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MONTHLY REVIEW ofCreditandBusinessConditions S e c o n d F e d e r a l Vol. 25 R e s e r v e D is tr ic t S E P T E M B E R 1, 1 9 4 3 M O N E Y M A R K E T During August the financial spotlight was shifted to the A U G U ST N ew York. Third W ar Loan drive, scheduled to be launched September 9 with a $15,000,000,000 goal. IN No. 9 W hile the reserve positions of die central reserve N e w York City banks showed fluctuations from day to day, these banks maintained their average excess reserves at nominal Vigorous preparations were carried forward by the State W ar Finance Committee organiza levels through purchases and sales of Treasury bills. tions constituted shortly after the close of the Second drive. the four weeks ended August 2 5 the N e w York banks* loss of During Meanwhile, large investors made further portfolio adjustments funds through Treasury transactions was smaller than in most in anticipation of the drive. These adjustments followed earlier months of the year, but commercial and financial funds, portfolio which— except for the period of the Second W ar Loan drive— changes which had been made over a number of weeks in the upon numerous had been showing a partly compensating inward movement, Government security holdings of insurance companies, mutual reversed their direction during August. savings banks, and other investors. Such investors lightened their holdings of Treasury bonds, including medium term tax together with the continued outflow of currency into circula These two factors, together with proceeds from the liquidation of short term obligations and other securities that may be sold, will be em ployed by these investors in the purchase of the new issues to be offered during the drive. The general effect of the portfolio adjustments by nonbanking investors was to increase the supply tion and enlarged reserve requirements, made it necessary for the N e w York banks to make heavy further sales of Treasury bills to the Reserve Bank in the adjustment of their reserve positions. Holdings of Treasury bills by the weekly reporting member banks in N ew York City, which had dropped from $1,803,000,000 on June 30 to $1,480,000,000 on July 28, de clined further to $1,030,000,000 on August 25. W eekly report ing banks in 10 0 other cities throughout the country showed a similar, though smaller, reduction in Treasury bill holdings. of Government securities available for bank investment. Hold ings of Treasury bonds by the weekly reporting member banks For all member banks, increased currency circulation resulted in losses of reserve funds to the extent of $504,000,000 between in N ew York City, which had increased $122,000,000 during the four weeks ended July 28, were further enlarged to the extent of $114,000,000 during the four weeks ended August 2 5 ; those of the weekly reporting banks in 10 0 other cities, which increased $181,000,000 during the four July weeks, were expanded an additional $111,0 0 0 ,0 0 0 between July 28 and July 2 8 and August 2 5 , while reserve requirements increased to the extent of about $300,000,000. The resulting needs for reserves were met largely through sales of Treasury bills to the Reserve Banks. Federal Reserve Banks* holdings of bills, which had increased $846,000,000 during the four weeks ended July 28, rose $804,000,000 further to $5,465,000,000 on August 25. In addition, there has been a gradual increase in the number of member banks borrowing from the Reserve able issues as well as partially tax exempt issues, and employed the proceeds in part for short term investments and in part to accumulate cash balances. Accumulations of cash resources, August 2 5. On the other hand, there was further liquidation of bank holdings of Treasury bills to meet the needs of the banks for Banks to obtain additional reserves. additional reserve funds. A s in July, excess reserves of all borrowing is still relatively small, but in this District there member banks generally ranged between $1,000,000,000 and were 34 member banks borrowing on August 2 5, the largest $1,300,000,000 during August, practically all of it outside number in more than four years. g W * tie /ttt< zc T H I R D W A R 6 L O A N w ith D R I V E W AR O P E N S The amount of such B O N D S S E P T E M B E R 9 * 66 MONTHLY REVIEW, SEPTEMBER 1, 1943 Changes in Holdings of Government Securities by the W eekly Reporting Member Banks. (In millions of dollars) Week ended Bills Certificates Notes Bonds Guaranteed Total A n accompanying table presents a comparison between New York City July July July July 7 .................. 1 4 ............... 2 1 ............... 2 8 ............... — 371 + 87 + 114 — 153 Aug. Aug. Aug. Aug. 4 ................. 1 1 ............... 1 8 ............... 2 5 ............... — — 99 + 16 — 281 86 11 the Federal budget estimates presented in the Presidents + 9 + 17 + 16 + 21 + 27 +294 — — 18 11 + 5 + 30 + + 65 22 + — 3 — 106 + 27 — 319 +425 + 35 — 58 +192 — + 34 + 51 — 15 — + — + 18 + 3 + 56 + 37 + 32 + 40 — 3 + 5 +141 — 80 + 105 — 208 22 2 2 20 100 Other Cities July July July July 7 ................. 1 4 ............... 2 1 ............... 2 8 ............... — 26 + 77 + — 131 — 15 — — 13 + 23 — 33 +653 + 55 + 7 + + + + Aug. Aug. Aug. Aug. 4 ................. 1 1 ............... 1 8 ............... 