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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
38
R E S E R V E
B A N K
SEPTEMBER
C o n d itio n s
O F
N E W
Y O R K
1 956
No. 9
MONEY M ARKET IN AUGUST
The month of August was marked by steady tightness
Federal R eserve System open market operations were
in the money market and increased pressure on member
confined principally to the last half of A ugust and were
designed to offset temporary influences on reserve balances
bank reserve positions. In the face of strong demands for
bank credit, the principal banks in N ew Y o rk C ity and
and to supply reserves to meet seasonal needs. Total Sys
other money market centers on A ugust 2 0 and 2 1 raised
tem holdings of Governm ent securities increased 2 7 8 mil
their rates to prime borrowers X
A of 1 per cent, from 3 %
lion dollars between A ugust 1 and A ugust 2 9 , all of which
to 4 per cent, a new high since 1 9 3 3 . On August 2 3 the
represented outright purchases of Treasury bills. R epur
Federal Reserve Banks of N e w Y o rk , Philadelphia, R ich
mond, and Chicago announced increases in their discount
chase agreements were extended from time to time during
the period to alleviate temporary strains on the money
rates from 2 3A per cent to 3 per cent, effective on the
market, but, while these were sizable at times, they were
following day. On A ugust 2 4 the Reserve Bank of C leve
of short duration and all had expired by August 2 9 .
A w ave of upward interest rate and security yield adjust
land made a similar announcement, as did the Federal
Reserve Banks of Boston, Atlanta, St. Louis, and Dallas
on A ugust 2 7 and the Reserve B ank of Kansas C ity on
August 30 . This brought the discount rates of all twelve
ments took place over the month, in both the m oney m ar
ket and the bond markets. Th e longest outstanding issue
of Treasury bills rose 6 2 basis-points in yield between
Federal Reserve Banks to 3 per cent, the Minneapolis and
August 3 and A ugust 2 2 , from 2 .2 4 per cent (bid) to
San Francisco Banks having gone to that rate this past
A p ril when the other ten Banks went to 2 3A per cent.
2 .8 6 per cent, as bills were liquidated by nonbank holders
in order to pay for purchases of the new 2 3A per cent tax
M em ber bank borrowings from the Federal Reserve
anticipation certificates and much of the usual demand for
bills was diverted into the new issue. Th e longest out
Banks during August reached the highest level since M a y
and averaged about 900 million dollars. A decline in float
from the unusually high levels of June and Ju ly and a sub
stantial rise in required reserves were prim arily responsible
for the increase in pressure on member bank reserve posi
tions. Th e average amount of member bank borrowings
standing issue closed A ugust 3 1 at 2 .6 6 per cent (b id ).
Com m ercial paper dealers raised their rates Vs of 1 per
cent on August 1 3 and a further Vs of 1 per cent on
A ugust 2 1 , bringing the rate on prime four-to-six months’
from the Federal Reserve Banks, less excess reserves, rose
paper to 3 % per cent. Dealers in bankers’ acceptances
followed suit in both cases (on A ugust 1 4 and again on
from 1 4 9 million dollars in the five statement weeks ended
August 1 to 3 5 2 million in the four statement weeks ended
CONTENTS
August 2 9 . Flo at remained below estimated levels during
the first half of the month, and this was the principal rea
son for the squeeze on bank reserve balances in that period.
A large increase in required reserves in the middle of
August, associated mainly with commercial bank purchases
of the new tax anticipation certificates issued by the
Treasury, was the major factor absorbing reserves in the
latter part of the month.
Th e effective rate for Federal
funds was 2 3A per cent almost continuously until August
2 4 , when it rose to 3 per cent.
Money Market in A u g u st....................................
International Monetary Developments ...........
Recent Price Developments................................
Central Banking in Asia: Policies and
Techniques .........................................................
Earnings and Expenses of Second District
Member Banks in the First Six Months of
1956 ......................................................................
Selected Economic Indicators............................
121
125
126
129
133
136
MONTHLY REVIEW, SEPTEMBER 1956
122
August 2 1 ) and then raised their rates a further Vs of 1
per cent on August 2 8 to bring the offering rate for unin
dorsed 90-day acceptances to 2 % per cent, a new post
w ar high. On A ugust 2 0 and 2 1 large finance companies
Table 1
Changes in Factors Tending to Increase or Decrease Member
Bank Reserves, August 1956
(In m illions o f d o lla rs; ( - { - ) denotes increase,
(— ) decrease in excess reserves)
Daily averages—week ended
that place their paper directly with investors raised their
rates V* of 1 per cent, bringing the rate on their 3 0 to 8 9 day paper to 3 per cent, and on the following days rates
on new call loans secured by stock exchange collateral
were raised from 4 to AV2 per cent at most N ew Y o rk
C ity banks.
The prices of Government bonds and notes declined
further during August. Dominant influences were the ris
ing yields in the corporate and municipal markets and the
growing belief in the securities markets that, with infla
tionary tendencies becoming increasingly evident, further
measures to restrain credit expansion might be expected
in the near future.
The corporate and municipal bond markets were also
marked by price weakness, reflecting the fundamental influ
Aug.
1
Aug.
8
Aug.
15
Aug.
22
Aug.
29
Treasury operations*...............................
Federal Reserve float..............................
Currency in circulation...........................
Gold and foreign account........................
Other deposits, etc..................................
+ 40
-3 47
+ 57
+ 5
- 33
7
-217
- 58
9
+ 61
- 12
+ 8
- 48
- 15
+ 9
+ 50
+334
+ 27
+ 42
+ 14
+ 10
-342
+ 36
- 24
- 16
+ 81
-5 6 4
+ 14
1
+ 35
Total.........................................
-279
-230
-
59
+470
-3 38
-4 3 6
—
+ 21
+ 28
+107
+146
- 98
+184
+ 30
+117
+227
+ 43
-
82
+ 57
+362
Bankers’ acceptances:
Bought outright...................................
Under repurchase agreements..............
_
_
1
_
+
Total.........................................
+126
+227
+ 64
Operating transactions
Direct Federal Reserve credit transactions
Government securities:
Direct market purchases or sales.........
Held under repurchase agreements----Loans, discounts, and advances:
Member bank borrowings....................
Effect of change in required resemsf............
ence of the heavy calendar of new issues. Th e termination
of several underwriting syndicates resulted in sharp upward
yield adjustments, and several firms announced postpone
ments of scheduled flotations to await more favorable
market conditions. L a te in the month, however, two large
corporate issues that were priced to offer attractive yields
were readily sold and subsequently advanced to premiums
over the issue prices.
M
em ber
B ank R
eserve
P o s it io n s
Net
changes
Factor
Daily average level of member bank:
Borrowings from Reserve Banks.............
Excess reserves!......................................
+ 10
-
1
_
+ 54
+104
+575
-234
+ 76
+139
-1 86
-
-153
+ 94
3
+ 88
+ 5
- 16
+524
-428
-
59
+ 85
-
11
+ 96
-1 58
690
485
917
570
960
559
878
655
935
497
47
876 f
553$
Note: Because of rounding, figures do not necessarily add to totals.
* Includes changes in Treasury currency and cash,
f These figures are estimated,
j Average for five weeks ended August 29.
billion dollars of new 2 % per cent tax anticipation certifi
cates, receipt from the Treasury of over 800 million dollars
for the cash redemption of the unexchanged portion of the
N et borrowed reserves of member banks, which in Ju ly
had fallen to the lowest levels since January, rose consider
maturing 2 per cent notes refunded in Ju ly, and payment
by the Treasury of over 2 0 0 million dollars of interest.
ably in August to about the same average level as in the
latter part of M ay. Th e increase reflected in large part a
drain on bank reserves caused by sharp declines in float;
over the four weeks ended August 2 9 the daily average
These very large transactions had relatively little immedi
ate effect on the over-all volume of bank reserves, but
resulted in large-scale movements of funds and were fol
lowed on A ugust 1 6 by an abrupt large increase in required
level of float was about 3 3 0 million dollars lower than the
average for Ju ly. In addition, required reserves rose by over
4 0 0 million dollars during the week ended August 2 2 fol
lowing a large increase in member bank deposit liabilities,
reserves. In view of the tightness of reserve positions and
in order to prevent these huge transfers of funds from pro
ducing undue tem porary stringency in the money market,
the System provided 1 4 7 million dollars of reserves in the
chiefly in Government T a x and L o a n Accounts.
week ended August 1 5 through the purchase of short-term
In the two weeks ended A ugust 1 5 average net borrowed
reserves of member banks rose to almost 3 7 5 million dol
Government
securities from
dealers under repurchase
agreements.
lars, compared with an average of less than 1 5 0 million
The midmonth expansion of float and other factors,
in Ju ly, as reserve balances were depleted by a decline in
including additional Federal R eserve repurchase agree
float from the unusually large volume in Ju ly and, to a
ments, more than counteracted the sharp increase in re
lesser extent, by an outflow of currency into circulation.
quired reserves in the early part of the following statement
During the first half of the calendar month, float for the
week, with the result that average net borrowed reserves
first time in a number of weeks was only moderately above
for the week as a whole fell to 2 2 3 million dollars. In the
the year-ago levels, and the outflow of currency into cir
latter part of the week, however, float declined rapidly,
culation was somewhat greater than has been usual for this
and, although outright purchases of 1 2 7 million dollars of
time of the year.
