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M ONTHLY REVIEW O f Credit and Business Conditions FEDERAL V o lu m e RESERVE 29 BANK SEPTEMBER OF NEW 1947 YORK No. 9 MONEY MARKET IN AUGUST The process of restoring greater flexibility to the interest for a refunding issue of longer maturity and bearing a coupon rate structure was carried forward during the past month rate more nearly approaching the 1 Va and IV2 per cent coupons on the maturing notes. After the announcement, with the announcement on August 18 of the terms of the Treasury’s refinancing of certificates and notes maturing on yields on the maturing issues, which had fallen as low as September 1 and 15, respectively. At the same time, and supplementing action with respect to short term rates, the 0.25 per cent, rose to about 0.60 per cent. Demand for these issues slackened considerably, and offerings increased as some Treasury announced that it would offer a 2Vi per cent non marketable bond late in September to institutional investors banks undertook to replace their holdings by market purchases of the intermediate and longest maturities of Treasury bonds and commercial banks holding savings deposits, in accordance in order to prevent a fall in their earnings. As a result, prices with its policy of meeting the investment requirements of of unrestricted bonds rose— a few issues to new high levels various types of investors. The terms and subscription limits In exchange for the certificates which will mature on since the late summer of 1946. Market interest in both unrestricted and restricted bonds had previously been stimulated as a result of the announcement September 1, amounting to 2,341 million dollars, the Treasury offered a like amount of certificates maturing in ten months Government investment accounts during July had reached the and bearing a % per cent coupon. This exchange, like the 11-month certificate issue on the first of August, had the effect substantial total of 609 million dollars. The fact that the market had been able to absorb such a large volume of selling of this issue have not yet been announced. around the middle of August that sales of Treasury bonds for of reducing the number of certificate maturities; and, more with little or no price changes (or even some price firmness) important, it marked a change from the wartime pattern of was interpreted as an indication of the underlying strength interest rates. Holders of the maturing IV a and \V i per cent notes outstanding in the amounts of 1,687 and 2,707 million dollars, respectively, are to be offered early in September a of the demand for the longer term Government bonds. new issue of 12 Vi -month, 1 per cent notes. This offering also has the effect of concentrating maturities on a date following a quarterly period of heavy tax collections. Another indication of the tendency toward a gradual firming of short term interest rates appeared early in the month when several large New York City banks raised their rate on loans to brokers and dealers secured by short term Treasury obliga tions from 7 / s to 1 per cent. One bank also lifted its rates on dealer loans backed by long term Government securities from 1 In the three weeks ended August 21, prices of intermediate and long term taxable issues eligible for bank investment rose by about Va to nearly 54 of a point for various maturities. Advances in quotations of the restricted issues were also fairly sizable and amounted to about Ys of a point for the Victory Loan 2Vzs. During the remainder of the month prices of both groups of bonds leveled off. While the scheduled offering of a nonmarketable 2 Vi per cent bond apparently had little immediate effect on the demand for long term marketable issues, it is quite likely to moderate the demand for such bonds and to ease the upward pressure on their prices, since it will to 1 Va per cent and on loans secured by other long term issues provide a suitable outlet for funds available for long term from IVa to IV2 per cent. investment at a satisfactory yield. In the latter part of August, furthermore, several metropolitan banks also raised rates on In the market for Treasury certificates, the shorter maturities bankers acceptances by Vs to Va per cent for short and long continued to be in relatively better demand than the longer term bills. maturities. Purchases of short term certificates by commercial Despite the somewhat higher rates (relative to maturities) banks, however, were not so extensive as in the preceding offered by the Treasury in its September refunding program, month and were confined chiefly to the early part of August. there were indications of disappointment on the part of some Sales of the longer term certificate maturities again were fairly banks and other holders of maturing notes who had hoped large, reflecting bank needs for reserves as well as portfolio MONTHLY REVIEW, SEPTEMBER 1947 90 adjustments. Some banks and other investors sold their "rights” to the new 10-month certificate and switched into the substantial transfers of business funds to other parts of the country and from net currency payments to the public. The November and December 1 maturities, apparently in the hope pressure was much lighter in the two weeks ended August 27 that higher rates might be offered on future refunding issues. than in the preceding weeks, because of a smaller excess of As a result of these shifts, the Federal Reserve System sold Treasury receipts and a smaller outflow of funds to other moderate amounts of the shorter maturities early in August areas. In order to meet the drain on their reserve funds, the and made fairly substantial purchases of long-dated certificates metropolitan banks borrowed from the Federal Reserve Bank throughout the month. from time to time and sold short term Treasury securities in the open market, part of which were absorbed by the Federal Reserve System. M e m b e r B a n k R eserve P o s it io n s Member bank reserve positions were relatively easy in the M e m b e r B a n k C r e d it early part of August and again toward the close, but were in the intervening period. Most of the change in total earning assets of the weekly Treasury receipts and expenditures were approximately in reporting member banks in August occurred among banks balance in the week ended August 6, and needs for reserve funds arising from a moderate increase in currency in circula outside New York, where both loans and investments rose somewhat. In New York City an expansion of bank loans subject to substantial drains tion and in required reserves were just about balanced by gains was more than offset by a decline in Government security from payments out of foreign accounts with the Federal holdings, so moderately. Reserve System and a small rise in Federal Reserve float. Bill holdings of the Reserve Banks declined sharply as New York City and other banks increased their holdings, either through repurchases of "old” bills from the Reserve that total loans and investments declined In the loan category, the largest expansion came in com mercial, industrial, and agricultural loans, in accordance with the usual seasonal pattern. But, as illustrated in the chart, Banks, or through purchases of the new issue directly from the volume of business borrowing, after reaching a peak early the Treasury, but certificate holdings were increased by net last April and receding during the spring, has shown only a purchases in the market; on balance, total Government securi moderate increase in recent weeks. The growth in ‘ commer ties held by the Reserve System declined 143 million dollars during the week. cial” loans early this year was considerably greater than in the corresponding period in 1946, but subsequently has been considerably less rapid than last year, both at New York City Money market conditions tightened considerably in the next two weeks (ended August 2 0 ). Treasury receipts were augmented by heavy quarterly collections of social security taxes and of withheld income taxes. Although Great Britain withdrew another 150 million dollars from its credit in this period, disbursements were far below revenues, and Govern ment deposits with the Federal Reserve Banks consequently rose 537 million dollars to 1,265 million dollars on August 20. Gains of funds from other transactions failed by a wide margin to make good the drain on bank reserves from Treasury operations, so that the banks were compelled to make sub stantial sales of short term Treasury securities directly and indirectly to borrowings. the