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MONTHLY REVIEW O f F E D E R A L V o lu m e 34 C r e d it a n d B u s in e s s R E S E R V E B A N K SEPTEMBER C o n d itio n s O F N E W Y O R K 1952 No. 9 MONEY M ARKET IN AUGUST The money market throughout August reflected a con tinuation of the tightness that had been characteristic of the market over the earlier months of the summer. Bank reserves released at the beginning of the month through Treasury net disbursements from its balances with the Federal Reserve Banks and from System open market purchases of short-term securities relieved some of the pressure on bank reserves and enabled member banks to reduce their indebtedness to the Federal Reserve Banks by a substantial sum. But the release of bank reserves at that time only served temporarily to make the market somewhat less tight, and by the end of August the increase in Treasury balances in the Reserve Banks to above normal levels, together with the regular month-end contraction of float and the sizable increase in currency in circulation prior to the Labor Day week end, had combined to tighten the market again. As in July, member bank indebted ness to the Reserve Banks exceeded excess reserve balances held by the banks on every day during the past month. New York City banks failed to share even the modest and temporary easing of reserve positions experienced by member banks for the country as a whole in the early part of the month. Rates on Federal funds remained almost constantly at 1 x% 6 per cent, and the tightness in the New York money market tended to make itself felt in the market for Government securities. Yields on short-term securities with the exception of the shorter bills, which eased slightly after the middle of the month, moved within a narrow range around the high levels of the previous month, with the average issue rate on the Treasury bill dated August 14 rising to 1.903, the highest rate paid by the Treasury for three-month money since March 1933. In the following week, the average issue rate dropped to 1.841 per cent, but it rose to nearly the August 14 level for the issue dated August 28. The intermediate and longer-term sectors of the market moved roughly in conformity with yield changes in the short-term area. After declining sharply during the first half of August, prices of longer-term taxable bonds recovered somewhat, but closed the month from Ys to 1 full point below end-of-July quotations. Treasury books were open from August 4 to August 7 for exchange of the 1% per cent certificates of indebtedness due August 15 and September 1, 1952, for 2 per cent one-year certificates dated August 15. Holders of 2,009 million dollars of the 2,416 million dollars of the maturing issues outstanding, or 83 per cent, accepted the exchange into the new certificates. The Treasury also announced in August that the option to call for redemption on December 15, 1952 the four issues of Treasury bonds eligible to be called on that date, outstanding in a total amount of 16.5 billion dollars, will not be exercised. Following seven months of nearly continuous decline, member bank business lending expanded slightly in August, largely as the result of seasonal factors. Real estate and con sumer loans continued to expand, touching new all-time peaks week by week. The total of member bank loan and invest ment credit outstanding, as reported by weekly reporting banks, declined during August, however, principally as the result of a sharp reduction in bank holdings of short-term Government securities. It appears that the bulk of these securities were bought by business corporations, with the proceeds of security issues and probably with funds accumu lated to meet tax liabilities, and by foreign investment accounts. M e m b e r B a n k R eserves On August 1, member bank borrowing from the twelve Federal Reserve Banks totaled more than 1.5 billion dollars, the largest total of borrowings since the period of money CONTENTS M oney Market in A u g u s t .................................... 125 Earnings and Expenses o f the Second District M em ber Banks— First H alf o f 1952 ............. 128 Personal Incom e ................................................... 130 Department Store Sales in Buffalo, 1925-52 . . . 135 Department Store T r a d e ...................................... 137 126 MONTHLY REVIEW, SEPTEMBER 1952 market stringency in early 1933, prior to the gold inflows of the later 1930’s. Gains and losses of reserves during August through the several factors having an influence on bank reserves must be appraised in the light of this indication of reserve scarcity at the beginning of the month. Between August 1 and the end of the first statement week on August 6, borrowing from the Reserve Banks had been reduced by nearly 700 million dollars, while excess reserves of member banks declined by only 158 million dollars. This relative easing in bank reserves resulted largely from net Treasury outlays and open market purchases of securities for Federal Reserve System account incident to the certificate exchange, as shown in the table. At the same time, the marked decrease in required reserves growing out of sales of Government securities from bank portfolios to nonbank investors and the reserves gained from transactions on foreign account more than compensated for the loss of reserves through a reduction in float and an increase in currency circulation. During the following two statement weeks the factors influ encing bank reserves tended to offset each other and, on balance, member bank excess reserves and bank borrowing to secure needed reserves changed only moderately. The most important influences were exerted by the Treasury, as it drew on its balances with commercial banks to rebuild its deposits in the Reserve Banks and, partially offsetting this development, by the usual midmonth increase in float. Federal Reserve security transactions during the first two statement weeks were designed both to aid the Treasury’s certi ficate refunding and to ease somewhat the extreme tightness that had developed in bank reserve positions. The net addition to System holdings during this period reflected market pur chases of selected short-term securities offset in part by sales of other short issues and repurchases by dealers of securities W e e k ly C hanges in F a ctors Tending to Increase or D ecrease M em ber B ank R eserves, A u g u s t 1952 T (In m illions of d o llars; ( + ) denotes increase, (— ) decrease in excess reserves) Statement weeks ended August 6 August 13 August 20 August 27 Four weeks ended August 27 +344 - 39 - 89 + 58 + 4 -1 4 9 +111 - 10 -1 4 3 + 66 -1 0 6 + 68 - 17 + 25 - 28 -1 7 4 -1 8 5 - 61 - 10 - 17 - 85 - 45 -1 7 7 - 70 + 25 +279 -1 2 6 - -4 4 9 — 355 +133 — 561 + 74 - 19 +209 + - 60 SI +248 — 505 — 428 + 2 + 1S0 - 21 -2 5 7 Total reserves........................................ Effect of change in required re serves ................................................... -1 4 9 -1 2 4 +131 -4 7 0 -6 1 2 +121 + + - Ex ce ss reserves..................................... - -1 1 0 Factor Operating transactions Treasury operations*................... Federal Reserve float................... Currency in circulation.............. Gold and foreign account.......... Other deposits, e tc ....................... T otal.............................. Direct Federal Reserve credit trans actions Government securities................ Discounts and advances............ Total................................ 28 14 59 20 +151 28 +127 -4 9 8 -4 8 5 Note: Because of rounding, figures do not necessarily add to totals. * Includes changes in Treasury currency and cash. held on sales-contract agreements by the Federal Reserve Bank of New York. In the latter part of the month, the influence of autonomous factors resulted in the net reduction of reserve balances held by banks, and at the end of August member bank excess reserves and indebtedness to the System indicated much the same condition of tightness as had existed at the beginning of the month. The regular month-end decline in float and a heavy drain of currency into circulation in preparation for the long Labor Day week end and month end accounted for the largest losses of bank reserves and, in the absence of any substantial supply of funds from other sources, caused member banks to return to the "discount window” of the Reserve Banks to secure needed reserves. The System purchased a modest amount of short-term Government securities at this time, both outright and under sales-contract agreements, with a view to relieving some of the growing pressure on bank reserves. For the month as a whole, the largest and most consistent source of free funds for the banking system, aside from the additions to Federal Reserve security holdings, was the reduction in required reserves as the banks disposed of a sizable quantity of their Government security holdings. A heavy outflow of commercial funds from New York City in the first statement week approximately offset funds acquired by the City banks from System security operations, a decline in required reserves, and other factors, with the result that the New York banks failed to share in the net additions to banking reserves during that week. For the remainder of the month, gains and losses of reserves by the City banks tended to offset each other, and the New York money market remained persistently tight. The tightness in the money market was reflected in the maximum rates charged for immediately avail able Federal funds on most days and in a slight upward ten dency in certain bank lending rates. he G overnm ent S e c u r it y M arket Money market conditions in the past month, as in July, tended to set the framework for price and yield movements in the Government security market. During the first half of the month a combination of real and psychological influences related to the money tightness brought about a structure of short-term yields slightly above the levels reached in July and a concurrent sharp decline in prices of intermediate and long term issues. The Treasury’s announcement on July 30 of its offering of a 2 per cent yield for one-year refunding came at a time when the market was still digesting the 2 3/s per cent bond issue of July, and was interpreted in the market as official recognition of a higher m arket rate structure. This and the decision not to call the four bond issues were taken in some quarters to indicate the probability of a continuation of tight money conditions. There also was some discussion in market circles of the possibility that commercial bank lending rates might be raised and that the Federal Reserve Banks m ight increase their rediscount rates. FEDERAL RESERVE BANK OF NEW YORK In the short-term m arket this situation resulted in a m odest firm ing of rates, particularly on the longer certificates and shortest bonds; the A ugust 15, 1953 certificate issue, traded on a "w hen-issued” basis, com m anded no prem ium and even m oved fractionally below par for a brief period. Treasury bill yields rem ained near the high end-of-July quotations, w hile average issue rates on new bills increased from 1.860 per cent for the issue dated A ugust 7 to 1.903 per cent for the A ugust 14 issue. As the m onth progressed, the bearish atm osphere tended to weaken despite continuing concern about the pressures that m ight develop in the m arket as the seasonal bank loan expan sion progressed. A m ild reversal of