On August 1 5 the money market and the banking system
Government securities were made as the repurchase agree
ments with dealers ran off, the reserve positions of member
were confronted with the diverse effects of Treasury opera
banks tightened considerably.
tions stemming from payment to the Treasury for the 3 .2
August, float receded further and both outright System pur
During the final week of
FEDERAL RESERVE BANK OF NEW YORK
chases and new repurchase agreements were employed to
relieve the pressure on member bank reserves.
G overnment
S e c u r it ie s
M arket
The prices of Treasury notes and bonds, which had
shown weakness during Ju ly, continued downward during
most of August. Prices fell in the wake of upward yield
adjustments in the corporate and municipal securities mar
kets, as several underwriting syndicates were dissolved
and quotations on recent offerings sagged below their
original reoffering levels. Particular impetus was given to
the adjustment of prices on Governm ent securities in midAugust by the announcement of a reoffering yield of 3 .9 4
per cent on a large new A aa-rated public utility bond
flotation.
This offering refocused attention on the wide
spread between yields of new high-grade, long-term cor
porate bonds and long-term Treasury issues which at the
time were still yielding less than 3 .2 0 per cent.
Underlying the rise in yields throughout the capital
markets was the continued belief that buoyant economic
conditions are likely to prevail through the end of the
year, with the concomitant prospect that demands for
credit will be heavy, and that further Federal Reserve
action might soon be taken to resist inflationary pressures.
The advance in R eserve Bank discount rates in the latter
part of the month, therefore, came as no surprise and
caused no accentuation of the weakness in the bond m ar
kets, but, if anything, appeared to have some settling
effect.
In general, the decline in the prices of Treasury notes
and bonds took place in an atmosphere of uncertainty as
dealers sought a rate range at which investor buying would
be forthcoming. Th e volume of trading was generally light
except for an enlarged volume of switches for tax purposes
123
principal reason for the sharp rise in member bank re
quired reserves in the week ended A ugust 2 2 .) The T reas
ury simultaneously announced in connection with this
financing that on September 1 5 , 1 9 5 6 it would redeem for
cash the 9 8 2 million dollar issue of partially tax-exem pt
2 % per cent bonds of 1 9 5 6 - 5 9 which had previously been
called for redemption.
Th e market reacted favorably to the terms of the tax
certificate offering so that it was heavily oversubscribed,
with subscriptions totaling 10 .6 billion dollars. Allotments
of 2 9 per cent were announced on August 8, with subscrip
tions of less than $ 10 0 ,0 0 0 receiving full allotment and
larger subscriptions no less than that amount. A total of
3 .2 billion dollars of the new certificates was issued. A fter
the announcement of the allotments, a fair volume of
trading developed in the certificates on a “ when-issued”
basis as commercial bank liquidation was rapidly absorbed
by corporations, dealers, and other nonbank investors at
prices slightly below par.
Treasury bill rates rose sharply during much of the
month after having fallen during most of July. The aver
age issuing rate established at the weekly auction for
Treasury bills rose from 2 .3 9 9 per cent for the issue dated
August 9 to 2 .6 0 3 per cent for the issue dated A ugust 1 6 ,
and then climbed to 2 .8 1 8 per cent at the auction held on
A ugust 2 0 for bills dated August 2 3 , the highest average
issuing rate established at a weekly auction since M arch 6,
19 33.
Th e rise in bill rates reflected the continued tight
ness in the money market combined with increased offer
ings from nonbank investors raising funds to make p ay
ment for the new tax anticipation certificates and slacken
ing demand as short-term investment funds were diverted
from bills to the purchase of the certificates. In the auction
held on A ugust 2 7 the average issuing rate rose further
prompted by the lower price level and occasional institu
tional selling of good size late in the month. On balance,
to 2 .8 3 2 per cent, and then in the last weekly auction of
the month, held on A ugust 3 1 (because of the September 3
prices of Treasury notes and bonds maturing through 1 9 5 9
fell by as much as 2 % 2 of a point over the month, while
holiday) for bills dated September 6, the average issuing
rate fell to 2 .7 3 6 per cent.
longer issues maturing through 1 9 7 2 fell by
2% 2
to 2 %
2
points. The 3 ’s of 1 9 9 5 moved down from 9 7 % 2 (bid) at
the start of the month to a new low of 9 4 2 % 2 early on
A ugust 2 1 , but then rose slightly to close the month at
O ther
Se c u r it ie s
M arkets
Th e corporate and municipal bond markets also re
flected the uncertainty which characterized the Govern
ment securities market during most of August.
9 5 y32, to yield 3 .2 3 per cent.
On August 3 the Treasury announced a new money
Several
large offerings were postponed due to “ unsatisfactory”
offering of about 3 billion dollars in the form of 2 % per
market conditions and, in a number of cases, the termina
cent tax anticipation certificates to be dated August 1 5 ,
tion of underwriting syndicates resulted in sharp upward
1 9 5 6 and to mature M arch 2 2 , 1 9 5 7 . Th e new certificates
yield adjustments.
m ay be tendered at par plus accrued interest to maturity
A aa-rated corporate issues, as reflected in M o o d y’s cor
A verage market yields on seasoned
in paym ent of income and profits taxes due M arch 1 5 ,
porate bond index, rose 1 7 basis-points over the month
1 9 5 7 . T h e subscription books were open only on M onday,
to 3 . 5 1 per cent, breaking through the previous post
Com m ercial
war peak of 3 .4 4 per cent established in June 1 9 5 3 . Y ield s
banks were permitted to pay for 80 per cent of their allot
on similarly rated long-term municipal bonds rose 2 1 basis-
ments and those of their customers by credit to T a x and
points to 2 .6 2 per cent, a new high for the year but still
L o a n Accounts.
1 1 basis-points below the June 1 9 5 3 postwar peak.
August 6, with payment due August 1 5 .
(Paym ent for bank subscriptions was the
124
MONTHLY REVIEW, SEPTEMBER 1956
The estimated volume of public offerings of corporate
Dealers experienced difficulty in paring inventories, with
bonds for new capital in August amounted to 2 8 0 million
dollars, down about 2 8 0 million from Ju ly, in part owing
many preferring to withdraw offerings from the market
rather than press them at sacrifice prices.
to usual seasonal factors and in part to the postponement
On August 2 9 the Federal L a n d Banks offered 1 1 0
or cancellation of more than 2 0 0 million dollars of offer
million dollars of 3 % per cent bonds maturing in 1 9 7 2 ,
priced to yield almost 3 .9 2 per cent, as well as 1 3 5 million
ings which had been scheduled for August. Despite the
decrease in new flotations, however, the corporate market
was influenced by a heavy prospective calendar and sizable
dollars of 33A per cent bonds maturing Ju ly 1 5 , 1 9 5 7 and
priced at par.
private placements, as well as by the expectation of con
tinued high-level economic activity for the balance of the
year.
M
B a n k C r e d it
em ber
Total loans and investments at all w eekly reporting
A s a result, prices sagged in the face of investor
member banks increased 9 5 2 million dollars during the
resistance to yield levels prevailing early in the month. One
five weeks ended A ugust 2 2 , with investment holdings ris
ing 6 0 1 million and loans 3 5 1 million.
measure of the extent of recent yield increases in the cor
porate new securities market was provided by the success
Th e total loan expansion during this period was attrib
ful midmonth flotation of a large A aa-rated public utility
utable to a 5 2 9 million dollar increase in commercial and
issue of 30-year first mortgage bonds, priced to yield in
vestors 3 .9 4 per cent, the highest yield for a large new
industrial loans and a 1 1 0 million dollar rise in real estate
A aa-rated corporate issue in over twenty years. The pre
in security loans. A considerable increase in borrowings
vious large similarly rated corporate issue, also a public
by commodity dealers reflected in part the financing of pur
utility offering of 30 -yea r bonds, had come out in early
chases of cotton from the Com m odity Credit Corporation
June at a reofxering yield of 3 .5 0 per cent; during M a y June 1 9 5 3 , the previous high in terms of yields, no large
for export under the new surplus disposal program. The
new A a a issue had been priced to yield more than 3 .7 5 per
cent. A similar indication of the extent of yield adjustments
of the increase in business loans were firms in the petro
was given by the successful flotation in the latter half of
the month of a large new A a-rated public utility issue of
companies, and food, liquor, and tobacco firms. On the
32 -y e a r debentures at a reoffering yield of 4 .2 3 per cent.
Table II
Weekly Changes in Principal Assets and Liabilities of the
Weekly Reporting Member Banks
Th e market for municipal securities also was weak.
loans, which more than offset a 3 1 4 million dollar decrease
borrower categories accounting for most of the remainder
leum and chemical industries, public utilities, sales finance
(In m illions of dollars)
Public offerings amounted to an estimated 16 0 million dol
lars in August, down 10 0 million from the previous month.
Statement weeks ended
Item
July
25
Aug.
1
Aug.
8
Aug.
15
- 35
+ 1
-126
+ 24
+131
- 20
+ 24
+ 20
9
+ 2
-1 35
+ 7
+ 295
+
7
—
1
+
38
charge. The booklet describes the manner in which
Loans and investments:
Loans:
Commercial and industrial loans.
Agricultural loans.....................
Security loans...........................
Real estate loans.......................
All other loans (largely
consumer)..............................
