks taken as a whole enlarged their Govern ment bond portfolios to the extent of $124,000,000 while reducing holdings of Treasury notes by $81,000,000. In contrast to the substantially increased holdings of Government securities, total loans of reporting member banks declined $130,000,000 between July 22 and August 19. Loans of New York City banks declined $25,000,000, reflecting primarily a decreased volume of loans to brokers and dealers. Commercial, industrial, and agricul tural loans of the New York City banks, however, were up $18,000,000, as the gain during the week ended July 29, when commodity loans aggregating about $40,000,000 were made, more than offset declines during the three following weeks. In the rest of the country, commercial, industrial, and agricultural loans of reporting banks declined $58,000,000 further. Adjusted demand deposits for the reporting banks in 101 cities rose $405,000,000 during the period, but all of the rise was in out-of-town banks; New York City member banks reported a decline of $40,000,000. Through book credit payments on the certificates of indebted ness and 2 % per cent bonds, U. S. Government deposits were built up to the extent of $56.1,000,000, and in this case the major share, $451,000,000, was in New York City banks. This increase, however, was eliminated in the week ended August 26 by heavy Treasury calls on these deposits, and further reductions were in prospect. Based upon preliminary call report data for June 30, Government security holdings of all member banks rose $4,546,000,000 during the first half of 1942. Of this amount $1,285,000,000 was accounted for by New York City banks. On June 30, 1942, holdings of Government securities amounted to 61 per cent of the total loans and investments of New York City banks compared with 56 per cent at the end of 1941. For all other mem ber banks, the ratio of Government securities to total loans and investments rose from 40 per cent to 47 per cent between December 31, 1941 and June 30, 1942. On the other hand, a contraction in other investments and in loans has been in evidence in recent months. Loans and investments, other than U. S. Government M oney Rates in New York Aug. 30, 1941 July 31, 1942 Aug. 29, 1942 Stock Exchange call loans......................... Stock Exchange 90 day loans.................. Prime commercial paper— 4 to 6 months Bills—90 days unindorsed......................... Yield on % per cent Treasury note due March 15, 1945 (tax exempt)............. Average yield on taxable Treasury notes (3 -5 years').................................................. Average yield on tax exempt Treasury bonds (not callable within 12 years). Average yield on taxableTreasury bonds (not callable within 12 y e a rs )........... Average rate on latest Treasury bill sale 91 day issue................................................ Federal Reserve Bank of New York dis count rate.; .......................................... > . . Federal Reserve Bank of N ew York buy ing rate for 90 day indorsed b ills.. * Nominal 1 1 1 y2 a *1 H % -X % *1X % -x % 0 .3 4 0 .5 6 1 .2 2 1 .2 5 Purchase and R esale of T reasury B ills by F ederal R eserve B anks On A p ril 30, 1942, as an added means of assuring the liq u id ity of investments in Treasury bills, aside from the short maturity and ready marketability of the securities, the Board of Gov ernors of the Federal Reserve System announced that the Federal Open Market Committee had directed the Federal Reserve Banks to purchase fo r the System Open Market Account all Treasury bills that might be offered to them, on a discount basis at the rate of % per cent per annum. On August 7, 1942, a further announcement was made by the Board of Governors of the Federal Reserve System, that “ The Federal Open Market Committee has supplemented its direction of A p ril 30, 1942, to the Federal Reserve banks to purchase all Treasury bills that may be offered to 6uch banks on a discount basis at the rate of % per cent per annum, by a further direction that any such purchases shall, if de sired by the seller, be upon the condition that the Federal Reserve bank, upon the request of the seller before the maturity of the bills, w ill sell to him Treasury bills of a like amount and maturity at the same rate of discount.” Sellers desiring this option to repurchase Treasury bills sold by them to this bank, are being requested to so notify this bank in writing at the time of sale. This arrangement enables banks and others, who have bought Treasury bills and encounter a temporary need for cash, to sell Treasury bills to a Reserve Bank with assurance that they w ill be able to repurchase the bills later at the same rate of discount. securities, of all member banks declined $1,263,000,000 during the first half of the year. In New York City the reduction amounted to $163,000,000. Since the end of June, weekly reports from member banks in 101 leading cities indicate a continuation of the increase in holdings of U. S. Government securities and, for banks outside New York, some further decrease in loans and investments other than Government securities. W a r F inancing During August Government borrowing, in meeting the financial requirements of the war, aggregated about $4,400,000,000. The financing included a third issue of certificates of indebtedness, a renewed offering of the so-called “ tap” issue of 2 % per cent bonds of 1962-67, and a further increase in