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MONTHLY REVIEW
O

f C r e d it a n d B u s in e s s

F E D E R A L

V o lu m e

37

R E S E R V E

B A N K

SEP T EMBER

C o n d itio n s
O F

N E W

Y O R K

19 5 S

No. 9

MONEY MARKET IN AUGUST

Member bank reserve positions were under continuous pres­
sure during August, a month marked by strong demands for
credit and further increases in interest rates. Average member
bank borrowings from Federal Reserve Banks were higher
than in any comparable period since May 1953. The prevailing
tightness of monetary conditions was reflected in the effective
rate for Federal funds which throughout the month remained
close to Reserve Bank discount rates. Federal Reserve trans­
actions in Government securities resulted in a reduction of
385 million dollars in System holdings over the five statement
weeks.
On August 3 the Federal Reserve Banks of Boston, Atlanta,
and Chicago announced increases in their discount rates from
V>A per cent to 2 per cent, effective the following day, while
the Cleveland Bank went to 2Va per cent. On August 4 the
Federal Reserve Bank of New York announced an increase in
its discount rate to 2 per cent, effective August 5. By August
12 discount rates at all twelve Reserve Banks had been raised,
all being advanced to 2 per cent except that of the Cleveland
Bank. Before the end of the month the Atlanta and St. Louis
Reserve Banks had raised their discount rates a second time,
from 2 per cent to 2 Va per cent, effective August 26 and
August 30, respectively. The last previous change in discount
rates occurred in April and May of this year when all Federal
Reserve Banks raised their rates from 1 Vz per cent to IVa
per cent.
Meanwhile the principal commercial banks in New York
City announced on August 3 an increase in the prime loan
rate—the rate charged to customers with the highest credit
ratings—from 3 per cent to 3 lA per cent, the first change
since the spring of 1954. Rates on directly placed finance
company paper were increased by Vs of 1 per cent on
August 2, and a further rise of Va of 1 per cent took place
on August 30. Dealer quotations for prime commercial
paper rose on August 2, on August 24, and on August 30, by
Vs of 1 per cent on each occasion. The rates charged by New
York City banks for call loans to dealers in Government securi­
ties moved upward to 2 Vi-3 per cent from l-lV i per cent at




the end of July; the banks also increased the rates charged
brokers for loans against their customers’ stock exchange col­
lateral. Dealers’ rates on bankers’ acceptances were raised
by Vs of 1 per cent on three different occasions.
The Government securities market resisted the upward
tendency of interest rates until late in August. Treasury bill
rates had risen rapidly and steadily during July and at the
beginning of August, partly in anticipation of an increase in
Reserve Bank discount rates. Bill rates then leveled off and,
after declining slightly, advanced again during the last week
of the month to the highest levels since August 1953. Yields
on longer-term Government securities remained fairly stable.
In fact, until late in the month there was a moderate recovery
in Government bond prices from their early August lows,
a rise which apparently reflected, as in the case of Treasury
bills, a reaction to the accelerated downward trend in prices
during the latter part of July.
M ember Bank R eserve P ositions
Average excess reserves, at about 580 million dollars, were
little changed from July and showed only small variations from
week to week (see Table I). Borrowings from the Reserve
Banks increased, however, averaging about 750 million dollars
for the five statement weeks in August, compared with an
average of less than 500 million dollars in July. For the first
time since May 1953, average borrowings were higher than
CONTENTS
Money Market in August...................................105
International Monetary Developments.......... .108
Revival of the German Capital Market.......... .109
The Demand for Housing.......................... ........ 114
Earnings and Expenses of Second District Mem­
ber Banks in the First Six Months of 1955.. 117
Department Store Trade .................................. 119
Selected Economic Indicators.......................... .120

106

MONTHLY REVIEW, SEPTEMBER 1955
Table I
Changes in Factors Tending to Increase or Decrease Member
Bank Reserves, August 1955
(In millions o f dollars; ( + ) denotes increase,
(— ) decrease in excess reserves)
Daily averages—week ended
Factor

Net
August August August August August changes
3
10
17
31
24

Operating transactions
Treasury operations*...............................
Federal Reserve float..............................
Currency in circulation...........................
Gold and foreign account........................
Other deposits, etc..................................

-164
-113
- 79
+ 18
+ 58

3
-175
- 49
- 12
+ 31

+142
+167
- 51
- 40
- 29

+
+
+
-

Total.........................................

-280

-207

+189

-

53
43

+ 1
+ 10

-

+346
4

Direct Federal Reserve credit transactions
Government securities:
Direct market purchases or sales.........
Held under repurchase agreements___
Loans, discounts, and advances:
Member bank borrowing....................
Other...................................................
Bankers’ acceptances:
Bought outright...................................
Under repurchase agreements..............

0
0

+115
-220
+ 20
+ 15
1

1
-244
-111
+ 40
+ 30

+ 83

-

71

-286

92
72

-

95
0

-

35
0

-274
-105

+107
+ 1

- 97
+ 5

-

62
10

+ 51
— 5

+345
- 13

+
+

+

+
-

2
1

0
0

1
1

1
0

91
97
48
59
29

+

4
0

Total.........................................

+245

+121

-256

-167

+ 12

— 45

Total reserves...............................................
Effect of change in required reservesf ............

- 35
+ 48

- 86
+100

- 67
+ 26

- 84
+ 62

-

59
21

-331
+215

Excess reservesf ............................................

+ 13

+ 14

-

-

-

80

-116

Daily average level of member bank:
Borrowings from Reserve Banks.............
Excess reservesf......................................

741
619

848
633

740
490

754
581

41
751
592

22
689
570

Note: B
ecause of rounding, figures do not necessarily add to totals.
* Includes changes in Treasury currency and cash,
t These figures are estim
ated.

average excess reserves during each statement week of the
month. Federal funds, which moved to 2 per cent on August 4,
just after the first increases in discount rates, generally re­
mained between l 15/±$ per cent and 2 per cent during the
rest of the month. From time to time there were reports that
some Federal funds were traded at 2 Vs per cent.
During the two statement weeks ended August 10, the con­
tracting effects on member bank reserves of declining float and
currency outflows were accentuated by unexpectedly large
Treasury tax receipts and relatively low Treasury expenditures,
which resulted in higher Treasury balances at Federal Reserve
Banks. A reduction in the amount of Treasury bills
held by the Federal Reserve System also tended to reduce
member bank reserves. Pressures on the money market were
mitigated, however, on a few days early in the month by re­
purchase agreements with Government security dealers. In
addition, the Treasury made its first use of the mechanism for
altering outstanding calls for payments from Tax and Loan
Accounts at member banks in the newly established "C” classi­
fication by postponing for four days 100 million dollars of
payments scheduled for August 5.1 Member bank borrowings
averaged 795 million dollars during the two statement weeks,
169 million greater than average excess reserves.
Pressures against reserves were eased somewhat during the
two weeks ended August 24. The usual midmonth expansion
of float was prolonged by the transportation tie-ups resulting
1 The "C” classification comprises banks with total deposits of 500
million dollars or more.




from storms and flood damage, while currency in circula­
tion showed little change on balance. Moreover, the defer­
ment of 20 per cent of the call on "C” banks scheduled for
August 15 and a further 50 per cent deferment on August 23
served to limit the impact of Treasury operations on bank
reserves. However, further reductions in System holdings of
Treasury bills absorbed reserves, so that average borrow­
ings, although somewhat reduced, were almost as much above
average excess reserves as in the preceding two weeks.
In the final week of the month, pressures on reserve posi­
tions increased. Float contracted sharply from the levels of the
previous week, and System holdings of Government securities
again declined. Average borrowings of member banks rose
substantially and exceeded average excess reserves by a larger
margin than in the earlier weeks of August.
G overnment Securities M arket
Prices of Government securities, which had declined in the
last half of July, moved upward almost immediately after the
first discount rate increases became effective. Longer-term
Government security prices continued to rise, and yields
to fall, during the first half of the month, after which prices
declined moderately and irregularly. Treasury bill rates, which
had risen rapidly during most of July and in the first few days
of August, eased slightly and then remained fairly stable until
late in the month when they once again rose sharply.
Sporadic swapping operations lifted trading volume somewhat
in the longer-term market, but activity was, as usual, centered
in the short-term market.
The principal feature of the Treasury bill market during
most of the month was an active demand from corporations,
public funds, and other nonbank investors, which drove yields
down temporarily despite the general money market tightness.
Some supply reached the market intermittently from commer­
cial banks, but shorter-dated issues were generally scarce.
Dealers had little trouble until late in the month in disposing,
at declining rates, of the sizable allotments of new bills that
they received at the weekly auctions. Some of the nonbank
demand for bills during the first half of August spilled over
into the market for certificates and short-term notes and bonds,
thereby enabling banks to liquidate a substantial volume of
these issues at stable prices. By August 19, yields on the
shortest bill issue had declined 40 basis-points from the
August 4 peak and the longest bill issue was down 11
basis-points. Toward the end of the month, corporate demand
for bills slackened and the discount rate increases at that time
were followed by a sharp markup in bill yields. By the end
of August, market yields on Treasury bills ranged from 1.85
to 2.09 per cent, bid, with the shortest maturities up 5 basispoints over the month and the longest maturities up 34
basis-points. Average issuing rates on Treasury bills for the
first four weeks ranged from 1.850 per cent to 1.889 per cent,
and then rose to 2.088 per cent in the auction of August 29,

107

FEDERAL RESERVE BANK OF NEW YORK

the highest level since August 1953. In contrast to the over-all
stability of Treasury bill yields prior to the last week of August,
several money market rates moved upward during the month
(see chart).
Quotations for intermediate and long-term Government
securities were marked down at the time of the first discount
rate changes, as dealers sought to avoid commitments until
investor reaction could be measured. The markdown was very
brief, however, and prices rose almost immediately as it be­
came clear that no wholesale liquidation was in prospect. By
the middle of the month, prices of most issues had moved up
considerably, and the longer 2 Vz per cent issues were generally
about 1 point higher than on August 1, thus regaining most of
the ground lost after mid-July. Investor interest was limited,
and most of the price recovery appeared to be based upon
small interdealer transactions, although there was a substantial
volume of swapping for tax purposes by banks, which tended
to diminish when prices rose.
The thinness of the bond market made prices susceptible
to rumors or press reports that appeared from time to time
concerning the likelihood of further tightening in credit policy
and of a further rise in interest rates. Such influences seemed
to have been responsible for the sudden price declines which
occurred on August 18. Ensuing fluctuations were relatively
small, and prices showed only a slight downward tendency.
The market remained quiet, and and by the end of the month
most longer-term issues were Ys-Ys of a point below the
August peak. Over the month as a whole, the longer IV i per
cent issues generally gained 1 % 2ml% 2 of a point, but other
long-term and intermediate issues showed moderate declines.