the earlier yield m ovem ent took place, and in the last half of the m onth short-term rates were, in general, m oderately low er than they had been earlier, until the closing days of the m onth, w hen these yields again m oved higher. Certificate yields tem porarily receded at the m iddle of A ugust, and a prem ium was established for a tim e on the new 2 per cent certificate. Yields on the shorter m aturities of bills m oved dow n as m uch as 25 basis-points, partially as the result of purchases of these issues by corpora tions and foreign accounts and partially because of a tendency for some investm ent funds to seek a short-term haven during the period of rate uncertainties in the m arket. Average issue rates on new bills declined to 1.841 per cent for the issue dated A ugust 21, but, as bank reserve positions tightened tow ard the end of the m onth, and in expectation of still further tightening through the opening days of Septem ber, the average rate on the A ugust 28 issue rose to 1.899 per cent. Interm ediate and longer-term securities follow ed the pattern of m ovem ent in the short-term m arket. T he factors m entioned earlier as influencing short-term yields in the first half of August had the effect in the bond m arket of causing investors to feel that continuation— and perhaps accentuation— of tight money m arket conditions m ight affect bond prices adversely. As a result, prices of Treasury bonds, particularly the restricted issues, were m arked sharply lower, largely on a small volum e of "professional” trading. By A ugust 12, restricted bonds were approxim ately I V 2 points below their end-of-July price quota tions, and m ost interm ediate and long-term issues eligible for bank purchase were dow n 1 to 1 ^ points. Exceptions wrere the tw o 2 Ys per cent bond issues which, at the m arket low during the m onth, were selling approxim ately Ys of a point below the levels (close to p a r) at w hich they had sold at the close of July. A m odest bank dem and for the 2 % ’s of June 1958 was m aintained throughout m ost of the m onth, and trading in the longer-term Treasury bonds centered around that issue. In subsequent trading, part of the losses on bond prices were recovered, but, as during the price decline, trading in G overnm ent bonds rem ained very thin and the price m arkups largely reflected professional reaction from the previous pessimism . 127 M e m b e r B a n k C r e d i t a n d D e p o s it s T he accom panying chart presents data on business loans, G overnm ent security holdings, privately ow ned dem and depos its, and G overnm ent deposits in the weekly reporting m em ber banks in 94 larger cities for the current year through the m iddle of August. Business loans of these banks followed a general dow nw ard trend over the greater part of this period, except during the weeks adjacent to the M arch and June tax dates, resulting in a net reduction from January to July, inclu sive, of some one billion dollars. A pparently the trough in the dow nw ard m ovem ent was reached in July, and the data for A ugust indicate the beginning of the regular seasonal expansion in this form of credit. G overnm ent security holdings of reporting banks, on the other hand, tended to decline during the first quarter of the year, but, during the period of increased Treasury borrow ing this spring and early sum m er, these holdings m oved sharply upw ard. The m ost m arked increase occurred in early July as a result of the sale by the Treasury of m ore than 4 billion dollars of new bank-eligible bonds. Since that date, however, the reporting banks have been net sellers of G overnm ents (largely short-term issues) and by the m iddle of A ugust their holdings had been reduced by an am ount equal to their p u r chases at the beginning of July and were approxim ately equal to their total investm ent in G overnm ents at the end of 1951. T he largest part of the week-to-week fluctuations in adjusted dem and deposits depicted in the chart is explainable in term s of the changes in G overnm ent security holdings and business Changes in Loans, Investments, and Demand Deposits of W eekly Reporting M em ber Banks in 94 Leading Cities (Cumulated from D ecem ber 26, 1951) 128 MONTHLY REVIEW, SEPTEMBER 1952 loans of the reporting banks, and of changes in the volum e of Treasury deposits held by these banks. By A ugust 13, private dem and deposits held by these institutions were about 2.2 billion dollars below the D ecem ber 26 level, w hile the total of business loans and G overnm ent security holdings was dow n som ew hat less than 900 m illion dollars. A t the same tim e, G overnm ent deposits w ith the reporting banks (excluded from adjusted dem and deposits) increased nearly 2.2 billion dollars for the year through A ugust 13, so that the total of private and G overnm ent dem and deposits in these banks on A ugust 13 was very nearly equal to the D ecem ber 26, 1951 level. W hile both total dem and deposits and G overnm ent security holdings were substantially unchanged over this period, the nearly 900 m illion dollar decrease in business loans was m ore than offset by a 1,600 m illion dollar expansion of bank credit in other form s not specifically show n in the chart. This expansion occurred in bank holdings of other securities and in other loans, principally consum er and security loans. T he net increase in loans and investm ents was paralleled by an increase in tim e and savings deposits held by the weekly reporting banks. T he foregoing data indicate that the reserves released by the contraction of business credit over the first six m onths of 1952 have been absorbed by an expansion of private credit in other forms. N ew reserve balances have not arisen from other sources so that excess reserves to provide for the anticipated seasonal business loan increase this fall are not now in exist ence. It may be expected, therefore, that the Federal Reserve System w ill be called upon to fill its historical role as a supplier of reserves to enable the banks to m eet their custom ers’ norm al seasonal credit needs. T he m anner in w hich such reserves are supplied— w hether through Reserve Bank loans in response to m em ber bank requests, through open m arket operations on the initiative of the Reserve System, or both— presum ably will depend upon developm ents in the general econom ic and credit situation during the rem ainder of the year. EARNINGS AND EXPENSES OF THE SECOND DISTRICT MEMBER B A N K S FIRST HALF OF 1952 Reflecting a greater expansion in net current operating earn ings1 than in the am ounts set aside for incom e and excess profits taxes, net profits of the m em ber banks in the Second Federal Reserve D istrict during the first half of 1952 increased to 106.3 m illion dollars, a gain of 9.9 m illion dollars or 10.3 per cent over the corresponding six m onths of 1951. T he rise in net profits in this D istrict, as show n in a prelim inary tabulation of the principal item s reported by m em ber banks, was greater than the gain for m em ber banks in the country as a whole (8.9 per cen t). A large part of the gain in aggregate net profits of m em ber banks in the D istrict occurred at the central reserve N ew Y ork City banks, in w hich an above-average gain in net current operating earnings carried final net profits to 79.7 m illion dollars— a level 9-3 m illion, or 13.2 per cent, above the first half of 1951 and the highest since 1946. As a result of their sm aller gains in net current operating earnings, the aggregate net profits of the rem aining Second D istrict m em ber banks increased only $600,000, or 2.3 per cent. As show n in the accom panying table,2 how ever, the three sm allest sized groups had gains in the final results w hich ranged from 6.3 per cent to 18.9 per cent. N e t profits for the largest banks outside 1 Net current operating earnings represent net earnings before income taxes and nonrecurring security profits, recoveries, and chargeoffs. 2 Sample groups of Second District member banks outside New York City have customarily served as the basis for articles on bank earnings and expenses appearing in this Review in order to permit early publi cation of the principal results of recent member bank operations, in advance of the complete checking and tabulating of all income and expense accounts on all reports submitted to the Federal Reserve Bank of New York. Identical samples of banks have been used since 1945. These samples include roughly half of the banks with deposits in excess of 20 million dollars and 10 per cent of the number in each of the smaller groups. N ew Y ork City— those w ith deposits in excess of 20 m illion dollars— dropped 10.8 per cent, but this arose out of substan tial additions to reserves for bad debt losses on loans rather than from poor operating results. O p e r a t in g I n c o m e a n d E x p e n s e Total current operating earnings continued to rise in all groups of banks, but the increase in the central reserve N ew Y ork City banks (15.5 per cent) exceeded all others and resulted prim arily from an above-average expansion in loan income. T his increase in loan incom e coupled w ith a som e w hat sm aller increase in operating expenses was largely respon sible for the greater rise in their net current operating earn ings and their final net profits. Loan incom e for the City banks expanded 36.5 m illion dollars or by slightly m ore than one fourth, com pared w ith gains of 9 to 17 per cent for the other Second D istrict groups of banks. T he average loan volum e at the City banks increased m ore betw een the first halves of 1951 and 1952 than did the average loan portfolios of the other Second D istrict banks. M uch m ore im portant, however, was the increase in the rates charged by the City banks on business loans. V irtually the entire increase in the City banks’ loan portfolio during the half year being reviewed was confined to com m ercial and industrial loans, on w hich the average short-term rate was raised from 2.68 per cent to 3.17 per cent while the average rate on longer-term loans (those m aturing in over one year) was increased from 2.80 per cent to 3.22 per cent. T he banks in the D istrict outside N ew Y ork City could not so readily raise their loan rates as could the City banks, and collectively the rise in their loan incom e exceeded the rise in volum e by only a slight m argin. 