the outstanding volume of Treasury bills, as well as continued sales of Savings bonds and tax anticipation notes. Sales of various types of securities during August are listed in the following table. $1,609,000,000— % per cent certificates of indebtedness 1,236,000,000— registered 2y 2 per cent bonds of 196267 (reopened “ tap” issue) 700.000.000— War Savings bonds (estimated) 500.000.000— Treasury bills (net receipts) 350.000.000— tax anticipation notes (estimated net receipts) 0 .5 5 0 .5 9 67 1 .9 6 2 .0 0 2 .0 2 2 .1 2 2 .3 4 2 .3 4 0 .1 1 4 0 .3 6 9 0 .3 6 9 1 1 1 H H Supplementing the activities of the W ar Savings Staff, in promoting the sale of W ar Savings bonds and stamps to smaller investors, the Victory Fund Committees played an active role throughout the country in soliciting sub scriptions, on the part of institutional and other large investors, to Government obligations, particularly the reopened “ tap” issue of 2 % per cent bonds, the % per cent certificates of indebtedness, and Series F and G War Savings bonds. 68 MONTHLY REVIEW, SEPTEMBER 1, 1942 The new issue of $1,609,000,000 certificates of indebted but also below the $815,000,000 revised quota set by the ness, bearing interest at the rate of % Per cent, dated Treasury for August, the aggregate was considerably August 15, 1942, and maturing August 1, 1943, was ahead of the totals for May and June. Sales of bonds by offered by the Treasury on August 6. The term, l l 1 /^ agencies other than post offices in the Second Federal months, compared with a little over 7 months for the Reserve District during August were estimated at about June issue of % per cent certificates and 6 % months $105,000,000, substantially below the July total, and for the original April issue which carried a coupon rate also slightly below the February-June average, although of % per cent. The books remained open two days and nearly double the sales in August of last year. About $500,000,000 in “ new money” was raised from subscriptions totaled $3,273,000,000, a somewhat larger amount than on either of the two previous issues and sales of Treasury bills during the four weeks ended the distribution was somewhat wider. Subscriptions of August 26. In each of these weeks a new issue of $25,000 or less were accepted in full ($71,000,000) and $350,000,000 was offered, or a total of $1,400,000,000, the larger subscriptions were allotted on a 48 per cent whereas bill maturities during this period came to only basis. Allotments to subscribers in the Second Federal $900,000,000. In addition, the Treasury received an Eeserve District ($699,000,000) amounted to 43 per cent estimated $350,000,000 from the further sale of tax of the total; this compares with 46 per cent on the June anticipation notes. issue of certificates and 55 per cent on the April offering. On August 24 the Secretary of the Treasury announced The relatively larger purchases of the new certificate that $342,000,000 of 2 per cent Treasury notes maturing issue in other districts apparently were accounted for September 15 and $320,000,000 of % per cent R.F.C. by increased familiarity with this type of security, the notes due October 15 would be paid off in cash and that higher coupon rate, and the generally more favorable part of the funds for these redemptions would be excess reserve positions of banks in other sections of the obtained from “ new money” financing in September. country. On August 3, the Treasury reopened its books for sub scriptions to its 2 % per cent registered bonds of 1962-67, Security M a rk e ts which had first been sold as a “ tap” issue last May. Despite the continued heavy volume of Treasury bor During the twelve days, August 3-15, that the books remained open, subscriptions (which were accepted in rowing, Government bond prices held relatively steady full) totaled $1,236,100,000, including $135,000,000 pur during August. Trading activity was relatively limited. chased for Treasury investment accounts. In May, sub Following the Treasury’s announcement that subscrip scriptions for these bonds were taken for ten days and tion books for the 2 % per cent bonds of 1962-67 would be totaled $882,100,000, of which $55,200,000 were pur reopened on August 3, market prices of long term taxable chased for Treasury investment accounts. The issue Treasury bonds dipped slightly on August 3 and 4, re was especially designed for purchase by insurance com flecting sales of outstanding securities to obtain addi panies, savings banks, trust funds, and large private tional funds for purchases of the “ tap” issue. These investors ; commercial banks were not eligible to enter losses, however, were generally soon recovered and prices subscriptions for their own accounts, and will not be at the end of the month were at approximately the same eligible to purchase them until 1952, at which time they levels as at the beginning. Prices of three to five year taxable Treasury notes, in will first become available in coupon form. As indicated in the table below, insurance companies purchased nearly continuation of a tendency apparent during the preced 70 per cent of the total sales to the public under the new ing month, declined, and the average yield rose from 1.22 offering of these bonds. The bulk of the insurance com per cent on July 31, to 1.25 per cent at the end of August. pany subscriptions were placed in the Second Federal On the other hand, yields on the three issues of certifi cates of indebtedness now outstanding tended downwards Reserve District. as the month progressed. The average rate at which Subscriptions to Additional Issue of 2 ^ Per Cent Treasury Bonds of 1962-67 new Treasury bill offerings were sold continued stable and close to the % per cent buying rate of the Federal Second Federal Reserve Banks. Country total* Reserve District Municipal bond prices rose further during August, as Insurance companies.............................................. $ 762,000,000 $603,900,000 evidenced by a decline in the average yield on prime 64.100.000 124.400.000 Savings banks........................................................... 