rose from 3.09 per cent on August 1 to 3.13 per cent at the
end of the month, while similarly rated municipal issues rose
from 2.27 per cent on July 28 to 2.34 on August 25.
New public offerings of corporate bonds for the month are
estimated at about 315 million dollars, considerably in excess
of the July total of 115 million dollars, and about 73 million
higher than the average for the first half of the year. The
largest new issue was the 200 million dollars of twenty-year
debentures sold by the General Motors Acceptance Corpora­
tion. This issue, which met with a good reception, was priced
to yield 3.75 per cent, in contrast to a similar issue in March
offered at a yield of 3.50 per cent.
Financing schedules for “municipals” were lighter than in
any previous month this year and new public offerings totaled
172 million dollars according to estimates, compared with 399
million in July. Reported inventories of municipal bonds de­
clined, but underwriters found it necessary to cut prices in
order to move securities. Bids for several State and municipal
bond offerings were rejected when interest costs proved to be
unacceptably high.
M ember Bank Credit
The demand for bank credit has continued strong, accord­
ing to the latest figures available for the weekly reporting
Table II
W eekly Changes in Principal Assets and Liabilities o f the
W eekly Reporting Member Banks
(In millions o f dollars)
Statement weeks ended
July
27

August
3

August
10

August
17

Change
from Dec.
29, 1954
August to August
24
24,1955

+ 97
— 46
+ 41

+ 24
— 49
+ 15

+204
-210
+ 35

+186
-150
+ 41

+110
3
+ 31

+ 48

+ 60

+ 24

+ 20

+ 44

+1,188

+ 139

+ 49

+ 51

+ 98

+181

+3,463

-122
-282

- 36
-150

- 37
-304

-126
-247

- 81
-208

-1,627
-4,303

Total................................
Other securities.......................

-404
+ 10

-186
+101

-341
-172

-373
+ 69

-289
4

-5,930
+
59

Total investments................

-394

-

85

-513

-304

-293

-5,871

Item

Other Securities M arkets
Activity in outstanding corporate and municipal bond issues
was generally light during August, and prices tended to drift
downward. Moody’s index of yields for Aaa corporate bonds
SELECTED MONEY MARKET RATES IN

1955

Assets
Loans and Investments:
Loans:
Commercial, industrial, and
agricultural loans............... .
Security loans ........................
Real estate loans.....................
All other loans (largely
consumer). ...........................
Total loans adjusted*..........
Investments:
U. S. Government securities:
Treasury bills......................

+1,627
— 199
+ 924

Total loans and investments
-255

-

36

-462

-206

-112

-2,408

+160

-299

+135

-100

+172

+

+ 149

Loans to banks.............................

+150

-121

+167

+177

+3,522

+550
- 21
-209

-551
+ 13
-562

-220
+ 18
-340

-285
3
+ 132

+309
- 35
5

-2,776
+ 125
+ 566

-574
+ 23

+486
- 53

+138
- 36

+ 59
- 21

-607
+ 2

-1,328
54

351

Loans adjusted* and “other”
Liabilities
Demand deposits adjusted.............
Time deposits except Government.
U. S. Government deposits............
Interbank demand deposits:
Foreign.......................................
* Avcrag* rate of discount on new issues, plotted as of date of auction.




* Exclusive of loans to banks and after deduction of valuation reserves; figures for the individual
loan classifications are shown gross and may not, therefore, add to the total shown.

103

MONTHLY REVIEW, SEPTEMBER 1955

member banks. Total loans of these banks, other than loans
to banks, rose by an additional 518 million dollars during the
five weeks ended August 24, bringing the total increase since
the beginning of the year to 3,463 million (see Table II).
Commercial, industrial, and agricultural loans showred the
largest increase, rising by 621 million dollars over the
five-week period. Such loans in recent years have shown a con­
siderably smaller increase during August. The largest increases
were in loans to sales finance companies, but borrowing by
textile manufacturers and public utilities also rose considerably.
In addition, real estate loans increased by 163 million dollars,
showing no diminution in the rate of growth. "All other loans”
(largely those to consumers) also rose, roughly maintaining
the rate of increase established in the previous seven months
of 1955. In contrast to these increases, there was a sharp de­
cline of 458 million dollars in security loans, largely reflecting
reduced lending by New York and Chicago banks to Govern­
ment security dealers.
As in earlier months this year, the expansion of loans was
in large part made possible by sales of securities to nonbank
investors. During the five weeks ended August 24, total Gov­
ernment security holdings of weekly reporting banks fell by
1,593 million dollars. A considerable part of the decline was
in Government bonds and notes, although holdings of Treasury
bills and certificates also were reduced substantially.

M o n e y Su p p l y a n d T u r n o v e r

The upswing in business activity during 1955 has been
accompanied by a moderate rise, after seasonal adjustment, in
the money supply—defined as demand deposits adjusted and
currency outside the banking system. The money supply aver­
aged about 2 per cent higher in the second quarter of 1955
than in the last quarter of 1954, most of the rise being
accounted for by a l l/2 per cent increase in demand deposits
adjusted.
At the same time, the increase in the money supply appears
to have been less rapid than the growth in business activity.
Seasonally adjusted gross national product rose, for example,
by about 5 per cent between the last quarter of 1954 and the
second quarter of 1955—that is, more than twice as rapidly
as the money supply. The increase in the money supply, more­
over, has been accompanied by a substantial increase in the rate
of turnover of demand deposits. The turnover rate—the ratio
of demand deposit account debits to demand deposits (exclud­
ing interbank and United States Government accounts)—rose
by about 6 per cent, seasonally adjusted, during this period in
the 337 centers outside New York City and six other major
financial centers. Turnover also rose, by 7 per cent, in the six
other financial centers, but fell by 2 per cent in New York City
where transactions are heavily influenced by activity in the
securities markets.

INTERNATIONAL MONETARY DEVELOPMENTS

M o n etary Trends and Policies
The shift toward higher discount rates abroad, which had
begun earlier this year, became more pronounced in the first
part of August. The central banks of Belgium, Canada, West
Germany, and Japan all raised their discount rates within the
week beginning August 4—the day on which, as indicated
elsewhere in this Review, the first of the recent Federal Reserve
Bank rate increases became effective. Since the beginning of
this year, ten foreign central banks have thus raised their dis­
count rates (see table). However, unlike the earlier increases
in the United Kingdom and certain other countries, which
were aimed at countering inflationary strains and attendant
balance-of-payments difficulties, last month’s increases in Bel­
gium, Canada, and West Germany appear to be basically warn­
ings to commercial banks and business to show restraint in
their lending and spending activities; there are no acute infla­
tionary pressures in these countries, and their external positions
continue strong. In Japan, the discount rate rise was primarily
of a technical nature.
The Bank of Canada discount rate increase as of the close
of business on August 5 from W i to 2 per cent, from which
level it had been reduced last February, followed a considerable
expansion in commercial bank loans during June and July
and a rise on August 4 in the average tender rate on three
months’ Treasury bills to a level just above the discount rate;
government bond yields had also been rising. The average




cash ratio of the commercial banks had, prior to the discount
rate increase, fallen almost to the legal minimum.
In West Germany, the August 4 discount rate increase from
3 to 3^2 per cent was accompanied by the announcement of a
slight rise, effective September 1, in commercial bank cash
reserve requirements. The change in the discount rate had
been preceded by sizable open market sales of government
securities by the central bank during May and June, when
increased balance-of-payments surpluses had tended to swell
the commercial banks’ liquidity. In addition, a more rapid
expansion of bank credit during June and July, together with
Treasury operations, had further reduced the banks’ excess
Increases in Foreign Central Bank Discount Rates in 1955
(Principal rates only)
In per cent
Country

Date of
change
New rate

United Kingdom................................................
United Kingdom...............................................

* As of close of day.

Jan.
Feb.
Feb.
Apr.
May
June
July
Aug.
Aug.
Aug.
Aug.

27
14
24
19
20
28
1
4
4
5*
10

3 y2
sl
A
4M
3?4
4M
4 3^
5
3
3M
2
7 .3

Previous
rate
3
2H
3H
2%
3
4
2H
3
1H
5 .84

FEDERAL RESERVE BANK OF NEW YORK

reserves, and by mid-July the day-to-day money rate had risen
to as much as Va per cent above the discount rate.
The Belgian discount rate increase from 234 to 3 per cent,
on August 4, was, according to an official statement reported
in the press, primarily intended as a warning signal indicating
that the authorities were closely watching the economic and
financial situation for signs of inflationary developments.
While the expansion of commercial bank credit to private
borrowers had remained moderate during the first five months
of the year, central bank rediscounts rose somewhat in June
and July.
The Bank of Japan basic discount rate increase on August 10
from 5.84 to 7.3 per cent may be regarded as a further step
toward implementing a long-discussed plan to alter the Japanese
interest rate structure and to make the discount rate into a more
efficient central banking tool. Already in June, at the request
of the government, the commercial banks had reduced the
standard rate for ordinary commercial bills to 8.4 per cent; this
reduction and the central bank discount rate increase have sub­
stantially narrowed the margin between commercial banks’
lending and basic borrowing rates. In the future, according to a
statement by the governor of the Bank of Japan, the money
market will be regulated mainly by changes in the basic dis­
count rate rather than, as in the past, by alterations in the
Bank of Japan’s progressive rate structure—under which the
Bank of Japan charges higher rates on loans and discounts
above certain quotas.
In the United Kingdom, where the discount rate had been
raised twice in the early months of this year, the policy of
monetary restraint was continued. The process of funding the
commercial banks’ loans to the nationalized industries was con­
siderably advanced through a bond issue by the electricity
industry, the terms of which were more attractive than those of
a similar issue floated by the gas industry in July. Consequent
upon earlier increases in bond yields, the rates charged by the
Public Works Loan Board on new loans to local governments
were raised for the third time since the February discount rate
increase, and the building societies likewise adjusted upward
their rates on new mortgages as well as on their shares. Market
interest rates also rose, the average Treasury bill tender rate
increasing to slightly over 4 per cent on August 5 after having
been at 3.97 since June 17, and government bond yields show­
ing a generally upward tendency during most of August.