Reserve System and to increase their and out-of-town banks. The change may be related to the slower rate of inventory accumulation in recent months. Loans extended by reporting institutions in other parts of the country have continued to increase more rapidly than at New York, however, reaching a new high level in August, while business credits extended by the metropolitan banks have yet to reach their April 1947 peak. Compared with a year ago, there has been a substantial decline in total member bank credit. Total loans and investCommercial Loans of Weekly Reporting Member Banks in 94 Cities* B I L L ( ON S OF DOLLARS During the week ended August 27, the Treasury drew down its balances with the Reserve Banks by 350 million dollars, as receipts declined and disbursements rose, chiefly as a result of transfers to British account of 300 million dollars. Thus, a substantial part of the net excess of Treasury expendi tures reached the market indirectly in the form of payments from foreign deposits in the Federal Reserve Banks. Although other transactions absorbed a moderate amount of reserve funds, the money market turned slightly easier. Member banks utilized part of their added reserve funds to reduce their indebtedness to the Reserve Banks. Reserve positions of the banks in New York City during most of the month were subject not only to a drain caused by net Treasury receipts, but also to pressure resulting from * Latest figure for New York City is for August 20; for outside New York City, August 13. FEDERAL RESERVE BANK OF NEW YORK 91 ments of reporting banks in 94 leading centers declined 4.8 Thus, to a very large extent the international payments and billion dollars between August 21, 1946 and August 20, 1947, or 7 per cent; the decrease in New York City came to 9 per cent, against 6 per cent for the out-of-town institutions. The receipts of the United States are reflected in the flow of funds through such accounts. This flow of funds has increased greatly since the end of the war, for two reasons. The first was the termination of lend-lease shipments and the substitution of cash settlements for most of this country’s net export balance. reduction in earning assets has been entirely in Government security portfolios, which declined in approximately equal The major difference The second has been the very marked expansion of exports between New York and other banks was the much more sub reflecting accelerated demand for American food, raw materials, proportion in both groups of banks. stantial increase in loans at the out-of-town banks than at and manufactures, the slowness of economic recovery in the the New York City banks— 3,072 million dollars, compared war-ravaged areas of Europe and the Far East, and the sharp with 390 million. Not only did commercial loans of the out- increase in the United States price level since June 1946. of-town banks expand more rapidly, but their real estate loans, The accelerated rate of foreign purchasing in the United loans to banks, and all other loans (chiefly consumer credit), States has been accompanied by a sharp increase this year in payments of funds out of the foreign official accounts with the Federal Reserve Bank of New York. Such disbursements in the aggregate showed much larger increases. Security loans, mainly those collaiteraled by Government obligations, fell sharply and in approximately the same proportion at both groups of institutions, although in dollar amount the decline was larger among the New York City institutions. By and large the loss of earning assets has been limited almost entirely to loans and investments bearing the lowest approached 5 billion dollars in the first eight months of 1947, compared with less than iVz billion dollars in the whole of 1946 and a net amount of only 100 million dollars in 1945, as illustrated in the accompanying chart. Since the disburse ments thus made for the acquisition of goods and services in expansion in other loans, in Treasury bond holdings, and in this country have taken the form of transfers to business or banking accounts held by New York commercial banks, they yield— security loans and short term Treasury securities. The other securities, all of which offer higher average yields, has have in the first instance been a substantial— in fact the largest helped materially in sustaining the current gross earnings of many banks, even though it may not have prevented a shrink age in their total assets. York banks as a group during the last 17 or 18 months. F O R E IG N SPENDING AN D T H E N E W Y O R K MONEY MARKET of the United States, a large part of these funds tend to flow out of New York and are thus redistributed throughout the country. The New York money market has for many years played a and most continuous— source of reserve funds for the New However, since the goods shipped abroad originate in all parts preeminent part in financial settlements of the trade and other transactions of the United States with foreign countries. A A major portion of the funds disbursed so far this year out of foreign accounts in the Reserve Bank has been obtained from the United States Treasury, directly or indirectly, in the large proportion of the nations foreign trade is cleared through form of loans to Great Britain, France, and other countries the port of New York, and the City is by far the leading inter national banking and financial center of the country. Most payments arising from international transactions of this country are made through New York’s banks, which play an important role in financing American foreign trade. Many foreign governments and central banks maintain accounts with the Federal Reserve Bank of New York and in many cases with Net Disbursements from Foreign Deposit Accounts with the Federal Reserve Bank of New York, 1945-47* (Cumulated weekly from beginning of each year) B IL L IO N S OF D O L L A R S New York commercial banking institutions (including agen cies and branch offices of foreign banks) as well. Reserve positions of the large City banks are therefore more immediately affected by changes in the country’s balance of payments than are those of banks elsewhere in the United States, since they bear the initial impact of a net excess of exports of goods and services over imports (or of imports over exports). This concentration of payments of international transactions through the New York money market was increased beginning in the thirties, when the imposition of foreign exchange restrictions in more and more countries resulted, in effect, in the settling of a large part of the inter national balance of payments of the United States through the accounts of foreign governments and central banks with the Federal Reserve Bank of New York. * Excess of disbursements to the New York money market over receipts from the market. Disbursements of funds by foreign central banks and governments include funds borrowed from the U. S. Government and the World Bank and Fund as well as their own dollar resources and the proceeds of sales of gold. MONTHLY REVIEW, SEPTEMBER 1947 92 Cumulated Net G old Im ports and Net Releases from Earmarked Stocks, 1939-47* (Cumulated monthly from January 1, 1939) Foreigners’ sales of gold to the Treasury and the use of previ ously accumulated dollar balances to meet payments due in this country have had the effect of increasing reserves of member banks. Although the initial impact has been on the reserves of the New York banks, the funds have been distributed rapidly throughout the country. These payments have consid erably eased the pressure on bank reserves by offsetting in large measure the recurrent losses of funds caused by Treasury net cash receipts and by redemptions of Government securities held by the Federal Reserve System. Had it not been for the retirement of Federal Reserve credit (in the form of decreased Reserve Bank security holdings), the additions to bank reserves resulting from these disbursements of foreign funds would have provided the base for a considerable further expansion of member bank credit, and would have tended to exert downward pressure on interest rates. 1939 1940 1941 1942 1943 1944 1945 1946 * Decline denotes net export or increase in earmarked gold. August 1947 estimated. 