2 5 ............... — 154 — 25 + — 173 + 378 + 4 — — + 35 + — + — 14 + 54 + 50 + Calls on 21 2 W ar 20 12 21 Loan 20 12 10 deposit the year, Victory Taxes withheld during the same period, and income taxes withheld at the source during the second half of the year. 85 54 19 23 21 accounts 0 11 1 6 0 4 6 — — 75 + + + + 11 + +753 + 7 — 77 +251 + 53 + 32 — 157 amounted to $3,797,000,000 during August in comparison with $3,676,000,000 during July, despite a substantial rise in war expendi tures. Credits to W ar Loan deposit accounts from sales of Government securities paid for by the book credit method may be estimated at $1,500,000,000 for August, or about $2,300,000,000 short of the total amount of funds called for payment from these accounts, with the result that approxi mately $4,500,000,000 remained on deposit with W ar Loan account depositaries on August 3 1 in comparison with $6,790,000,000 on July 3 1 and the peak of $12,790,000,000 which was reached May 15 after the close of the Second W ar budget message of January 1 1 and revised estimates which were published August 1. The $5,000,000,000 increase in estimated receipts from direct taxes on individuals reflects principally the effect of the Current Tax Payment A ct enacted June 9- Current tax payment assesses taxes against the 19 4 3 -4 4 levels of income and the tax return is greater than would otherwise have been payable on the lower 19 4 2 and 19 4 3 levels of income. The $835,000,000 decline in estimated receipts from direct taxes on corporations and the increase of $734,000,000 in "other” receipts reflect in considerable part the estimated effect of war contract renegotiations. W ar ex penditures in the regular budget are still estimated at $97,000,000,000 for the fiscal year, although the distribution by agencies has been modified. N et war outlays of Govern ment corporations outside the regular budget have been revised slightly upward to $3,000,000,000 from the previous $2,700,000,000, making total estimated war expenditures of an even $100,000,000,000 in the fiscal year. After deducting borrowing from Government trust funds and the refunding of guaranteed debt with direct debt, net borrowing from the public in the twelve months ending June 30, 19 4 4 is estimated at about $63,000,000,000 as compared with an actual amount of $61,000,000,000 in the year which ended June 30, 19 4 3. U . S. Government Receipts and Expenditures (In millions of dollars) Loan drive. The need for withdrawals of funds from the W ar Loan account depositaries was reduced by the receipt during August of approximately $500,000,000 from Victory Tax collections covering the second quarter of the year, and a similar amount from income taxes withheld by employers as required by the Current Tax Payment Act. The bulk of the withheld tax receipts during August represented taxes deducted from wages and salaries paid during July, the first month for which the Fiscal years ended June 30 1943 1944 Actual Budget Revised estimates estimates Jan. 11, 1943 Aug. 1,1943 Receipts Direct taxes on individuals.................. Direct taxes on corporations................. 7,077 9,996 6,312 13,751 14,915 6,741 18,795 14,080 7,475 Total receipts.................................. Deduct: Appropriation to old age account. .. Postwar credits.................................... 23,385 35,407 40,350 1,103 210 1,525 800 1,632 570 lected at the source during July were paid in to the Treasury Net receipts...................................... 22,072 33,081 38,148 in that month, but the receipts attained large volume as funds, Expenditures W ar............................................................ Interest on debt....................................... 72,109 1,808 4,262 97,000 3,000 4,124 97,000 2,700 4,336 Total.................................................. 78,179 104,124 104,036 Budget deficit.............................................. Government corporations, net expendi tures W ar............... ........................................ Other (excluding debt retirement).. Retirement of debt............................. Trust accounts, net receipts................. Postwar credits........................................ Change in Treasury balance................. 56,108 71,043 65,888 — 2,976 1,470 — — + 6,515 2,693 309 1,772 — 35 — 800 — 63 withheld tax provisions were effective. According to the Treasury Daily Statement, only $19,000,000 of the taxes col paid over by employers on and immediately prior to the dead line date of August 10, reached the Treasury. During September, Treasury cash receipts will include not only withheld tax funds but also cash receipts from quarterly tax collections and cash payments for securities sold under the Third W ar Loan drive. The quarterly tax collections will com prise, on the one hand, income taxes due from corporations, 688 333 210 — — — — 3,000 1,167 2,895 34 570 708 and, on the other hand, income taxes due from individuals Net increase in public debt....................... 64,274 74,919 69,304 whose estimated income and Victory Tax liability will not be Public debt outstanding at end of year.. 136,696 209,749 206,000 covered by income tax payments made during the first half of 67 FEDERAL RESERVE BANK OF NEW YORK T H IR D W A R The Third War Loan drive starting September 9 has as a goal the raising of $15,000,000,000, the entire amount to be sub scribed by investors other than commercial banks. By exclud ing the commercial banks from the drive itself, attention is focused on selling the largest possible amount of securities to nonbanking investors. Commercial banks are to be used as a residual source which will be drawn upon by the Treasury only to the extent that other sources fail to supply the funds needed to finance war expenditures. The amount of this residual borrowing from commercial banks will depend largely on the extent to which individuals, institutional investors, and corporations accumulate idle funds in the form of currency or deposits in commercial banks, rather than invest in Govern ment securities. The purpose of the periodic War Loan cam LO A N D R IV E Corporations also are accumulating cash resources which can be invested in Government securities, partly through the medium of undistributed profits, but more largely as a result of tax reserve accumulations, and inability in wartime to maintain or replace plant and equipment in the amount of current depreciation allowances. Postwar conversion and con tingency reserve accumulations, and liquidation of inventories in many cases also provide funds temporarily available for in vestment. Cash resources of insurance companies and mutual savings banks, of course, tend to accumulate steadily, through growth in reserves in the case of insurance companies, through growth in deposits in the case of the savings banks, and in both cases through liquidation of investments and repayments of loans. but also to promote the conversion of these holdings of idle currency and demand deposits into Government securities, in The $15,000,000,000 goal for the Third War Loan drive compares with sales to nonbanking investors of $6,800,000,000 during the first War Loan drive of December, and $12,550,- which form savings are less likely to be drawn against for inflationary spending. 