109

London clearing bank advances, which had risen continuously
since last fall, declined during the first three weeks of July
and, according to preliminary reports, fell further in the four
weeks to mid-August.
In New Zealand, where a number of monetary restraint
measures had been taken in previous months to curb excessive
demand, the cash reserve requirements of the commercial
banks were raised as of August 1, the third such move this
year. The effect was to increase further the amounts that
the banks had to borrow from the central bank, thus creating
an additional incentive for the banks to restrain their lending,
which in mid-July was 20 per cent above a year previous
despite some decline from this year’s peak.
Exchange R ates
The New York foreign exchange market was generally
quiet during August with only minor fluctuations in the rates
for virtually all currencies. American account sterling con­
tinued to show some strength very early in the month, with
the rate moving to as high as $2.79Vs on August 2. The de­
mand for sterling appeared then to reflect both commercial
buying and covering of short positions; it thus represented a
continuation of the market activity apparent during the last
week of July. After August 4, sterling tended to weaken, again
reflecting normal seasonal pressures and, to some extent, the
lingering effects of the earlier dock and rail strikes. With
reportedly occasional intervention by the British authorities,
the rate fluctuated between $2.781i and $2.78%.
/
The discounts on sterling for forward delivery gradually
declined during the month, partly owing to a demand for
forward sterling to cover short positions. Thus, three months’
sterling was quoted at a discount—on a per annum basis—of
about 2 Ys per cent on August 1 and 2 Ys per cent on August
31. While discounts tended to decline, however, they either
exceeded, or were virtually equal to, the differences between
the average yield at tender on British and United States Treas­
ury bills. Transferable sterling also moved downward from
the August 1 quotation of %2.lGYi to a close of $2.76Vs on
August 31; securities sterling, on the other hand, strengthened
from $2,771/4 to $2.78i/2.
The rate for the Canadian dollar fluctuated between $1.01
and $1.011% 6 with reportedly occasional intervention by the
authorities to minimize movements in the rate.

REVIVAL OF THE GERMAN CAPITAL MARKET

During the last eighteen months the West German market
for new securities has staged a notable revival; in 1954 a
record amount of housing bonds was placed, and in the cur­
rent year West German corporations are expected to sell more
new corporate stock than in the preceding six and one-half
years since the mid-1948 currency reform.
The revival of the capital market is especially welcome at
the present time when the German economy is operating near




capacity and its labor force is almost fully employed, and
when inflationary pressures are emerging which might be
accentuated by rearmament. Under these circumstances, con­
tinued growth in output depends largely on increased produc­
tivity, which may well call for greater capital investment. At
the same time, much remains to be done in rebuilding
German cities and achieving more satisfactory housing condi­
tions. The revival of the market for new issues should make

110

MONTHLY REVIEW, SEPTEMBER 1955

it possible to raise funds for industrial expansion, housing,
and other uses by tapping savings more effectively than was
possible at a time when capital requirements had to be met
almost exclusively from sources other than the capital market.
Under certain conditions, the comeback of the capital market
might also prove helpful to the authorities in conducting
monetary policy more effectively. To the extent that the
proceeds of new share issues would be used by the industries,
not for further investment, but for repaying some of the
"short-term” credits that the banks have granted for investment
purposes, credit policy could be carried out without putting
borrowers under undue strain. In early August, Dr. Vocke,
President of the Bank deutscher Lander, reportedly drew atten­
tion to the problem of these less liquid credits and emphasized
the need for funding them by security sales.
T he Challenge and the O bstacles
For an understanding of the policies pursued by the German
Government to revive the capital market, it is necessary to
visualize the magnitude of the capital requirements that had
to be met, as well as the obstacles that stood in the way of
restoring a functioning securities market.
At the end of the war, Germany’s economy was destitute,
its cities laid waste, and its industrial plant heavily damaged,
while millions of Germans expelled from the East were seeking
haven and employment in West Germany. This created vast
capital demands for housing and for industrial reconstruction
and modernization. Housing, in particular, had to be given
top priority in order to meet the most urgent needs for shelter
and to enable workers to move where they were most needed.
In the financial field, Germany in mid-1948 carried out
a far-reaching monetary reform, which sharply reduced the
money supply and at the same time drastically scaled down
the country’s entire debt structure. As an inevitable by-product,
the reform deprived the German people of virtually their
entire savings for the second time in one generation. The
unfavorable effects of the monetary purge on savings were
intensified during the years immediately following by an
understandable tendency of consumers to spend practically all
their income in satisfying long-deferred demands for more
food, new clothing, and other consumer goods as these became
available again. Confidence in the currency as a store of value
recovered rather slowly; and it was only in the fall of 1951—
after the Korea boom and the balance-of-payments crisis had
been overcome by strong restrictive measures—that savings,
fostered by tax concessions, began the spectacular advance that
has continued ever since (see table).
The war and its aftermath, moreover, gave rise to great
uncertainties as regards the value of corporate equity capital
and titles of ownership. First, all securities had to be validated
and new securities issued to the rightful owners. Secondly,
all corporations had to undergo financial reconstruction, con­
verting their capital, at varying ratios, from Reichsmark into
Deutsche-mark values. Thirdly, additional uncertainties were




created by Allied decentralization policies, which broke up
Germany’s largest industrial corporations and banks. While all
these measures of financial reconstruction and reorganization
have now been virtually completed, they long were a cause of
great uncertainties that proved a major roadblock to an early
revival of Germany’s capital market.
Financing W ithout a Capital M arket
After the currency reform of mid-1948, Germany relied
upon policies of general monetary control and balanced
budgets as means of achieving recovery as well as internal
and external stability. The central bank permitted the volume
of money to expand in step with the country’s rapid economic
growth, while dealing firmly with temporary inflationary pres­
sures. In the early years after the currency reform (mid-1948
to 1951) when the rate of savings was low, short-term bank
credit expanded sharply. Industrial corporations not only
replenished their working capital but also, in the absence of
other sources of finance, had recourse to short-term bank credit
for investment purposes. Many of these credits had to be
repeatedly renewed, and, while there is no way of statistically
ascertaining the amount, the banks are believed to carry even
now a certain volume of these less liquid assets. The rapid
expansion of short-term credit in these early years, which was
reflected in the increase of the money supply, contributed to
the rise in prices that marked the first six months after the
currency reform and, later, the Korea boom period. However,
the inflationary effects of this credit expansion were rather
limited, owing to the tremendous rise in output achieved by
bringing the country’s plant back into full use and by drawing
on the large reservoir of manpower.
In the absence of a functioning capital market, German
corporations during the early years after the currency reform
also ploughed back profits to an unusual extent. Self-financing,
which is even more deeply ingrained in German corporate
finance than elsewhere and which has been fostered since the
war by liberal depreciation allowances, made it possible for
industry to undertake urgently needed investments at a time
when the rate of voluntary savings was low. With investment
high and personal incomes being almost wholly spent for con­
sumption, prices rose and profit margins widened; inadequate
voluntary savings were thus, in effect, supplemented by in­
voluntary savings through the price mechanism.
Throughout the entire period after mid-1948, moreover,
public authorities (deriving their funds from taxes, other pub­
lic revenues, and social security contributions) were a more
important source of investment finance, particularly for hous­
ing, than were individual savers and financial institutions.
These public bodies, besides investing directly in public build­
ings, housing projects, schools, highways, bridges, and so forth,
in effect bypassed the capital market when they bought bonds
directly from mortgage institutions and required the latter to
invest the public funds in specified housing and related
projects. These public investments were supplemented by

FEDERAL RESERVE BANK OF NEW YORK

investing counterpart funds arising from United States eco­
nomic aid as well as funds raised under special governmentsponsored programs, such as the investment-assistance program
for the iron and steel, electricity, and other basic industries.
Some of these industries were handicapped by price controls
as well as uncertainties created by the Allied decentralization
policies, and had to be given special attention because of the
bottlenecks that their lagging revival created for the rest of
the economy.
In these various ways, German investment needs since the
currency reform have been largely met by means other than
the sale of securities; in addition, of such bonds as were placed,
a major part was acquired by public authorities.
The extent to which the capital market has been bypassed
may be gauged from data on the sources of long-term invest­
ment funds other than short-term bank credit and corporate
self-financing during the five years from 1950 to 1954. These
data indicate that, of the total amount of 59 billion Deutsche
marks, only slightly more than 11 per cent took the form of
security sales to credit institutions, business enterprises, and
the general public; while 52 per cent was furnished by public
bodies, 28 per cent consisted of medium and long-term credits
by the banking system (excluding institutions issuing mort­
gage bonds), and the rest comprised foreign-aid counterpart
funds and funds raised under special government-sponsored
programs.
G overnment P olicy and the R evival of the
Bond M arket
In view of the disruption of Germany’s economy and the
thorough reorganization of its financial structure, it is hardly
surprising that the revival of the country’s securities markets
should have been slow, and that the country’s investment needs
should have been so largely met in other ways than through
the capital market. The government was, of course, vitally
interested in a rapid recovery of the securities markets and
particularly the market for housing bonds, through the sale
of which the bulk of mortgage loans was traditionally financed
in Germany. The government attempted to achieve this objec­
tive in various ways. First, it sought to encourage the recovery
of savings, not only by its general monetary and fiscal policies,
which kept the value of the currency reasonably stable and re­
stored the public’s faith in it, but also by special tax incentives.
These took the form of tax credits for savings that individuals
were willing to tie up for a specified period of time, as well
as for savings of corporations that were used to make interestfree loans for such types of investment as housing and ship­
ping. Secondly, attempts were made to attract the greatest
possible volume of savings into investment in housing bonds.
In view of the severe capital shortage, this clearly required
that potential investors be assured of a relatively high return.
To have permitted bond yields to find their free market level
would have run counter, however, to the government’s desire
to maintain comprehensive rent controls, including rent ceil­