-
+ 51
+ 22
24
operations are conducted through the B an k ’s Trading
Total loans adjusted*........
-153
+202 -111
+
317
Desk in carrying out the directions of the Federal
Investments:
U. S. Government securities:
Treasury bills........................
Other.....................................
+ 13
-227
-
53
19
-
63
91
Total..................................
Other securities.........................
-2 14
- 23
-
72
36
Total investments.................
-237
FEDERAL RESERVE OPERATIONS IN THE MONEY
AND GOVERNMENT SECURITIES MARKETS
A new 10 5 -p a g e booklet, Federal Reserve Opera
tions in the Money and Government Securities Mar
kets, will shortly be available from this B ank free of
Open M arket Committee. Th e booklet has sections
on the role of the national money market, its instru
ments and institutions, trading procedures in the
Government securities market, its relations with other
markets, what the Trading Desk does, the use of
projections and the “ feel” of the market, trading
methods and objectives, and operating liaison with
the Federal Open M arket Committee. Introductory
and concluding sections emphasize the interrelation
of technical and credit policy factors in operations.
Requests for copies should be addressed to the
Publications Division, Federal Reserve Bank of N ew
22
Aug.
Change
from Dec.
28, 1955
to Aug.
22, 1956
Assets
11
+
+
6 1+2,475
21 +- 811
590
1 + 702
147
76
+
+
96
+2,837
+ 281
+1,094
_
90
250
909
-2,354
—154
+ 58
+1,375
43
»
340
50
-3 ,2 6 3
— 453
-1 08
-
96
+1,332
290
-3,716
194
-
879
69
+
146
Total loans and investments
-390
+ 94
-207
+1,649
Loans to banks................................
-
90
+ 83
-
43
-
119
Loans adjusted* and “ other”
securities.......................................
-1 7 6
+166
-
53
+
274
+
146
+2,384
Demand deposits adjusted............... +340
Time deposits except Government.. + 23
U. S. Government deposits.............. -542
Interbank demand deposits:
Domestic...................................... -792
+ 40
—558
+ 11
+2S0
-1 28
+ 9
-714
731
16
+2,634
+
+
+
310
42
47
—3 875
+ 278
+1,789
+336
+ 18
+ 16
+ 23
+
-
_
798
16
— 910
+
98
Liabilities
464
12
Y o rk , N ew Y o rk 4 5 , N . Y .
* 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.
FEDERAL RESERVE BANK OF NEW YORK
125
other hand, loans to metals and metal products companies
continued the decline begun in Ju ly. F o r the year thus far
total loans at the weekly reporting member banks have
risen 2 .8 billion dollars as compared with an expansion of
3 .5 billion in similar weeks last year.
Reporting member banks on balance continued to
A ugust 1 5 , when holdings of Governm ent securities other
than Treasury bills rose 1,0 9 4 million, reflecting in large
part the acquisition of the new tax anticipation certificates
sold by the Treasury. F o r the year thus far total security
holdings of the reporting banks have fallen 3 .7 billion dol
liquidate investment assets except in the week ended
parable 34-w eek period last year.
lars as compared with a decline of 5 .9 billion in the com
INTERNATIONAL MONETARY DEVELOPMENTS
M
onetary
T rends
and
Dutch economy has been characterized in the recent past
P o l ic ie s
The B ank of C anada raised its discount rate from 3 to
by a high level of prosperity, continued industrial expan
3V4 per cent— a record high— as of the close of business
sion, and almost complete utilization of available resources,
August 9.
it appears that inflationary pressures so far have not been
particularly strong; however, further wage adjustments are
Th e increase, the fifth in a little over twelve
months, came against a background of rising prices and
M oreover, commercial
currently under discussion, and the Dutch foreign trade
bank credit has continued to expand and market interest
deficit has increased noticeably during the first half of this
rates have advanced, while investment is expected to grow
year, with an attendant loss of reserves. A t the same time,
a mounting foreign trade deficit.
money market rates have risen sharply to their postwar
substantially during the remainder of 1 9 5 6 .
Business loans by the chartered banks, while still in
peaks. These rate movements, as well as the attraction on
creasing, last month rose much less rapidly and on
August 2 2 were 2 4 .5 per cent above a year earlier, as
short-term funds of higher rates in other major financial
centers, reportedly were among the reasons underlying the
against 2 6 .2 at the end of Ju ly and 2 9 .5 at the end of
June. During the second and third A ugust statement
Netherlands B an k ’s move.
weeks, the banks once more were borrowing from the B ank
government bond portfolios registered a slight increase
In the United Kingdom , the London clearing banks’
In the first half of last month government
during Ju ly, the first after a nineteen-month period during
security yields continued the upward movement that had
been resumed in Ju ly ; the average tender rate for three
which the banks had reduced their portfolios b y 1 7 per
of Canada.
months’ Treasury bills rose to a new postwar high of 3 .0 3
per cent on August 16 , from 2 .6 5 at the end of Ju ly.
cent. Nevertheless, the banks’ liquidity ratio rose to 3 4 .4
per cent on Ju ly 1 8 from 3 3 .6 per cent on June 3 0 and
3 3 . 2 in m id-M ay. Although the clearing banks’ advances
Effective A ugust 2 0 , the chartered banks raised by Va per
declined somewhat during the two and a half statement
cent their rates on most types of loans; this increase, the
weeks ended Ju ly 1 8 , this drop is somewhat inconclusive,
second this year, brings the minimum commercial lending
rate from 5 to 5 Va per cent. A further indication of the
as the end-of-June data were swollen by the semiannual
inclusion of a number of extraneous items. Since m id-M ay,
general firming of market rates can be found in the terms
of two new government issues. The Finance Department
in late August issued 2 5 0 million dollars of 4 1 ^ -year
advances have increased by some 2 0 million pounds which,
however, m ay still have been attributable largely to bor
33A per cent bonds, designed to convert an equal amount
of 3 per cent V icto ry L o a n bonds, issued Novem ber 1 ,
1 9 4 3 and maturing Jan u ary 1 , 1 9 5 9 ; the new issue is
priced at 9 7 to yield 3 .9 0 per cent. A new series of
1 2 ^ -year C anada Savings bonds, dated Novem ber 1 ,
rowing by the nationalized utilities. It appears that no
“ target” for the reduction of advances has been set in con
nection with the Chancellor of the Exch equer’s end-of-July
appeal to pursue a policy of credit contraction. Total hirepurchase debt is reported to have fallen b y 2 per cent in
June, after a similar decline in M a y , and thus on June 3 0
features for the first time a sliding interest scale, ranging
was 1 2 per cent below the end of 1 9 5 5 .
from 3 Va per cent during the first one and a half years to
edged securities generally declined during August; the yield
Y ield s of gilt-
4 per cent during the final seven years; the average yield
of 2Vi per cent Consols, which on A ugust 1 had reached
to maturity is 3 .7 6 per cent, compared with a flat 3 .2 5
4 .8 7 per cent— the highest level since the early thirties—
per cent on previous issues.
fell to 4 .6 7 per cent on A ugust 2 1 , and closed at 4 .7 8
The Netherlands B an k increased its discount rate on
on A ugust 3 1 . Th e average tender rate for three months’
August 2 5 to 3 Va per cent from 3 ; the rate had been raised
Treasury bills, on the other hand, rose from 5 .0 2 per cent
to 3 per cent from IVz early last February, following three
at the first to 5 .0 6 at the fourth A ugust tender.
consecutive decreases in 1 9 5 2 - 5 3 . Th e Dutch action brings
Th e Brazilian monetary authorities have introduced sup
to eleven the number of increases in foreign central bank
plementary commercial bank reserve requirements against
discount rates since the beginning of 1 9 5 6 .
increases in deposits above the maximum amounts out
W hile the
MONTHLY REVIEW, SEPTEMBER 1956
126
standing during the first half of 1 9 5 6 , with the banks free
to choose among a number of w ays in which these addi
tional reserves m ay be held. Th e existing basic reserve
Sterling for three and six months’ delivery m oved to
wider discounts during the first week of the month and was
requirements of 1 5 and 1 0 per cent against sight and time
quoted at 1 % cents and 3 % 2 cents below the rate for
spot sterling. Thereafter, increased demand tended to re
deposits remain unchanged.
Th e Reserve Ban k of India has obtained statutory
duce the spread, the discounts on three and six months’
falling to 1 % 2 cents and 2 % 6 cents, respectively, by
authority to raise and vary commercial bank cash-reserve
requirements, which will enable it to absorb some of the
A ugust 2 1 and generally holding at that level through the
month end. Transferable sterling exhibited an easy under
increase in the banks’ liquid resources anticipated from
tone throughout August, with the rate declining from
the financing of the Second F iv e -Y e a r Plan.