35,600,000 10.200.000 Individuals................................................................. municipal bonds computed by Standard and Poor’s Cor 179.100.000 73,800,000 All others.................................................................... poration from 2.29 on July 29 to 2.26 on August 26. $752,000,000 T otal................................................. $1,101,100,000 Highest grade corporate bonds also edged upwards dur ing August, to the highest levels attained since last De * Exclusive of subscriptions entered by or for Government agencies. cember. Prices of medium grade corporate bonds showed Sales of War Savings bonds, estimated at $700,000,000 firming tendencies. Following some further recession during the first few for August, were materially smaller than in July ($901,000,000), when larger investors, taking advantage days of August, stock prices moved upwards through the of the increase in the limit upon holdings of Series F 24th of the month. During this period Standard’s 90 and G bonds, purchased large volumes of those bonds. stock price index rose 3 per cent. Although industrial (Total sales of Series F and G W ar Savings bonds dur stock prices shared in the advance, railroad stocks, which ing July almost exactly equaled the peak figure for were in particular demand reflecting much improved January, when there was a concentration of purchases earnings reports, showed an average gain of 6 per cent. under the previous limit.) While sales of War Savings As a result of declining tendencies during the final week bonds of all classes fell not only below the July total of the month, however, both industrial and railway stocks 69 FEDERAL RESERVE BANK OF NEW YORK were quoted on August 31 at levels only slightly higher than had prevailed a month earlier; utility stocks showed little net change for the month as a whole. N e w Security Issues During August the volume of corporate and muni cipal new security issues declined further to the low level of $71,000,000. Corporate financing amounted to $56,000,000, or about the same as the reduced total of the previous month. Practically all of the corporate total represented funds to be used for new capital purposes. Municipal security awards aggregated only $15,000,000, the lowest monthly total in several years. The bulk of corporate financing was accounted for by two private sales; there were no public offerings in excess of $2,000,000 during the month. The Southern Bell Telephone and Telegraph Company sold to a group of insurance companies $35,000,000 of 2 % per cent debentures due in 1972, priced at 98% to yield 2.83 per cent. Of the proceeds, $31,000,000 was to provide for repayment of advances from the parent American Tele phone and Telegraph Company. The other large private sale was that of $12,000,000 Great Lakes Pipe Line Com pany 3^4 per cent debentures due in 1957. Foreign E xchanges During August the discount quoted for the unofficial rate on the Canadian dollar widened somewhat in New York. After holding at about 10 per cent for some time, the discount increased to 11 per cent on August 27, the lowest quotation at which the Canadian currency had been traded in the unofficial market since May 25. A discount of about 10% per cent was quoted at the end of the month. Although there was little net change shown for the month as a whole, the free rate for the Argentine peso fluctuated considerably during August. The peso ad vanced steadily during the first few days of the month to a quotation of $0.2390 on August 5, the highest level since December 5, 1941. Subsequently, the rate receded 23 points to $0.2367. However, the quotation again turned upward, recovering 8 points to reach $0.2375 at the end of August, as compared with $0.2380 at the close of July. The temporary rise in the early part of the month reflected a corresponding decline in the peso rate for dollars in Argentina. The only other note worthy fluctuation occurred in the free Swiss franc, the rate for which had declined 35 points to $0.2985 offered, by August 27. However, the exchange recovered by the end of the month to $0.3025 offered, which was about the same as a month ago. Other foreign exchanges in the New York market remained inactive during August. and August 22. The all-commodities price index on August 22 stood about one-third higher than at the beginning of the war in 1939, and 7 per cent above the level at the time of our own entry into the war, as the accompanying table shows. Prices of farm products generally have risen nearly 75 per cent in the past three years and 17 per cent since December 6 of last year. On the other hand, prices of all commodities other than farm products and foods have fluctuated within rela tively narrow ranges in recent