111

ings on new housing; higher housing bond yields would have
been quickly reflected in increased building costs and rents.
The German authorities felt that any wholesale abandon­
ment of rent controls would have led to intolerable hardships,
particularly for the millions of bombed-out people and refu­
gees. Accordingly, during the first four and one-half years
following the currency reform, the Ministry of Economic
Affairs used its control over the issue and terms of fixedinterest-bearing securities in an attempt to keep bond yields
low enough not to interfere with existing rent ceilings, even
though these yields did not correspond to supply and demand
conditions in the capital market.
Beginning in September 1948, housing bonds were issued
at 98 and carried a nominal interest rate of 5 per cent; the
return to the investor of 5.13 per cent was subject to regular
income taxation. W ith interest on long-term bank loans at
8 per cent or more, the market for housing bonds remained
stagnant, the public authorities subscribed to the bulk of
new issues, and ‘gray” bond markets developed where a higher
real return was offered.
In the face of the failure to attract nongovernment funds,
the authorities decided toward the end of 1952 on a policy of
subsidizing the interest rate on housing bonds by tax abate­
ments. This was done through the Law for the Furtherance of
the Capital Market of December 1952 (Furtherance Law),
which exempted the interest on so-called ‘social housing
bonds” from all taxation.1 Full tax exemption was also granted
to most public issues, as well as to bond issues that were
considered as deserving special consideration. The interest on
all other bond issues, such as housing bonds not classified as
"social” and the bonds of industrial corporations, was made
subject to a coupon tax of 30 per cent but was exempted from
further taxation (tax-privileged issues).
By thus forgoing revenue, the Federal Government raised
the net return to subscribers of housing bonds and bonds of
public authorities, while maintaining comparatively low nomi­
nal interest rates and thus keeping building costs and rents
unchanged. The yield to the investor of the fully tax-exempt
‘social housing bonds” issued during 1953-54 under the pro­
visions of the Furtherance Law ranged between 5.64 and 5 per
cent—substantially more than the net return, after taxes, on
the 5 per cent bonds issued prior to the law.
There is good evidence that the policy of tax exemptions
and privileges contributed greatly toward making bond invest­
ment popular again, especially among institutional investors.
In fact, investment in public bonds in 1953 was almost double
that of the previous year, as shown in the table. Even more
striking, investment in housing bonds increased by almost 90
per cent in 1953 and by more than 300 per cent in 1954,
compared with 1952; in 1954, such bonds were sold to the
amount of 3.2 billion Deutsche marks—a record that, even
1
These bonds were defined as bonds that, to the extent of at least
90 per cent of their proceeds, were used for financing social housing
projects.

112

MONTHLY REVIEW, SEPTEMBER 1955
Savings Deposits and Security Issues
(In millions of Deutsche marks)
Securities placed

Period

Bonds of
Increase
industrial
in savings
Bond issues
deposits Housing of public corporations
and
bonds* authorities
specialized
credit
institutions!

Shares

Y ear:
1949.................................
1950.................................
1951.................................
1952.................................
1953.................................
1954.................................

1,462
1,005
918
2,420
3,837
5,476

234
310
627
789
1,473
3,199

420
217
57
418
786
391

116
149
64
350
621
857

41
51
165
259
269
372

Half year:
1953— I ...........................
1953— 11.........................
1954— 1...........................
1954— 11........................
1955— 1...........................

1,498
2,339
3,003
2,473
2,209J

573
900
1,480
1,719
1,193

580
206
374
17
52

86
535
658
199
552

166
103
104
268
859

* Consisting of mortgage bonds and municipal bonds.
t The bonds placed in the second half of 1953 and thereafter include about 1 billion
Deutsche marks of bonds that were issued for making repayments under the
investment-assistance program; for the most part, these bonds were issued di­
rectly to those who had granted the assistance. The issues of specialized credit
institutions are primarily those of the Reconstruction Loan Corporation and
the Industrial Credit Bank, both of which finance part of their loans to indus­
try by bond issues.
% Preliminary.
Source: Reports of the Bank deutscher Lander.

allowing for price changes, is believed to have been unsur­
passed in Germany’s financial history. Moreover, in 1953 and
1954, for the first time since the currency reform, nongovern­
ment investors took up a substantial volume of securities,
particularly bonds, with the result that in these two years
they provided 12 per cent and 20 per cent of total long-term
investment funds, compared with only 8 per cent in 1952 and
4 per cent in 1951. This suggests the extent to which the
German capital market has strengthened in recent years.
The record sale of housing bonds in 1954 was due in part
to the advance announcement in the spring of that year that
the Furtherance Law would expire at the end of December.
Institutions issuing housing bonds sold such tax-exempt or
tax-privileged issues far in excess of the current requirements
for mortgage loans and thus accumulated large liquid balances.
It is noteworthy that the large flotations of tax-exempt hous­
ing bonds during the second half of 1954 could be made at
higher prices; yields thus fell to 5 per cent, partly because of
the keen institutional demand for these bonds and partly
owing to the absence of new bond issues by public authorities
during this period. In some cases actual flotations were made
only in the early months of 1955, because issues that had
been authorized under the provisions of the Furtherance Law
did not lose their tax advantages after the law’s expiry.
Since the expiration of the Furtherance Law, all new bond
issues have again been subject to the regular income tax. The
first taxable issues were placed in April of this year at effective
yields of 6.46 and 6.66 per cent before taxes. By June, fur­
ther new issues could be sold at yields of only 5.86 to 5.78
per cent, and the decline in the effective yield continued during
July; thus, the present yields on taxable housing bonds are
only slightly higher than on the fully tax-exempt issues of a




year ago. However, for most investors the return after taxa­
tion is probably substantially lower. The large placements of
housing bonds in 1954—well in excess of the current demand
for mortgages—reduced correspondingly the volume of new
issues in 1955, while the institutional demand and the demand
by public investors for housing bonds have remained active.
Bond yields have consequently tended to decline. The bonds
issued in 1954 thus seem to have created a favorable climate
for new issues after the expiration of the Furtherance Law. It
remains to be seen, however, whether the trend toward a
lowering of bond yields will continue in the longer run when
the forthcoming rearmament creates heavier demands on the
capital market both by the Federal Government and by
industry.
In essence, Germany used a system of subsidizing interest
rates to revitalize the market for housing bonds, and dropped
the subsidy after the "infant” housing bond market had gained
sufficient strength to do without special incentives. However,
the interest of individual investors in housing bonds has not
yet revived, and the market remains dominated by institutional
and public investors. In 1954, for example, financial institu­
tions such as insurance companies, savings banks, and com­
mercial banks, which regarded the tax-free or tax-privileged
bonds as a particularly liquid and high-yielding investment,
absorbed 49 per cent of new mortgage bond issues; public
authorities purchased 31 per cent; nonfinancial business enter­
prises took 11 per cent; while individual investors accounted
only for 9 per cent.2 The relatively unimportant role of indi­
vidual investors in the bond market seems to reflect the con­
tinued tendency of the low and medium-income groups to
shy away from a direct assumption of investment risks and
leave investment decisions to financial institutions.
T he R evival of the M arket for Shares
For a number of interrelated reasons, the revival of the mar­
ket for new share issues has lagged one to two years behind
that for new bonds. These reasons include the extremely un­
settled financial state of corporations for several years after
the currency reform, the high level of taxation on both cor­
porate profits and dividend incomes, and the fact that dividends
at first were frequently omitted and later rose only very slowly.
However, the discrimination against dividend incomes implicit
in the Furtherance Law, under the terms of which the tax
abatement applied only to bonds, cannot be considered a
major reason for the delay in the revival of new stock issues,
since such issues had to wait until share prices had sufficiently
improved.
German shares, which for the most part are par value shares
and must be fully paid up when issued, were quoted below
par in the first three years after the currency reform, although
2 These figures, which are based on original subscribers, may well
overstate the extent to which credit institutions acquired mortgage
bonds and understate the extent of individual purchases, since the
credit institutions presumably resold bonds to individual investors in
the normal course of business.

FEDERAL RESERVE BANK OF NEW YORK

at progressively higher prices. Only after mid-195 3 was there
a strong rise in the stock market, which in the summer of 1954
turned into a sustained boom that, with some minor setbacks,
still continues. The stock market boom appears to be due to
the extreme narrowness of the market, to the conviction of
many investors that the real asset value of numerous German
corporations exceeds the nominal capital, to increased interest
in German shares on the part of foreign investors,3 and to
growing confidence in Germany’s economic and political
future. This confidence has been strengthened by the recent
restoration of the country’s sovereignty, the beginning of re­
armament, and the relaxation of international tension, which,
it is hoped, will render reunification less remote. In addition,
expectations have been favorably affected by the lowering of
the corporation tax through two tax reforms that are ex­
pected to enable business to strike a happier balance between
self-financing and dividend payments,4 and through the reduc­
tion of personal income tax rates, which may well lead to an
increased interest in equities on the part of the higher-income
groups. It should be noted, however, that, while dividends as
a percentage of nominal capital rose from 4.2 per cent in
June 1954 to 5.4 in April 1955, yields declined from 3.4 per
cent to 2.5 over the same period, since the rapid rise in share
prices more than offset the higher dividend payments. Share
yields are at present substantially below bond yields.
The stock market boom has, of course, created a favorable
climate for new share issues. It is estimated that, if new issues
in the second half of 1955 match the 860 million Deutsche
marks of the first six months, the year’s issues will be well
above the combined total for the preceding six and one-half
years since the currency reform. In view of the pressing in­
vestment demands of industry, and the fact that housing and
public bond issues had pre-empted the market in the past,
there is now general agreement among those responsible for
capital market policy that corporations should be given priority
during the current year in tapping the capital market. In
future years, the Federal Government may have to make
greater demands on the securities markets to finance rearma­
ment. It is hoped, however, that the most pressing capital
demands of industry can be met by new security issues before
this situation develops. To date, industrial corporations have
concentrated on share issues, very few industrial bond issues
having been placed. Corporations seem to be holding out for
3 Foreign investments in German shares are being made out of
liberalized capital marks (formerly blocked marks), which a resident
abroad acquires from another. Such investments therefore do not
represent an influx of "new” foreign capital.
4 Until the end of 1952, when the so-called “minor tax reform”
was passed, the corporation tax rate was 60 per cent and was uni­
formly applicable to all earnings, including that proportion of the
earnings which was to be distributed as dividends. The 'minor tax
reform” alleviated the burden of double taxation (corporation tax
plus personal income tax) by subjecting the dividend portion to
only a 30 per cent rate. At the end of 1954, the so-called "major tax
reform” lowered the rate on earnings not reserved for dividend pay­
ments from 60 per cent to 45, while retaining the 30 per cent rate
on earnings set aside for such payments.