000,000 in the second drive of April. Sales to individuals constitute the largest potential market for improving upon the paigns is not only to raise money for the financing of the war, In order to make investment of such idle funds attractive, the Treasury is again offering a wide variety of securities to meet various types of investment needs. Individuals will be results of April and meeting the goal. The trend of the suc cessive War Loan drives has been toward tapping more effec tively this market. As indicated in the accompanying table, bonds of 1951-53 and 2 V2 per cent bonds of 1964-69 will provide an outlet for medium term and long term investment sales to individuals (including partnerships and personal trust accounts) amounted to $1,600,000,000, or 23 per cent of the total sales to nonbanking investors during the first drive, and to $3,290,000,000, or 26 per cent, during the second drive. Purchases by individuals must show a sharp further increase if the new drive is to be fully successful. Of the $15,000,000,000 goal for the coming drive, New York State’s share has been set at $4,709,000,000, or about 31 for insurance companies, mutual savings banks, trust funds, and other large investors. per cent of the country total. This goal exceeds by $331,000,000 the amount sold in this State during the April drive after The greatest effort in the drive will be directed toward excluding sales then made to commercial banks, and sales for principally interested in the Savings bonds, of Series E, F, and G, although other bonds are also provided for the larger investors; one year Certificates of Indebtedness bearing inter est at- % per cent, and Series C Savings notes ( formerly called Tax Savings notes) will be available for corporations and others with funds for short term investment; while 2 per cent individuals— encouraging their purchases of War Bonds out of accumulated idle funds and the enlargement of their pay roll deductions for purchases out of current income. Income payments to individuals during the present fiscal year ending June 30, 1944 are estimated by the Treasury at about $150,000,000,000, of which some $20,000,000,000 will be paid in direct personal taxes, leaving $130,000,000,000 of disposable income. With consumer goods and services available in this period estimated as only $85,000,000,000 at current ceiling prices, there will apparently remain about $45,000,000,000 to Distribution o f Securities Sold in the First and Second W ar Loan Drives by Type o f Investor Amounts in millions of dollars Nonbanking investors* Individuals, partnerships, and per sonal trust accounts....................... Insurance companies............................ Savings banks...................................... Eleemosynary institutions................. State and local governments............... Other corporations and associations. be absorbed through savings. The Government is relying upon voluntary bond purchases to bridge as much as possible of this Commercial banks.................................... money balances held by individuals. Through War Bond pur Other sources Dealers and brokers*.......................... U. S. Government agencies and trust funds.................................................... chases, every citizen is offered an opportunity to wage a per Total from all sources.............................. gap, and thus to check the rapid accumulation in spendable sonal battle against inflationary forces. Decem ber, 1942 April, 1943 Decem ber, 1942 April, 1943 1,593 1,699 620 57 23 25 9 26 19 2,654 3,290 2,408 1,195 117 503 5,038 3 39 4 40 6,822 12,550 100 100 5,087 5,058 769 544 200 270 391 12,947 18,543 1 10 1 In this way not only can he fulfill a patriotic duty, but also he can help to forestall upward pressures on prices which would be contrary to his own interests. Per cent of nonbanking total ♦For the April drive allotments to dealers and brokers earmarked for distribution to nonbanking investors were credited to the appropriate classes of nonbanking in vestors. For the December drive allotments to dealers and brokers of the 2 Yi per cent bonds (which were not eligible for purchase by commercial banks) were credited to other corporations and associations, but no reclassification is available for the other issues. 68 M ONTHLY REVIEW , SEPTEMBER 1, 1943 which statistical credit was given to other parts of the country. As is true for the country as a whole, the primary effort is to be directed toward obtaining the additional amount as largely as certificates of indebtedness offered in the drive until ten days possible from greatly increased purchases by individuals. In line with this objective, the War Finance Committee has set a after it terminates, or until subscription books close on the commercial bank offering, whichever is earlier. the Treasury has requested commercial banks not to purchase and subscribers not to trade in the 2 per cent bonds and the goal of obtaining subscriptions from more than twice the 3,250,000 individuals who bought bonds in this State during the April campaign. New York City alone will be asked to subscribe to $4,168,000,000, in view of the large resources of insurance companies, savings banks, and other corporations located or having their principal bank accounts in this city. Quotas for New Jersey and Connecticut have been set at $585,000,000 and $453,000,000 respectively. Roughly four fifths of the New Jersey and one fifth of the Connecticut totals are expected to be raised in areas falling within the Second Federal Reserve District. Commercial banks, although not permitted to subscribe for their own account until later, will play an important part in the drive through their participation in the organizations en listed to sell