129 FEDERAL RESERVE BANK OF NEW YORK T heir rate schedule on business loans, in which about half of their loan increases were concentrated, was already som e w hat higher than those of the City banks and closer to the statutory lim it, especially in the sm aller sized banks. Also, real estate loans, w hich accounted for the other half of their total loan increase, are less susceptible to rate increases than other types of loans, as the banks can act on their ow n initia tive to raise rates only on so-called *'c onventional” liens; the m axim um rate chargeable on V.A. and F.H.A. m ortgages is set by G overnm ental agencies, and it is only by the purchase of such m ortgages at a discount that higher yields can be obtained. Because of the higher rates of interest on U nited States G overnm ent securities, incom e from such obligations increased m oderately over the 1951 level in all groups of banks. T he short-term character of the average com m ercial bank’s investm ent portfolio and the constant need to replace called or m atured obligations m ake bank investm ent incom e especially sensitive to changing interest rates. In fact, the rise in interest rates betw een the periods being reviewed m ore than offset the effect of m odest declines in the average volum e of G overnm ent security holdings and a general short ening in the average term of the banks’ portfolios. Interest and dividends received on non-Federal G overnm ent securi ties, w hich consist principally of the obligations of States and political subdivisions, showed sizable percentage gains over the 1951 level in all groups of banks and reflected both a greater volum e of holdings and the higher rates of interest obtainable. T he bank investm ent dem and for m unici pal obligations is based in large part upon the value of the tax-exem ption feature, w hich in recent years has increased as the Federal norm al and surtax rates have gone up and as excess profits taxes have been reim posed. Bank increases in assets of this type also have tended to offset, in part, the effect of the constant reduction in holdings of U nited States G overnm ent wholly and partially tax-exem pt obligations which has taken place over the years as a result of retirem ents and refundings w~ith fully taxable obligations. Salary and wage paym ents— the principal com ponent of expenses— showed increases ranging from 9 to 14 per cent in the various groups of banks and reflected not only higher rates of pay, but also an increased num ber of both officers and employees to handle today’s record volum e of financial trans actions. Interest paid on tim e and savings deposits expanded sharply in all groups of banks, because of a m odest rise in the aggregate volum e of such deposits and the higher rates w hich a num ber of banks have p u t into effect in order to m eet the com petition from savings institutions. A t N ew Y ork City banks, in w hich the interest paid on tim e and savings deposits represents only a m inor fraction of the banks’ total expenses, the increase was 39.5 per cent, the largest for any group in the D istrict. H ow ever, the increases in interest paym ents were confined principally to a small num ber of the larger E arnings and Expen ses of Selected Second D istrict M em ber B anks for the F irst Six M on th s o f 1 9 5 2 and the Percentage Changes from the F irs t Six M on th s of 1951 (D ollar am ounts in thou sand s) Sample banks located outside New York City Deposit size New York City banks Central reserve (22 banks) $5,000,000 to $20,000,000 (25 banks) Over 120,000,000 (35 banks) $2,000,000 to $5,000,000 (25 banks) Under $2,000,000 (15 banks) Item Dollar volume 1st half 1952 Per cent change 1951 to 1952 + 4.3 + 11.5 + 17.0 + 4.2 + 11.9 + 6.6 1,152 295 2,421 373 60 166 + 8.1 +17.1 + 8.8 + 14.1 + 3 9 .5 + 9.2 403 107 911 121 15 72 Dollar volume 1st half 1952 Per cent change 1951 to 1952 Dollar volume 1st half 1952 Per cent change 1951 to 1952 Interest on United States Government obligations......................................... Interest and dividends on other securities........................................................ Interest and discount on loans............................................................................ Service charges on deposit accounts................................................................... Trust department income.................................................................................... Other current income............................................................................................ 64,967 20.990 181,12 9,039 32.699 27,560 + 2.5 -f 18.4 + 25.3 + 1.0 7.8 + 4.4 7,570 2,048 17,599 1,771 1,372 2,322 Dollar volume 1st half 1952 Per cent change 1951 to 1952 Dollar volume let half 1952 + 8.3 + 21.6 + 14 3 + 5.2 + 7.1 - 17.3 109 20 263 30 0 13 Per cent change 1951 to 1952 + + + + 5.8 11.1 14 S 7.1 0 0 11.3 Total current operating earnings.................................................... 336,367 + 15.5 32,682 + 11.8 4,467 + 9.9 1,629 + 10.6 435 + Salaries and wages— officers and employees...................................................... Interest on time and savings deposits................................................................ All other current expenses.................................................................................... 101,793 8,137 66,304 + 10.2 + 39.5 + 4.5 10,827 4,070 8,512 + 14.1 + 23.0 + 11.1 1,268 791 1,000 + 9.6 + 32.1 + 2.7 502 233 404 + + + 13.8 18.9 4 7 123 111 + 8.8 -l- 10 4 + 13.3 Total current operating expenses .................................................. Net current operating earnings, before income taxes...................................... 176,234 160,133 + 9.0 + 23.4 23,409 9,273 + + 3,059 1,408 +12. ! o.5 1,139 490 + + J1.3 8.9 287 148 + + 26 3 33 91 t - 8 0 .0 + 9 4 .1 -2 1 .6 Security profits and recoveries ( + ) or charge-offs (—) * ................................ Net recoveries ( + ) or charge-offs (—) on loans............................................... All other net recoveries (-j-) or charge-offs ( —) .............................................. Net additions to (—) or deductions from ( + ) loan valuation reserves J........ + + + - 4,013 269 1,561 5,863 + 5.7 t f + 133.9 + 47 63 164 — 1,147 14.4 5.6 — 45.3 | - 72.6 + 121.4 - - 14 8 4 10 +366.7 - 46.7 - 93 .3 - 44.4 + 0 12 10.8 12.1 t + 140.!) f 7 Taxes on net income............................................................................................. 80,431 + 34.8 3,380 + 18.3 440 + 1.9 164 + 49.1 48 + CO. 0 Net profits............ ................................................................................................. Dividends paid ................................................................................................ Retamed earnings.............................................................................................. 79,682 44,290 35,392 + 13.2 + 1.6 + 32.0 4,566 2,270 2,296 - 10.8 -1- 15.7 - 27.3 815 283 532 + + + 6.3 6.8 6.0 290 90 200 + 18.9 + 5.9 + 25.8 94 21 + + + 6.8 10 5 5.8 Note: The plus or minus signs affixed to dollar amounts represent the effect of those amounts as net additions to ( + ) cr deductions from ( —) net current operating earnings. The plus or minus sign3 attached to the yearly percentage changes indicate whether the 1952 item is a larger amount than ( + ) or a smaller amount than (—) the 1951 item. * Also includes transfers to or from valuation reserves for losses on securities. f Percentage changes have not been shown either because the dollar change occurred from a negligible base amount, or because the dollar amount shifted from a negative to a positive amount, or vice versa. J: Includes transfers to or from both bad debt and other valuation reserves for loan losses. 130 MONTHLY REVIEW, SEPTEMBER 1952 banks, w ith m ost of the institutions show ing only m inor in net profits. Net security profits and recoveries were little fluctuations. O utside N ew Y ork City, w here interest pay changed in N ew Y ork City, but in the other banks in the D is m ents on tim e and savings deposits are a m uch m ore trict the general tendency in this item was m oderately adverse. im portant segm ent of total expenses, the increases in paym ents Actual net recoveries or charge-offs on loans continued to be ranged from 10 to 32 per cent in the several groups of banks. a m inor elem ent of profit or loss in all groups of banks, espe A n analysis of the sam ple returns shows that approxim ately cially w hen related to the volum e of loans outstanding. N e t additions to valuation reserves for loan losses, which 70 per cent of the banks m ade larger paym ents on tim e and savings deposits. H ow ever, m ost of the banks reported only is a tax-deductible item in the calculation of Federal incom e m inor increases, apparently m ainly as a result of increases in taxes but not excess profits taxes, were m arkedly larger than tim e deposit volum e, and the greater part of the aggregate in 1951 both in N ew Y ork City and in the largest banks out dollar rise was concentrated in about 15 per cent of the banks. side N ew York. In both of these groups of banks, however, All other current expenses, w hich consist principally of such the increase in such accum ulations was confined to a few in sti physical costs of banking as light, heat, rent, repairs, supplies, tutions whose reserves were still far below their ceilings (three insurance, etc., continued to rise throughout the D istrict. The times the average annual loss experience of the past tw enty percentage increase in operating expenses was outstripped by years). Taxes on net incom e were substantially higher in the gain in operating incom e only in the N ew Y ork City m ost groups of banks and reflected the larger volum e of tax banks and, to a m uch sm aller degree, in the sm allest banks able incom e, the higher corporate norm al and surtax rates, outside the City— the result being that net current operating and the effect of the excess profits tax. D ividend paym ents in the N ew Y ork City banks increased earnings of these tw o groups showed the m ost pronounced by only a m inor am ount, as a substantial reduction on the part upswing. of one institution largely offset num erous small increases by N o n r e c u r r in g I t e m s , T a x e s , a n d other banks. Elsewhere in the D istrict, how ever, the conserva D is t r ib u t io n o f P r o fits tive upw ard trend in dividend paym ents, w hich has been in In the N ew Y ork City banks, net additions to or deductions effect for alm ost a decade, continued in the various groups of from net current operating earnings as a result of "non banks, w ith increases ranging from 6 to 16 per cent. The recurring” item s have been approxim ately in balance both in retention of earnings has been the principal m eans by which 1951 and 1952 and, thus, have had little or no effect upon the the banks have built up their capital structures in recent years volum e of final net profits. Elsewhere in the D istrict, however, and the proportion of net profits ploughed back rem ained such item s in the aggregate held dow n net profits in both high in the current half year, ranging upw ard from 44 per years, although only in the largest banks did increased deduc cent in the large N ew Y ork City banks to 78 per cent in tions becom e a m ajor elem ent in causing an actual reduction the sm allest banks. PERSONAL INCOME O ne of the m ost frequently referred to and perhaps most possible. Perhaps the m ost erroneous im pressions w ith regard easily m isinterpreted indicators of econom ic activity is the to personal incom e statistics are, first, that personal income figure on personal incom e which appears in the table of denotes that am ount w hich is paid out exclusively in the form Selected Econom ic Indicators published each m onth in this of wages and salaries to employees; second, that personal R e v ie w . Personal incom e statistics— available on a m onthly incom e represents only m oney income; and finally, that p er basis from 1929 to date— are estim ated by the N ational Incom e sonal incom e statistics indicate the am ount of sp en d a b le incom e D ivision of the U. S. D epartm ent of Commerce. D ata for the available to individuals. m ost recent thirteen m onths are published in the S u rvey o f W hile it is true that the largest segm ent of total personal C u rren t B u sin ess.1 Revised data are usually m ade available in incom e is received by employees in the form of wages and each July issue of that publication. salaries and other labor income, nearly one third of the total W hile personal incom e statistics are useful for m any differ is derived from rents, interest, dividends, transfer paym ents, ent types of econom ic analysis, their principal use is, of course, and incom e from farm ing, professional work, and other u nin as a m easure of consum er incom e and purchasing pow er. It corporated businesses. A lthough the overw helm ing share of is m ainly in this connection that several m isconceptions are personal incom e is received by individuals, personal incom e as 1 Monthly data published in the Survey of Current Business are defined by the D epartm ent of Com m erce includes some expressed in terms of seasonally adjusted annual rates. The use of incom e accruing to institutions (including nonprofit organiza annual rates has one major advantage over the employment of index tions, and private trust, pension, and w elfare funds) ostensibly numbers. While both methods allow for easy comparison with previ ous annual data, annual rates are more convenient in that the com for the benefit of individuals. M oreover, not all incom e is ponents of personal income each month add to total income which, of received in the form of m oney either by institutions or indi course, would be impossible if the several subdivisions of the series viduals. A m inor portion of personal incom e (about 1 per were presented as index numbers. 