113

a further decline in bond yields, and in the meantime seem to
be able to procure long-term bank credits, for example by
placing "certificates of indebtedness” with their banks at rates
more favorable than they would have to offer in the bond
market.
C o n c l u d in g R e m a r k s

The revival of the German capital market comes at a pro­
pitious moment. Germany’s labor force is virtually fully em­
ployed and much of her future economic growth may well
depend on further investment in existing plant to increase pro­
ductivity. In addition, rearmament will increase the capital de­
mands of both the Federal Government and industry, and
new security issues will help to meet these demands. The
possibility of tapping the capital market, moreover, may
lessen the pressure on industry to plough back its profits at
the expense of dividends. Self-financing, by definition, limits
the investors’ choices, and may at times involve a less rational
allocation of capital resources than would financing through
the securities markets, which gives investors a wide variety of
alternatives.
New security issues, moreover, will strengthen the capital
basis of Germany’s industrial corporations and will establish
a sounder relationship between equity capital and debt, par­
ticularly short-term liabilities. It should be noted that, as a
result of large-scale bank lending to industry during the years
when the capital market was not functioning, the ratio of
equity capital to debt in many business firms is at present
lower than before either the last war or World War I. To
the extent that the proceeds of new share issues would be
used to repay bank credits, especially ’short-term” credits
extended for financing investment, such issues would also
have a salutary effect on the liquidity of the banking system.
To date, the new share issues appear to have been used pri­
marily for new investment rather than for repaying such
credits. Consequently, as noted earlier, the President of the
Bank deutscher Lander recently warned that too much invest­
ment had been financed by short-term bank credits, and
urged the banks to insist more strongly on their funding.
Similarly, the funding of both long and short-term credits
would tend to restore the traditional cycle of industrial financ­
ing through the banking system, in which bank lending repre­
sents a "prefinancing” of future security issues and the proceeds
of such issues are used to pay off the credits, thereby maintain­
ing the banks’ liquidity.
Some of Germany’s capital market policies pursued since
mid-1948 have inevitably given rise to controversy. It has
been suggested, for example, that faster progress could have
been made in restoring more normal capital market conditions
if freer rein had been given to market forces. In this connec­
tion, German capital market policy after the 1948 currency
reform has been contrasted with the virtual absence of such
a policy after the stabilization of the mark in 1923-24. After

114

MONTHLY REVIEW, SEPTEMBER 1955

the mark stabilization, Germany did not attempt to control
the interest level or to channel investment toward special fields,
and long-term bond yields declined rather rapidly.
However, the use of the twenties as a standard for com­
parison is misleading. In the first place, Germany was not then
faced with capital demands anywhere near so large and press­
ing. In the second place, the problems of financial reconstruc­
tion were, if anything, even more complex after the mid-1948
currency reform than they had been after the stabilization of
the mark in 1923-24. In the third place, and perhaps most
important, the stabilization of the mark in the twenties was
followed by a large and steady influx of foreign capital, both

long and short term, beginning with the Dawes Loan of 1924
and ending in 1931. There was no parallel to this situation
in the late forties and early fifties; foreign aid granted by the
United States after World War II, while giving a strong
impetus to German recovery, had only an indirect effect on
capital market rates. By contrast, the numerous foreign long­
term loans granted to Germany in the twenties directly helped
to lower the interest level for domestic issues. In recent years,
Germany has done a very great deal to restore its international
credit standing but has not favored the influx of new foreign
capital. Indeed, it has pursued a policy directed at decreasing,
rather than increasing, its foreign indebtedness.

THE DEMAND FOR HOUSING

Historically, the volume of residential construction has been
subject to wide fluctuations. An extreme example occurred
between 1925 and 1933, when the number of new nonfarm
dwelling units started declined from 937,000 to 93,000. Since
the end of World War II, however, the volume of residential
construction has been relatively stable. More than a million
nonfarm units were started in each of the six years, 1949 to
1954 inclusive, and it is expected that some 1.3 million units
may be started in 1955, more than in any year except 1950.
Of course, month-to-month fluctuations have continued to be
considerable even when allowance is made for seasonal influ­
ences, but there has not occurred a deep and prolonged decline
in residential construction activities such as was experienced
in earlier periods. In fact, during the 1953-54 period of
business decline, residential construction tended to rise fairly
steadily and acted as a stabilizing force in the economy.
The dollar outlay on private nonfarm residential building was
13.5 billion dollars in 1954 and comprised 3.7 per cent of the
value of total output of all goods and services. This percentage,
however, does not adequately portray the importance of resi­
dential construction in our economy. For one thing, it does
not include expenditures on maintenance and repairs, estimated
at close to 6 billion dollars in 1954.1 Secondly, the market
for the output of other important industries (homefurnish­
ings, appliances, etc.) is to a considerable extent dependent
upon the volume of residential construction.
The significance of residential construction is also suggested
by the fact that it constitutes a large share of gross private
domestic investment (in 1954 its share was 28.6 per cent).
The volume of private investment is subject to marked fluctua­
tions, partly as a result of the postponable nature of such
expenditures and is, therefore, usually considered of major
importance in influencing movements in general economic
activity.
Finally, residential construction is, in the main, 'externally
financed” and gives rise to a heavy demand for long-term

investable funds. Mortgages on residential property comprise
a substantial portion of the earning assets of the major financial
institutions and each year absorb a considerable part of the
funds available for long-term investment. Mortgage debt out­
standing on nonfarm one to four-family homes rose from 18.5
billion dollars at the close of 1945 to 82.8 billion dollars on
June 30, 1955. Mortgage debt on multifamily and commercial
properties increased somewhat less rapidly, from 12.2 billion
to 30.6 billion dollars, during the same period.
This tremendous increase in home mortgage debt reflects
the large volume of construction during that period, as well as
increased turnover of existing homes, rising real estate prices,
and liberal mortgage credit terms, especially under the Govern­
ment s mortgage insurance and guarantee programs. Roughly
half of the increase in debt on small homes between December
1945 and June 1955 represented loans insured or guaran­
teed by the Federal Housing Administration (FHA) or the
Veterans Administration (VA); such loans as a proportion
of total small home debt rose from about one fifth to about
two fifths.
The importance of residential mortgages in the portfolios
of the major lending institutions increased markedly in the
postwar period, as shown by ratios of nonfarm residential
mortgage holdings to total assets in Table I. The relative
importance of mortgage investments was at a historical low
in 1945 because of the virtual cessation of residential building
and the war-stimulated expansion of the public debt. By 1950
there had been a return to more "normal” levels, and by 1954
the ratios were (with the exception of savings and loan asso­
ciations) above the 1929 peak levels.2
M ajor F actors I nfluencing D emand for H ousing
In view of the important role residential construction has
played in recent years as a sustaining influence on economic
activity and as a principal source of demand for long-term
investable funds, considerable interest attaches to the question

1 However, expenditures on additions and alterations, which
2 The prewar peak for commercial banks was 6 per cent, reached
amounted to 1.1 billion dollars in 1954, are included. These are
in 1933.
not always easy to distinguish from maintenance and repair outlays.




115

FEDERAL RESERVE BANK OF NEW YORK
Table I
Nonfarm Residential M ortgages as a Per Cent o f Total Assets
Selected Institutions, 1929-54
(End o f year)
Institution

1929

1945

1950

1954

Savings and loan associations*......................
Mutual savings banks......................................
Life insurance companies................................
Commercial banks............................................

90
41
16
4

63
19
8
2

81
32
17
6

83
45
23
7

* Includes farm mortgages.
Sources: Board of Governors of the Federal Reserve System, Home Loan Bank
Board, and Grebler, L., Blank, D .t and Winnick, L., Capital Formation in
Residential Real Estate, Trends and Prospects (forthcoming publication of the
Princeton University Press); 1954 figures partly estimated.

of whether or not a high level of activity will be maintained
in this sector of the economy in the period ahead.
Underlying the high level of postwar residential construction
and financing activity has been a combination of favorable
influences tending to support consumer demand for housing.
These influences include: (a) the backlog of unsatisfied
demand inherited from the depression and the war, when
housing construction failed to keep pace with population and
household growth; (b) war and postwar demographic develop­
ments, including the increase in marriages during the war and
early postwar period, a spurt in the formation of new house­
holds during the early postwar period, and a sustained high
level of population increase; (c) generally prosperous postwar
economic conditions, which along with a high level of accu­
mulated assets has given consumers unprecedented buying
power; and (d) favorable credit terms available from lending
institutions, particularly on Government-insured and guaran­
teed loans.
Some of these factors, namely, high incomes and a high
rate of population increase, continue to exert a sustaining
influence on housing demand. Other favorable influences,
which are to some extent a result of high incomes and popu­
lation growth, are a low vacancy rate (partly attributable to
the removal of substantial numbers of units from the housing
stock) and a tendency to increase the average expenditure per
new dwelling unit. On the other hand, the most urgent
backlog of demand has been satisfied, and the prospects for
household formation are uncertain.
H ousehold Formation
The declining growth in the number of households3 during
recent years has been the most significant development tending
to raise doubts about the economy’s continued ability to absorb
new homes at recent rates of construction. An average
annual increase of about 1.5 million households during the
period April 1947-March 1950 fell to about 800,000 per year
in the period March 1950-April 1955 (see Table II), and
there are considerations which suggest that household forma­
tion will remain somewhat depressed until after I960. First,
the backlog of demand from married couples without a house­
hold of their own may be about depleted. In 1947, 2.9 million
3 A household is defined as an occupied dwelling unit.