1947 July and (including loans of the Export-Import Bank).1 Drawings on EARN IN G S A N D EXPENSES OF SECOND D ISTR ICT M E M B E R B A N K S Net profits of the 37 central reserve New York City banks were about one-quarter less during the first six months of the British credit alone amounted to 2 % billion dollars during 1947 than during the similar 1946 period, and only slightly the first 8 months of 1947, while funds actually made available more than half the peak semiannual profits attained during the to foreign countries by the Export-Import Bank this year final half of 1945. Data for a number of the larger member amounted to more than 600 million dollars up to July 15. In addition, the World Bank and Fund have made smaller advances to foreign countries. The spending of these borrowed banks in other principal cities and for a sample of the small banks in the Second District, shown in the accompanying funds, however, does not tend to increase the reserves of the banking system as a whole, since it involves essentially a trans ago for the large banks and one fifth for the small banks. fer of funds from taxpayers and investors to producers and member bank operations in the first half of the year are indica table, indicate a decline in net profits of two fifths from a year It does not necessarily follow, of course, that the results of distributors. tive of a continuing trend. In fact, there are reasons for believ Foreign central banks and governments have also met their purchase commitments in the United States to a substantial ing that bank profits in the latter half of the year may compare more favorably with the corresponding period last year than extent by drawing upon their own reserves of gold and dollar assets. From the beginning of 1947 through the third week of August, they sold gold shipped from abroad or released from their gold stocks held under earmark in this bank in the amount of about 1.7 billion dollars,2 and reduced their dollar balances with the Reserve Bank slightly. The net gain did profits for the first half of 1947. Net profits of many banks were substantially lower in the second half of 1946 than in the first half, reflecting the combined effects of the retirement of gold by the United States from these sources compares with operation. The shrinkage in profits did not continue at the by the Treasury of a substantial volume of securities held by the banks, reduced opportunities for profit-taking on securities owing to less favorable market conditions, and rising costs of a gain of less than 800 million dollars in the whole of 1946. same rate in the first half of 1947, and seasonal expansion As the accompanying chart shows, the postwar additions (up of loans in the latter half of the year should help to offset any to August 20 of this year) to the United States monetary gold further reduction in income from investments and higher stock from net gold imports and releases from earmark fell operating costs. It is quite possible, therefore, that final results only 200 million dollars short of the reduction in the gold for the year will show smaller percentage reductions in bank stock caused during the war by net exports and transfers to profits, compared with 1946, than did the figures for the first earmark. half. Nevertheless, it seems clear that the peak of profits was 1 Not all the funds made available to foreign central banks and governments, however, are disbursed directly in New York; some portion, such as dollars used to maintain sterling convertibility, reaches the New York money market indirectly through accounts of third countries. Some funds are deposited directly with New York com mercial banks, by-passing the Federal Reserve Bank. 2 The United States gold stock does not show a corresponding increase because of the reduction resulting from the 688 million dollar gold payment against this country’s quota in the International Monetary Fund. reached in 1945 for New York City banks, and it is likely that the peak for other banks in this District will prove to have been reached in 1946. In the case of the New York City banks, the decline in net profits in the first half of 1947 compared with last year arose partly from a reduction in net current operating income (a reflection of lower operating income and higher operating ex 93 FEDERAL RESERVE BANK OF NEW YORK pense) and partly from smaller additions to operating income through profits on securities sold and net recoveries. A reduc showing the sharpest rise. Miscellaneous income was 20 per cent higher in the New York City banks, but the gains were tion in income tax liabilities approximated the drop in aggre concentrated in a few institutions and were occasioned mainly gate net recoveries and profits on securities sold. Conse quently, net profits before dividends were down about 22 million dollars (25 per cent), or roughly the same amount as net current operating income before taxes. The heavier decline by larger foreign department and foreign branch income. Total current operating expenses showed approximately the same percentage rise in all groups of banks and reflected primarily higher salary and wage payments and substantial in net profits of the large banks outside New York City is increases in other current operating expenses. The higher pay explained by the exceptionally high level of profits at such roll expenses resulted from a further rise both in the number banks in the first six months of 1946, and reflects mainly a sharper drop in aggregate profits on securities sold than in reflected rising costs entering into the physical operation of of people employed and in rates of pay, while other expenses either the smaller banks or the large New York City banks. banking, such as increased payments for light, heat, and office In all groups, rising salary and other costs of operation were a supplies and equipment. factor of some importance in the shrinkage in profits. deposits in the New York City banks showed a greater rise Interest paid on time and savings Gross operating income declined 3.0 per cent in the New than the average volume of such deposits. This may be ascribed York City banks, owing entirely to a reduction in income from in part to a greater than average rise in small accounts which Government securities, the effect of which was not fully carry a higher interest rate, and in part to a firming in rates offset by increased income from other sources, principally paid. loans. The lower income from Government securities accom and interest payments increased about equally. Outside New York City the volume of such deposits panied a somewhat greater percentage reduction in these banks’ Profits on securities sold were sharply lower than a year average holdings of such securities, as the reduction in hold ago in all groups of Second District banks as the lower level ings occurred in short term, low-yielding issues, reflecting of Government security prices and previous profit-taking largely the effects of the Treasury debt redemption program. limited the amount of potential profits that could be realized. Outside New York City both large and small banks continued Recoveries of previously charged-off assets also were generally to show moderate gains in gross income over the first half of lower and the New York City banks, in which a drop in real 1946. In these banks, the drop in Government security income estate recoveries was especially heavy, recorded the largest was less severe than in the case of the New York City banks decline. Losses and charge-offs declined to very low levels in and the rise in loan income was more pronounced, reflecting all groups of banks, and taxes on net income also were gen a much more substantial rise in commercial, industrial, and erally lower. Reflecting the heavier drop in net profits before agricultural loans, in real estate loans, and in consumer loans. taxes, income tax liabilities were reduced most in the large banks outside New York City. Despite the reduction in profits, Furthermore, the rise in income from loans at the New York City banks was limited by substantial reductions in loans for purchasing and carrying securities. Among the other items dividend payments continued the upward trend which began of income, service charges on deposit accounts continued their percentages of their net profits to strengthen their capital struc upward trend in all groups of banks, the New York City banks ture and thus to provide added protection to their depositors. in 1944. However, all groups of banks retained substantial Earnings and Expenses of Second District Member Banks First Six Months of 1947 Compared with First Six Months of 1946 (Dollar amounts in thousands) New York”City banks Banks located outside New York City 37 central reserve Item 21 large banks 30 small banks 1946 1947 Per cent change 1946 1947 Per cent change 1946 1947 Per cent change Interest and dividends on securities................................... Earnings on loans........... ...................................................... Service charges on deposit accounts................................... Trust department income..................................................... Other current income............................................................ 