securities to other investors. Shortly after the drive closes, the Treasury has stated that a 2 per cent bond and a Vs per cent certificate of indebtedness will be offered for subscription by commercial banks for their own account. In order to confine all sales in the drive to nonbanking sources, S u b s c r ip t io n s t o b e E n t e r e d W h e r e W A R F IN A N C IN G Net public borrowing of the Treasury in August amounted to about $2,300,000,000, including payments due August 2 for the certificate of indebtedness issue offered in the latter part of July. Distribution of the net receipts (sales less re demptions) from August borowing was as follows: $940,000,000— % per cent certificates of indebtedness 650.000.000— Savings bonds (estimated) 400.000.000— Treasury bills 300.000.000— Treasury Savings notes (estimated) Receipts from the cash offering to commercial banks of Vs per cent certificates of indebtedness due August 1, 1944 amounted to $989,000,000. Allotments to subscribers in the Second Federal Reserve District of $381,000,000 amounted to 39 per cent of the total, compared with 31 per cent and 35 per cent for the certificate offerings to commercial banks in the April and December drives, respectively. In addition to the cash offering, new certificates of indebtedness were offered in exchange for $1,609,000,000 certificates maturing August 1. Of this total, $1,558,000,000 were actually exchanged, leaving $51,000,000 to be redeemed in cash. Fu n d s A r e Lo c a t e d The following is quoted from circular Number 2674 of this bank dated August 26: ‘The respective State quotas making up the 15 billion dollar goal for nonbanking subscriptions in the Third War Loan Drive are based in large measure upon the location of bank deposits. For this reason, and to avoid disturbances to bank reserve positions which might otherwise occur through unnecessary shifts of deposit balances from one part of the country to another, or from one institution to another, subscribers to Government securities should enter their subscriptions through the banks where their funds are on deposit. Receipts from the sale of Savings bonds are estimated at about $800,000,000 for the month, as compared with the July total of $890,000,000. The decline probably represented in some part the deferment of purchases until the Third War Loan drive in September. Redemptions increased slightly to about $150,000,000 during August compared with $138,000,000 in July and $141,000,000 in June. In the Second Federal Reserve District, sales of Savings bonds by agencies other than post offices declined to about $105,000,000 in August from the $131,000,000 July total. Series E sales fell off to about $80,000,000 as compared with $94,000,000 in July, but were well above the $60,000,000 sold in August, 1942. Sales of Series C Savings notes apparently continued near The transfer of funds for the purpose of making a sub the $450,000,000 average monthly level which had prevailed scription not only constitutes a possible disturbance to bank since the first of the year, except in April when the Second reserve positions but customarily involves substantial and W ar Loan drive swelled the sales total. unnecessary work on the part of the persons involved. A marily in payment of corporation taxes, amounted to somewhat transfer of funds merely in order that the transferee bank more than $100,000,000 in August. An additional $400,000,- Redemptions, pri may, through the use of a War Loan Deposit Account, 000 of "new money” was obtained from Treasury bills, as obtain the advantage of the temporary use of additional re weekly offerings of $1,000,000,000 replaced maturities of serves, at the expense of other banks, is not good practice and involves the war loan deposit account mechanism in a $900,000,000. On August 18, Secretary Morgenthau announced that hold use for which it is not intended. These transfers serve no proper purpose which cannot be accomplished by statistical ers of the 3V4 per cent Treasury bonds of 1943-45, which have been called for redemption on October 15, would be given an allocations of credit for sales.” opportunity to exchange their called bonds for other securities shortly after the close of the Third War Loan drive. Holders FEDERAL RESERVE BANK OF NEW Y ORK other than commercial banks will be given the option of ex changing for either the 2 per cent or the 2 Vi per cent bonds which are to be sold during the drive. Commercial banks will be permitted to exchange their holdings for the new 2 per cent bonds. 69 S E C U R IT Y M A R K E T S Fluctuations in Government security prices during August reflected adjustment of investor portfolios in anticipation of the Third War Loan drive. Prices of intermediate term bonds declined slightly because of selling by investors to obtain funds for purchases of new bonds to be offered in the drive. M E M B E R B A N K CR ED IT Premiums on the three long term taxable bonds, not eligible for Between July 21 and August 25 total loans and investments of the weekly reporting member banks in 101 leading cities purchase by commercial banks, also declined in view of the showed a net rise of $107,000,000 to $46,719,000,000, a level fact that a new issue of this type will be available to non The entire gain banking investors in the coming drive. As was the case prior to the April drive, yields on the longer maturities of certifi occurred outside New York City; total earning assets of the cates of indebtedness advanced after the middle of the month reporting banks in New York City were reduced $21,000,000 to levels more nearly in line with the % per cent rate on the new certificate to be offered in September. Prices of long term $649,000,000 below the peak of May 19- net during this five weeks* period. In order to maintain their reserves with the Federal Reserve Bank at the required level, member banks in New York City tax exempt and taxable bonds eligible for commercial bank purchase remained firm during the month. reduced their holdings of Treasury bills $603,000,000 to Stock prices showed little net change over the month, accom $1,030,000,000 during the five