months; the index for this group of commodities on August 22 showed an advance of 19 per cent over August 26, 1939. Quotations for livestock showed substantial advances during August, owing partly to heavy demand for meat products for Lend-Lease and other Government purposes, and partly to limited marketings during this time of the year. Around the middle of the month hogs in Chicago reached $14.96 a hundredweight— the highest since 1920 — and steers in the same market averaged $15.17 a hun dredweight; the latter quotation was equal to the 1937 peak and otherwise was the highest since 1928. Subse quently, some downward reactions developed in livestock quotations, apparently reflecting the possibility that price ceilings might be set for farm products. Despite the record carryover of wheat in this country, wheat prices moved irregularly higher during August, owing in part to the limited free offerings of the new crop. According to the Department of Agriculture, prices received by farmers for wheat on August 15 were still about 30 per cent below computed parity. On August 8 the Department of Agriculture’s first estimate of this year’s cotton crop placed the crop at 13,085,000 bales, which would be the largest crop since the record one of 1937. Average living expenses for wage earners and lower salaried workers in large cities, according to the Bureau of Labor Statistics indexes, rose about V2 per cent further between June 15 and July 15 to the highest point since late in 1930, 19 per cent above the June, 1939 level, and 6 per cent higher than in November, 1941. The largest advances have occurred among food prices; the Bureau’s group index of retail food prices in July was one-third higher than in June, 1939, and 10 per cent above November, 1941. Retail price indexes for items of clothing and housefurnishing are 25 and 22 per cent, respectively, higher than before the w ar; prices in these classifications, however, have shown relatively slight changes since last May, when the General Maximum Price Regulation became effective. Apparently reflect ing rental controls by the Office of Price Administration United States Bureau of Labor Statistics W eekly Indexes of Wholesale Commodity Prices Percentage change Aug. 22, 1942 compared with August 22, • 1942 (1 9 2 6 = 1 0 0 ) C o m m o d ity Prices Wholesale commodity prices, as reflected in the Bureau of Labor Statistics comprehensive weekly index, rose a little further during August to the highest point since 1926, owing principally to increases in farm and food prices not under ceiling regulations. The index of food prices alone advanced nearly 2 per cent between July 25 Aug. 26, 1939 Dec. 6, 1941 M ar. 28, 1942 July 25, 1942 All commodities................ 9 8 .9 p + 3 2 .2 + 7 .3 + 1 .5 + 0 .5 Raw materials................... Manufactured products. 10 1 .0 9 9 . Ip + 5 2 .6 + 2 5 .0 + 1 2 .2 + 5 .5 + 2 .7 + 1 .2 + 1 .2 + 0 .3 Farm products................... Foods..................................... A ll c o m m o d itie s oth e r than farm products and 1 0 6 .4 1 0 0 .8 + 7 4 .1 + 5 1 .1 + 1 7 .2 + 1 3 .6 + 2 .9 + 5 .1 + 0 .9 + 1 .9 + 1 9 .0 + + 0 .4 — 0 .2 9 5 .7 p p Preliminary 2 .1 70 MONTHLY REVIEW, SEPTEMBER 1, 1942 in defense areas, the index of urban rents registered a decline between May and July, to a point only about 3 per cent above the June, 1939 level. E m p lo y m e n t and P ayrolls Working forces in New York State factories increased 2 per cent between June and July, and wage payments rose 4 per cent. Seasonal employment gains in the can ning industry and additional hirings by war plants ac counted for a large part of the gain. In the apparel industry, where a large number of workers were laid oft in June, employment increased slightly in July, contrary to the usual seasonal tendency. Compared with July, 1941, manufacturing establishments in the State em ployed 8^/2 per cent more workers, and paid out 29 per cent more in wages. The increases in industrial activity for the State as a whole stem principally from Upstate factories where working forces in July were 11 per cent above the year earlier level, and payrolls were 36 per cent larger. In New York City, the year-to-year gains were considerably smaller, 3 per cent in employment and 16 per cent in payrolls. Industrial employment Upstate has been stimu lated by numerous war contracts let in various industrial centers in that area, but in New York City, where the manufacture of apparel and other nondurable civilian goods predominates, the unfavorable effects of curtail ment orders and material shortages have been more evi dent. Furthermore, New York City industries have frequently been at a disadvantage in bidding for war contracts because of higher production costs than those of competing industries in other parts of the country. Over 400,000 persons were estimated to have been un employed in New York City in July, and 82 per cent of the State’s unemployment insurance benefit payments during the month went to New York City residents. In the United States as a whole, factory employment in July was 2 per cent higher than in June, and payrolls were 2 % per cent greater. Employment in war produc tion, as represented by the machinery and transportation equipment industries, continued to increase, and can neries made large seasonal additions to working forces. Manufacturing employment was 8^2 per cent higher in July than in the corresponding 1941 period, and