married couples (constituting 8.7 per cent of all married
couples) were without homes of their own. By 1950 their
number was reduced to 2.0 million, and by 1955 to 1.3 million.
In establishing quarters of their own, these married couples
contributed an average of 310,000 households per year during
1947-50 and 140,000 households per year during 1950-55.
But couples who continue to share other peoples’ homes
now constitute only 3.5 per cent of the total, an unprecedentedly low figure and one which appears to indicate little addi­
tional demand potential.
Secondly, marriages currently are at a low level; the number
of marriages in 1954 was little greater than in 1937. This
reflects the relatively small number of persons now reaching
marriageable age, a result of the low birth rate of the 1930’s.
On the other hand, the number of persons reaching age
eighteen hit its lowest point in 1951-52, and will rise slowly
for the remainder of this decade. Moreover, the tendency of the
population to enter marriage has been increasing. The pro­
portion of all females fourteen years of age or older who are
married rose from 59.5 per cent in 1940 to 66.1 per cent in
1950 and to 67.0 per cent in 1954. A continuation of this
trend, along with a modest increase in the number of persons
reaching marriageable age, could bring a gradual increase in
marriages throughout the remainder of this decade. However,
no substantial increase is likely to occur until after I960, when
the *war babies” begin to reach marriageable age.
A more important sustaining influence on household forma­
tion has been the increase which has taken place in recent
years in the number of ’other” households (that is, households
headed by widowed, divorced, single, or separated persons).
These constituted only about one fourth of all households in
existence in 1955, but accounted for almost one half of the
increase in the total number of households between 1950 and
1955 (see Table II). The annual increment in the number of
’other” households was slightly greater during 1950-55 than
during 1947-50 and gives promise of sustained growth, pro­
vided favorable economic conditions continue. This is mainly
a reflection of the increasing ability of unmarried persons to
maintain separate households.
Although the increase in households during the remainder of
this decade will almost certainly be less than during 1947-50,
all things considered, it may be as high as the 1950-55 average.
This assumes, of course, that no deep or sustained economic
setbacks will occur.
Table II
Average Annual Increase in Households
1940-47, 1947-50, and 1950-55*
1940-47
Type of unit

Total households. ..
Married couples..

1947-50

1950-55

Per
Per
Per
Amount
Amount
Amount
(thousands) cent of (thousands) cent of (thousands) cent of
total
total
total
594
577
17

100
97
3

1,525
1,187
337

100
78
22

* Periods beginning and ending in April or March of stated years.
Source: Bureau of the Census.

833
431
402

100
52
48

116

MONTHLY REVIEW, SEPTEMBER 1955

Other Factors Influencing D emand
Another factor which may help to support the demand for
residential building is the high birth rate. The decline in
household formation between 1947-50 and 1950-55 has not
been accompanied by any decline in population growth. On
the contrary, because of a rising level of births, the average
annual increase in population rose from 2.5 million in the first
period to 2.7 million in the second.
Population growth has an important bearing on housing
demand. Although “babies do not buy houses”, they do occupy
space and stimulate the demand for larger dwelling units. This
has had the effect of encouraging builders to construct larger
(more expensive) homes; it has also been a factor tending
to reduce the number of units added to the housing stock by
the conversion of large units into a greater number of small
ones.
It is also significant that, although the number of new units
constructed has run well ahead of the net increase in house­
holds in recent years, there has not occurred any substantial
increase in the proportion of dwelling units vacant. A sample
survey by the Bureau of the Census during the second quarter
of 1955 showed a vacancy ratio of about 2.2 per cent; in 1950,
when the housing supply was generally considered to be
“tight”, the ratio was 1.6 per cent. The small number of vacant
units (as well as the reduced importance of conversions) indi­
cates that the demand for additional space will be met largely
by new construction.
Furthermore, most of the units currently vacant are of the
rental type. An increase in units-for-rent may have a direct
impact upon rental housing construction, but this type of con­
struction is already at such a low level that further declines
probably could not significantly affect the total picture. Only
142,000 multifamily units were started in 1954, compared with
the postwar high of 242,000 in 1950. The effect of increased
rental vacancies upon new single-family home construction
(which comprises the bulk of new construction, exceeding one
million units in 1954) is both indirect and uncertain.
The fact that the vacancy ratio has not increased more than
it has apparently indicates that removals from the housing
stock since 1950 have been substantially greater than the num­
ber of units added by conversion. This is a reversal of the
situation prevailing during the previous two decades, when
conversions exceeded removals by a substantial margin.
Removals probably include a significant number of small con­
verted units that came into being during the housing shortage
and have since disappeared, the abandonment or demolition
of some of the poorest units, including most of the temporary
war housing that was still occupied in 1950, and destruction
of units to make way for new structures. Although there is
no assurance that removals will continue at a high rate, it is
possible that the urban redevelopment and renewal programs
initiated under the Housing Acts of 1949 and 1954 will come
to exert an increasingly important influence in this direction.




Finally, even if there is a falling-off in the number of new
units constructed, that would not necessarily mean a corre­
sponding decline in the level of expenditures on residential
construction. The average expenditure per new unit roughly
doubled between 1946 and 1954. This was mainly a result
of rising construction costs, but there is evidence that increased
space and quality requirements have also had the effect of
increasing average unit expenditure in recent years. The
Bureau of Labor Statistics estimated the typical 1954 home to
be about 5 per cent larger than the 1951 home. The forces that
have been at work to increase the amount of “real house”
demanded include rising incomes and (most of the time)
ample availability of mortgage funds on easy terms, as well
as high birth rates and the inadequacy of many of the small
units constructed soon after the war.
Expenditures on home repairs and improvements also have
been increasing, spurred on by the same influences tending to
increase the average expenditure on new units. These expendi­
tures also may be affected significantly by the urban renewal
program and the increasing use being made of the open-end
mortgage. The latter permits a homeowner making improve­
ments to obtain additional advances on his mortgage. The
advances are added to the balance still outstanding, so that he
can pay for the improvements over the remaining life of the
mortgage, rather than in the three years or so customarily re­
quired on a property improvement loan.
R

ecent

D

evelo pm ents

The dollar outlay on private nonfarm residential construc­
tion reached a seasonally adjusted annual rate of 16.2 billion
dollars during the first half of 1955, compared with 13-5 bil­
lion dollars in 1954. The previous record for these expendi­
tures was 12.6 billion dollars in 1950. Nonfarm housing starts
averaged about 1.3 million (seasonally adjusted at annual
rates) during the first seven months of 1955.
This level of construction and the rate of growth in mort­
gage debt have been so high as to cause concern in some
quarters that we may be “borrowing from the future” and
that home buyers may be assuming debt obligations which
could prove unduly burdensome in later years. To guard
against these possibilities, as well as to help check the demand
for mortgage credit in a period of high-level economic activity,
the Federal Government took steps in late July to tighten
somewhat the credit terms available to home buyers under the
home loan insurance and guarantee programs of the FHA and
VA. The maximum period of repayment was reduced from
thirty years to twenty-five years. A minimum 2 per cent down­
payment requirement was imposed on VA-guaranteed mort­
gages (formerly, no downpayment had been required), while
the minimum downpayment on FHA-insured mortgages was
raised by 2 per cent.
Although month-to-month changes are difficult to interpret

FEDERAL RESERVE BANK OF NEW YORK

because of their erratic nature and the large seasonal adjust­
ments required, it would appear that, at the time the new re­
strictions were put into effect, housing starts had already
declined from the peak levels reached near the turn of the
year. The number of housing units started in July fell to 1.2
million (annual rate) which is about the number started in
the same month a year ago. This has been attributed, in part,
to some tightening in the mortgage market. There are indica­
tions of a somewhat reduced supply of funds available for

117

investment in mortgages; new commitments by lending insti­
tutions for the purchase of mortgages are reported to have
been reduced in recent months. During the first half of this
year, mortgage purchases by such institutions were substan­
tially in excess of their accruals of available funds, necessitating
sales of other assets, or borrowing, to make up the difference.
Nevertheless, the volume of funds available for this type of
investment is expected to be sufficient to finance home build­
ing at a high level.

EARNINGS AND EXPENSES OF SECOND DISTRICT MEMBER BANKS
IN THE FIRST SIX MONTHS OF 1955

Net current operating earnings (before income taxes and
nonrecurring charges and credits) of the member banks in the
Second Federal Reserve District reached a record high of 255.7
million dollars in the first six months of 1955, 21.3 million
dollars or 9.1 per cent above the amount earned in the corre­
sponding period of 1954. Net profits after income taxes and
the nonrecurring items, however, decreased 20.1 million dol­
lars, or 13.7 per cent, to 126.8 million dollars from last year’s
first-half peak of 146.9 million dollars. This decline was
attributable mainly to the fact that member banks sustained
small net losses on security sales in the first half of 1955,
whereas in the first six months of 1954 their net profits were
augmented by substantial capital gains on security sales. This
transition from security profits to losses was common to mem­

ber banks in all parts of the country, and net profits of all
member banks after taxes showed a comparable decline of
slightly more than 13 per cent.
In the central reserve New York City banks, net profits
after income taxes declined to 92.6 million dollars in the first
half of 1955, I 6 V2 million dollars or 15.1 per cent below the
year-earlier total. In terms of earnings on capital funds on hand
at the beginning of 1955, the half-year profits of the City
banks represented an annual return of 6.6 per cent, compared
with 8.4 per cent in the first half of 1954. In the reserve city
and country member banks of the Second Federal Reserve
District, aggregate net profits after taxes decreased to 34.2
million dollars, 3.6 million dollars or 9 5 per cent below the
first half of 1954, and amounted to a return on capital funds

Earnings and Expenses o f Member Banks in the Second Federal Reserve District During the First Six M onths o f 1952-55
(Dollar amounts in millions)
Reserve city and country banka

New York central reserve city banks
Item
1952

1953

1954

1955

1952

1953

1954

1955

22

22

22

18

727

686

666

630

On loans (including service charges and fees on loans)............................
Service charges on deposit accounts..............................................................
Trust department earnings..............................................................................
Other current earnings......................................................................................

65.0
21.0
181.0
9.1
32.7
27.5

61.5
21.3
209.7
9.7
34.1
28.0

72.3
23.4
211.2
10.4
37.1
29.9

82.3
25.6
220.8
10.2
43.2
31.9

36.7
9 .7
89.4
10.9
3.9
9 .0

40.2
10.8
104.9
12.1
4.1
9 .5

40.5
11.8
119.8
14.2
4 .6
10.2

43.3
12.7
128.4
15.6
5.3
11.0

Total current operating earnings...................................................

336.3

364.3

384.3

414.0

159.6

181.6

201.1

216.3

Expenses:
Salaries and wages— officers and employees................................................
Interest on time deposits (including savings deposits).............................
Interest and discount on borrowed money...................................................
Taxes other than on net income.....................................................................
Recurring depreciation on banking house, furniture, and fixtures.........
Other current operating expenses...................................................................