weeks ended August 25. At the same time, however, these banks made net purchases of panying a period of light trading on the New York Stock $503,000,000 of other types of Government securities. Pur Exchange. Average daily sales during the month were the smallest for any month since September, 1942. At the end chases of the new issue of certificates of indebtedness on of August, stock prices as measured by Standard and Poor’s August 2 amounted to about $190,000,000 and, in addition, composite index of 90 stocks were 56 per cent above the low these banks made net market purchases of $179,000,000 Treasury bonds, $101,000,000 guaranteed obligations, and point reached in April, 1942 but 8 per cent below the high about $85,000,000 already outstanding certificates of indebted ness. Holdings of Treasury notes were reduced $53,000,000. Outside New York City a reduction of $481,000,000 in The corporate bond market was also characterized by light trading and minor changes during the month. Moody’s Baa index of medium and lower grade bond yields remained at the volume of Treasury bill holdings of the weekly reporting member banks in 100 cities was more than offset by net about the 3.81 per cent level of the end of July, marking the first month since December that the index failed to reach a purchases of $583,000,000 other Government securities, in new low. reached in the middle of July. Standard and Poor’s index of municipal bond yields cluding about $375,000,000 of the new issue of certificates of at the end of August stood at 1.91 per cent, virtually un indebtedness. changed for the month. To their Government securities portfolios these banks also added $134,000,000 Treasury bonds, $60,000,000 Treasury notes, and $17,000,000 guaranteed obligations. Total loans of the New York City banks rose $101,000,000 during the five weeks ended August 25 largely as a result of a rise in the volume of loans to brokers and dealers for the purpose of purchasing or carrying Government securities. Outside New York an increase of $58,000,000 in total loans reflected a growth in commercial, industrial, and agricultural loans, which from the end of June to August 25 have shown a steady week-to-week increase, totaling $168,000,000. In both New York and the other 100 cities adjusted demand * PRO D U CTIO N A N D T R A D E All indications point to increases in both production and trade during July. The lag in industrial activity which occurred in June was associated primarily with sharp curtailment in mining and related industries, and as work was resumed in the coal fields output began to rise again. Bituminous coal pro duction which had averaged 1,333,000 tons daily in June, was increased to a daily average of approximately 1,968,000 tons in July, and anthracite mines showed an even greater proportion deposits continued to rise, while U. S. Government deposits ate rise, from 124,100 to 218,000 tons daily. Steel produaion expanded during the month partly in response to the added contracted as the Treasury withdrew additional funds from supply of fuel, and partly as a result of the "Steel for Victory” War Loan account depositaries. Between July 21 and Au campaign conducted by the War Production Board in an effort gust 25, adjusted demand deposits of the New York City to increase production and bring new facilities to rapid com reporting banks rose $892,000,000 to $13,449,000,000, about pletion. $360,000,000 above the previous peak of April 7, prior to spite of a growing manpower shortage in the industry, con the Second War Loan drive. In the 100 cities outside New York such deposits expanded $867,000,000 to $21,696,000,000, tinued into August. Output in a number of fields relatively unaffected by the coal The expansion in steel output, which took place in a level $1,717,000,000 above the pre-drive peak which in strike also increased during July. their case was reached April 14. broke all records for the third consecutive month. Electric power production There was 70 MONTHLY REVIEW, SEPTEMBER 1, 1943 EM PLOYM ENT AND PAYROLLS 1943 During July the Bureau of Labor Statistics reported a slight July May June July 118 125 123p 126p Indexes of Production and Trade* increase in manufacturing employment shared equally by dur able and nondurable industries. (100 = estimated long term trend) Index of Production and Trade. . . . Firms in the transportation equipment industries and canning plants showed the largest 126 134 132p 134p Producers’ goods— total............. Producers’ durable goods. . . . Producers’ nondurable goods. 156 184 124 170 136 166p 195p 134 p 167p 195p 135p Consumers’ goods— total............. Consumers’ durable goods. . . . Consumers’ nondurable goods. 44 103 87 34 105 85p 30p 104p 28p 107p Durable goods— total. . . . Nondurable goods— total. 112 143 151 118 147p 116p 146p 119p declined 1.4 per cent, the declines running as high as 5 and 6 per cent in the Buffalo and Utica areas. 134 89 124 159 80 170 152p 81p 172 p 157p 84 p 176p of hours worked per week in manufacturing industries through 117 125 125 124p 139 152 I53p Production. Primary distribution......... Distribution to consumer. Miscellaneous services. . . . 88 Cost of Living, Bureau of Labor Statistics (100 = 1935-39 average)............................. Wage Rates (100 = 1926 average)................................... 200 p Preliminary. In contrast, employment Factory employ ment in New York State was little changed from June, accord ing to the New York State Department of Labor, but payrolls As is shown in the accompanying chart, the average number out the United States has increased gradually over the past three years, from 37.6 in June, 1940 to 45.2 in June, 1943. During the same period average hourly earnings in manu facturing industries have risen from 66.2 to 95.9 cents, or 45 Velocity of Demand Deposits* (100 = 1935-39 average) New York C ity...................... Outside New York City. . . . increases in number of wage earners. in trade and in construction work declined. 