Reserves
$ 2 .7 6 4 0 on August 1 to $ 2 . 7 5 2 5 on A ugust 2 4 , the lowest
against sight deposits, now set at 5 per cent, m ay be varied
quotation since Ju ly 1 9 5 5 .
within a 5 -2 0 per cent range, and those against time de
istered a sharp drop from $ 2 . 6 6 ^ on August 1 to $ 2 . 6 0 ^
Securities sterling, which reg
posits, now at 2 per cent, within a 2 -8 per cent range.
on the following day, abruptly recovered to $ 2 .6 8
Th e B ank of Japan, as mentioned elsewhere in this Review,
August 7 on rumors that imminent action was to be taken
on
in m id-August announced its intention of lowering by one
by the British authorities to reduce the level of the so-called
half the ceilings, under the progressive rate system, for
“ premium dollar” in London, as well as on good demand
commercial bank borrowing at the minimum 7 .3 per cent
from stock houses in N ew Y o rk ; the official action, in fact,
discount rate; at the same time, the banks were urged to
use prudence in their lending policies.
took the form of sales of United States Government
bonds to British investors. Th e rate further improved to
E xchange R ates
$ 2 .6 9 Vi at midmonth, but fell to about $ 2 . 6 3 Va by the
month end.
Th e pound sterling w as under some pressure during
The Canadian dollar moved from $ 1 . 0 1 5 %
4
on August
most of August, mainly as the result of seasonal factors
1 to $ 1 . 0 1 19/32 two days later on fairly substantial com
and continued uncertainty over developments in the Middle
mercial offerings. Between A ugust 4 and 2 0 , however, it
East. Am erican-account sterling stood at $ 2 . 7 8 % 2 on
A ugust 2 . The announcement of a 2 0 million dollar in
strengthened once more under good commercial demand
crease during Ju ly in Britain’s gold and dollar reserves,
demand from London and N ew Y o rk . Th e August 9 an
followed by increased commercial demand for sterling
(principally on the part of oil com panies), lent some sup
nouncement of an increase in the Ban k of C an ad a’s dis
(particularly on grain account) and continued investment
count rate to an all-time high of 3 Va per cent likewise
port to the rate early in the month. The general tendency
for most of the month, however, was toward lower quota
August 20 . A slackening in the demand for the Canadian
tions, with commercial interests delaying covering commit
ments as long as possible. Following the London Suez
dollar occurred, following the increase in the prime money
rates in N ew Y o rk and market anticipation of the in
conference, some covering of short positions occurred and
Am erican-account sterling rose to $ 2 .7 8 % 6 on August 20 .
Thereafter, however, sterling tended to ease and closed on
A ugust 3 1 at $ 2 . 7 8 % 2 -
contributed to the Canadian dollar’s rise to $ 1.0 2 V 4 by
crease
in
the
Federal
R eserve
rediscount
rate
that
took place on August 2 3 , with the rate easing to $ 1 . 0 1 %
by August 2 8 . A t the month end the Canadian dollar was
quoted at $ 1 . 0 1 3 % 2 .
RECENT PRICE DEVELOPMENTS
During the period since m id -19 5 5 , a year of vigorous
modities— a process which appears to be still continuing.
business activity and record levels of income and employ
Th e upward trend in wholesale and retail prices since
ment, there has been an appreciable rise in both wholesale
m id -19 5 5 follows a period of more than three years dur
and consumer prices.
In the aggregate, the rise has
ing which prices remained relatively stable (see C hart I ) .
amounted to about 4 per cent at the wholesale level and
Several factors account for the departure from stability
to 2 per cent for consumer goods and services, lifting the
over the past year. Predominant among these have been a
indexes of wholesale and retail prices above the narrow
generally high and rising level of demand both at home
range of fluctuation that had prevailed for an extended
and abroad, reflected in sustained capacity operations in
period. Recently, moreover, there have been signs that the
m any key industries, and substantial increases in wage
uptrend might be gathering momentum. In June and Ju ly
rates and other production costs. W hile similar pressures
consumer prices increased sharply to new records, and the
on prices were also operative during the preceding period
raising of steel prices in August has been followed by a
of price stability, notably from 1 9 5 2 to 1 9 5 3 , the intensity
flurry of price increases for a broad list of other com -
of these pressures has mounted considerably in the last
FEDERAL RESERVE BANK OF NEW YORK
W
127
h olesale
P r ic e
M
o vem en ts
Chart I
PRICE TRENDS, 1950-56
Percent
Percent
In June 1 9 5 5 , the aggregate wholesale price index re
ported each month by the Bureau of L ab o r Statistics
( B L S ) stood at 1 1 0 . 3 per cent of its 1 9 4 7 - 4 9 average. B y
Decem ber the index had advanced to 1 1 1 . 3 , as industrial
prices advanced by 3Vi per cent and prices of farm prod
ucts and processed foods declined sharply. Through M a y
19 5 6 , wholesale industrial prices increased more slowly,
rising by a further IV2 per cent, but prices of farm and
food products increased markedly so that the total index
advanced to 1 1 4 . 4 . W hile the aggregate index receded
slightly in June and Ju ly, there has been a renewed advance
in August, according to the B L S weekly index, and less
comprehensive but more sensitive indexes of certain com
modity prices appear to point to a further rise in the near
future.
Th e largest price increases have occurred in the “ pro
ducer” goods area, principally in machinery and metals.
Prices of finished producer goods increased by nearly 8 per
cent in the year ended last June, compared with an advance
of about 3 per cent in the wholesale prices of finished
(nonfood) consumer goods. Prices of a number of indi
vidual commodities have, of course, moved contrary to this
pattern, but in broad outline price changes have paralleled
changes in demand.
Source: Bureau of Labor Statistics.
year. Furthermore, the recent ending of the long decline in
farm prices, which during the previous four years had
largely offset the rise in industrial prices, has imparted a
further lift to both wholesale and consumer prices.
These influences have so far been partly held in check
by strongly competitive conditions in some important sec
tors (notably durable consumer goods), b y fiscal and
monetary policies designed to restrain excess demands, and
by a continuing expansion and improvement of productive
facilities.
M oreover, the full effect of competition has
probably not been accurately revealed in the statistical
data on consumer prices, as these cannot ordinarily reflect
F o r purposes of rough comparison
(the data do not permit precise comparison of demand
components that would correspond to the various price
groupings) it is interesting to note that, in the second quar
ter of 19 5 6 , consumer outlays for goods other than food
products were less than 2 per cent higher than in the second
quarter of 1 9 5 5 , while business outlays for new plant and
equipment had increased by 2 3 per cent.
A s m ay be seen in Chart II, the sharpest rise for any
m ajor category since m id -19 5 5 has been in metals prices,
while prices of machinery and automotive products (which
use large amounts of m etal) also increased appreciably.
These advances appear to have stemmed from both a
higher demand (reflecting the rapid advance in the output
of producer goods and, during 1 9 5 5 , of consumer dur
ables) and increases in costs. F o r some metals, restricted
list prices. However, the strengthening of the business out
supply conditions also contributed to the price increases.
On the cost side, it m ay be noted that in the year ended
last June average hourly wage rates in prim ary metal
look following settlement of the steel strike and the pos
production increased by about 6 per cent, exclusive of
fully the extent of sales markdowns and discounts below
sibility of an upsurge in both business and consumer
“ fringe” benefits; a substantial further rise has, of course,
purchases during the fall indicate that the upward pressures
taken place subsequent to the steel settlement.
on prices m ay intensify further. Against this background,
The expansion of business investment has also been
and as part of the effort to restrain any tendencies toward
reflected in sizable price advances since June 1 9 5 5 for
inflation resulting from expansion in the monetary and
nonmetallic structural minerals and other materials used
credit sectors of the economy, the B oard of Governors
in construction.
has recently approved increases in discount rates at ten
19 5 6 , although they have declined since that time, reflect
Lum ber prices rose steadily until A p ril
Reserve Banks, making the rate uniformly 3 per cent
ing the drop in homebuilding.
throughout the country.
demand for most construction materials, wage increases
In addition to the strong
MONTHLY REVIEW, SEPTEMBER 1956
128
also appear to have contributed to the rise in prices for
these items; hourly pay rates in lumber and wood products
manufacturing increased by roughly 6 per cent in the year
ferent from that of the prices of other commodities (see
Chart I I ) . Both the decline and subsequent rise were sharp
enough to affect the over-all wholesale price level notice
ably, despite the much greater weight of the nonfarm sec
ended last June (partly as a result of the higher Federal
minimum wage introduced last M a rch ), while in stone,
tor.
clay, and glass products manufacturing the increase was
second half of last year and the increase in the first six
about 5 per cent.
Fuel and power prices, an important component of the
tude of the changes has far exceeded the usual intrayear
industrial price structure and one that directly affects
pattern of movement. A verage prices of farm products by
nearly all other prices, have risen by about 4 per cent in
the past year. C oal prices showed the sharpest increase,
last Decem ber had fallen to the lowest level since 19 4 6 ,
reflecting the harvesting of near-record crops, the reduction
T o some extent, the decline in farm prices in the
months of 1 9 5 6 were seasonal in nature, but the magni
and gasoline and fuel oil prices also advanced markedly.
of price-support levels, and the marketing of a record vol
A t the same time, the price rise for the fuel and power
group as a whole w as moderated by a decline of about
ume of livestock. A t the same time, hog prices reached
4 per cent in average electricity rates paid by industrial
users— a decrease apparently made possible by a marked
expansion in electric power utilization.
In contrast to the sizable price increases for these com
modity groups as well as for others not shown in the chart
— such as pulp and paper products and leather goods—
wholesale prices of some m ajor commodity groups have
held nearly unchanged or even declined slightly. This has
their lowest level since before W orld W ar II, and corn
prices also fell substantially, while prices o f some other
major items such as wheat, cotton, and dairy products
declined somewhat less. Nevertheless, even with high m ar
ketings, farm ers’ gross receipts and net income were
sharply reduced.