121,944 59,760 4,164 22,598 20,260 101,570 68,352 5,029 22,672 24,270 — 16.7 + 14.4 +20.8 + 0.3 +19.8 14,263 6,447 929 1,352 2,561 12,518 9,308 1,102 1,308 2,521 — 12.2 + 44 .4 + 18 .6 — 3.3 — 1.6 1,450 828 173 25 130 1,338 1,088 197 26 128 — 7.7 + 31 .4 +13.9 + 4.0 — 1.5 Total current operating earnings..................................... 228,726 221,893 — 3.0 25,552 26,757 + 4.7 2,606 2,777 + 6.6 Salaries and wages— officers and employees....................... Interest on time and savings deposits................................. All other current expenses.................................................... 66,550 3,293 50,123 76,830 3,917 54,553 + 15.4 +18.9 + 8.8 7,583 2,782 7,175 8,643 3,022 7,933 + 14 .0 + 8.6 + 10.6 668 416 579 753 462 658 +12.7 +11.1 + 13.6 Total current operating expenses..................................... Net current operating income, before income taxes. . . . 119,966 108,760 135,300 86,593 + 12.8 — 20.4 17,540 8,012 19,598 7,159 +11.7 — 10.6 1,663 943 1,873 904 +12.6 — 4.1 Profits on securities sold....................................................... Losses and charge-offs.......................................................... Taxes on net income............................................................. 26,665 14,063 15,975 44,114 12,648 8,215 12,003 28,259 — 52.6 — 41.6 —24.9 — 36.0 9,467 3,628 6,126 4,540 1,066 2,463 2,573 2,196 — 88.7 —32.1 — 58.0 — 51.6 429 279 274 332 145 236 193 252 —66.2 — 15.4 — 29.6 — 24.1 Dividends paid.................................................................. Retained earnings.............................................................. 89,399 35,382 54,017 67,194 39,268 27,926 — 24.8 +11.0 — 48.3 10,441 2,413 8,028 5,919 2,491 3,428 —43.3 + 3.2 — 57.3 1,045 134 911 840 144 696 — 19.6 + 7.5 — 23.6 94 MONTHLY REVIEW, SEPTEMBER 1947 Foreign Utilization of Gold, Dollar Assets, and United States Cash Credits* (In millions of dollars; minus sign indicates a net accumulation of gold and dollar assets) But the amount of additions to undistributed profits was smaller than in the first half of 1946 by nearly one fourth in the small banks covered by the study, and by about one half or more in the New York City banks and other large banks of the District. Quarter ended TH E W O R L D SUPPLY OF DOLLARS In addition to the current extensive utilization of their gold and short term dollar assets, as discussed in the August Monthly Review} many foreign countries are drawing on American official and private credit lines, as well as on such additional dollar funds as are being made available by the International Monetary Fund and the International Bank for Reconstruction and Development. In a few instances, foreign countries also are liquidating their holdings of American long term securities. The present article reviews the various sources from which dollars are currently being obtained by foreign countries and Gold# September December March June 1945 1945 1946 1946 Total. . . September December March June 1946 1946 1947 1947 Total. .. Grand total.. Mo.of July 1947 Mo.of Aug. 1947 — — — Reduction in foreign short term dollar balancest 188 24 269 56 — — 1 106 361 617 879p — Drawings on U. S. Government cash credits Increase in 3hort term Sales of assets long term Exportabroad American Import British reported by Bankf securities credit U.S.banks _ __ _ 371 102 46 436 30 20 154 30 13 25 136 340 9 234 514 - 136 137 14 50 22p 249 266 267 242 400 200 500 950 105 93 90 135p 19 414 461 248p — — 105 123 39 79 l,963p 1 ,104p 223p 1,024 2,050 423p l,964p 246p n.a. l,113p n.a. n.a. 457p n.a. n.a. 1,538 — 1 n.a. 2,050 700 600 559p n.a. n.a. * Excluding war-settlement, lend-lease, and surplus-property arrangements, which have not foreign countries. In the first year after the end of the Euro given rise to dollar balances. # Net foreign exports to the U. S. plus decrease in foreign earmarkings at Federal Reserve Bank of New York. t Official and private balances; balances held by the World Fund and Bank are excluded, t Net disbursements (after repayments). In July 1947, repayments slightly exceeded disbursements, p Preliminary, n.a. Not available. Source: Federal Reserve Bank of New York; Board of Governors of the Federa ]Reserve System; U. S. Department of Commerce; U. S. Treasury; and the Export-Import Bank. pean war (July 1945— June 1946), foreign countries as a whole did not resort to sales of gold to replenish their dollar Canadian holdings, and in recent months of Dutch and Latin the rate at which they are being exhausted, with particular emphasis on aspects not dealt with in the previous survey. The accompanying table, while not giving a complete pic ture, traces the most important present sources of dollars for balances,2 but in the following year the net gold inflow to the United States, including net releases from foreign earmark ings with the Federal Reserve Bank of New York, reached 2 billion dollars. The acceleration of the inflow in recent months has been very noticeable, foreign net sales of gold having increased from 106 million dollars in the third quarter American holdings also. The rate of liquidation may increase, however, since the Netherlands Government is promoting the voluntary liquidation of American securities by Dutch citizens, France has requisitioned American securities held by French citizens, and Sweden has recently taken a census of domesti cally held foreign securities. of 1946 to 361 million in the fourth quarter of that year, 617 The amount of dollars that foreign countries may be able million in the first quarter of 1947, and 879 million in the second quarter of 1947. In July 1947, foreign countries lost an additional 246 million of gold to the United States. to obtain by liquidating American long term securities can be estimated on the basis of the United States Treasury census of foreign-owned assets as of June 14, 1941, adjusting the figures for net purchases and sales since June 1941 and for Foreign official and private balances with the Federal Reserve Banks and with American commercial banks, after remaining practically unchanged on the whole during the first year after the end of the European war, declined by 1.1 billion dollars during the second year. The rate of foreign net drawings on these balances, which was 414 million dollars in the three months ended December 1946, reached 461 million dollars in the first quarter of 1947, but declined to 248 million in the municipal securities. At the present time the value of such holdings, after the adjustments mentioned above, is estimated at approximately 3,500 million dollars; the increase since 1941 second quarter. W ith a view to increasing their dollar balances, some foreign countries are beginning or continuing to liquidate their hold ings of American long term securities. changes in market prices. On June 14, 1941, the market value of foreign holdings of United States securities amounted to 2,700 million dollars, of which 1,843 million were common stock, 306 million preferred stock, 219 million corporate bonds, and the balance mainly United States Government, State, and Aggregate net sales, however, have so far been rather small, securities worth 234 million dollars (at market prices) having been sold in the first post-V-E Day year, and 223 million in the following year. These sales represent mainly the liquidation of British and is due entirely to the rise in market prices. Of the aggregate amount, Europe accounts for about 2,100 million and Canada for 600 million dollars, the rest being distributed throughout the world. Among the European countries, the United King dom holds more than 600 million dollars and Switzerland somewhat less than 600 million, the Netherlands over 400 million, and France about 250 million. In the face of the current large British, Canadian, French, and Dutch balance of 1 “World Distribution of Gold and Dollar Assets,” Monthly Review, August 1947. 