62 86 85 80 71 75 68 76 * Adjusted for seasonal variation. per cent. Prior to last October, when the present controls over wages and salaries went into effect, upward revisions in basic wage scales played an important part in the rise in average an estimated three per cent rise in crude petroleum output hourly earnings, and increased working hours have tended to between June and July, and the daily average almost regained the high level of January, 1942. A sizable increase in activity raise average hourly earnings throughout the period because at meat packing plants occurred when feed grain shortages work. began to force liquidation of the abnormally large number of cattle on farms. Cigarette production was substantially larger of average hourly earnings and average hours worked per week, they have advanced much more rapidly than either of the two underlying factors. At $43.35 in June of this year, average weekly earnings of factory workers were 74 per cent higher than in the corresponding month of 1940. than it had been in any previous month this year. In a few industries month-to-month changes between June and July were downward. The completion of approximately four fifths of the Government’s war facilities program was accompanied by further curtailment in construction activity, the decline being most pronounced in nonresidential building. Cotton consumption fell from a daily average of 41,700 run ning bales in June to 38,200 bales in July, the lowest level since January, 1941. , The number of merchant ships delivered in July was 158 compared with 167 in June, but the tonnage of new shipping remained approximately the same, as larger units came down the ways. Plane production increased about 4 per cent on the average. The volume of distribution continued large in July. Freight of the influence of higher rates of compensation for overtime Inasmuch as average weekly earnings are the product On August 18, President Roosevelt authorized the withhold ing of benefits and rights (including the "check-off” of union dues) from labor unions which fail to comply with orders of the War Labor Board in Government-operated plants. Action may be taken against noncomplying employers through seizure of plant, or through control of war contracts, essential materials, transportation, and fuel. C E N TS P E R HOUR 120 110 55 100 50 90 coal, and livestock, and by record shipments of iron ore over «** 80 outlets— grocery chains, variety chains, and mail order houses 40 70 35 the Great Lakes. At the retail level, department stores reported a less than seasonal decrease in sales, apparently owing to the influence of early buying of fall apparel. Other types of retail 45 SCALE— transportation over railroad and inland waterways increased sharply as evidenced by the number of car loadings of grain, __ AVER A G E H O U R S WOR iK F P i / 60 AVERAG E HOUR -------- E A R N IN G S ly ✓ ------S C A L E 30 ** AVERAG E Wl E E K LY < • / 50 ....... . 40 _ . 1 1 E A R N IN G ; 5 s c ,< L E — * - . / 25 — continued to show comparative stability in sales volume. Based on available data, the production and trade index computed at this bank is estimated at 126 per cent of long term trend for July, three points higher than the revised figure of 123 for June. 1 ...1-..,. 1 1 1 . .1 ., ,! 1 i 1 20 1940 1941 1942 1943 Number of Hours W orked Per W eek, Hourly Earnings, and W eekly Earnings in Manufacturing Industries (Bureau of Labor Statistics data; plotted on ratio scales to show proportionate changes) 71 FEDERAL RESERVE BANK OF NEW YORK D E P A R T M E N T S T O R E SA L E S D E P A R T M E N T STORE SALES O V E R T H E W A R PERIO D Since the beginning of the war in September, 1939 there has been a notable increase in total retail trade, though with wide variations from one type of merchandise to another as pointed out in this Review for last month. Marked differences may also be noted in the degrees of retail trade expansion from one locality to another, especially during the period of this country’s active participation in the war. The strategic loca tion of many of the new war plants has resulted in marked population movements and particularly large increases in con sumer incomes in some regions, with a consequent more rapid expansion of retail trade in some sections of the country than in others. UNITED STATES, SECOND DISTRICT, AND SELECTEDCITIES WITHINTHE DISTRICT PER C E N T PER C E N T Department store sales, which have shared in the expanded volume of retail trade, illustrate the widely divergent degrees of increase from one locality to another as shown by the Federal Reserve reports of department store trade for par ticular cities. In the accompanying charts, the movements in sales over the war period are shown for department stores in the entire country, the Second Federal Reserve District, and ten selected localities in the District. In making comparisons between the curves for particular localities, it should be borne in mind that, aside from the influence of variations in the general drift of retail trade from one locality to another, the figures for particular cities are affected by changes in the competitive situation between department stores and other retail outlets, and between department stores cooperating in the Federal Reserve reports and all department stores. In 1939 department stores reporting to this Bank accounted for about 80 per cent of total department store sales in the District as calculated from the Census of Distribution for that year. The proportionate coverage runs substantially higher than this in New York City, Newark, Rochester, and Bing hamton, substantially less in Albany-Schenectady-Troy, and Niagara Falls. Examination of these charts shows that sales in the Second District have lagged behind those in the country as a whole, chiefly because of the relatively moderate sales increases in two of the major cities of the District, New York and Newark. The department store sales volume in Newark (and also that for the reporting group of stores in the Albany-SchenectadyTroy area) during the first seven months of this year was run ning at a rate approximately one-quarter above the level of 1939, while in New York City the sales increase came to 32 per cent. In Syracuse and Binghamton the increases closely approached the expansion of 63 per cent shown by the national figures, while in Buffalo and Niagara Falls the increases were larger. In some areas where department store sales volumes rose substantially in 1940 and 1941— for example, Bridgeport, Albany-Schenectady-Troy, and Elmira— there has been a ten dency for sales to level off, presumably reflecting a lessened rate of expansion in manufacturing activity and hence in payrolls. On the other hand, the rise in department store sales has been accelerated in Niagara Falls and has been rela tively well maintained in Buffalo, Rochester, and Binghamton. 