wage payments were almost a third larger. Payroll disbursements in recent months have shown a consistently greater gain than employment, reflecting a continued rise in average weekly earnings. Increased earnings of factory workers have resulted from longer working hours, higher wage rates, and overtime pay ments. Average hourly earnings, which reflect the higher rate for overtime work as well as increases in basic wage rates, have risen steadily since the outbreak of the war in 1939. In an attempt to set up a “ yardstick” for wage stabilization, the W ar Labor Board, starting with the “ Little Steel” decision in mid-July, has been employing a formula for settling wage disputes which is based on the 15 per cent rise in the cost of living between Janu ary 1, 1941 and May, 1942, indicated by the Bureau of Labor Statistics index. Early in August the W .L.B. advocated Federal control over all general wage increases, and on August 25, President Roosevelt announced that forthcoming measures to curb increases in the cost of living would include wage stabilization. A total of 37,100,000 persons was employed in civil nonagricultural occupations during July, according to the recently revised estimates of the Bureau of Labor Statistics, nearly 450,000 more than in June and 2.150.000 more than in July, 1941. (These figures ex clude self-employed persons, casual workers, and domes tic servants, as well as Federal emergency workers and members of the armed forces.) Manufacturing indus tries accounted for the largest part of both the month-tomonth and year-to-year gains. The number of civil government employees also rose substantially. Retail and wholesale trade establishments, however, reduced working forces from both the June, 1942 and the July, 1941 levels. Total employment in the United States rose 700,000 between June and July to a record level of 54,000,000 persons, according to estimates of the Work Projects Administration. The number of unemployed has re mained about the same for the past four months; in July 2.800.000 persons were estimated to be out of work. B u ild in g The daily rate of construction contract awards in 37 Eastern States was maintained near a record level during July despite a drop of about one quarter from the excep tionally high June average. According to the F. W . Dodge Corporation report, with the exception of June, the rate for July was the highest for any month on record, and nearly 60 per cent above the rate for July of last year. Although contract awards for both non residential building and heavy engineering construction declined between June and July, both were more than double the figures for July, 1941. By way of contrast, awards for private residential building were at the lowest level for any July since 1934. In New York and Northern New Jersey, the daily rate of construction contract awards during July was almost 50 per cent below June, but more than 40 per cent above the corresponding month of last year. All of the yearto-year increase was in Upstate New York, as the rate of awards in the Metropolitan New York and Northern New Jersey area was down sharply from the year earlier level. In this region contracts for all major types of con struction dropped sharply between June and July. Com pared with July, 1941, however, awards for nonresi dential construction were between two and three times the year earlier level. Factory building, which accounted for almost 40 per cent of all contracts awarded in the district during July, was primarily responsible for this gain. On the other hand, contracts for residential build ing amounted to less than one-third the volume of such contracts in July, 1941. In this area defense housing projects have been relatively less numerous than in other sections of the country, and the curbs upon nonessential building activity have caused a marked decline in other residential construction. During the first seven months of 1942, the total volume of residential contract awards was 36 per cent below the corresponding period of 1941. In contrast, for the 37 States as a whole, total residential building contracts showed little change between these periods as the volume of public housing projects was large enough to offset the decline in private building. 7 1 FEDERAL RESERVE BANK OF NEW YORK P ro d u c tio n a n d T r a d e 1942 1941 Such data as are available for August indicate the maintenance or further advance of the general level of production and trade. The problem of adequate scrap supplies continued to be critical in the steel in dustry, but even so mills were able to maintain output at near capacity levels. According to trade comment, indus try-wide scrap piles on July 1 averaged only two to three weeks’ supply at the current rate of consumption, com pared with stocks on January 1, 1941 representing over six weeks’ supply at the 1940 rate of consumption. During the month, the W .P.B. announced its approval of a program providing for new iron ore routes, supple menting the present one through the Soo locks. When completed, these facilities will be adequate for handling the shipment of 100,000,000 tons of ore annually. The American Iron and Steel Institute estimates that the steel making capacity of the country increased 628,000 tons during the first half of 1942 to 89,200,000 tons, mostly in electric furnace capacity. Electric power production was at a record level in August, and the output of crude petroleum, during the first three weeks of the month, averaged somewhat higher than in July. July June July (100 = estimated long term trend) Index of Production and T r a d e ................. 