2 Some countries found it necessary to sell gold in substantial amounts, but others were able to add further to their holdings in this period. payments deficits, the holdings of American securities are thus of limited importance. Their utilization, moreover, depends on the willingness of the foreign owners to repatriate the securities or the ability of the foreign governments to requisi FEDERAL RESERVE BANK OF NEW YORK 95 tion them under their exchange control powers. Part of the British-owned American securities are still pledged as col lateral for the Reconstruction Finance Corporation loan granted in July 1941, of which 205 million dollars was outstanding dollars to Denmark, and 10 million dollars to Luxemburg. The commencement of activity by the International Monetary as of March 1947. Apart from utilizing their own gold and dollar resources, lands up to May 31, 1947, according to the Funds first state ment of operations. Fund also has made some dollar funds available, 25 million having been granted to France and 6 million to the Nether foreign countries have been obtaining dollars by drawing on To summarize, in contrast to the small net drain on the gold American cash credits,3 particularly the Export-Import Bank and dollar resources of foreign countries as a whole in the first loans and the special British credit. As is indicated in the postwar year, in the twelve months ended June 1947 the draw ings on foreign gold and dollar assets amounted to 3.3 billion dollars, while the utilization of American cash credits, Govern table, the dollars procured from United States Government cash credits amounted to only 514 million in the first post-V-E Day year, this total representing net drawings on the ExportImport Bank credits. In the second postwar year, more than ment and private, was 3.5 billion dollars. There are several reasons for the rapid rise in the utilization of gold and dollar 3 billion dollars was obtained by drawing on Government assets and available dollar credit lines. First, for a year or so fol credits. The increase in the rate of utilization of the British lowing the end of the war in Europe foreign countries obtained 3,750 million dollar credit has been particularly rapid, the total American goods and services on deferred terms under war- used having increased from 600 million dollars at the end of settlement, lend-lease, and surplus-property arrangements, as 1946 to 3,350 million dollars at the end of August 1947. As well as from outright American grants and gifts, and conse to the Export-Import Bank loans, some 250 million dollars quently there was less urgent need for foreign countries in are currently being disbursed each quarter.4 The Reconstruc that period to draw heavily upon their gold and dollar assets. tion Finance Corporation has made cash advances to the Philip The earlier American credits and grants enabled foreign coun pine Government, of which 60 million dollars is outstanding tries to conserve their gold and dollar resources temporarily, at present. Apart from the 400 million dollar balance of the British thus contributing greatly to the maintenance of international credit that is not to be drawn upon pending further British- became more plentiful as the process of reconversion in this country advanced, with the result that foreign countries’ pur chases in the United States increased. Third, the American American discussions, there were still available to foreign countries at the end of July 1947 some 944 million dollars of undisbursed Export-Import Bank commitments. Of these unutilized commitments, Europe still had 504 million dollars (of which France had 202 million, Italy 105 million, Norway 50 million, Finland 22 million, and the Netherlands 7 million), the rest being mainly assigned to Latin America (241 million) liquidity in the immediate postwar period. Second, goods price level rose considerably in the second postwar year, so that the available gold and dollar assets, as well as the proceeds of American cash credits, have been utilized much faster than had been expected after the end of the war. The rapid exhaustion in recent months of the British credit, which has and Asia (179 million). Besides the British credit and the Export-Import Bank loans, been drawn upon at a rate greatly in excess of the normal flow of current transactions, has been due in part also to the cash credits, mostly short term, have been extended to foreign countries by the Federal Reserve Banks (against gold collat gradual reestablishment of multilateral convertibility of current sterling— convertibility which had to be partly abandoned on August 20, 1947 as one of the emergency measures taken by the British Government to meet its present economic crisis. At present foreign countries as a whole still possess some 17 billion dollars in gold and short term dollar assets and about eral) and by American commercial banks. The total of such credits outstanding increased by 136 million dollars in the year ended June 1946 and by 423 million dollars in the follow ing year. "New money” issues of foreign securities marketed com mercially in the United States since the war have been negli gible, the most outstanding issues being those floated in April 3.5 billion dollars’ worth of American long term securities. There are also 400 million dollars still available from the United States Government credit to the United Kingdom, and and May 1947 by the Norwegian and Dutch Governments, (as of July 31, 1947) 944 million dollars of undisbursed com in the amounts of 10 and 20 million dollars, respectively. mitments of the Export-Import Bank, and 807 million dollars There have also been some refunding issues, especially on of that bank’s uncommitted resources. In addition, the World Canadian and Australian accounts. The International Bank began lending operations last May with a 250 million dollar loan to France, and in August it loaned 195 million dollars to the Netherlands, 40 million 3 "Cash credits” exclude war-settlement, lend-lease, and surplusproperty arrangements, which have not given rise to dollar balances. 4 In July 1947, however, repayments exceeded disbursements by about 1 million dollars, mainly because France, whose drawings on her reconstruction credit had been averaging 60 million dollars a month, made no drawings in that month. Fund and Bank may grant additional financial assistance abroad before the end of the year. There are, however, legal and practical limitations upon the rate of lending by the Fund and the Bank, as well as upon the purposes for which their facilities may be used. The Fund’s maximum potential dollar aid (including aid already extended) is about 1 billion dollars during the first year of operations; none of it, however, is intended to be used for reconstruction or other purposes involv ing long term loans, according to the Fund’s Articles of Agree MONTHLY REVIEW, SEPTEMBER 1947 96 ment. The Bank can lend from its own capital only about 725 million dollars ( representing the 20 per cent paid-in subscription of the United States plus the 2 per cent of other 20, 1947, and one out of every five of their "other loans to farmers” outstanding on that date. Included in the reports on farm real estate loans were the original amount of the mort countries’ subscriptions that was paid in dollars). Any addi gage, date made, date due, appraised value of property, number tional dollar funds that the Bank makes available must first of acres, type of farm, purpose of mortgage, amount outstand ing on June 20, interest charged, and method of repayment. be raised by the sale of debentures on the United States invest ment market. The effective utilization of the dollar resources on which foreign countries may still draw depends, moreover, not only on the aggregate size of such resources, but also on their distri bution by countries, which is highly irregular. The countries that are in greatest need of American food, raw materials, and manufactures are in many instances not the countries that hold Information reported on "other loans to farmers” included the amount outstanding on June 20, date made, date due, interest rate, security pledged as collateral, purpose of loan, size of farm, type of farm, and net worth of borrower. In this District 77 member banks participated in the survey; these banks accounted for 29 per cent of total farm real estate loans outstanding at all member banks in the District on large gold and dollar assets or unutilized dollar credit lines. June 30, 1947, and 40 per cent of the outstanding other loans Furthermore, even countries that still have gold and dollar assets available cannot actually utilize the entirety of their to farmers. resources, since a