In recognition of the price and income decline, as well
as of the growing volume of agricultural surpluses, C on
been true, for example, of chemical products and of tex
gress and the Adm inistration took various remedial steps
during the past year. These actions, in combination with
tiles and apparel, even though producers have had to pay
considerably higher wage rates over the past year. Prices
the customary seasonal strengthening of prices, the un
usually severe winter and early spring weather, the curtail
at wholesale of other consumer goods, such as household
ment of certain types of output in response to low prices,
and the rising demand associated with the growth in popu
appliances and radio and television sets, also remained
fairly steady over the year ended in June, and in some
price increases for 1 9 5 7 models— not yet reflected in the
lation and incomes, succeeded in raising farm prices sub
stantially. B y m id-June average farm prices had regained
their year-earlier level and, while there have been declines
in Ju ly and August, these have been less pronounced than
official indexes— suggest that inflationary forces m ay be
a year ago.
cases declined, as manufacturers faced keen competition
and mounting inventories. H owever, recently announced
gaining strength in this area.
Consumer
Farm
P r ic e
T rends
A s mentioned earlier, the movement of farm and food
products prices since m id -19 5 5 has been dramatically difChart I!
RELATIVE CHANGES IN WHOLESALE PRICES
AND SELECTED COMPONENTS
e 1955 !o December 1955
December 1955
P r ic e
D evelo pm ents
The pattern of consumer price changes during the past
year has been broadly similar to movements in wholesale
price levels. However, due to the importance of food in
consumer budgets, the consumer price index has been more
affected by the recovery in farm prices. A s shown in Chart
III, the decline in food prices in the latter half of 1 9 5 5
exerted a marked restraining effect on the total index
All industrial goods
Metals and metal produ
i
(which advanced only
s/ 10
per cent over this p erio d ); in
the first six months of 1 9 5 6 , however, the 3 Vi per cent
Machinery and motive
increase in retail food prices was the m ajor factor in rais
Nonmetaific structural mine
ing the total index by more than 1 per cent. In Ju ly, more
! Lumber and wood produc
over, food prices again rose sharply, pushing up the total
i
index by a further
F u elan d p o w er
J
Chemicals
i
Textiles and ap p arel
i
Farm products
|
Processed foods
7/10
per cent.
A m ong the nonfood components of the index, the prices
of services have risen much more rapidly than prices of
goods.
T o a certain extent, the cost of such services as
housing m ay still be catching up with advances in other
sectors. Productivity advances, moreover, m ay have been
-10
-8
- 6 - 4 - 2
0 *2 + 4
Par cent
Source: Bureau of Labor Statistics*
♦
less rapid for services than for goods, and m ay not have
kept pace with the more-than-proportional expansion in
F E D ER AL R ESER VE B A N K OF N E W Y O R K
Chart III
RELATIVE CHANGES IN CONSUMER PRICES
AND SELECTED COMPONENTS
June 1955 to December 1955
December 1955 to Ju n e 1956
129
sets, refrigerators, and shirts. While over the next few
months the effects of these advances on the consumer price
index m ay be offset by a seasonal decline in food prices,
they probably will result in a higher retail price level in
the not-too-distant future.
Su m m a r y
of
R
ecent
E x p e r ie n c e
Price developments between June 1 9 5 5 and June 1 9 5 6 ,
at both the wholesale and consumer level, can be con
veniently marked off into two periods. In the second half
of 1 9 5 5 , when aggregate demand was expanding rapidly,
prices of nonagricultural goods and of consumer services
increased appreciably, but aggregate price indexes showed
only a slight advance, owing to the marked decrease (partly
seasonal) in agricultural prices. In the first half of 1 9 5 6 ,
on the other hand, only moderate advances in nonfarm
* Com ponent of housing.
Source: Bureau of la b o r Stal
prices were registered; however, comprehensive indexes of
wholesale and consumer prices rose more rapidly than in
the demand for services that has accompanied the advance
in consumer incomes.
In contrast to the expansion in service costs, prices of
goods other than food have until recently remained fairly
stable, with increases in the nondurable sector offsetting
declines for m any durables.
A p p arel prices advanced
somewhat in the second half of 1 9 5 5 — partly for seasonal
reasons— and failed to register the usual spring decline in
1 9 5 6 . In the durable area, appliance and furniture prices
the preceding six-month period because of the sharp re
bound (again partly seasonal) in agricultural prices.
M ore recently, a strengthening of demand in m any lines,
as well as higher costs stemming from wage and price
adjustments in the steel industry and other lines, has resulted
in a more pronounced uptrend in both wholesale and con
sumer prices. W ith the econom y close to capacity in m any
tended to recede until this summer, reflecting the intense
lines, it appears unlikely that production can be increased
rapidly enough in the near future to assure any early relief
on the “ supply side” from the pressure toward higher
competition at both the manufacturers’ and retailers’ level.
prices. O ver the longer run, of course, the completion of
Automobile prices (included in “ transportation” on the
the current large-scale investment programs— which, to a
chart) moved higher in the latter half of 1 9 5 5 , but eased
again during the early months of 1 9 5 6 , as large inventories
prompted intensified price-cutting by dealers.
In the last few weeks— too recently to have affected the
official index— price increases have been announced for a
wide variety of consumer goods and services, and a series
of further increases is in prospect for the remainder of the
year. The items affected include, among others, coffee,
beer, tires, used cars, railroad passenger fares, television
significant extent, are responsible for the present push on
prices— should yield appreciable advances in productivity
and capacity that m ay act as strong deterrents to further
rises in the price level. A t the moment, however, with
costs rising and potentialities limited for early substantial
expansion of output, the m ajor counterforce to inflationary
pressures will have to be exerted by checks upon aggregate
demand, to whatever extent these m ay prove practicable
and effective.
CENTRAL BANKING IN ASIA: POLICIES AND TECHNIQUES
M ost of A sia has in recent years been in an economic
which has thrust upon them responsibilities directly asso
ferment that has resulted from the urge for accelerated
ciated with the fostering of economic growth, in addition to
development. This has had profound effects upon both the
the usual responsibilities for maintaining monetary sta
policies and the techniques of the central banks in that
bility. T o carry out these new duties, the banks have had
area.1 M an y of these banks have been assigned an impor
to reach out beyond the range of activities traditionally
tant role in the formulation of national economic policy,
regarded as within the domain of central banking. M ore
1 There are fourteen central banks in South and Southeast Asia and over, because the banks have had to operate within rela
the Far East, apart from those in Mainland China, North Korea, and
tively undeveloped financial environments, considerable
North Vietnam, which are not discussed here. Ten either are com
experimenting has been necessary even when seeking to
pletely new or have been entirely reorganized since World War II—
those of Burma, Cambodia, Ceylon, Indonesia, South Korea, Laos,
fulfill traditional responsibilities.2
Nepal, Pakistan, the Philippines, and South Vietnam. The four older
banks are in Formosa, India, Japan, and Thailand. A central bank for
2 In this connection, see "Monetary Policy in Latin America” ,
Monthly Review, April 1956.
Malaya and Singapore is now under consideration.
MONTHLY REVIEW, SEPTEMBER 1956
130
In coping with their varied tasks, the banks have had
to devote an extraordinary amount of attention to im prov
the increase effective, the bank ceased its heavy open m ar
ket purchases of government securities at high pegged
ing the soundness and flexibility of the commercial banks’
prices; money rates generally hardened; and banks were
operations, to expanding and supplementing the available
forced to borrow from the Reserve Bank, which gave it
banking and credit facilities (especially for the agricultural
better control over commercial bank lending.
and industrial sectors), to developing the money and capi
Philippines, the bank raised its rate in 19 4 9 in an effort to
In the
tal markets, and to building up a more integrated credit
curb a serious drain on the external reserves. H ow ever,
mechanism. It is obvious that these activities are intimately
the private commercial banks there have little recourse to
related to the banks’ new responsibilities for encouraging
central bank credit, and the rate increase did not have any
economic growth, which require that the banks help to pro
perceptible restraint on their lending.
vide necessary credit and mobilize savings. However, they
rate was reduced again in two stages to its original level.
are also tied up closely, although perhaps less obviously,
with traditional credit-control functions.
Subsequently, the
In Japan , there was a rise in the discount rate in 1 9 5 5 ,
W here money
but this was a technical adjustment rather than an increase
and capital markets are at best only tenuously related to
each other, where credit is largely extended by bazaar and
in actual lending charges. Previously, the Ban k of Jap an
had actively employed a com plex loan system for regu
other money lenders outside the purview of the central
lating credit both quantitatively and qualitatively. Under
bank, and where commercial banks seldom resort to bor
this system a three-tiered line of credit was set up for the
rowing from the central bank, the latter can have only
banks, with three different rates for each of nine categories
very limited control over the econom y’s credit operations.
of eligible paper.