131 FEDERAL RESERVE RANK OF NEW YORK cent in 1951) represents paym ents in kind (food, clothing, and lodging) w hich are regarded as incom e to the recipient. In addition, another share of personal incom e consists of im puted income, e.g., the estim ated value that ow ner occupants of farm and nonfarm dwellings could theoretically have real ized had they offered their houses for rent, and the value of services rendered by com m ercial banks and other financial institutions for w hich explicit m onetary charges are not made. T he im puted portion of rental and interest incomes that was estim ated as accruing to persons in 1951 was approxim ately 9 billion dollars, or 4 per cent of total personal income. Finally, personal incom e is not that incom e w hich is at the disposal of individuals for w hatever use they see fit. For example, personal taxes m ust be paid directly to governm ent out of incom e reported. Thus, on that basis alone, personal incom e data are not a m easure of the spendable incom e of persons. O n the other hand, em ployees’ paym ents of social security taxes and other personal contributions to social insur ance funds are excluded from personal incom e statistics. So u r ces o f P er so n a l I n c o m e 2 T he largest and statistically the m ost reliable com ponent of personal incom e is incom e from wages and salaries. For the years beginning in 1940, a series m easuring total payrolls in industries covered by social security program s has been com piled by com bining data from the B ureau of O ld Age and Survivors Insurance, State unem ploym ent com pensation agen cies, and the R ailroad R etirem ent Board. D ata for those not covered by social security program s, w hich, for the m ost part, include em ployees of Federal, State, and local governm ents, farm ers, and certain other self-em ployed persons, are estim ated from data prepared and published by various governm ent agencies. T he item of wages and salaries in personal incom e account ing includes not only the wages and salaries paid to employees, but also executives’ com pensation, commissions, tips, bonuses, and the estim ated value of food and clothing furnished to governm ent and com m ercial em ployees (including m ilitary personnel) and em ployees’ lodging. As shown in C hart I, and in the table, the am ount of wages and salaries paid to individuals has m ore than tripled since 1929, rising from 50.0 billion to 166.5 billion dollars in 1951, although it had declined to only 28.7 billion in 1933, the deepest depression year. C om bined wage and salary receipts averaged slightly m ore than 60 per cent of total personal incom e over the decade fol low ing 1929. W ith the advent of W orld W ar II, however, wages and salaries increased rapidly, rising to 114.9 billion dollars, or 69 per cent of personal incom e in 1944. A brief but substantial decline both in dollars and as a proportion of Chart I M ajor Components of Personal Income* (Annual totals, 1929-51) * Plotted on ratio scale to show proportionate changes. Source: U . S. Department of Commerce. total personal incom e occurred in 1946, w hen reconversion problem s caused the tem porary layoff of m any industrial workers and w hen m any w artim e employees w ithdrew from the labor force. Since that year, however, wages and salaries have again risen som ew hat m ore rapidly than total personal incom e, constituting alm ost 66 per cent of the total in 1951. O ther labor income, derived from com pensation for injuries, em ployers’ contributions to private pension and welfare funds, pay of m ilitary reservists, directors’ fees, jury and witness fees, and pay to prison inm ates, is a m inor incom e com ponent. Incom e from these sources am ounted to 4.2 billion dollars, or less than 2 per cent of total personal incom e in 1951. The second largest source of personal incom e is classified as proprietors’ and rental incom e and consists of tw o parts: incom e of unincorporated enterprises (including an estim ated inventory valuation adjustm ent) and the rental incom e of p er sons. Farm incom e has been studied systematically for m any years by the D epartm ent of A griculture, but no com prehensive body of data covering any appreciable tim e period exists for the incom e of other unincorporated enterprises. Estim ates of the net incom e of professional practitioners and of other u n in corporated nonfarm businesses have been based on generally fragm entary inform ation derived from the decennial censuses of population, special studies of the Bureau of Internal R ev enue, and periodic surveys of the various professions conducted by the D epartm ent of Com m erce and several professional associations. T he rental incom e of persons, in addition to the net incom e 2 A much more comprehensive discussion of personal income con derived from the rental of individually ow ned tenant-occupied cepts, the sources of data, and the methodology employed is contained property, includes the im puted rental value of ow ner-occupied in the July 1951 National Income Supplement to the Survey of nonfarm residences. Current Business published by the U. S. Department of Commerce. 132 MONTHLY REVIEW, SEPTEMBER 1952 T he com bined incom e of unincorporated enterprises and the The sm allest m ajor segm ent of personal incom e is called rental incom e of persons am ounted to 50.6 billion dollars in transfer paym ents, which in 1951 am ounted to 12.4 billion 1951, or about 20 per cent of total personal income. Alm ost dollars, or approxim ately 5 per cent of total personal income. 42 billion dollars represented incom e of unincorporated busi T ransfer paym ents are defined as paym ents to persons (includ nesses, and the rem ainder (9 billion dollars) was the rental ing nonprofit institutions) for w hich there is no current direct incom e of persons. It should be noted that these figures do not exchange of goods or services. V eterans’ bonuses, benefits indicate solely the am ount of m onetary incom e received from from governm ent social insurance funds, and corporate gifts these sources, as, in addition to im puted rental income, incom e to nonprofit institutions are classified in personal incom e in kind ( the value of food consum ed on the farm , for exam ple) accounting as transfer paym ents. Incom e from those sources is also included. rose rapidly after W orld W ar II, largely as a result of various T he third largest com ponent of personal incom e— personal paym ents m ade to veterans by Federal and State govern interest incom e and dividends—-totaled 20.4 billion dollars in m ents and as a result of a sharp increase in paym ents under 1951, or 8 per cent of total personal income. H ere again, social insurance program s. however, not all of this am ount represents m onetary income. In addition to m onetary interest, personal incom e accounting, P er so n a l D ispo sa b le I n c o m e as indicated earlier, also includes im puted interest incom e (in the form of checking account services to com m ercial bank Personal incom e, as described thus far, is not the am ount depositors, for exam ple). In 1951, the m onetary equivalent of spendable m onetary incom e at the disposal of persons for of net im puted interest paid to persons am ounted to 4.8 billion consum ption or savings. T he spendable incom e of persons dollars, or roughly 2 per cent of total personal income. (m ore com m only referred to as "personal disposable incom e” ) S E L E C T E D E C O N O M IC IN D IC A T O R S U nited S tates and Second Federal R eserve D istrict Percentage change 1952 Item 1951 Unit July June M ay July Latest month Latest month from previous from year month earlier U N I T E D ST A T E S Production and trade Industrial production*............................................................................. Electric power output*............................................................................ Ton-miles of railway freight*................................................................ Manufacturers’ sales*............................................................................... Manufacturers’ inventories*.................................................................. Manufacturers’ new orders, to ta l........................................................ Manufacturers’ new orders, durable goods..................................... Residential construction contracts*................................................... Nonresidential construction contracts*............................................ P rices, wages, and employment Basic commodity pricesf........................................................................ Wholesale pricesf....................................................................................... Consumers’ pricesf.................................................................................... Manufacturing employment*................................................................ Average hours worked per week, manufacturingf....................... Unemployment............................................................................................ B anking and finance Total investments of all commercial banks.................................... Total demand deposits adjusted.......................................................... Currency outside the Treasury and Federal Reserve B a n k s * .. Bank debits (U. S. outside New York C i t y ) * .............................. Velocity of demand deposits (U. S. outside New York C ity)* . Consumer instalment credit outstanding'!'....................................... United States Government finance (other than borrowing) Cash outgo.................................................................................................... National defense expenditures.............................................................. 1 935 -39 = 1947 -49 = 1 9 47 -49 = billions of billions of billions of billions of billions of 1947 -49 = 194 7 -4 9 = 100 100 100 $ $ $ S $ 100 100 Aug. 1 9 3 9 = 100 1947-49 = 100 193 5 -3 9 = 100 billions of $ 19 3 9 = 100 thousands thousands hours thousands millions of $ millions of $ millions of $ millions of $ billions of % 1 9 47 -49 = 100 millions of $ millions of $ millions of $ millions of $ 191p 140 — 21. 