large part represents legal or traditional on the books of all member banks, and to analyze their char From the reports obtained from these banks, it is possible to estimate the number and amount of farm loans currency reserves and another sizable portion consists of work acteristics. It is estimated that on June 20, 1947 all member ing balances that have to be preserved in order to insure an banks in the Second District had on their books nearly 38,000 uninterrupted flow of their foreign trade. farm loans, other than real estate loans, amounting to nearly 39 million dollars, and more than 7,750 farm real estate loans F A R M LOANS B Y M E M B E R BA N K S IN T H E SECOND D IS T R IC T 1 amounting to nearly 25 million dollars. The fact that farm This bank has recently participated in a nationwide study loans are so numerous in a period when farmers’ incomes are at record levels, and their cash positions greatly strengthened, of agricultural lending by banks. The survey of farm loans appears to be attributable in part to the ability of farmers to at member banks throughout the country was conducted by the undertake commitments for the improvement of their equip Federal Reserve System, and at nonmember insured banks by the Federal Deposit Insurance Corporation. ment and expansion of their operations which they were un able to assume when their financial position was weaker. In The survey covered both 'real estate loans secured by farm part this lending results from purchases of farms by younger land” and "other loans to farmers.” The reporting banks fur men who require financial assistance to establish themselves. nished data on each farm real estate loan outstanding on June As shown in Table I, almost four fifths of the dollar amount 1 A second article giving more detailed results of the survey will appear in the October issue of this Review. and number of farm loans other than real estate loans out standing on that date were made by banks with deposits of TABLE I Loans to Farmers Other than Real Estate Loans, Outstanding on June 20, 1947 at All Member Banks in the Second District*, by Type of Farm and Size of Bank Number of loans Dollar amount of loans, in thousands Banks with total deposits, in millions Banks with total deposits, in millions Type of farm All member banks $2 Under to s io $2 Over $10 All member banks $2 Under to $2 Over $10 $10 3,231 1,538 1,467 226 1,463 600 711 152 29,741 7,491 15,170 7,081 30,170 6,757 16,595 6,819 Poultry and eggs........................................... ................. 969 246 616 107 1,319 364 853 102 Livestock...................................................... ................... 137 24 52 60 215 17 108 90 947 173 537 238 1,240 406 616 217 Truck (includes nursery products)............................... 1,093 603 288 202 2 ,033 1,029 166 838 Field crops....................................................................... 140 12 105 24 76 10 57 10 Potatoes........................................................................... 536 148 341 48 1,386 306 1,059 21 Part-time......................................................................... 335 160 92 83 198 49 82 67 227 74 118 36 587 108 410 68 37,952 10,812 18,798 8,342 38,925 9,7 4 5 20,659 8,521 General............................................................................ Total, all types of farms**........................................ p# ♦ Estimated on basis of banks covered by the survey; because of rounding, figures do not necessarily add to totals. ** Includes a small amount of loans not classified by type of farm. 97 FEDERAL RESERVE BANK OF NEW YORK TABLE II Loans to Farmers Other than Real Estate Loans, Outstanding on June 20, 1947 at All Member Banks in the Second District*, by Type of Farm and Size of Borrower Number of loans Dollar amount of loans, in thousands Net worth of borrower Net worth of borrower Type of farm All bor rowers** Under $2,000 $2,000 to $9,999 $ 10,000 to $24,999 $25,000 to $99,999 $ 100,000 and All bor rowers** Under $2,000 $2,000 to $9,999 $10,000 to $24,999 $25,000 to $99,999 $100,000 and General............................................... 3,231 443 1,895 511 87 1,463 96 920 313 93 Dairy................................................... 29,741 2,745 15,450 7,041 1,754 30,170 1,518 13,346 9,461 3,860 443 Poultry and eggs............................... 969 64 393 295 167 1,319 43 251 492 355 172 Livestock............................................ 137 12 24 77 2 28 177 13 215 Fruit.................................................... 947 36 334 232 231 78 1,240 15 243 164 416 388 Truck (includes nursery products).. 1,093 111 525 260 162 37 2,033 40 248 447 638 661 Field crops.......................................... 140 52 25 50 13 76 9 5 51 11 1,386 5 224 506 423 198 26 146 12 11 95 17 413 62 1,752 15,494 11,490 6,399 1,871 Potatoes.............................................. 536 12 163 115 180 Part-time............................................ 335 76 210 12 12 100 25 90 13 587 3,539 19,143 8,564 2,771 269 38,925 Other................................................... 227 Total, all types of farms**............ 37,952 39 146 * Estimated on basis of banks covered by the survey; because of rounding, figures do not necessarily add to totals. ** Includes a small amount of loans not classified by type of farm and net worth. less than 10 million dollars. Of the total amount and number of loans made by banks in this category, about one third was made by banks with deposits of less than 2 million dollars. As might be expected, the largest banks in the District, in cluding the New York City banks, participated only to a relatively small extent in loans to farmers, since in most cases the resources of the smaller country banks are adequate to finance the credit requirements of the farmers located in their general vicinity. Table II shows the dollar amount and number of these farm loans by type of farm and size of borrower. It indicates that about three fifths of the number of loans were made to small borrowers, those having a net worth of less than $10,000, while only 8 per cent of the loans went to borrowers with assets exceeding $25,000. However, the large borrowers— those with assets over $25,000— accounted for about 20 per cent of the total dollar amount, because on the average they borrowed larger amounts. More than three quarters of the loans outstanding, both in number and in dollar amount, were made to farmers engaged in dairying. The rather heavy concentration on dairy farm financing reflects the preponder ance of this type of farming in Second District agriculture. This fact is readily explained by the general adaptability of the land to dairy farming together with the proximity of the largest milk market in the world. The development of the various dairymens cooperatives, frequently with the support of the banks, has given impetus to this industry. In addition, member banks in this District had outstanding loans totaling more than a million dollars to farmers engaged in the produc tion of truck crops, fruit, potatoes, and poultry and eggs, and in general farming. Table III shows the estimated number and dollar amount of "real estate loans secured by farm land” outstanding on June 20 at all member banks in the District by type of farm and size of bank. It indicates that banks with deposits ranging from 2 to 10 million dollars accounted for more than 50 per cent of all farm mortgages, while banks with deposits exceed ing 10 million dollars accounted for about 30 per cent. It also shows that nearly two thirds of the estimated 7,759 farm mortgage loans outstanding were made to farmers engaged in the dairy business. Representatives of this bank visited each bank participating in the survey to assist in preparing the schedules, and through this personal contact obtained the benefit of the banker’s view point and experience concerning the farm loan business. A number of banks in this District have developed comprehen sive programs designed to expand their agricultural depart ments. Several banks have employed graduates of agricultural colleges, while others have officers who are "farm minded” and who are familiar with the many problems associated with farming. These officers play an important part in formulating farm policies and practices of their banks and advise farmers with regard to their individual problems. Such banks have been successful in expanding their farm loan business, and not only have increased their earning power, but also have been helpful in promoting the development of agriculture and related activities in their communities. At the same time they have discouraged prospective borrowers from assuming com mitments which would be likely to involve them in dif ficulties. Most of the banks visited agreed that, in general, the farmers are in a much stronger cash position today than before the war, either in the form of war bonds or in bank deposits. It was generally conceded that in many instances the farmers who are borrowing today are those who in 1939 were con sidered in the "marginal” category with a rather poor credit MONTHLY REVIEW, SEPTEMBER 1947 98 TABLE III Real Estate Loans Secured by Farm Land, Outstanding on June 20, 1947 at All Member Banks in the Second District*, by Type of Farm and Size of Bank Number of loans Dollar amount of loans, in thousands Banks with total deposits, in millions Banks with total deposits, in millions Type of farm All member banks Under $2 $2 to $10 Over $10 All member banks Under $2 $2 to $10 Over $10 1,411 400 711 300 3,865 693 2,315 857 4,925 888 2,509 1,528 15,651 2,507 8,252 4,892 Poultry and eggs............................................................ 391 34 241 116 1,302 60 838 404 Livestock......................................................................... 