Th e lowest or “ basic” rates applied
O f no less importance have been the efforts made by
when a bank borrowed within the first tier of its credit
many central banks, as fiscal advisers, to persuade their
line, and the higher rates when the higher brackets were
respective governments to maintain reasonable balance in
reached.
their budgets. Thus far, the inflationary impact of budget
repaying their credits, and the outstanding volume began
ary deficits has often been mitigated by drawing down
foreign exchange reserves and securing foreign aid and
other external financial resources. Recently, however,
to drop toward the first-tier limit. It was, therefore, only
by raising the “ basic” rates that the central bank was able
In 1 9 5 4 the banks were in a position to start
to keep its lending charges from falling. A t the same time
many government authorities have begun to show aware
the bank announced that thenceforward it would place
ness of the fact that there are limits both to their countries’
external reserves and to foreign financing, and have been
giving increased heed to central bank warnings that greater
primary reliance for credit control upon adjustments in the
emphasis must be placed on expanding domestic savings,
to tighten its credit policy by cutting in half the loans
allowed in the two lower tiers.
if development expenditures are to be continued at levels
that will assure economic growth with financial stability.
A d a p t in g
th e
T r a d it io n a l
C r e d it - C o n t r o l
Instrum ents
“ basic” rates rather than upon the progressive rate system.
L a st month, however, the bank announced it was going
M ost of the countries, relying rather heavily upon
qualitative controls, have used the discount mechanism
in a selective w ay. A number of central banks have sought
O nly a few of the A sian central banks have so far
made any appreciable use of traditional credit-control tech
niques, mostly because of the relatively undeveloped finan
to encourage economic development by providing at con
cessional rates both agricultural credits of wide-ranging
maturities and medium and long-term development credits.
In India and Pakistan, preferential rates are accorded
cial setting in which the banks have had to operate. M an y
paper growing out of the so-called B ill M arket Schemes,
banks, however, have endeavored to adapt the traditional
described below. Th e discount rate in Pakistan has also
instruments to such an environment, sometimes modifying
been further modified by a progressive rate system under
them so much as to substantially alter their character.
During the fifties, discount rate changes have been made
by only a few banks in the area.3 In Ceylon, the central
bank raised its rate in 1 9 5 3 , after ending its support of
which the rate increases with the length of time the ad
vances remain outstanding. Finally, several central banks
have authority to limit in either a general or a selective
fashion the volume of credit they provide.
government securities prices, and a year later lowered the
Resort in A sia to open market operations as an instru
rate again. In each case, the change was preceded by a
ment of general credit control has been about as limited
substantial movement in the Treasury bill rate. In India,
as has been the use, for this purpose, of the discount rate.
the rate was raised at the start of the 1 9 5 1 “ busy” season,
In most cases, efficient use of open market operations has
ushering in a new policy of monetary restraint. T o make
been precluded by the lack of a sufficiently broad market.
Those operations that have taken place have usually been
3 See "Discount Policies and Techniques Abroad” , Monthly Revieiu,
heavily weighted on the buying side.
June 1956, for a survey of practices throughout the world.
The Indian central
FEDERAL RESERVE BANK OF NEW YORK
bank in the early postwar years conducted heavy seasonal
purchases in pursuit of a cheap money policy; and the
Philippine central bank has bought actively in order both
to build up a securities market and to provide resources
for specialized institutions. These and others of the banks
131
this power has been used only in South Korea. Some
central bank laws set ceilings on the credit that the bank
can extend to the government or to government institutions,
although this ceiling has sometimes been circumvented.
D e v e l o p in g
B a n k in g S y s t e m
have also engaged on occasion in some degree of selling,
but always with care not to depress prices. In Japan,
In their urgent task of building up their countries’ bank
the central bank reinstituted open market sales of govern
ing systems, the A sia n central banks have had as one of
the
ment securities last Novem ber, after a lapse of many years.
their more prosaic but basic activities the development of
H owever, these sales have been made in limited volume
efficient bank-inspection services. T h ey consider system
and under unorthodox arrangements, so as not to interfere
atic, periodic inspections to be of especial importance in
their economies, where traditions of sound banking policies
with the progressive reduction of interest rates which the
government deems necessary to facilitate the moderniza
and practices have not yet grown up, where people are
tion and expansion of industry.
not in the habit of using banking facilities, and where the
Variable commercial bank reserve requirements as an
possibilities of credit control by indirect means are as yet
instrument of credit control have so far been utilized by
limited.
only three central banks, but the potential value of this tool
is being increasingly appreciated.4 Th e Central B ank of
personal savings necessary to help finance economic devel
Ceylon has twice altered the reserve requirements against
confidence in the banks; and it is also imperative to direct
These are serious problems.
Th e expansion of
opment depends to a large extent upon creating public
commercial bank demand deposits, raising the ratio in
the limited resources of these countries to the most essen
1 9 5 1 in order to curb nonessential loans and bring the
tial uses. Consequently, a number of central banks have in
central bank into closer touch with the market, and lower
recent years requested, in addition to their bank-licensing
ing it again in 1 9 5 3 when the banks’ liquidity positions
authority, legislation giving them inspection powers, or
became seriously tight. Th e central banks of K orea and
have expanded their existing inspection operations.
Form osa are the only other banks that have altered their
A more visible central bank activity has had to do with
reserve requirements, although a number of others in A sia
enlarging the existing banking services. Th e central banks
are authorized to do so (including those in Burm a,
Pakistan, Thailand, and— since this summer— In dia). The
have sought to expand the number of commercial banks
Bank of Japan, which has had such power since 1 9 4 9 but
has never imposed even a fixed reserve requirement, now
and commercial bank branches, to broaden the scope of
business done by the commercial banks, and to establish
reports that it has the matter of variable reserve require
special financing institutions. E xcep t in Japan , there are
relatively few bank offices outside the most important
ments under consideration.
cities. The central banks of India and of Pakistan have
The relatively undeveloped money market conditions
been particularly active in increasing the number of bank
have caused m any A sian central banks to depend much
upon moral suasion. H o w successful this has been is, of
course, difficult to say. M ost often it has taken the form
of a request to commercial banks to refrain from granting
have helped provide training for commercial bank em
ployees. E ve n where commercial banks have been expand
ing, however, they have generally continued to provide
branches in rural and semirural areas, and both banks
advances for speculative purposes. A number of the cen
tral banks have had recourse also to credit-control meas
ures devised specifically to meet the problems of less de
credit primarily for commercial transactions— mainly be
cause of a concern for liquidity, although sometimes also
veloped economies. F o r instance, the central banks of
Indonesia, Pakistan, and the Philippines have at times
sought with one stroke both to limit monetary expansion
A
because of legal obstacles— and have left agriculture and
industry almost entirely dependent upon nonbank sources.
number of central banks have therefore resorted to
special devices in the attempt to encourage commercial
and to restrict imports. T o do this, three new types of re
banks to broaden the scope of their financing. Probably
quirements have been used: ( 1) minimum cash margins
outstanding in this respect has been the Central B an k of
against the opening of import letters of credit; ( 2 ) local-
the Philippines, which administers a fund (supplied from
currency deposits of a specified percentage of import costs;
United States-aid counterpart monies) to provide guaran
and (3) minimum percentages of specified commercial
tees of commercial bank loans to small and medium-sized
bank assets relative to the banks’ letters of credit. M an y
industries, and which has also obtained United States
central banks also have power to impose ceilings on the
Export-Im port B ank credit lines for Philippine banks, for
loans and investments of the commercial banks, although
reloaning to industry upon central bank approval.
So far, however, relatively little has been accomplished
4 This is a general trend. See "Commercial Bank Reserve Require
by such means. Only those commercial banks that are
ments Abroad” , Monthly Review, October 1955.
MONTHLY REVIEW, SEPTEMBER 1956
132
state directed or state owned (several central banks have
taken a leading hand in establishing such institutions) have
to fit the peculiarities of rural economic life, and which
shown a readiness to broaden their activities.
The banks conduct their operations under the close tutelage
B ut even
serve not only agricultural but also other rural enterprises.
these banks can do little to fill the existing gaps, since
and supervision of the central bank, and much imagination
most of them follow traditional credit practices.
M an y
and ingenuity are being shown in adapting conventional
central banks have consequently advocated the establish
techniques, and finding new ones, to serve the rural
ment of specialized institutions to cater to the financial
communities.
needs of the agricultural or industrial sectors, a practice
long followed in Jap an , and have taken an active role in
promoting these institutions. Some of the latter emphasize
medium and long-term credits to industry, like the Indian
Industrial Finance Corporation and the parallel institution
in Pakistan. Others— in Ceylon, India, Pakistan, and Indo
nesia— emphasize the entrepreneurial function by partici
pating in the capital and management of private firms, as
well as by starting industrial enterprises themselves. One
of India’s several industrial-development institutions was
sponsored by the International B ank for Reconstruction
and Development, and its equity capital is privately sub
scribed.
Ceylon set up a similar institution earlier this
year, and Pakistan hopes to have one soon.
the rural sector has led to the establishment of agricultural
development institutions in Pakistan and Burm a. Both of
these, like the Indian land-mortgage banks, obtain finan
In
India, however, the central bank decided in 1 9 5 4 that
the problems of rural finance could be solved only within
the context of a comprehensive “ reorganization of the
socio-economic structure of the Indian village itself” —
including the revitalization of the cooperative system,
the establishment of a network of cooperative warehouses
to facilitate commercial bank lending against agricultural
crops, and the development of cooperative associations for
farming, irrigation, transport, and cottage industries. L a st
year’s nationalization of the former Imperial B ank of India,
the country’s largest commercial bank, was undertaken as
a key move in such a program, with the intention that the
bank with its hundreds of branches should be the agency
for providing commercial bank finance in the rural areas
and for assisting the cooperative organizations. In Pakistan,
too, the central bank is trying to rebuild the cooperative
banking system, and has been pressing for improvement
of the technique and administration of the cooperative
banks.