5p 4 2 .0 p 2 1 .3 p 1 0 .2p 1 2 .6 p 196 p 170 p 203 141 90p 2 1 .8 4 2 .3 2 4 .8 1 3 .0 1 3 .0 193 158 211 140 98 2 3 .1 4 2 .4 2 1 .7 1 0 .5 1 3.1 186 156 212 132 102 21.. 2r 39..9 22. Or 12..2 r 12..1 179 150 — 4 6 , 104p 15,305p 3 9 .9 p 1 ,9 4 2 2 9 3 .3 lli. 2 189.6 2 6 6 .Op 235p 4 6 ,4 3 5 15,624 4 0 .4 1 ,818 2 9 6 .5 111.6 18 9 .0 2 6 4 .5 234 4 6 ,6 2 5r 15,896r 4 0 .2 1 ,602 330.,8 114. 2 185. 5 254. 5 226 4 6 , 602r 16,026/’ 40. 2 1,856 7 6 ,990p 5 9 ,620p 9 6 ,050p 29,086 9 1 .7 1 13.4 14,732p 75,200p 59 ,5 7 0 p 9 5 ,800p 2 8,988 8 9 .0 118.3 14,405 7 4 , 510p 5 8 ,520p 9 5 , 300p 2 8,787 8 9 .4 118.3 13,811 7 1 ,4 8 0 54,590 90,7 4 0 27,9 1 5 8 2 .8 114. 5 12,903 29 3 .3 111.8p 1 90.8 — 3 , 608p 6 ,2 5 2 p 4 ,3 6 7 - 6 - 1 - 8 1 1 -1 4 — 22 - 3 + 2 + 8 -1 0 + 5 -1 3 + 1 + 5 - 6 -1 6 + 4 + 9 + 13 # 1 1 1 # 1 2 1 7 -1 1 - 2 + 3 + 5 + 4 - 1 - 4 - 1 + 5 + 2 # # # 4" 3 - 4 + 2 + 8 -1- 9 + 6 + 4 + 11 - 1 + 14 + + + + 9,9 8 9 6 ,9 7 8 4 ,0 2 4 4 ,7 2 2 5,7 5 1 4 ,2 3 7 2,8 5 4 4 ,8 4 3 3 ,1 9 6 -6 4 -1 0 + 9 +26 +29 +37 124 173p 135p 183.6 7 ,4 3 1 .3 p 2 ,6 6 4 .4 5 0 .9 4 .0 1 40.0 124 194 168 183.2 7 ,4 4 7 .1 2 ,6 9 6 .5 5 0 .5 4 .0 133.6 120 147 135 181. 2 7 ,4 3 2 . 2r 2 ,6 9 2 ..1 r 44. 1 3., 8r 118..5 1 -1 1 -1 9 + 1 + 3 + 4 -1 5 + 3 + 1 - 1 +32 + 8 + 13 S E C O N D F E D E R A L R E S E R V E D IS T R IC T Residential construction contracts*........................................................ Nonresidential construction contracts*................................................. Consumers’ prices (New York C i t y ) f ................................................... Bank debits (New York C ity )* ................................................................ Bank debits (Second District excluding N. Y . C. and A lbany)*. . 1947-49 = 1947 -49 = 1947 -49 = 1935-3- = thousands thousands billions of billions of 1 9 47 -49 = Note: Latest data available as of noon, August 29. p Preliminary. * Adjusted for seasonal variation. t Seasonal variations believed to be minor; no adjustment made. Source: A description of these series and their sources is available from 100 100 100 100 $ $ 100 124 — — 185.9 — 2,673.7£> 5 8 .2 4 .1 134.0 # + 14 + 2 - 4 r Revised. # Change of less than 0.5 per cent, t Revised back to January 1949. the Domestic Research Division, Federal Reserve Bank of New York, on request. FEDERAL RESERVE BANK OF NEW YORK can be estim ated only after the dollar volum e of personal tax and nontax paym ents is deducted from total personal income. Personal tax and nontax paym ents, which in 1951 totaled 29.1 billion dollars or m ore than 11 per cent of total personal income, consist of personal incom e, estate, gift, and other m is cellaneous taxes and various nontax paym ents, such as fines, penalties, forfeitures, and a variety of incidental charges paid d irectly to Federal, State, and local governm ents. (Indirect taxes— sales and excise taxes, for exam ple— are not included as personal tax and nontax paym ents.) A fter deduction of personal tax and nontax paym ents, disposable incom e available to persons am ounted to 225 billion dollars in 1951. A gain it should be rem em bered that portions of total personal disposable incom e are incom e in kind and im puted incom e that are included in personal incom e accounts and hence are not actually m oney incomes at the disposal of persons for spending or saving. In 1951, the com bined total of incom e in kind, net rental incom e of ow ner-occupied farm and nonfarm dwellings, and im puted interest incom e am ounted to about 12 billion dollars, roughly 5 per cent of total personal incom e and a slightly higher proportion of total personal disposable income. T o a considerable extent, however, these im puted item s do free m oney incom e for other expenditures; for instance, an em ployee w ho receives meals on the job w ould not need to allocate the custom ary proportion of his cash budget to food purchases. P er so n a l I n c o m e as a n E c o n o m ic I n d ic a t o r A lthough variations in personal incom e levels do not reflect changes in the operations of all significant elem ents of the econom y, personal incom e data do provide im portant statisti cal bases for studies of short-run business fluctuations and Chart II Total Personal Incom e and Personal Disposable Incom e (Annual totals, 1929-51) B illio n s of d o lla rs Source: U . S. Department of Commerce. B illions o f d o lla rs 133 long-term economic trends that are valuable guides in the form ulation of business and governm ent econom ic policies. For example, personal incom e statistics enable a businessm an to m easure the potential m arket for his goods and to form ulate his production or distribution policies accordingly. Similarly, the tax adm inistrator can estim ate expected governm ent revenues upon which to base decisions relating to governm ent expenditures and revenues. T o the analyst, personal incom e statistics are useful as current indicators of general business activity and, by tracing the m ovem ents of total personal income, he can learn m uch about long-term changes in the econom y as a whole. As shown in C hart II, total personal incom e has virtually tripled since 1929, although m ost of this increase has occurred since 1941 w hen personal incom e first exceeded the 85.1 billion dollars received in 1929. T he precipitous decline in general business activity in the early thirties was reflected in the sharp drop in personal incom e during those years. By 1933, personal incom e had fallen to only 46.6 billion dollars, or a little m ore than half of the 1929 level. As the econom y em erged from the depths of the "G reat D epression”, personal incom e in creased steadily, reaching 74.0 billion dollars in 1937— a gain of alm ost 60 per cent from 1933. A fter the general business recession of 1938, w hen personal incom e declined by roughly 8 per cent from the previous year, it resum ed its upw ard course. D uring the war and early postw ar years, personal income rose rapidly w ith the trem endous expansion of the production of goods and services needed for the war effort and the equally rapid conversion to norm al peacetim e pursuits in the early postw ar years, and w ith the accom panying increases in prices and wages. T he steady rise of personal incom e during the forties was interrupted in 1949 w hen general business activity experienced a m ild setback follow ing a decade of continuous and rapid grow th. In 1950, how ever, largely as a result of the K orean war and the ensuing defense program , personal incom e once again m oved rapidly upw ard, reaching a record annual high of 226.3 billion dollars, only to be exceeded the follow ing year w hen personal incom e rose to 254.1 billion dollars. H o w ever, not all of the spectacular rise in personal incom e in the last twenty-tw o years represents a real expansion in the econom ic w ell-being of the country. T he advance in the general price level, particularly during the inflationary postw ar years, has had m uch to do w ith the rapid increase in personal income. Nevertheless, personal incom e in 1951 after allowance for the increase in prices was still alm ost double the 1929 level. M oreover, although the population expanded by alm ost 30 per cent, real per capita incom e in the U nited States in 1951 wras about 50 per cent higher than in 1929. Personal incom e statistics are useful for still another type of broad econom ic analysis in that sustained variations in the im portance of various incom e com ponents are indicative of changes w ithin the structure of the economy itself. T he per- MONTHLY REVIEW, SEPTEMBER 1952 134 Personal Incom e by D istribu tive Shares for Selected Y ears 1 9 2 9 -5 1 Item 85.1 46.6 Wage and salary receipts........................... Other labor income....................................... Proprietors’ and rental income................ Personal interest income and dividends Transfer payments....................................... 5 0 .0 0 .5 19.7 1 3.3 1 .5 28.7 Personal tax and nontax paym ents.............. 2.6 Personal disposable incom e.............................. 82.5 Total personal incom e....................................... Per cent of total* Billions of dollars* 0 .4 7 .2 72.6 4 5 .1 0 .5 14 .7 9 .2 3 .0 2 .4 45. i 171.9 115.3 1 .5 3 7 .5 11.4 254•1 6.2 1 66.5 4 .2 5 0 .6 2 0 .4 1 2 .4 20.9 29.1 100.0 5 8 .8 0.6 2 3 .1 15.6 1.8 100.0 6 1 .6 0 .9 15 .5 17.6 4 .5 8.1 3 .2 96.9 97.0 1945 1951 100.0 100.0 100.0 6 2 .1 0 .7 6 7 .1 0 .9 6 5 .5 1 .7 1 9.9 1 2.7 4 .1 3 .6 4 .9 12.2 11.5 87.9 88.5 20.2 3 .3 21.8 6.6 8.0 ^Details may not add to totals because of rounding. Source: U. S. Department of Commerce. centage of wages and salaries to total personal income, for example, has risen alm ost uninterruptedly since 1929, reflect ing in part the grow ing industrialization of the A m erican economy. This is particularly apparent from the steady in crease, in the last tw o decades, in the relative im portance of wages and salaries derived from m anufacturing and other com m odity-producing industries, which accounted for nearly 30 per cent of total personal incom e in 1951 com pared w ith 25 per cent in 1929. O n the other hand, although wages and salaries of distributive (wholesale and retail trade, transportation, and com m unication) and service industries have increased m ar kedly since 1929 in absolute dollars, they have declined in im portance as sources of personal incom e m ainly because of the lag in the proportion of total personal incom e originating from the railroad industry and because of the relatively m oder ate increases in incom es from dom estic service in private house holds and from real estate activity, both of w hich are classified as service industries. By far the largest relative gain occurred in the value of wages and salaries paid by governm ent. Incom e derived from Federal, State, and local governm ent em ploym ent was barely 5 billion dollars in 1929, or only 6 per cent of total personal income. But by 1951 wages and salaries of govern m ent em ployees had risen to alm ost 28.7 billion dollars and constituted 11 per cent of the total incom e of persons.3 A nother m easure of the increased im portance of govern m ent as a source of personal incom e is the data on transfer paym ents. T he com bined value of business and governm ent transfer paym ents totaled 1.5 billion dollars in 1929. In 1951, however, it am ounted to 12.4 billion dollars of w hich govern m ent transfer paym ents constituted m ore than 90 per cent, or 11.5 billion dollars.4 In the aggregate, personal incom e derived from general governm ent— wages and salaries plus governm ent transfer paym ents to persons— totaled 40.2 billion 3 Wages and salaries of government employees include the pay of the military and were, of course, much larger during World War II, reaching a high of 36 billion dollars in 1945, or almost 21 per cent of total personal income. 