113 114 115p 118p Production...................................................... 116 121 123p 126p Producers’ goods— total........................ Producers’ durable goods................ Producers’ nondurable goods . . . . 123 127 120 148 168 125 152p 177 p 124 p 156p 185p 124p Consumers’ goods—to ta l..................... Consumers’ durable goods.............. Consumers’ nondurable goods___ 107 114 105 87 45 101 88 p 45 p 102 p 88 p 44p 103p Durable goods—to ta l............................ Nondurable goods—to ta l..................... 123 111 132 111 138p lllp 143p 112p Primary distribution.................................. Distribution to consumer......................... Miscellaneous services............................... 116 107 102 136 85 124 137p 83 p 124 p 140p 87 p 125p 105 116 116 117 123 135 136p 59 89 66 88 61 85 Cost o f Living, Bureau of Labor Statistics (100 = 1935 -39 average)............................... Wage Rates (100 = 1926 average)...................................... Velocity o f Demand Deposits * (100 = 1935-39 average) New York C it y .................................................. Outside New York C it y ................................. p Preliminary. P roduction and T rade in July During July the monthly index of production and trade computed at this bank rose three points to a record high of 118 per cent of estimated long term trend. (The previous peak, 116, occurred in August, 1941.) Each of the major components of the index— production, primary distribution, and distribution to consumer— shared in the advance between June and July. The rise of 4 points in the group index of distribution to consumer represented a reversal of the uninterrupted downward movement of this index since January. Im provement in sales volumes in July, on a seasonally adjusted basis, was largely restricted to department stores, sales of which dropped much less than in most other years between June and July. Sales of leading mail order houses are also estimated to have shown smaller decreases than usual in July, while declines in sales of variety and grocery chain store systems were of approximately the average seasonal magnitude. In comparison with July, 1941 there appears to have been M ay Indexes of Production and Trade * 62 86 * Adjusted for seasonal variation. a considerable reduction in the physical volume of retail trade. While merchants in some lines reported con siderable increases in dollar sales between July, 1941 and July, 1942, an adjustment for the higher prices prevailing this year results in substantially smaller gains, or actual reductions, in physical sales volumes. More over, the business of selling new passenger cars has virtually disappeared, and in other fields as well mate rial shortages and curbs upon production have resulted in severe curtailment of sales. Productive activity during July was at a new high level. While production of nondurable goods and of consumers’ durable goods held at approximately their June levels, and in many lines showed considerable reductions from the levels of a year before, there was a continuation of the rapid rise in the output of pro ducers’ durable goods, a classification which includes many types of war materials. According to the W .P.B., aircraft production was up 11 per cent over June, ordnance 26 per cent, naval ship production 22 per THOUSANDS OF DEADWEIGHT TONS 1 93 6 1937 1938 1939 1940 1941 1942 Index o f D istribu tion to Consum er (Federal R eserve B ank of N ew Y o rk index, expressed as a percentage o f estim ated long term trend, and ad ju sted for seasonal variation) M erch ant V e s s e ls C om pleted in A m erican Shipyards (F ig u re s for 1 9 3 9 -4 1 as published by A m erican Bureau o f S h ip ping; data for 1 9 4 2 as reported b y U . S. M aritim e C om m ission ) MONTHLY REVIEW, SEPTEMBER 1, 1942 72 cent, and merchant ship tonnage 6 per cent. The accom panying chart portrays the sharp rise in the tonnage of merchant vessels completed at American shipyards during the first seven months of this year. On the basis of the performance of the nation’s shipyards and the increased need for cargo space, the W .P.B. is reported to have raised the schedule for the remainder of the year, which, if realized, would bring the total for 1942 ten per cent above the 8,000,000 ton goal originally set by the President. In his second war production report, issued on August 22, Chairman Nelson of the W .P.B. indicated that while the output of munitions as a whole had increased 16 per cent between June and July, progress was uneven, and production fell somewhat short of forecasts made at the beginning of July. He stated that the war production effort had now entered a phase involving a careful balancing of requirements calling for effective direction of the flow of materials and a comprehensive system of production control. D e p a r tm e n t Store T ra d e As was also the case in other sections of the country, department stores in the Second Federal Reserve District, in a reversal of the tendency of recent months, reported relative sales improvement during July. While there was a decrease in the actual dollar volume of sales between June and July, the decline was considerably smaller than usually