1939=100. FIGURESFOR1943 BASED UPONEXPERIENCEOFTHE FIRSTSEVEN MONTHS. PLOTTEDONRATIOSCALES TOSHOW PROPORTIONATECHANGES. 72 MONTHLY REVIEW, SEPTEMBER 1, 1943 D EPAR TM E N T STORE TRA D E During August, department store sales continued to reflect shortages of many kinds of merchandise. Total sales of re at a rapid rate during the autumn of 1942 and the spring of 1943, appears to have been checked during recent months. porting department stores, during the three weeks ended August 21, however, were only about 1 per cent less than in F U R N ITU R E STORE T R A D E the corresponding period last year when trade was very active; sales 32 per cent above July, 1942; this is the third consecutive apparel stores, which have been less affected by diminished supplies of merchandise, had sales exceeding those of a year month that a year-to-year increase has taken place. ago by about 19 per cent. Department store sales for the month of August apparently increased from the July level, but corresponding 1942 period and 8 per cent below those of January-July, 1941. by a little less than the usual seasonal amount. Sales of Second District department stores in July were 8 per cent greater than in July, 1942; apparel stores for the same period showed an increase of 22 per cent. Although the dollar volume of sales of the reporting department stores dropped substantially from the June level, the reduction was considerably less than usual. Wide fluctuations in the year-toyear percentage changes continue to characterize department store sales in the various localities of the District. Thus, Binghamton, during July, had an increase over year ago sales of 47 per cent, while Newark showed a decline of 8 per cent. At the end of July, department store stocks (valued at retail prices) were 32 per cent lower than in July of last year, when the seasonally adjusted index had reached its wartime peak. Compared with June, stocks on hand declined slightly more than usual, but the shrinkage in stocks, which had proceeded Percentage change from a year earlier Furniture stores in this District during July reported dollar The decline in the proportion of credit sales appears to have been stopped. In July, 1943, 83.4 per cent of the sales of re porting furniture stores in this District were made on credit, slightly more than the 83.1 per cent for July last year. In July, 1941 the proportion of credit sales was 90.0 per cent. Accounts receivable on July 31 were again lower, extending the decline for the twelve month period to 35 per cent. Col lections during July against accounts receivable at the close of June were 15.7 per cent. July, 1943 Department stores..................................... New York C ity ...................................... Northern New Jersey............................ Newark................................................. Westchester and Fairfield Counties.. Bridgeport........................................... Lower Hudson River Valley............... Poughkeepsie...................................... Upper Hudson River Valley............... Albany................................................. Schenectady........................................ Central New York State...................... Mohawk River Valley...................... Utica................................................. Syracuse........................... ................... Northern New York State................... Southern New York State................... Binghamton......................................... Elmira................................................... Western New York State.............. .. Buffalo......... ........................................ Niagara Falls...................................... Rochester............................................ Apparel stores (chiefly New York City) Stocks on hand decreased slightly further during July and at the end of the month were nearly one-third below those of a year earlier. On the average they represented 5.5 months’ supply at the current rate of sales, as compared with 10.6 months' supply at the end of July, 1942. Declines in furniture production, associated with raw material shortages, largely account for the reduction in inventories of furniture stores. 8 + + 9 — 5 — + — 5 +16 +14 + 9 8 2 +12 + 5 +20 Stocks on Jan. through hand July, 1943 July 31,1943 — — + + — — + 8 1 0 1 4 4 5 — 7 +10 — 19 Total outside New York City — 4 Total Second District........... + 4 +13 +17 — 3 +16 +28 + 4 +13 +35 + +22 6 New York City................................. Northern New Jersey...................... Newark........................................... Westchester-Fairfield....................... Hudson River Valley....................... Central New York State................ 1 6 7 +12 +26 +25 +17 +16 +31 +47 — 4 +12 — 32 — 34 — 41 — 43 — 28 — 31 — + 7 + — Percentage change July, 1943 compared with July, 1942 Furniture stores 1 —20 — +15 +15 Northern New York State............. Southern New York State.............. Western New York State............... — 23 __ +12 —21 1 — 15 — — 32 8 +21 1943 July May June July Sales (average daily), unadjusted................. Sales (average daily), seasonally adjusted... 81 114 108 115 110 115 91 128 Stocks, unadjusted............................................ Stocks, seasonally adjusted............................ 