34 6 20 8 164 7 140 18 348 23 193 132 1,272 70 537 664 General............................................................................ Truck (includes nursery products)............................... 196 70 58 68 598 195 205 198 Field crops....................................................................... 10 — 10 — 29 ~ 29 — Potatoes........................................................................... 127 48 75 4 454 98 348 8 Part-time......................................................................... 210 92 58 60 643 212 237 194 87 — 75 12 709 — 642 67 Total, all types of farms**........................................ 7,759 1,560 3,951 2,248 24,758 3,842 13,544 7,372 * Estimated on basis of banks covered by the survey; because of rounding, figures do not necessarily add to totals. ** Includes a small amount of loans not classified by type of farm. standing, but who are good risks today because of the sub stantial increase in their incomes. But there was evidence of an awareness among the banks of the dangers of an over expansion of credit to these "marginal” farmers, who in the event of a slackening of demand and price decline might have difficulty in meeting their commitments. This feeling has resulted in a more careful appraisal of loans being extended to farmers, and some banks have adopted a more conservative attitude than was the case last year or in the early part of 1947, in the form either of shortening maturities or of requiring more security for loans. these factors have contributed towards maintaining a relatively substantial volume of farm loans in this District at a time when farm income has been at or near record levels. DEPARTMENT STORE TRADE In August the monthly dollar volume of department store sales in the Second Federal Reserve District dropped below the peak year-ago level and the year-to-year drop was the first since February 1944. The seasonally adjusted sales volume is estimated to have declined about 2 per cent from the level that had been maintained from May to July, and to have been about 4 per cent below the all-time high of August 1946.1 Trade sources indicate that the unusually warm weather adversely affected sales, especially during the first half of August. The bankers reported that farmers/in general, have moved towards greater mechanization at a rapid pace since the end of the war. This rapid mechanization is attributed to the high cost and shortage of labor, together with the increasing avail ability of farm machinery. In addition, in the case of dairying, there has been an expansion of herds in order to increase For the first eight months of this year, the dollar volume of department store sales exceeded the total for the same the productive capacity of the farms. There has also been a months in 1946 by about 7 per cent. However, this gain was sharp rise in feed prices, in the cost of machinery, livestock, smaller than the estimated average increase in prices of mer and fertilizer, and in the general expenses of operating a farm. chandise sold in such stores. The bankers also reported that there had been an increase in expect the rate of increase in sales so far this year to be approxi retirements among farmers, either through turning over the mately sustained during the balance of the year. Their predic Department store executives operation of their farms to their sons, or selling to tenants or tions are based on the expected stimulus to women’s apparel to farmers who had migrated to the area; many of these sales caused by changes in fashions, on the effects of promotions "retirements” had been delayed because of the war. It is also of merchandise priced to attract customers, on removal of all probable that some farmers have retired in order to take restrictions on instalment buying November 1, and, to a certain extent, on veterans’ spending of the proceeds of cashed-in terminal leave bonds. advantage of the high prices now being offered for their farms. A rather substantial number of the new owners have been young veterans, most of whom have had previous farming ex perience and who were able to purchase farms through the benefits afforded them under the "GI” loan program. All of 1 Total sales in August were about 8 per cent below those in August 1946. The seasonally adjusted index allows for variations in the number of shopping days; there was one less shopping day in August this year. FEDERAL RESERVE BANK OF NEW YORK It appears likely that the decline in department store inventories which has taken place during recent months may be reversed in the near future. At the close of July the season ally adjusted index of stocks was again sharply lower, dropping to 18 per cent below the all-time high of last February. With the exception of last fall’s low caused by the delivery strike, the dollar volume of inventories in July was the smallest since June 1946. The ratio of stocks to sales was the lowest for any July on record. Low stocks are found primarily in women’s wear depart ments; at the close of July stocks for this group were 19 per cent below those on the corresponding date last year. Men’s wear stocks, however, were 12 per cent, and homefurnishings stocks 14 per cent, higher than a year ago. Many stores, having deferred placing orders for fall merchandise at the usual season, have experienced difficulties in obtaining deliveries of style merchandise now expected to be in demand. During August manufacturers of coats and suits in the New York market announced substantial price increases. Because of the short supply, trade sources indicate that retailers will have to accept the increase, and few cancellations are expected. The accompanying chart shows the sharp increase that has recently taken place in outstanding orders. On May 31 of 99 Estimated Dollar Volume of Sales, Stocks, and Outstanding Orders of Second District Department Stores, 1941-July 1947 M IL L ! O N S OF D O L L A R S Source: Estimated from reports received by Federal Reserve Bank of New York. Stocks and orders at end of month. this year outstanding orders were 65 per cent below those outstanding one year earlier. At the close of July, orders were not quite 50 per cent lower than a year previous. Department and Apparel Store Sales and Stocks, Second Federal Reserve District, Percentage Change from the Preceding Year Indexes of Business Net sales Locality July 1947 Department store*, Second District---New York City................................... Northern New Jersey......................... Newark............................................ Westchester County........................... Fairfield County................................. 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 Jan. through hand July 1947 July 31, 1947 + 8 + 8 + 9 + 5 + 3 +16 + 7 4* 5 +10 + 6 + 8 + 7 + 8 + 4 t-11 -13 - 1 -17 - 5 - 2 - 5 + 7 + 7 + 5 + 8 - 3 + 8 + 6 + 4 +12 +10 + 9 +14 +10 +10 +10 + 8 +12 +10 +11 +13 +20 +12 + 8 +11 +10 +10 +10 +11 1947 — 2 July May June July — 5 — 8 — 8 + 6 +13 +12 + 6 + 5 + 1 + 2 __ 3 + 4 + 4 _ 4 + 4 172 185 184 178p 195 224 222 218p 191 201 207p 248 274 275p 274p 144 151 151 150p 123 127 125 121p +13 + 5 +17 +10 +10 + 2 +10 — 4 1946 Index — 5 Industrial production*, 1935-39 = 100........ (Board of Governors, Federal Reserve System) Electric power output*, 1935-39 = 100....... (Federal Reserve Bank of New York) Ton-miles of railway freight*, 1935-39 = 100 (Federal Reserve Bank of New York) Sales of all retail stores*, 1935-39 = 100....... (Department of Commerce) Factory employment United States, 1939 - 100........................ (Bureau of Labor Statistics) New York State, 1935-39 = 100............... (New York State Department of Labor) Factory payrolls United States, 1939 = 100........................ 267 312 319p 244 269 270 259 277 279p 161 173 175p 141 156 157 80 88 88 88 (Bureau of Labor Statistics) New York State, 1935-39 = 100............... 264p (New York State Department of Labor) Personal income*+, 1935-39 = 100............... (Department of Commerce) Composite index of wages and salaries*}: 1939 = 100.................................................. (Federal Reserve Bank of New York) Consumers’ prices, 1935-39 = 100................ (Bureau of Labor Statistics) Indexes of Department Store Sales and Stocks Second Federal Reserve District (1935-39 average^ 100 per cent) Item 1946 Velocity of demand deposits*, 1935-39 = 100 (Federal Reserve Bank of New York) New York City.......................................... Outside New York City........................... May June July Sales (average daily), unadjusted................ Sales (average daily), seasonally adjusted.. 158 236 237 253 231 254 170 254 Stocks, unadjusted........................................ Stocks, seasonally adjusted.......................... 197r 208 224 221 206 215 194 205 85p 88p 1947 July r Revised. 93r 81 * Adjusted for seasonal variation. p Preliminary. r Revised, f Index of seasonally adjusted annual rates computed by Federal Reserve Bank of New York from new series of personal income prepared by the U. S. Depart ment of Commerce. t A monthly tabulation of the 15 component indexes of hourly and weekly earnings computed by this bank will be sent upon request. A general discus sion of the new indexes appeared in the November 1946 issue of this Review, and a more detailed description in the Journal of the American Statistical Association for June 1947. Reprints of these articles are available on request. Tabulations of the monthly indexes, 1938 to date, and description of component series, sources, and weights may also be procured from the Research Depart ment, Federal Reserve Bank of New York. 100 MONTHLY REVIEW, SEPTEMBER 1947 INDUSTRIAL PRODUCTION National Summary of Business Conditions (Summarized by the Board of Governors of the Federal Reserve System, August 27, 1947) production was at a lower level in July than in June, owing in part to influences of a temporary nature. Retail trade was generally maintained. Prices advanced during July and also the first half of August. I NDUSTRIAL I n d u s t r i a l Pr o d u c t i o n 1939 1941 1943 1945 1947 1939 1941 1943 1945 1947 Federal Reserve indexes. Monthly figures; latest shown are for July. DEPARTMENT STORE SALES AND STOCKS Production of manufactures and minerals both declined in July and total industrial production, according to the Board’s seasonally adjusted index, was at 178 per cent of the 1935-39 average. This was 6 points below the June level and 12 points below the March postwar high of 190. Scattered information now available indicates a somewhat higher level for August than for July. Output of durable manufactures generally decreased in July. There was a marked reduction in steel output during the first two weeks of the month, when a coal shortage seemed imminent. Activity in shipbuilding was sharply reduced by work stoppages, and there was a moderate decline in activity in the machinery industry. Automobile output declined somewhat in July, and showed a further reduction in the first half of August, with production still limited by the sheet steel shortage. Nonferrous metal manufacturing continued to decline in July, partly as a result of some reduction in demand. Output of lumber and of stone, clay, and glass products was also at a lower level than in June. Nondurable goods production continued to decline in July. There was a further reduction in textile output, owing in part to vacations of production workers but also to earlier slackening of demand. Output of rubber products also continued to decline. Production of paperboard was lower in July but increased in August to the earlier high level. In the canning industry production rose more than is usual in July but was considerably below the unusually high level of last season. Mineral output declined in July. There was a sharp drop in bituminous coal and anthracite output, accounted for largely by vacations early in the month. Output of crude petroleum declined slightly but was still at a very high rate. Em p l o y m e n t 1939 1940 1941 1942 1943 1944 1945 1946 1947 Federal Reserve indexes. Monthly figures; latest figure shown for sales is July, latest for stocks is June. Factory employment declined somewhat further in July, after allowance for seasonal changes, while employment in most other nonagricultural lines continued to show little change. Total Government employment was reduced by 120,000 to about 5,300,000 persons in mid-July, reflecting a reduction in Federal employment and also a decline of a seasonal nature in other Government employment. Co n s t r u c t io n Value of construction contracts awarded, according to the F. W . Dodge Corporation, rose in July, reflecting increases in awards for most types of private construction. Awards for private residential work were one-fourth larger than in June as contracts for hotels, apartment hotels, and one-family houses for sale or rent increased substantially. Value of awards for commercial and manufacturing building increased by about one third. Federal controls on private construction were largely eliminated as of June 30. WHOLESALE PRICES D is t r ib u t io n Department store sales showed the usual seasonal decline in July, and the Board’s adjusted index remained at the high May and June level. In the first two weeks of August, sales showed less rise than usual and were 4 per cent below the corresponding period of a year ago whereas in July sales were 5 per cent higher than last year. This difference reflected in part the sharp temporary rise in sales which occurred in August a year ago, and unfavorable shopping weather in many sections this year. C o m m o d i t y P r ic e s 1939 1940 1941 1942 1943 1944 1945 1946 1947 Bureau of Labor Statistics* indexes. Weekly figures; latest shown are for week ended August 16. LOANS AT MEMBER BANKS IN LEADING CITIES Prices of basic commodities in the middle of August were generally at about the advanced levels reached on July 15. Prices of corn, hides, and wool tops rose further in this period, while prices of cotton and vegetable oils declined. Higher corn prices resulted in part from deterioration of the corn crop, which on the basis of August 15 conditions was estimated at 2.4 billion bushels as compared with the record crop of 3.3 billion last season. Lower cottor prices were attributable in some part to more definite prospects for a crop susbtantially above last season. The general level of wholesale commodity prices advanced somewhat further from July 15 to the middle of August, reflecting chiefly further increases in prices of meats, dairy products, and fuels, and a general advance of about 10 per cent in prices of iron and steel products. Prices of new automobiles were generally raised in this period. Steel scrap prices declined in the middle of August, following sharp advances in preceding weeks. Ba n k Excludes loans to banks. Wednesday figures; latest shown are for August 13. C r e d it Further additions to monetary gold stock, an inflow of currency from circulation, and purchases of Government securities by the Reserve Banks increased member bank reserve balances in July and the first three weeks of August. In August these additions to bank reserves were partly offset by a shift of funds to Treasury balances at Reserve Banks as a result of an excess of Treasury receipts over expenditures. Required reserves increased over the period, reflecting continued expansion of deposits at member banks. Commercial and industrial loans at banks in leading cities increased sharply during July and the first half of August, particularly at banks outside New York City. Real estate and consumer loans showed further sustained growth. Government security holdings declined somewhat at banks in New York City but showed little change at other city banks.
@FedFRASER