occurs. (In August, on the basis of figures made available by a group of department stores for the three weeks ended August 22, sales appear to have advanced more than usual over the July level.) Second District department store sales on a seasonally adjusted basis declined sharply between March and June. One influence doubtless was the extension of consumer credit restrictions, effective May 6. Another was the imposition of retail price ceilings, effective May 18, which provided an assurance to consumers that March price levels would continue to prevail for many classes of com modities. There appeared to be some disposition on the part of individuals to draw upon stocks which they had previously accumulated, and at the same time enlarged PE R CENT PER CENT income tax payments and War bond purchases drew upon consumer spending power. In July and August, on the other hand, department store trade appears to have bene fited from tendencies to spend vacations at or near home and, in many areas, by an absence of seasonal reductions in employment and consumer incomes. Reflecting the application of consumer credit restric tions to charge accounts, as announced by the Board of Governors of the Federal Reserve System on May 6, there has been a marked increase in recent months in the rate of collections against such accounts on the part of depart ment stores in the Second Federal Reserve District. As indicated on the accompanying chart, of charge account balances outstanding at the beginning of July, 1942, 51 per cent were collected during the month; in July a year ago, the corresponding figure was 42 per cent. Largely as a result of the more prompt payment of bills, together with a reduced proportion of credit sales, aggregate charge account balances, which frequently have shown some rise in May and June, declined during these months this year, and in July there was a further drop of greater than usual proportions. Outstanding charge account bal ances on July 31 were 22 per cent smaller than on the same date of 1941. Retail stocks of merchandise on hand in the reporting department stores in this District at the end of July were 82 per cent higher than a year earlier. Returns from a limited number of department stores in this District indi cate that at the end of July outstanding orders for merchandise purchased by the stores, but not yet delivered, were little changed from June, but were approximately 18 per cent lower than those at the end of July, 1941. Percentage changes from a year earlier N et sales Department stores July, 1942 New York C ity.............................................. Northern New Jersey................................. Westchester and Fairfield C ounties.. . . Bridgeport................................................... Lower Hudson River Valley..................... Poughkeepsie.............................................. Upper Hudson River V a lley.................... Central New York S tate............................ M ohawk River V a lley............................ Northern New York State......................... Southern New Y ork State......................... B ingham ton................................................ W estern New York S tate........................... Niagara F alls.............................................. A ll department stores.................... Apparel stores................................................. Stock on hand Jan.through end of month, July, 1942 July, 1942 + 9 + 8 +10 +14 +17 + 5 + 9 + 2 — 4 + 13 +25 + 9 — 6 +11 + 8 +17 +15 +18 +36 +11 + + + + + + 1 +10 + 82 — 2 +11 + 60 + 1 + 1 + 6 — 2 — 1 — 6 + 2 — 12 — 21 + 2 + 9 — 1 — 17 — 6 — 13 + 6 + 9 +10 +34 + 8 + 87 90 93 52 72 32 + ‘ 44 + *80 +115 + 70 + '5 4 + ‘ 65 + 63 + 34 + 74 Indexes of Department Store Sales and Stocks, Second Federal Reserve District (1923-25 average = 100) 1942 1941 July M ay Sales (average daily), unadjusted.................. Sales (average daily), seasonally adjusted . O utstand in g Charge A ccou n t B alances (1 9 3 9 a v e r a g e = 1 0 0 per c e n t), and Percentage of Collections M ade D uring the M onth to A ccou n ts R eceivable at B eginning o f the M on th , as R eported by a R epresentative Group o f D epartm en t Stores in the Second Federal R eserve D istrict Stocks, unadjusted............................................... Stocks, seasonally adjusted.............................. r Revised 81 114 84r 967- June July 99 103 92 96 81 114 160 156 158 167 157 180 FED ERAL RESERVE B A N K OF N E W Y O R K M O NTHLY REVIEW, SEPTEMBER 1, 1942 General Business and Financial Conditions in the United States (Summarized by the Board of Governors of the Federal Reserve System) I N D U STR IA L Index o f P h ysical V olu m e of Industrial P ro duction, A d ju ste d for Seasonal V ariation ( 1 9 3 5 - 3 9 a v e r a g e ~ 1 00 per c e n t; su b groups shown are expressed in term s of points in the total index) Indexes of V a lu e o f D epartm ent Store Sales and S tocks, A d ju ste d for Seasonal Variation ( 1 9 2 3 - 2 5 a v e r a g e = 1 0 0 per cen t) Indexes o f W h o lesa le Prices Compiled b y U nited S tates Bureau of Labor S tatistics ( 1 9 2 6 a v e r a g e s 1 00 per cen t) R eserve Balances a t Federal R eserve B anks, w ith E stim ates of Required and E x cess R eserves (L a te s t fig ures are for A u g u s t 1 2 ) activity increased further in July and the first half of August, reflect ing continued growth in output