160r 17 lr 104 104 109 94 105 102 Accounts receivable* Collec tions Stocks on hand* +44 +11 — 35 — 43 — 46 — 31 — 28 — 45 — +20 — 39 — 32 — 31 — 37 — 24 —11 —20 —22 + 6 — 27 — 15 — — 30 — 4 — 34 —33 — 14 — 34 — 40 + 7 +31 +31 + 19 +65 +17 +19 + +39 —22 — 1 — — — 35 —34 —21 —12 +19 — 35 — 16 — 30 +32 — 35 — 13 — 31 2 — 32 —22 July, 1943 compared with July, 1942 —11 Furniture stores 1942 Total sales * End of month. Indexes of Department Store Sales and Stocks, Second Federal Reserve District (1923-25 average = 100) r Revised. In July, 1942 the collection ratio was 12.0 per cent. Net sales Second District For the first seven months, however, sales were 1 per cent below the Credit sales as per cent of total sales............. Stocks on hand, end of month, as ratio to month’s sales............. Collections, exclusive of down payments, as per cent of receiv ables, first of month. Total District New York City Outside New York City July, 1942 July, 1943 July, 1942 July, 1943 July, 1942 July, 1943 83.1 83.4 82.6 83 .7 8 3.7 82.9 10.6 5 .5 12.6 6.0 8.1 4 .8 12.0 15.7 11.3 14.8 13.5 17.1 FED ER AL RESERVE BA N K OF N EW Y O R K MONTHLY REVIEW, SEPTEMBER 1, 1943 General Business and Financial Conditions in the United States (Summarized by the Board of Governors of the Federal Reserve System) production advanced to a new high level in July following a slight decline in June, both of the changes reflecting chiefly fluctuations in coal production. Maximum food prices were reduced recently with a consequent slight decline in cost of living in July. Retail sales continued in large volume. T N D U S T R IA L In d u s t r i a l P r o d u c t i o n 1939 1940 1942 Industrial activity increased in July, reflecting a large rise in mineral production. Out put at coal mines advanced sharply from the reduced level in June, production of crude petro leum increased, and iron ore shipments reached the highest monthly rate on record. In manufacturing industries, output of most durable products and chemicals continued to increase in July, reflecting chiefly a further rise in production of munitions. At meat packing plants and cigarette factories production was also larger in July. Output of leather and textile products had shown small decreases in June and further declines occurred in July. Activity in most other nondurable goods industries showed little change from June to July. The decline in the value of construction contracts awarded continued during July, accord ing to reports of the F. W . Dodge Corporation. Most of the decline is accounted for by a drop in awards for publicly-financed industrial facilities and for public works and utilities. 1943 Index of Physical Volume of Industrial P ro duction, Adjusted for Seasonal Variation (1935-39 a v e r a g e s 100 per cent) D is t r ib u t io n 1938 1939 Indexes o f Value of Department Store Sales and Stocks, Adjusted for Seasonal Variation (1923-25 average = 100 per cent) Value of retail sales declined less than seasonally in July and continued substantially larger than a year ago. During the first six months of this year sales had averaged about 12 per cent larger than in the corresponding period of 1942 and in July the increase was some what greater. The higher level of sales this year as compared with last year reflects for the most part price increases. In the first half of August sales at department stores increased by about the usual seasonal amount. Freight carloadings rose sharply in July and were maintained at a high level during the first half of August. Total loadings were 10 per cent higher than the previous month owing to the largest volume of coal transported in many years and shipments of grain and livestock showed a considerable increase over June. C o m m o d i t y P r ic e s The general level of wholesale commodity prices showed little change in July and the early part of August. The cost of living declined somewhat from June 15 to July 15, according to Bureau of Labor Statistics data. Food prices declined by 2 per cent as a result of reductions in maximum prices for meats and seasonal declines in prices of fresh vegetables from earlier high levels. !20 II0 A g r ic u l t u r e General crop prospects improved somewhat during July according to Department of Agriculture reports. Forecasts for the corn and wheat crops were raised 6 per cent. Produc tion expected for corn and other feed grains, however, is 10 per cent less than last year and for wheat is 15 per cent less than the large crop of 1942. Milk production in July was as large as the same period a year ago, while output of most other livestock products was greater. Indexes o f the Cost of Living as Compiled by Bureau o f Labor Statistics (1935-39 average= 1 0 0 per cent) Member Bank Reserves and Related Items (Latest figures are for August 18) B a n k C r e d it The average level of excess reserves at all member banks, which had been about 1.5 billion dollars in mid-July, declined to 1.2 billion in the latter part of the month and con tinued at that level during the first two weeks of August. There was some further decrease of excess reserves at reserve city banks, but most of the decline occurred at country banks, where there had previously been little change. Two factors were principally responsible for the decline in excess reserves: an increase in deposits subject to reserve requirements, as funds expended by the Treasury from war loan accounts returned to the banks in other accounts; and a growth of over 500 million dollars in money in circulation. During the four weeks ended August 18 additional reserve funds were supplied to member banks by an increase of 580 million dollars in Reserve Bank holdings of Government securities, principally Treasury bills bought with option to repurchase. During the four weeks ended August 11, member banks in 101 leading cities increased their holdings of Government securities other than Treasury bills by almost 800 million dollars. Of this amount, 570 million represented allotments to banks of new certificates of indebtedness issued in early August. Bill holdings declined as member banks made sales to adjust their reserve positions. Commercial loans increased somewhat over the four week period, but other loans declined.
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