Both central banks are making advances to co
operative banks at concessional rates, in addition to m ak
ing agricultural credits, in general, available for longer
terms than in the past.
A
different tack has been taken by the Philippine
central bank.
W hile lending support to the cooperative
movement, the bank has also sponsored, and makes credit
available to, numerous so-called “ R ural B anks” , whose
technical operations and legal responsibilities are tailored
th e
M
oney
M
arket
M an y of the A sia n central banks have found it difficult
to control the money supply because, among other rea
sons, the commercial banks seldom, if ever, seek central
bank credit, although in Jap an and K orea, on the contrary,
the commercial banks have traditionally relied upon cen
tral bank credit to an excessive extent. In some of these
countries, moreover, even if commercial banks should
want to borrow, there is a dearth of the kind of paper
considered acceptable by the central bank. T h e Reserve
Bank of India began an attack on this dual problem early
in 1 9 5 2 , after it ceased its large-scale open market pur
chases, by launching a novel operation called the Bill
The need for improving the availability of finance for
cial assistance from their respective central banks.
D e v e l o p in g
M arket Scheme. This Scheme utilizes the popular cashcredit (or overdraft) system of lending,5 and requires that
that portion of a cash-credit granted by a commercial bank
which represents a business borrower’s minimum needs
for about three months be converted into a promissory
note; this note, which the bank must demonstrate is for
“ true trade purposes” , can then be used as collateral for
Reserve B ank advances, at a concessional rate.
B y this adroit adaptation to existing credit techniques,
the Reserve Bank has succeeded in providing the banks
with a negotiable asset, without requiring abrupt and diffi
cult changes in traditional commercial bank practices; and
has, it feels, obtained more effective control over the quan
tity and purposes of bank credit than w as possible when
it had to engage in heavy open market operations to meet
the extremely sharp seasonal variations in India’s money
needs. The Scheme has also helped counteract the mone
tary tightness that otherwise would have followed the ces
sation, after the 1 9 5 5 increases in the British discount rate,
of the usual inflow of short-term capital from Britain. A ll
in all, the Scheme would seem to have helped produce a
more elastic, more autonomous, and better integrated
money market.
Th e Scheme was later adopted also in
Burm a and Pakistan, but the commercial banks there have
made little use of it, especially in Burm a where they find it
cheaper to obtain advances against government securities.
In some countries an attempt is being made to develop
a broader and more responsive money market by stimulat
5 The cash-credit system owes its popularity to the fact that bor
rowers have to pay interest only to the extent that credits are actually
used, and lenders can withdraw the unused portion of a credit if the
borrower’s position should deteriorate.
FEDERAL RESERVE BANK OF NEW YORK
ing investments in government securities, and the use of
them for obtaining central bank credit when needed.
Although in India and Pakistan the problem has been com
plicated by the need to prevent the inflationary monetiza
tion of government debt already held by some banks, the
C o n c l u d in g R
133
em arks
Lik e other living organisms, the central banks in the
A sian countries have found it necessary to adapt them
selves to their environments. In doing so, most of them
have taken the position that central banking functions in
Reserve Ban k of India always stands ready to make ad
vances against government securities at the bank rate, and
the State B ank of Pakistan is willing to rediscount Treasury
less developed economies must necessarily be more varied
bills at a rate only slightly above the average tender or tap
impossibility of effective monetary control by means of the
rate. So far, however, the commercial banks in Pakistan
traditional weapons in countries where the monetary sphere
and comprehensive than is traditional. Th e soundness of
this position seems apparent when one recognizes the
have made little use of this privilege. In Ceylon, the central
covers only a part of the economy, where banking and
bank has found it feasible to help develop tlie securities
other financial institutions are limited in number, re
sector of the market by supplementing the available gov
stricted in location, and narrow in scope of operations,
ernment securities with its own, the authority for this prac
where financial markets are unintegrated, where balance-
tice having been written into the central bank act.
of-payments fluctuations have a severe impact upon the do
The central banks are seeking to overcome the prob
lems of inflexible and unintegrated money markets in other
mestic economy, and where fiscal policies— sometimes as
a result of overly ambitious development programs— are
ways too. In Pakistan, for instance, an effort is being made
frequently seriously unstabilizing.
to substitute offices of the state-aided commercial bank for
A s the A sia n economies become more developed and
the m any government Treasury offices, which lack any link
the banking and m oney market institutions more differen
with the money market. In both India and Pakistan, spe
tiated, the central banks undoubtedly will find that they
cial attention is being given to the development of remit
can make increased use of the more traditional types o f
tance facilities, and here again the government commercial
credit controls. It would also seem that the more vigorous
banks, with their m any branches, are the agents through
the central banks are in seeking to fill in the present large
which this is being accomplished. Finally, reference should
gaps in the financial fram ework and to refine the struc
be made to the endeavors of several central banks to
ture, functions, and operations of existing institutions, the
strengthen and expand the channels for mobilizing savings,
such as the postal savings systems and the savings banks.
sooner will they be able to fulfill effectively their ultimate
function of maintaining monetary stability.
EARNINGS AND EXPENSES OF SECOND DISTRICT MEMBER
BANKS IN THE FIRST SIX MONTHS OF 1956
The growth in private demands for short-term credit is
clearly reflected in the earning and expense record of
higher than in the first half of 1 9 5 5 and well below the
record level of 1 9 5 4 .
Second District member banks for the first half of 1 9 5 6 .
With an expansion in loan portfolios and increases in inter
est rates on loans at m any banks, gross operating income
of Second District member banks during these six months
rose to an all-time high. Operating expenses also in
creased, although not so rapidly as income, and net profits
N et current earnings of Second District banks increased
somewhat more rapidly in the first half of 1 9 5 6 than did
those of member banks in other parts of the country, but
net profits showed a smaller rise because of the greater
impact of nonrecurring charges on the Second District
banks. N et current operating earnings of Second District
showed only a moderate expansion. A substantial part of
banks were 1 9 per cent greater than a year ago and those
the increased operating income was absorbed by greater
in other Districts averaged 1 7 per cent higher. N et profits
charge-offs on loans at a few of the central reserve N ew
of District banks, however, were up only 3 per cent against
Y o rk C ity banks, by substantial additions to loan reserves
1 6 per cent elsewhere.
by the reserve city and country banks, and by losses on
Th e portfolio shifts which have had such an important
securities at the N e w Y o rk C ity banks. Faced with par
effect on member bank earnings and profits are shown in
ticularly heavy demands for funds from their customers in
Chart I. Since the latter part of 1 9 5 4 , loan portfolios of
a period when available reserves were limited, the C ity
all Second District banks have been expanding while hold
banks made substantial sales of Government securities in
a falling market. Thus, net profits after taxes for the D is
ings of Government obligations have been declining.
the first half of 1 9 5 6 loans accounted for approximately
trict banks in the first half of 1 9 5 6 were only moderately
6 1 per cent of the earning assets of all member banks in
In
134
MONTHLY REVIEW, SEPTEMBER 1956
the District against 5 2 per cent in the first half of 1 9 5 5 ;
Governm ent securities accounted for about 2 9 per cent this
year, compared with 3 7 per cent last year.
increased demand for credit and generally tight money
market conditions. Losses and charge-offs on loans
are shown in Chart II. N et current operating earnings have
amounted to 1 8 million dollars in the C ity banks and only
2 million dollars in the reserve city and country banks.
The loan losses in the C ity banks compared with small net
been gradually rising for several years, but in 1 9 5 6 they
expanded much more rapidly because of the relatively
few banks. In the reserve city and country banks, on the
The effects of shifts in portfolios on earnings and profits
recoveries in the 1 9 5 5 period and were concentrated in a
smaller expansion in operating expenses than in total cur
rent operating earnings. N et current operating earnings
other hand, loan losses were sharply reduced from the
(before
In terms of earnings on capital funds on hand at the
beginning of 19 5 6 , the half-year net profits represented an
income
taxes
and
nonrecurring
charges
and
credits) of member banks in the Second Federal Reserve
District attained a record high of 3 0 4 million dollars.
N et current operating earnings and net profits of the
central reserve N ew Y o rk C ity banks rose somewhat more
amount charged off in the first half of 1 9 5 5 .
annual rate of return of 7 . 1 per cent for the C ity banks
and 7 .6 per cent for reserve city and country banks.
than the average for all Second District banks. Their net
current operating earnings expanded 3 8 million dollars or
2 0 per cent to 2 2 7 million dollars, while their net profits
O
p e r a t in g
Inco m e
Total current operating earnings of Second District
member banks rose to a record of 7 3 1 million dollars in
were up 4 million dollars or 4 .5 per cent from the year
the first half of 19 5 6 , 1 6 per cent above the 6 3 1 million
before, to 98 million dollars. This level of net profits was
earned in the same period of last year. Th e increase in
11
per cent less than the record of 10 9 million dollars
total earnings amounted to 1 7 per cent for the central
earned in the first six months of 1 9 5 4 , when the C ity banks
made substantial profits on security transactions. In the
reserve N ew Y o rk C ity banks and 1 3 per cent for reserve
reserve city and country banks as a group, net current
operating earnings increased 1 0 million dollars or 1 4 .5
dividends on United States Governm ent obligations, which
declined, and interest and dividends on “ other securi
per cent, while net profits remained virtually unchanged at
ties” , which remained unchanged, all segments of gross in
city and country banks combined. E x ce p t for interest and
34 .8 million dollars, 2 .1 million dollars below the previous
come of Second District banks were larger in the first half
peak of 36 .9 million dollars attained in the first half of
19 5 4 .