102.6
8.1
1.7
6.7
2.0
55.1

107.6
11.7
3.3
6.5
2 .0
63.5

113.5
20.0
1.3
7 .0
2 .1
67.1

117.7
19.6
2 .2
7 .1
3.1
75.2

51.3
20.2
0 .4
4.9
3.3
30.7

55.0
23.7
0 .7
5.1
3 .6
36.0

61.6
28.6
0 .2
5.6
4 .2
39.8

66.7
31.6
0 .5
5.8
4 .4
40.7

Total current expenses.....................................................................

176.2

194.6

211.0

224.9

110.8

124.1

140.0

149.7

Net current operating earnings before income taxes......................................

160.1

169.7

173.3

189.1

48.8

57.5

61.1

+
+
+

0 .3
3 .2
1.5

-

__
12.7
1.7

1.2
+ 38.5
4 .6

-

8.1
1.4
1.8

+
-

0 .3
0 .2
0 .7

-

1.2
3 .4
1.0

1.0
+ 13.0
1.1

4-

5.8
0 .8

+

0 .3
1.0

+ 2.1
- 10.2

+

5.3
0 .5

-

3 .8
0 .2

-

1.5
0 .2

-

156.0
77.9

197.9
88.8

173.0
80.4

44.2
17.5

50.2
20.7

65.2
27.4

59.7
25.5

Number of banks...................................................................................................
Earnings:
On United States Government securities.....................................................

Net recoveries ( + ) or charge-offs ( —) on loans.............................................
Security profits and recoveries ( + ) or charge-offs ( —) ................................
All other net recoveries ( + ) or charge-offs ( —) .............................................
Net additions to ( —) or deductions from ( + ) valuation reserves for:
Loan losses...........................................................................................................
Security losses.....................................................................................................
Net profits before income taxes..........................................................................
Taxes on net income..............................................................................................

160.1
80.4

2 .6
4 .2

66.6
! ;
-

1.8
2.5
0 .4

+

3 .4
1.2

Net profits after income taxes........................................................

79.7

78.1

109.1

92.6

26.7

29.5

37.8

34.2

Cash dividends paid or declared.........................................................................
Retained earnings...................................................................................................

44.3
35.4

48.4
29.7

51.1
58.0

58.2
34.4

16.4
10.3

11.4
18.1

13.0
24.8

14.4
19. S

Sources: Board of Governors of the Federal Reserve System, 1952-54; 1955 figures are preliminary and are compiled by the Federal Reserve Bank of New York,




MONTHLY REVIEW, SEPTEMBER 1955

118

of 7.6 per cent, compared with 9.0 per cent in the first six
months of 1954.
The modest losses incurred on sales of securities (mostly
Government obligations) in the first half of 1955 reflected
the downward movement in security prices (rise in yields)
that accompanied the current upswing in production and trade,
the increased demand for credit, and the gradual tightening
in money market conditions. In the first half of 1954, on the
other hand, the substantial volume of profits earned on securi­
ties sold reflected the easy money conditions then prevailing
and the resulting rise in security prices.1
O p e r a t in g I n c o m e

The reduction in reserve requirements that became effective
from June to August 1954 permitted the member banks to
make moderate additions to their earning assets. As a result
of these additions and the general rise in interest rates, total
current operating earnings of member banks reached new
highs both in the country as a whole and in the Second Federal
Reserve District in the first half of 1955. The relative gains
in operating earnings over the first half of 1954 were approxi­
mately the same, between 7.6 and 7.9 per cent, in the country
and in both the major groupings of Second District member
banks shown in the accompanying table. Except for some
leveling-off in income from service charges on deposit accounts
in the central reserve New York City banks, all segments of
gross income of Second District member banks were larger in
the first half of 1955 than in the corresponding period of 1954.
In the City banks, the greatest absolute rise (10.0 million
dollars) in gross income occurred in interest received on hold­
ings of United States Government obligations. This reflected
not only the higher yields obtainable on refunded issues and
on new acquisitions of securities but also some lengthening in
the average maturity of the City banks’ portfolios. Of the
total increase of some 470 million dollars in the City banks’
average holdings of United States Government securities be­
tween the first halves of 1954 and 1955, 370 million dollars
or roughly four fifths were added to their Treasury bond
accounts and the remainder to their note holdings. Holdings
of Treasury bills and certificates of indebtedness were both
substantially lower than a year ago.
In the reserve city and country banks of the Second District,
the increase in interest received on United States Government
securities (6.9 per cent) modestly exceeded the increase in
average holdings (5.5 per cent). While these banks also bene­
fited from the higher yields obtainable on refunded obligations
and new acquisitions of securities, there was no general length­
ening of their portfolios; about 60 per cent of the increase in
their average holdings occurred in lower-yielding Treasury bills
and notes.
1 See "Earnings and Expenses of Second District Member Banks in
the First Six Months of 1954” , this Review, September 1954, p. 125.




Income from “other securities”, principally obligations of
States, counties, and municipalities, increased in both groups
of Second District member banks. The relative gains in this
item in the City banks (9.4 per cent) and in the reserve city
and country banks (7.6 per cent), however, were substantially
less than the increases in the average volume of holdings. This
may reflect the somewhat lower average yields prevailing on
municipal obligations in the first half of 1955, or possibly a
shortening of maturities.
Interest and discount received on loans by the City banks
increased 4.5 per cent, against an average increase in loan vol­
ume of 5.8 per cent. The smaller relative increase in loan
income reflects the lower average rates prevailing on commer­
cial loans and on loans to brokers and dealers secured by stock
exchange collateral. For commercial loans, which constitute
nearly three fifths of the total loan portfolio of these banks,
the rates charged declined from an average of 3-31 per cent in
the first half of 1954 to 3.13 per cent in the first half of 1955,
owing to the reduction in the prime commercial loan rate
(from 3J4 per cent to 3 per cent) announced by the New
York City banks on March 17, 1954. This 3 per cent rate
was maintained until August 1955 when it returned to 3!4
per cent. On loans to brokers and dealers secured by stock
exchange collateral, which represent an additional one fifth
of the portfolio, rates decreased from an average of 3.19 per
cent to 3.00 per cent, reflecting the reduction in the call loan
rate (from 3V4 per cent to 3 per cent) which also took place
on March 17, 1954. This lower rate also was maintained until
August 1955 and is currently established at 3 VA-'bVi per cent.
In the reserve city and country banks, the increase in loan
income (7.2 per cent) also was less than the growth (9.8 per
cent) in average loan volume. The indicated decline in the
average rate of return for these banks, however, probably re­
flects a changing loan composition rather than a decrease in
the actual rates of interest charged borrowers.
O perating Expenses
Salaries and wages, the largest component of expenses, in­
creased moderately throughout the District, owing to an
increase both in the number of officers and employees and
in rates of pay. Interest paid on time and savings deposits
declined slightly in the central reserve New York City banks
despite a moderate rise in the average volume of such deposits.
This may have reflected at least in part a decline in the inter­
est rates paid on time deposits of foreign banks, which are
largely concentrated in the New York City banks and which
represent about one third of their total time deposits. In the
banks outside the City, where time deposits are composed
mostly of individual savings accounts, the rise in interest pay­
ments on time deposits (10.5 per cent) outstripped the rise
in volume (6.5 per cent), indicating a moderate increase in
the effective rate of interest paid. Interest and discount paid

119

FEDERAL RESERVE BANK OF NEW YORK

on borrowed money remained comparatively small in absolute
terms in both major groups of banks in the District. In per­
centage terms, however, the 1954-55 half-year increases in the
cost of borrowing were large because of the tighter money
market conditions prevailing in 1955 and the greater need of
the member banks to use the discount facilities of the Reserve
Bank and the Federal funds market to maintain or augment
their supply of reserves.
The growth in total current expenses was less, relatively,
than the growth of total current earnings in the central reserve
New York City banks and their consolidated operating ratio
(total expenses as a per cent of total current earnings) de­
clined slightly from 54.9 per cent in the first half of 1954 to
54.3 per cent in the current six-month period. In effect, total
current expenses absorbed a slightly smaller portion of a larger
gross income in the first half of 1955 than they did in the
corresponding period of 1954, and net current earnings ex­
panded 15.8 million dollars, or 9.1 per cent over the level
attained in the 1954 half year. In the Second District member
banks outside the City, the percentage rise in total expenses
paralleled the rise in total current earnings and the operating
ratio remained virtually unchanged.
N onrecurring I tems, T axes, and D ividends
Net losses and charge-offs on loans increased sharply
throughout the District in the first six months of 1955,
amounting to 8.1 million dollars in the City banks and 1.8
million in the other Second District banks. Actual loan losses,
however, still represent only a negligible fraction of outstand­
ing loans and are also comparatively small when related to the

accumulated reserves for loan losses already set up by the mem­
ber banks. Both groups of banks in this District made further
additions to these reserves out of current earnings in the first
six months of 1955, and increased total published loan reserves
as of June 30, 1955 to 217 million dollars in the City banks
and 98 million dollars in the reserve city and country banks.
Net losses on securities were small in the current half-year
period, amounting to 1.4 million dollars in the City banks and
2.5 million in the reserve city and country banks. Moreover,
their impact on net profits after taxes was lessened considerably
by net withdrawals from reserves for security losses.
As a result of the shift from profits on security sales last
year to losses on security sales this year, and the rise in losses
and charge-offs on loans, net profits before income taxes, but
after nonrecurring charges and credits, were 12.6 per cent
lower in the first six months of 1955 than in the correspond­
ing months of 1954 in the City banks and 8.4 per cent lower
in the banks outside the City. Reserves for income tax pay­
ments also were reduced as a result of the lower taxable in­
come, but the relative decline in taxes was not so great as the
decline in income before taxes because the tax savings were
largely confined to the capital gains category on which rates
are lower than on regular income.
Cash dividends, nevertheless, were increased appreciably
throughout the District between the first halves of 1954 and
1955, continuing a trend that has been in evidence through­
out the postwar period. The larger dividend disbursements,
coupled with the reduction in net profits, were reflected in
sharp reductions in the volume of earnings retained and added
to capital accounts.

