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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.