4 In 1950 total transfer payments to persons were at an all-time high of 15 billion dollars, largely as a result of more than 3 billion dollars in National Service Life Insurance dividend and benefit pay ments by the Federal Government. dollars, or nearly a sixth of total personal incom e in 1951, whereas the same sources contributed only 7 per cent in 1929. Those personal incom e com ponents which have declined in relative im portance are proprietors’ and rental incom e, and personal interest and dividend income. P roprietors’ and rental incom e which, as indicated earlier, is a com bined total of the incom e of unincorporated businesses and the net rental incom e of persons, accounted for 20 per cent of total personal incom e in 1951, com pared w ith 23 per cent in 1929. This proportionate decline was due alm ost entirely to a sharp drop in the relative share of rental incom e of persons (4 per cent of total personal incom e in 1951, com pared w ith 7 per cent in 1929) that resulted principally from the enactm ent of war and postw ar rent control legislation.5 Personal interest and dividend incom e has show n a m arked decline in relative im portance since 1929, despite substantial increases in the am ount of interest accruing to persons holding G overnm ent securities. D ividend paym ents, which have also risen in term s of absolute dollars since 1929, have nevertheless fallen sharply as a proportion of total personal income. This may be attributed in p art to the rise in corporate tax rates and in part to the grow ing tendency over the years for corporations to finance capital expansion to a greater extent from undis tributed profits. Personal interest incom e and dividends am ounted to 13.3 billion dollars in 1929, or nearly 16 per cent of total personal income. In 1951, incom e from those sources totaled 20.4 billion dollars, barely 8 per cent of the total in come of persons in that year. T he shifts, over tim e, in the relative im portance of the various sectors of the economy as sources of national incom e and wealth, and the social and political, as well as econom ic, im plications of these changes, are essential parts of any com prehensive analysis of long-term econom ic developm ent. Personal incom e statistics are very useful tools for studying the structural changes in our economy. 5 It should be noted that the rental income share (including im puted net rent on owner-occupied nonfarm dwellings) consists only of net rents and royalties accruing to persons not primarily engaged in the real estate business. Other rents are included with noncorporate business income and with corporate profits. FEDERAL RESERVE BANK OF NEW YORK 135 DEPARTMENT STORE SALES IN BUFFALO, 1925-521 The days of bustling activity on the Erie Canal are past, but Buffalo, the city which gained prom inence as the western term inus of the canal, has continued to grow into a leading center of com m erce and industry. Today Buffalo is the second largest city in N ew Y ork State and ranks fifteenth in size in the country. Located on the eastern shore of Lake Erie, it received m ore cargo in 1949, in term s of tonnage, than any other G reat Lakes port. It is also one of the country’s largest railroad centers, w ith eleven trunk railroad lines. For m any years Buffalo has been the second largest center of retail trade in the Second Federal Reserve D istrict. D epart m ent stores are an im portant segm ent of Buffalo’s retail trade, accounting for 13, 15, and 16 per cent of total retail sales in the census years of 1929, 1939, and 1948, respectively, and as such, provide a useful indicator of both total retail sales and general business activity in Buffalo. T he relatively large fluc tuations in departm ent store sales in Buffalo during the last quarter century, show n on the accom panying chart, are explained in large m easure by the effects of the structure of the city’s econom y upon the em ploym ent and incom e of its population. of its abundance of low-cost hydroelectric pow er and pure water. Food processing is next in im portance— Buffalo’s posi tion on the G reat Lakes has established it as one of the w orld’s leading flour and feed m illing centers as well as a transfer poin t for shipm ents of C anadian and U nited States wheat. It is evident from the structure of em ploym ent in Buffalo that it w ould be subject to the severe cyclical fluctuations generally characteristic of durable goods em ploym ent. Buffalo, nevertheless, is in a m uch m ore favorable position than some of the other durable-goods-producing cities (such as D etro it) w hich have not only a higher percentage of total em ploym ent concentrated in durable goods industries, but may also have the bulk of em ploym ent in one particular industry. The diversity of Buffalo’s durable goods production as well as the offsetting influence of several im portant nondurable goods industries have helped to reduce som ew hat the m agnitude of fluctuations in the city’s em ploym ent and income. In addition, a great m any of Buffalo’s large plants are branches of giant corporations, which may give them a som ew hat greater stability than independent concerns enjoy. E m p l o y m e n t a n d D e p a r t m e n t Sto r e Sa l e s , 1925-45 T hrough the years, the incom e and em ploym ent patterns resulting from Buffalo’s industrial structure have accounted for relatively larger gains and losses in departm ent store sales than have been experienced in the D istrict as a whole. D epart m ent store sales in Buffalo declined gradually in the late twenties, decreasing 6 per cent from 1925 to 1929. D uring this period factory em ploym ent rem ained fairly stable, but tow ard the end of 1929 the iron and steel, autom obile, and m achinery industries began to lay off large num bers of workers. Em ploym ent dropped sharply until M arch 1933, w hen total factory em ploym ent was only 41 per cent of the M arch 1929 level. O ver three quarters of the workers in the m etals indus tries had lost their jobs betw een M arch 1929 and M arch 1933, and payrolls in those industries had fallen even more. R eflect ing this loss of income, Buffalo departm ent store sales were 54 per cent below their M arch 1929 level. T he seasonally adjusted index for M arch 1933 was the lowest in the entire 27-year period for w hich such data are available. D istrict departm ent store sales had fallen considerably less (42 per cent) during this same period. As the low er section of the accom panying chart shows, Buffalo departm ent store sales, w hich had accounted for over 8 per cent of the D istrict total in 1925, fell to approxim ately 6 per cent in 1931 and rem ained at that lower level through 1934. 1 This is the second in a series of six articles discussing department store sales in various cities in this District. New York City depart Except for a brief setback in 1937-38, when em ploym ent ment store trade was discussed in the June Review, and articles on in the metals industries dropped by alm ost half in a twelve Rochester and Syracuse, New York, as well as Newark, New Jersey, and Bridgeport, Connecticut, will appear from time to time in subse m onth period, the recovery of industry in Buffalo was fairly quent issues. Tabulations of monthly indexes of department store continuous until the end of 1939, when increased dem and for sales in these six cities, from 1925 to date, may be obtained on request from the Domestic Research Division, Research Department, of this producers’ goods brought em ploym ent w ithin 6 per cent of bank. Current data appear in a monthly release, also available on that in Decem ber 1929. D epartm ent store sales in D ecem ber request. T h e St r u c t u r e o f B u f f a l o ’s E c o n o m y In addition to being the focal poin t of an expanding indus trial area, Buffalo is linked by excellent rail and w ater trans portation w ith the n ations m ajor industrial centers w hich constitute a vast m arket for the producers’ goods m anufactured in Buffalo factories. T he dom inance of durable goods m anu facturing in Buffalo has resulted largely from the ease and econom y w ith w hich iron ore and coal can be transported to the Buffalo area. In 1951, durable goods industries accounted for tw o thirds of all m anufacturing em ploym ent, or for one out of every three w orkers in the city. Prim ary m etal processing and m etal fabricating together represented 42 per cent of the durable goods em ploym ent in the Buffalo industrial area (as of 1 95 1), w ith the m ajority em ployed by the iron and steel industry. T he transportation equipm ent industry em ployed another 25 per cent in the m anufacture of aircraft, railroad equipm ent, and auto bodies and parts. T he m achinery industry (including electrical m achinery and supplies) accounted for m ost of the rem aining durable goods em ploym ent. T he largest portion (alm ost 30 per cent) of nondurable goods em ploym ent in 1951 was concentrated in chemical production, for w hich Buffalo is particularly suited because 136 MONTHLY REVIEW, SEPTEMBER 1952 Buffalo Department Store Sales, 1925-51 D epartm ent Store Sales in Buffalo and the Second Federal R eserve D istrict (Percentage changes for selected periods) Period 1925 1929 1933 1939 1943 1948 to to to to to to Buffalo Second District 1 9 2 9............................................ 1 9 3 3 ............................................ 1939........................................... 1 9 4 3............................................ 1948.......................................... 195 1 ............................................ 6 - 41 - 3S 73 - 2 -f — 4+ + 1925 to 195 1 ............................................ f-128 +121 11 33 17 34 89 0 the full extent of this decline. (It w ould appear that the diversity of Buffalos durable goods production was a som ew hat stabilizing factor, as departm ent store sales in D etroit, for example, declined 20 per cent from O ctober 1948 to July 1949.) D espite the recovery in later m onths, m anufacturing em ploym ent at the tim e of the outbreak of the K orean con flict in June 1950 was still 3 per cent low er than the October 1948 level. T he beginning of hostilities in K orea brought an im m ediate increase in departm ent store sales in Buffalo, as it did in the 1939 still lagged by about 8 per cent behind the level of entire country. In addition to the anticipation of shortages of the com parable m onth a decade earlier, partly because of consum er goods, im proved em ploym ent prospects resulting from the placing of defense contracts in Buffalo undoubtedly lower price levels. stim ulated sales in the city’s departm ent stores. A fter some T he outbreak of W orld W ar II brought large w ar contracts tem porary unem ploym ent caused by conversion to m ilitary to Buffalo. Em ploym ent and incom e rose rapidly. Industrial production, durable goods em ploym ent increased substantially. activity was at unprecedented levels, and consum er expendi T he decline in dem and for consum er goods during 1951 and tures in departm ent stores increased greatly. As the table early 1952, in addition to certain m aterial shortages, caused shows, by 1943 the dollar volum e of Buffalo departm ent store some w eakening of em ploym ent in the civilian goods sales was 67 per cent greater than it had been in 1939, although industries, but this was m ore than balanced by the increased total sales of all Second D istrict departm ent stores were only 34 defense activity. In the first quarter of 1952 durable goods per cent higher. (T h e com parable increase for the country em ploym ent in Buffalo had increased 7 per cent over the first was 61 per cent,) In 1943, Buffalo departm ent store sales quarter of 1951, w hile nondurable goods em ploym ent had am ounted to alm ost 9 per cent of the D istrict total, the highest