DEPARTMENT STORE TRADE

The dollar volume of goods sold by department stores in
the Second District in August was 2 per cent higher than
in August 1954, according to preliminary data. This August,
however, there was one more shopping day. On a seasonally
adjusted, daily average basis, sales in August were 3 per cent
lower than in July and 1 per cent below a year ago. In the
New York-Northeastern New Jersey metropolitan area and
some of the areas "Upstate”, sales were down during the first
three weeks, owing to record-breaking temperatures and the
torrential rains following two hurricanes, but sales rose sub­
stantially in the latter part of the month.
During the first five months of the department store fiscal
year (February-June), sales in the Second District were 1 per
cent higher than in the corresponding period last year. This
brought the dollar volume of sales for the period to approxi­
mately their 1953 level. Among major departmental groups,
womens and misses’ apparel sales showed better-than-average
strength. Dollar volume in this group was at the highest level
since 1949 and was 3 per cent higher than in 1954. Sales of




women’s and misses’ coats and suits were off 5 per cent, but
this decline was offset by increases in sales of dresses, sports­
wear, and furs, amounting to 4, 6, and 27 per cent, respectively.
Sales of furs have shown particular strength. With the excep­
tion of April (which is compared with the high level of the
first month of lower excise tax rates in 1954), each month
this year has shown sizable year-to-year gains.
Other major departmental groups which registered betterIndexes o f Department Store Sales and Stocks
Second Federal Reserve District*
(1947-49 average=100 per cent)
1954

1955
Item
July

June

May

July

Sales (average daily), unadjusted.................
Sales (average daily), seasonally adjusted..

77
108

100
104

101
103

74
103

Stocks, unadjusted..........................................
Stocks, seasonally adjusted............................

105
116

108
115

115
111

105
116

* Sales and stock indexes have been revised to improve coverage by including
several additional stores. Revised tabulations of the sales index from 1947
and the stock index from 1952 to date and the revised seasonal factors are
available upon request from the Financial and Trade Statistics Division of
this Bank.

120

MONTHLY REVIEW, SEPTEMBER 1955

Department and Apparel Store Sales and Stocks, Second Federal Reserve
District, Percentage Change from the Preceding Year
Net sales

Stocks
on hand
July 31,
Jan.through Feb.through
1955
July 1955 July 1955
July 1955

Area

Department stores. Second District
New York—Northeastern New Jersey
Metropolitan Area.......................
New York City...............................
Nassau County...............................
Westchester County........................
Northern New Jersey.....................
Newark........................................
Fairfield County.................................
Bridgeport.......................................
Lower Hudson River Valley...............
Poughkeepsie...................................
Upper Hudson River Valley...............
Albany-Schenectady-Troy
Metropolitan Area...................
Albany........................................
Schenectady................................
Central New York State....................
Utica-Rome Metropolitan Area
Utica...........................................
Syracuse Metropolitan Area...........
Northern New York State.................
Southern New York State..................
Binghamton Metropolitan Area___
Western New York State...................
Buffalo Metropolitan Area.............
Buffalo........................................
Niagara Falls..............................
Rochester Metropolitan Area.........
Apparel stores (chiefly New York City).

+1
+2
- 1

+2
+2
0

+1
+0
1

+0
6
+2
-1
+4

+14
+2
-5
1
+3
+

+13

+13

+ 3

0
+9
5
+4
+ 7
+6
+5
1
+2
-

3

+ 9
+ 9

0
0
+4
- 5
+3
+2
+o
+
+3
8
0
+
+
+
+

3
1
1
1

+2
+1
+:

+2
-2
+8
+ 9
0
0
+4
- 5
+2
+4
1
+
+ 3
+7
+3
1
+
+1
+ 1
+1
+ 1
+1
+3

+ 5
+ 3

0
+
+20
+_4
+_1
+ 7
+ 7

-2
+6
+3
+9
+1
+4
+12
- 1
+11
+0
1
-0
1
- 1
+ 9

than-average increases for the first five months of the fiscal
year were the small wares, homefurnishings, and miscellane­
ous merchandise departments. Consumer purchases of mens
and boys’ wear, piece goods and household textiles, and
women’s and misses’ accessories remained unchanged from the
corresponding five-month period last year. Basement store
sales declined 2 per cent from their year-earlier level.
The showing of the homefurnishings departments is of
particular interest. Sales in these departments had been de­
clining or about “holding their own” since mid-1951. But in
the first five months of this fiscal year, total sales were 2 per
cent above the year-ago level, bringing the dollar volume up
to approximately the February-June level in 1952. Sizable
increases in sales of domestic floor coverings (7 per cent),
radios, pianos, and television sets (9 per cent), and major
household appliances (16 per cent) more than offset the
3 per cent sales decline in the furniture and bedding depart­
ment. Basement sales of homefurnishings also were higher,
by 10 per cent, in the five-month period. Preliminary data
for July indicate that the homefurnishings departments again
exceeded their year-earlier level, partly as a result of larger
sales of seasonal appliances, such as air-conditioners.

SELECTED ECONOMIC INDICATORS
United States and Second Federal Reserve District
Percentage change
Item

July
UNITED STATES
Production and trade
Industrial production*......................................................................
Electric power output*.....................................................................
Ton-miles of railway freight*..........................................................
Manufacturers’ sales*........................................................................
Manufacturers’ inventories*............................................................
Manufacturers’ new orders, total*t...............................................
Manufacturers’ new orders, durable goods ..............................
Retail sales*.........................................................................................
Residential construction contracts*...............................................
Nonresidential construction contracts*........................................
Prices, wages, and employment
Basic commodity pricesf..................................................................
Wholesale pricesf...............................................................................
Consumer pricesf...............................................................................
Personal income (annual rate)*J....................................................
Composite index of wages and salaries* § .....................................
Nonagricultural employment*........................................................
Manufacturing employment*..........................................................
Average hours worked per week, manufacturing t .....................
U nemployment...................................................................................
Banking arid finance
Total investments of all commercial banks.................................
Total loans of all commercial banks..............................................
Total demand deposits adjusted.....................................................
Currency outside the Treasury and Federal Reserve Banks*.
Bank debits (337 centers) *1[...........................................................
Velocity of demand deposits (337 centers)*^..............................
Consumer instalment credit outstandingf....................................
United States Government finance (other than borrowing)
Cash income........................................................................................
Cash outgo...........................................................................................
National defense expenditures.........................................................

1954

1955
Unit

1947-49 1947-49 =
1947-49 =
billions of
billions of
billions of
billions of
billions of
1947-49=
1947-49 -

100
100
100
$
$
$
$
$
100
100

140p
208
—
—
—
—
—
—
294p
237p

1947-49 = 100
1947-49= 100
1947-49= 100
billions of $
1947-49= 100
thousands
thousands
hours
thousands

90.8
110.6p
114.7
—
—
49,684p
16,71bp
4 0 .2p
2,471

millions of $
millions of $
millions of $
millions of $
millions of $
1947-49= 100
millions of $

8 0 ,180p
76,670p
1 04,130p
3 0 ,345p
70,116
130.Op
25,476

millions of $
millions of $
millions of $

2,994
5,352
3,425

June

May

1947-49= 100
1947-49= 100
1947-49 = 100
1947-49= 100
thousands
thousands
millions of $
millions of $
1947-49 = 100

157
—
—
111.9
—
—
60,726
4,695
159.5

Latest month Latest month
from previous from year
month
earlier

139
197
102p
27.2 p
43.8 p
27 .Sp
14. Op
1 5 .3p
290
228

138
194
106
26.7
43.5
27.7
14.3
15.4
280
221

123
176
89
23.2
43.4
21.4
9 .4
14.3
233
188

+
4+
+

1
6
3
2
1
#
- 2
- 1
+ 1
+ 4

+1 4
+ 18
+15
+17
- 1
+26
+43
+ 6
+26
+26

90.2
110.3
114.4
301.2p
14 lp
4 9 ,483p
16,673p
40.7
2,679

89.2
109.9
114.2
301.4
141p
49,214
16,545
40.8
2,489

91.5
110.4
115.2
287.1
137
48,048
15,733
39.4
3,347

+ 1
#
#
*
#
#
#
- 1
- 8

-

1
#
#
+ 5
+ 3
+ 3
+ 6
+ 2
-2 6

79,800p
75,730p
103,350p
30,200
72,344
130.0
24,914

8 1 ,620p
73,900p
103,410p
30,102
71,060
131.3
24,149

79,990
67,290
100,000
30,028
6 3 ,405r
119.4
21,849

#
1
1
4
- 3
#
+ 2

#
+14
+ 4
+n

11,045
6,677
3,762

5,547
6,278
3,302

2,958r
5 , 144r
3,609r

-7 3
-2 0
- 9

+ 1
+ 4
— 5

+ 5
+ 1
+12
#
#
+ 1
- 3
— 2
+ 1

+14
- 4
+31
_ i
#
_ 1
- 4
+ 9
— 2

SECOND FEDERAL RESERVE DISTRICT
Electric pow
der output (New York and New Jersey)*...................
Residential construction contracts*...................................................
Nonresidential construction contracts*............................................
Consumer prices (New York City)f..................................................
Nonagricultural employment*.............................................................
Manufacturing employment*..............................................................
Bank debits (New York City)*..........................................................
Bank debits (Second District excluding New York City)*..........
Velocity of demand deposits (New York Citv)*............................

July

149
214p
278p
111.8
7,498.8p
2 ,6 4 3 .Op
62,624
4,800
158.0

144
212
249
111.8
7,485.7
2,6 0 7 .5
63,481
4,606
167.2

i
138
!
181
180
113.3
7 ,4 9 1 .lr
2,650.7r
63,046
4,304
163.0

+
+

+11

+ 9
+ 17

Note: Latest data available as of noon, August 31, 1955.
p Preliminary,
t Revised series. Back data available from U. S. Department of Commerce.
r Revised.
§ Revised series. Back data available from Financial and Trade Statistics Division, Federal
* Adjusted for seasonal variation.
Reserve Bank of New York.
t Seasonal variations believed to be minor; no adjustment made.
1f The number of reporting centers was reduced by one in May when two centers were combined.
i Change of less than 0.5 per cent.
Current figures are comparable with those published previously.
Source: A description of these series and their sources is available from the Domestic Research Division, Federal Reserve Bank of New York, on request.