of m ilita ry products. Retail sales increased during this period, following a decline, on a seasonally adjusted basis, during the first half of the year. P roduction Industrial output rose further in July and the Board’s seasonally adjusted index advanced from 176 to 180 per cent of the 1935-39 average. A ctivity continued to increase in the machinery and transportation equipment industries and in other lines producing war products. Shipbuilding expanded further and 71 merchant vessels were delivered in July. These had an aggregate deadweight tonnage of 790,300 tons— an all-time record fo r a single month’s deliveries. In the automobile industry armament production increased in July to an annual rate of about $5 billion as compared w ith a peak year ’s civilian output of $4 billion. Iron ore shipments down the Great Lakes reached a new record of 13.4 m illion gross tons in July and plans were announced fo r improving ra il and harbor facilities so that ship ments next season could exceed considerably prospective shipments of 90 m illion tons or more this year. Last season 80 million tons were shipped. In most other lines of manufacturing and mining, activity in July was maintained at about the levels prevailing in June. There were reports that some plants were forced to curtail operations owing to lack of certain materials, and further investigations were undertaken to determine present and prospective availability of material supplies. Value of construction contracts awarded in July showed a reduction of about 20 per cent from the record level reached in June, according to figures of the F. W. Dodge Corporation. Declines were reported for most types of construction; awards for manufacturing buildings, however, increased further and constituted about one third of total contracts let. As in June, publicly financed work amounted to over 90 per cent of the total. In the first seven months of this year, awards were about 50 per cent larger than in the corresponding period last year. D istribution Distribution of commodities to consumers declined less than seasonally in July. The Board’s adjusted index of department store sales, which had dropped from a peak of 138 per cent of the 1923-25 average in January to 104 in June, rose to 117 and sales by variety stores and mail-order houses also advanced, after allowance for usual seasonal changes. In the first h a lf of August department store sales increased by more than the usual seasonal amount. Railroad freight car loadings increased more than seasonally in July and rose somewhat further in the first half of August. Shipments of miscellaneous merchan dise, which include most manufactured products, and of forest products continued to rise. Grain shipments also increased but the rise was less than is usual at this time of year. Loadings of coal declined somewhat from the high level of other recent months. Commodity P rices Wholesale and retail food prices advanced further in July and the early part of August, while prices of petroleum products on the East Coast were reduced, and those fo r most other consumer goods continued to show little change. In raw material markets price declines occurred fo r cotton, inedible fats and oils, and some scrap items, particularly nonferrous metals and paper. Demand for materials used more exclusively fo r war products continued strong and prices of these materials were sustained at ceiling levels. Federal subsidies were arranged fo r additional commodities and Government war risk rates on shipments of imported commodities were reduced. These actions were taken to bring about price reductions, as in the case of petroleum products on the East Coast, and to prevent further price increases, particularly for imported com modities. About 30 new maximum price schedules were announced, chiefly for miscellaneous civilian products, and in some instances these schedules permitted substantial increases over ceilings set by the General Maximum Price Regulation. B an k Credit Excess reserves of member banks declined by about 200 m illion dollars in the four weeks ended August 19. An increase of about 400 m illion dollars of currency in circulation during this period was paralleled by a corresponding amount of Reserve Bank purchases of Government securities. There was an increase of 300 m illion dollars in required reserves resulting from a growth in deposits at member banks. Excess reserves in New York and Chicago reached the lowest levels since the third quarter of 1937. Effective August 20 reserve requirements on demand deposits at Central Reserve City banks were reduced from 26 per cent to 24 per cent by action of the Board of Governors of the Federal Reserve System. This had the effect of converting over 400 m illion dollars from required to excess reserves. Member banks in leading cities continued to increase their holdings of United States Government securities, particularly in the week ended August 19, in which delivery of the new 11% months’ % per cent certificates of indebtedness wT made. as Loans, which had declined during the second quarter of the year, have recently shown little change. Adjusted demand deposits continued to increase at reporting banks, although purchases of Government securities, particularly the 2% per cent Treasury bonds of 1962-67, by investors other than banks temporarily reduced demand deposits of ind i viduals and added to United States Government deposits.