dropped 3 per cent. this proportion has been (on an annual basis) since at least In February and M arch 1952 a new postw ar high in m anu 1925. facturing em ploym ent was reached. In general, Buffalo seems P o stw ar D ev elo p m en t s to be enjoying a slightly higher level of general business activ The end of the war brought serious reconversion problem s ity than other parts of the D istrict, which are taking a less to Buffalos industry. O ne large aircraft firm left the Buffalo active part in defense production. Since the "scare buying” area, and m any w ar plants were tem porarily idle. Em ploym ent peak in January 1951, the seasonally adjusted index of Buffalo had dropped to prew ar levels in February 1946, but increased departm ent store sales has averaged som ew hat higher than that steadily as reconversion problem s were solved and idle plants of the D istrict as a whole. In July (th e latest data available) were p u t in operation by new com panies and by new branches the Buffalo index was 105 per cent of the 1947-49 average, of national concerns. T hroughout this period the dollar volum e a drop of 13 per cent from the peak level of the buying of departm ent store sales continued to expand, reflecting wave in January 1951, while the index for total Second D is rising price levels as well as an actual increase in the physical trict departm ent store sales was 95, a decline of 21 per cent volum e of goods sold, especially war-scarce consum er durables from January 1951. w hich were becom ing available again. T he recession of late 1948 and early 1949 affected Buffalo T h e C o m p e t it iv e P o s it io n o f B u f f a l o departm ent store sales m ore severely than it did those of the D e p a r t m e n t St o r e s country as a whole, although some parts of the D istrict suffered D epartm ent store sales are influenced, of course, by long an even greater loss of sales. From O ctober 1948 to July 1949, term factors as well as by the current condition of business. there was a sharp contraction in m anufacturing em ploym ent C ertain trends typical of departm ent store grow th in other and payrolls in Buffalo. The seasonally adjusted index of areas are also noticeable in Buffalo, but unlike the situation departm ent store sales dropped 16 per cent in this period, in the D istrict as a whole the com petitive position of Buffalo’s although the yearly averages show n on the chart do not reveal departm ent stores appeared stronger than that of apparel stores FEDERAL RESERVE BANK OF NEW YORK Over the period from 1939 to 1948 (th e dates of the m ost recent com prehensive census surveys of retail trad e). The apparent shift of some sales from departm ent stores to other types of retail outlets, particularly hom efurnishings stores, has been roughly the same in Buffalo as in the D istrict as a whole. A ccording to the C en sus o f B u sin ess, sales of furnitureappliance stores in Buffalo increased alm ost 3 Vi times betw een 1939 and 1948, w hile sales of apparel stores increased 139 per cent, and those of departm ent stores rose by 189 per cent. Population grow th and shifts have forced departm ent stores in m any areas to consider ways in w hich they can retain their share of the m arket. T he greatest population grow th in Buffalo since 1900 occurred betw een 1910 and 1930, and at the same tim e population of the surrounding area was also increasing rapidly. A lthough the population of the city itself seems to have stabilized, having increased only 1 per cent in the last tw enty years, population of the m etropolitan area has expanded 19 per cent since 1930 and still com prises 6 per cent of the total D istrict population. W hile the grow th of the area around Buffalo appears to be another indication of a nation-w ide trend tow ard suburbanization, the city departm ent stores still account 137 for approxim ately 8 per cent of total D istrict departm ent store sales, the same proportionate share they had in 1925.2 It is likely that Buffalo will continue to experience sharper peaks and declines in business activity than cities w hich rely less heavily for em ploym ent on the m anufacture of heavy goods. T he availability of industrial sites, Buffalo’s trans portation advantages, and the accessibility of industrial raw m aterials and m arkets, as well as the established existence of several basic industries, w ill undoubtedly continue to bring industrial expansion to the Buffalo m etropolitan area. A lthough m uch of this expansion w ill take place outside the city lim its of Buffalo itself (w here in the last five years dow ntow n depart m ent stores have opened several branches), the sales behavior of the city departm ent stores is likely to continue to provide one useful guide to the volum e and com position of consum er spending in this im portant industrial area. 2 It should be noted that certain stores located in the more peripheral areas of Buffalo have been able to draw customers from the rapidly growing suburbs, while several "downtown” stores have established branches in city locations easily reached from areas outside the city limits. A few of these branch outlets are not classified as full-iine department stores (as defined in the Standard Industrial Classification Manual) and, therefore, are not included in the Federal Reserve index of department store sales. DEPARTMENT STORE TRADE Sales of Second D istrict departm ent stores continued to be below year-ago levels through August; even after adjustm ent for difference in num ber of trading days (26 this year and 27 in 195 1), it is estim ated that sales averaged 5 per cent below those in the com parable m onth last year. Sales im proved m ore than seasonally from July, how ever, confirm ing— to a degree— trade expectations of im proved sales perform ance as fall approaches. This optim ism had been reflected in the dollar volum e of orders for new m erchandise placed by D istrict departm ent stores during July. N ew orders placed during the m onth were 26 per cent higher than those in July last year, and orders outstanding on July 31, after seasonal adjustm ent, were 25 per cent higher than those at the end of 1951, w hich had been the lowest since June 1949. They were, how ever, 2 per cent below July 1951. Second D istrict departm ent stores increased 7 per cent over the year-earlier level, w hile cash and charge account sales fell by the same percentage. Partially as a result of the price-w ar inflated sales of June 1951, w hich com prised an unusually large am ount of cash purchases, total sales for this June showed a substantial decline, concentrated mostly in the cash segm ent, although both charge and instalm ent sales were also dow n from the year-earlier levels. In July, the third m onth after the suspension of R egulation W , instalm ent sales registered a 10 per cent increase over those of July 1951, w hile cash sales declined by the same percentage. Charge account sales also declined, although considerably less than cash sales. For the three m onths as a whole, instal m ent sales averaged 4 per cent above the com parable 1951 period, w hile cash and charge sales were lower by 13 and 6 per cent, respectively. D e p a r t m e n t S t o r e C r e d it D uring the first four m onths of the year instalm ent sales had also fared better than either cash or charge sales in Since G overnm ent restrictions on credit buying were dis com parison w ith last year’s record: instalm ent sales were dow n continued on M ay 7, consum er use of instalm ent credit facili about 4 per cent, w hile both cash and charge sales w ere lower ties has been w atched w ith great interest. T otal instalm ent by about 9 per cent. B ut the even m ore favorable relative credit outstanding rose 413 m illion dollars in the three m onths ended July 31, principally as a result of an upsw ing in show ing of instalm ent sales in the follow ing three m onths dem and for automobiles. M oreover, instalm ent sales in depart indicates that the lifting of R egulation W has had a noticeable m ent stores for the country as a w hole have risen appreciably effect on deferred paym ent buying. W hen contrasted w ith from year-ago levels since early May. A lthough it is as yet the sharp increases in instalm ent sales reported for the too early to detect any definite trends in the m ovem ents of country (21 and 23 per cent, respectively, in M ay and Ju n e ), instalm ent buying at Second D istrict departm ent stores, however, it would seem that there has been less of an im m e instalm ent sales in the last three m onths have com pared diate reaction to the lapse of the regulation in this D istrict, m ore favorably w ith year-ago levels than have sales as a whole. in so far as departm ent stores are concerned, than in other D uring May, the dollar volum e of instalm ent sales at parts of the nation. MONTHLY REVIEW, SEPTEMBER 1952 133 T h e R e l a t i v e I m p o r t a n c e o f In s t a l m e n t Sa l e s In Second D istrict departm ent stores the proportion of total sales made on instalm ent term s am ounted to 11 per cent in both May and June, the same as it had been in A pril. In July, however, the relative im portance of instalm ent buying rose by one percentage point, while charge account buying fell by a sim ilar am ount. In analyzing the relative im portance of cash and credit transactions in departm ent stores, it should be noted that there are certain seasonal shifts in the use of credit. These variations, which are especially noticeable in the sum m er m onths, are worthy of m ention although they are not so m arked as to require adjustm ent of the data. For example, since at least 1946 (the period for w hich com parable m onthly data are available) instalm ent sales have shown a definite tendency to increase as a per cent of total sales during the sum m er m onths. Charge sales, on the other hand, have tended to decline as a per cent of the total during July and August, while the p ro portion of cash sales (by far the largest part of total sales) has been less consistent in its m onth-to-m onth movements. Shifts in the im portance of various types of credit undoubtedly reflect seasonal changes in the pattern of consum er dem and for the m ajor com m odities sold by departm ent stores. For example, the relative im portance of apparel sales generally dim inishes in the sum m ertim e, w hile sales of m ajor hom efurnishings, a large part of w hich are usually instalm ent p u r chases, generally increase as a proportion of total sales. The increase in instalm ent buying from 11 to 12 per cent of total sales and the concurrent decrease in charge account buying from June to July of this year followed the usual seasonal pattern. A lthough there is no doubt that there is a close connection betw een the sales of durable goods and the am ount of instal m ent credit extended, there are no figures available on the com position of instalm ent sales by type of m erchandise, and the actual changes in the am ount of instalm ent sales of durable goods can only be surmised. T im e paym ent sales have fluctu ated very little as a per cent of total sales over the last two and a half years (from 10 to 14 per cen t), while sales of the Sales by T y p e of Transaction and Sales of D urable G oods* at Second Federal R eserve D istrict D epartm ent Stores, Jan u ary -J u ly 1 9 5 2 Month Charge account sales Cash sales Instalment sales Durable goods sales Percentage change, 1951 to 1952 January......... February.. . . M arch ............ A p ril............... M a y ................ June................ Ju lv................ -2 0 - 8 -1 2 + 7 — 7 - 6 - 3 — 16 - 7 -1 3 0 — 7 -2 1 -1 0 -1 2 - 3 - 3 -2 8 -1 8 -2 1 -2 8 -1 0 -2 8 -1 7 + 3 + 7 - 4 + 10 Net sales Locality July 1952 Department stores, Second D istrict.. . . New York C it y * ....................................... Nassau C ou n ty.......................................... Northern New Jersey.............................. Westchester County................................ Fairfield C ou n ty........................................ Bridgeport............................................... Lower Hudson River V alley................ Poughkeepsie.......................................... Upper Hudson River V alley................ Schenectady............................................ Central New York S tate....................... Mohawk River V a lley ........................ Northern New York State.................... Southern New York State..................... Binghamton............................................ Elm ira....................................................... Western New York State...................... Buffalo...................................................... Niagara Falls......................................... Rochester................................................. - 4 Stocks on Jan. through hand July 1952 July 31, 1952 - 8 -1 4 - 9 ( — 4) n.a. + 1 - 2 + 4 + 4 n.a. + 14 +20 + 5 + 5 + 7 - 1 - 1 + 3 — 2 + 4 + 9 + 10 + 7 + 3 + 2 + 3 + 3 — 11( —9) n.a. - 6 - 7 - 1 + 1 n.a. + 1 + 1 - 1 — 5 + 4 - 3 - 3 + 1 - 4 0 + 1 0 + 1 - 2 0 + 3 — o — 1 6 (— 13) n.a. -1 8 -2 0 0 + 1 + - -1 3 3 -1 1 -1 1 — 5 - 8 0 - 8 -1 2 -1 4 - 6 — 5 - 9 -1 2 — 5 -1 1 -1 3 — - 1 8 n.a. N ot available. * The year-to-year comparisons given in parentheses exclude the 1951 data of a Brooklyn department store that closed early in 1952. Indexes of D epartm ent Store Sales and S tocks Second Federal R eserve D istrict ( 1 9 4 7 -4 9 a v e r a g e = 1 0 0 per cent) 1952 1951 1352 1951 1952 1951 1952 1951 60 61 59 59 60 60 60 59 61 60 60 61 64 62 29 27 29 30 29 29 28 30 27 29 29 29 26 27 11 12 12 11 11 11 12 11 12 11 11 10 10 11 17 19 15 12 13 12 16 19 21 16 17 14 14 18 * Includes only data for furniture and bedding, domestic floor coverings, major household appliances, and radio and television departments. D epartm ent and Apparel Store Sales and Stocks, Second Federal R eserve D istrict, Percentage Change from the Preceding Year Apparel stores (chiefly New York C ity ). Percentage of total sales January......... February.. . . M arch ............ A p ril............... M a y ................ .June................ J u lv ................ four m ajor durable goods departm ents have varied from 9 to 22 per cent of total sales. It is significant that, although durable hom efurnishings reached alm ost 20 per cent of total departm ent store sales in a num ber of m onths after Septem ber 1950 (w hen R egulation W was last im posed), instalm ent sales never again exceeded 12 per cent of the total. In Decem ber 1951 durable goods sales fell below instalm ent sales (in per cent of total sales) for the only tim e in this tw o-and-a-half year period, although for the past few m onths these percent ages have been very close. As the table shows, instalm ent sales have rem ained slightly above year-ago levels (as a per cent of total sales) since May, although sales of m ajor durable goods have rem ained noticeably low er than during the same m onths last year, com paring only slightly m ore favorably w ith 1951 sales than they did earlier in the year. It appears that instalm ent sales of consum er durable goods in Second D istrict departm ent stores may have been stim ulated somewThat by the elim ination of consum er credit regulation, but the effect on total sales has not been great. Since instal m ent sales of these departm ent stores norm ally do not account for m uch m ore than one tenth of total sales, even a rather substantial increase in their volum e has only a lim ited effect on the over-all departm ent store business of the D istrict. Consequently, the m odest increase of 4 per cent in instalm ent sales during the last three m onths has modified only slightly the appreciable year-to-year decline in total sales. 1952 1951 Item July June M ay July Sales (average daily), unadjusted................... Sales (average daily), seasonally adju sted.. 69 95 95 98 95 96 74 103 Stocks, unadjusted................................................ Stocks, seasonally adjusted............................... 102 116 105 113 115 112 117 133 139 FEDERAL RESERVE BANK OF NEW YORK NATIONAL SUMMARY OF BUSINESS CONDITIONS (Summarized by the Board of Governors of the Federal Reserve System, August 28, 1952) Steel production and over-all industrial activity have shown increased in early A ugust to the highest rate since last autum n, substantial recovery in A ugust from the sharply reduced July and petroleum refining activity increased to a new record rate, and the volum e of construction has continued at close- level. M inerals production in A ugust w ill be substantially above to-record levels. Sales at departm ent stores have expanded in early August, w hile sales of autom obiles have apparently con the reduced level of recent m onths, ow ing m ainly to the tinued near the restricted July rate. W holesale prices have restoration of iron ore production. C rude petroleum output advanced slightly since early July, and consum er prices have has also increased, but coal production is being sharply cur tailed in the last w eek of A ugust by a w ork stoppage. reached a new record level. C o n s t r u c t io n I n d u s tr ia l P r o d u c tio n T he Board s index of industrial production declined further in July to 191 per cent of the 1935-39 average, but is estim ated to have recovered in A ugust to about the M ay level. Steel and iron ore production have increased rapidly follow ing settle m ent of the dispute at the end of July, and gains in other industries have been fairly widespread. A ctivity in durable goods industries was reduced further in July, ow ing m ainly to curtailm ents in steel-consum ing indus tries. Over-all activity in the m achinery industries decreased about 5 per cent. M uch sharper curtailm ents occurred in the autom obile and railroad equipm ent industries. Production of passenger autom obiles and trucks am ounted to about 200,000 in July, as com pared w ith 519,000 in June; in the third week of August, outp ut was up m arkedly and for the m onth may approach 300,000 vehicles. O u tput of television was unchanged in July, w hile appliances decreased about 15 per cent. Steel production was at about the June level of 18 per cent of capacity, but expanded to 99 per cent of capacity by the fourth week of A ugust. O u tput of nondurable goods decreased in July, ow ing m ainly to vacation schedules in textiles and some other industries. Rayon deliveries rose substantially further. P aper board production— follow ing the usual July curtailm ent— Value of construction contracts aw arded show ed little change in July as an increase in awards for public construc tion offset a small decline in private awards. T he num ber of housing units started was 104,000, a seasonally adjusted annual rate of 1,088,000 as com pared w ith 1,063,000 in June. T otal dollar volum e of new construction p u t in place in July was a record for the m onth. Em p l o y m e n t Seasonally adjusted em ploym ent in nonagricultural estab lishm ents declined further in July, as shutdow ns in steel consum ing industries about doubled the num ber of workers idled by the steel strike. T he average w ork week at factories was reduced by one-half hour and average hourly earnings were dow n slightly. In m id-A ugust, how ever, initial claims for unem ploym ent com pensation, at 179,000, w ere alm ost 200,000 below the peak of m id-July. A g r ic u l t u r e C rop prospects declined in July, particularly for tobacco, feeds, and pasture, and total output as of A ugust 1 was fore cast at only 1 per cent above last year. In A ugust, rains have fallen in m any dry areas. Beef production has increased, and total m eat output in the first three weeks of A ugust has been INDUSTRIAL PRODUCTION EMPLOYMENT IN NONAGRICULTURAL ESTABLISHMENTS SEASONALLY ADJUSTED MILLIONS OF PERSONS 14 2 1948 Federal Reserve indexes. M onthly figures, latest shown are for July. 1949 1950 1951 1952 1948 1949 1950 1951 1952 Bureau of Labor Statistics data adjusted for seasonal variation by Federal Reserve. Proprietors, self-employed persons, and domestic servants are not included. Midmonth figures, latest shown are for July. 140 MONTHLY REVIEW, SEPTEMBER 1952 4 per cent above the year-ago level. Production of m ilk and eggs in July continued sm aller than a year ago. D is t r ib u t io n D epartm ent store sales showed a m ore-than-seasonai in crease in the early part of August, follow ing a decrease in July of 5 per cent, according to the B oards seasonally adjusted index. Stocks at the end of July were indicated by prelim inary data to be som ew hat higher, after seasonal adjustm ent, than at the end of June, but 12 per cent below a year ago. Passenger autom obile sales in early A ugust rem ained near the con siderably reduced July rate, as new car supplies continued low. C o m m o d it y P rices T he general level of wholesale com m odity prices advanced slightly from early July to the third week of August, reflecting increases in some farm , food, and textile products. Also, follow ing conclusion of new wage agreem ents, prices of steel and alum inum products were raised about 5 per cent and prices of steel scrap and nonferrous m etals strengthened. T he consum ers’ price index rose further by 0.6 per cent in July to a new high. Average prices of foods also reached a new high— 3 per cent above year-ago levels. R ents and prices of other services and of fuels also increased, w hile apparel prices declined further. S e c u rity M a r k e ts Yields on G overnm ent securities rose during the first half of A ugust, then declined som ew hat in the follow ing week. T he average rate of discount on the new bills issued A ugust 14 was 1.90 per cent, but m arket rates on bills stayed below this level. Early in A ugust the Treasury received subscriptions for a one-year 2 per cent certificate of indebtedness to m ature A ugust 15, 1953, offered in exchange for 2.4 billion dollars of V/s per cent certificates m aturing A ugust 15 and Septem ber 1, 1952. SECURITY MARKETS B a n k C r ed it T otal outstanding bank credit declined som ew hat from m id-July to m id-A ugust. Bank holdings of U. S. G overnm ent securities, bank loans on such securities, and loans to m anu facturers of m etal products decreased. T he effect of these declines on total bank credit was offset to some extent by increases in other types of loans and investm ents. Bank reserve positions continued generally tight for the period, w ith discounts at the Federal Reserve fluctuating around a high level and w ith the rate on Federal funds rem ain ing just below the discount rate. A num ber of im portant m oney m arket banks raised their lending rates on stock m arket call m oney by Va per cent. Stock prices, Standard & Poor’ s Corporation; corporate bond yields, M oody’s Investors Service; U . S. Government bond yields, U . S. Treasury Depart ment. W eekly figures; latest shown are for week ended August 13.
@FedFRASER