The net losses and charge-offs that Second District mem
of 1 9 5 6 than in the corresponding period of 1 9 5 5 .
The largest increase, both absolutely and relatively,
ber banks incurred on sales of securities in the first half of
1 9 5 6 amounted to 2 2 million dollars, 1 9 million dollars
at the C ity banks and 3 million dollars at the reserve city
and country banks. These net losses reflected the down
ward movement of security prices under the pressure of an
occurred in interest and discounts on loans, and reflected
the combined effect of a larger loan volume and higher
interest rates. This item of income rose 3 5 per cent at the
C ity banks and 1 9 per cent at the reserve city and
country banks. Th e N e w Y o rk C ity banks benefited to a
relatively greater extent from the increase in interest rates
Chart I
LOANS AND UNITED STATES GOVERNMENT SECURITIES
HOLDINGS OF SECOND DISTRICT MEMBER BANKS
Billions of dollars
Saurce: Federal Reserve Bank of New York.
Billions of dollars
Chart II
FIRST HALF YEAR EARNINGS AND EXPENSES AT
SECOND DISTRICT BANKS, 1950-56
Millions of dollars
Millions of dollars
preliminary and are compiled by the Federal Reserve Bank of New York.
135
F E D ER AL R ESER VE B A N K OF N E W Y O R K
than did banks elsewhere, because they usually adjust their
rates on loans, especially to large borrowers, more quickly
more than offset the higher rates. Th e decline in earnings
from this source, however, was limited to the C ity banks
where income from these investments fell 1 8 per cent. In
reserve city and country banks, on the other hand, income
from holdings of Governm ent securities increased slightly.
to changes in market conditions. Th e volume of loans rose
relatively more at the C ity banks because of the substan
tial increase in the demand for commercial and industrial
loans which represent in these banks a larger portion of
O
total loans. In June of 1 9 5 5 rates on short-term business
p e r a t in g
E xpenses
loans at N ew Y o rk C ity banks averaged 3 .3 0 per cent; by
W ages and salaries paid by Second District banks, which
June of 1 9 5 6 the average rate had risen to 3 .9 7 per cent.
In the latter part of 1 9 5 5 several of the C ity banks also
represent about 4 8 per cent of total expenses, rose 1 2 . 5
per cent above the amount paid in the first half of last year.
raised their rates on direct consumer loans and their dis
Th e number of officers and employees rose 4 per cent, thus
counts on purchased consumer paper, the first such in
indicating that higher rates of p ay were the m ajor cause
creases in many years.
for the increase in this item of expense.
F o r the C ity banks, commercial
loans averaged 64 per cent of total loans. In the reserve
In addition to wages and salaries, all other items of
city and country banks, on the other hand, commercial
expense rose above the amounts paid in the first half of
loans averaged only 2 8 per cent of total loans. Th e m ajor
1 9 5 5 , as the accom panying table indicates.
part of their loan portfolios consists of mortgage and con
time deposits (including savings deposits) increased 2 8
Interest on
sumer loans on which interest rates tend to be less flexible.
per cent to 66 million dollars. This rise reflected primarily
Interest and dividends on United States Government
increases in rates of interest, since the average amount of
securities amounted to 1 1 2 million dollars for all District
such deposits held by District banks in the first half of
banks, 1 4 million dollars or about 1 1 per cent below 1 9 5 5 .
1 9 5 6 was about 6 per cent above the average held in the
This was the only item of income that declined in the first
half of the year. Th e average amount of Government
comparable period of 1 9 5 5 .
money, while a minor item of expense, increased relatively
Interest paid on borrowed
securities held by District banks decreased over IVz billion
more than any other item and reached a postwar high.
dollars or about 2 0 per cent during the first half of this
This substantial increase in interest paid on borrowed
year. Although Government securities yielded higher rates
money reflected both higher rates for borrowed funds and
of return in 1 9 5 6 than in 1 9 5 5 , the decline in portfolios
a larger volume of borrowings.
Earnings and Expenses of Member Banks in the Second Federal Reserve District During the First Six Months of 1954-56
(D ollar am ou nts in m illions)
New York central reserve city banks
Reserve city and country banks
Item
Number of banks.....................................................................................................................
1954
1955
1956
1954
1955
1956
22
18
18
666
630
590
Earnings:
On United States Government securities.................................................................
On other securities.............................................................................................................
On loans (including service charges and fees on loans)......................................
Service charges on deposit accounts...........................................................................
Trust department earnings.............................................................................................
Other current earnings.....................................................................................................
7 2 .3
2 3 .4
2 1 1 .2
10 .4
3 7 .1
2 9 .9
8 2 .4
2 5 .6
2 2 1 .0
1 0 .2
4 3 .2
3 2 .1
6 7 .7
2 4 .1
2 9 7 .3
1 2 .0
4 9 .9
3 4 .9
3 9 .9
11 .8
116.1
1 3.9
4 .6
9 .9
4 3 .3
1 2.7
128.7
1 5 .7
5 .3
1 0 .8
4 3 .9
14 .2
152.6
1 7 .8
5 .5
1 1 .5
Total current operating earnings...............................................................
3 8 4 .3
4 1 4 .5
4 8 5 .9
196.2
2 1 6 .5
2 4 5 .5
Expenses:
Salaries and wages— officers and employees............................................................
Interest on time deposits (including savings deposits).......................................
Interest and discount on borrowed m oney...............................................................
Taxes other than on net income...................................................................................
Recurring depreciation on banking house, furniture, and fixtures................
Other current operating expenses.................................................................................
112.7
2 0 .0
1 .3
7 .0
2 .1
6 7 .9
116.9
1 9.7
2 .2
7 .1
3 .1
7 6 .3
1 32.9
2 7 .6
5 .1
7 .5
4 .7
8 0 .9
6 0 .2
2 7 .4
0 .2
5 .5
4 .1
3 9 .1
6 5 .2
3 1 .6
0 .5
5 .7
4 .5
4 2 .2
7 1 .9
3 8 .1
1 .1
6 .2
4 .9
4 6 .8
Total current expenses...................................................................................
2 1 1 .0
2 2 5 .3
2 5 8 .7
1 36.5
149.7
1 69.0
Net current operating earnings before income taxes................................................
173.3
189.2
2 2 7 .2
5 9 .7
6 6 .8
— 5 .5
+ 1 3.6
1 .1
-
10.1
3 .3
0 .7
-
1 .7
3 .3
0 .8
+
-
+
+
5 .8
1 .8
+
9 .7
0 .1
Net recoveries ( -j-) or charge-offs ( —) on loans........................................................
Security profits and recoveries ( + ) or charge-offs ( — ) ..........................................
All other recoveries ( + ) or charge-offs ( — ), n e t ......................................................
N et additions to ( —) or deductions from ( + ) valuation reserves for:
Loan losses.............................................................................................................................
Securitv losses.......................................................... ............................................................
+
+
-
3 .0
3 8 .3
4 .6
+
-
2 .1
0 .7
2 .1
+
1 7 .7
1 8 .5
8 .1
-
2 .0
10.1
-
1 4.6
0 .2
+
-
2 .1
0 .6
1 .6
4 .4
7 6 .5
Net profits before income taxes.........................................................................................
Taxes on net income..............................................................................................................
197.9
8 8 .9
173.7
8 0 .4
2 0 0 .6
103.1
6 3 .9
2 7 .0
6 0 .3
2 5 .6
6 1 .1
2 6 .3
Net profits after income taxes....................................................................
109.0
9 3 .3
9 7 .5
3 6 .9
3 4 .7
3 4 .8
Cash dividends paid or declared.......................................................................................
Retained earnings....................................................................................................................
51.1
5 7 .9
5 8 .2
3 5 .1
6 2 .7
3 4 .8
13.1
2 3 .8
14 .2
2 0 .5
15.9
1 8.9
Sources: Board of Governors of the Federal Reserve System, 1954-55; 1956 figures are preliminary and are compiled by the Federal Reserve Bank of New York.
MONTHLY REVIEW, SEPTEMBER 1956
136
N o n r e c u r r in g I t e m s , T a x e s ,
and
D iv id e n d s
N et losses and charge-offs on loans remained at a rela
dollars from reserves set up for this purpose. T h e reserve
city and country banks, whose current loan charge-offs were
tively nominal level for most banks in the first half of 1 9 5 6 ,
small, made the largest net addition ( 9 .7 million dollars)
especially if related to the peak volume of outstanding
to their loan reserves for any first six months on record.
loans. A few of the larger N e w Y o rk C ity banks, however,
A ccruals for income taxes increased in both the C ity
charged off some large loans with the result that the aggre
banks and the reserve city and country banks in line with
gate losses and charge-offs on loans for the C ity banks rose
the rise in net profits before taxes.
to 1 7 . 7 million dollars, the highest level for any first six
months since 19 4 8 . In the reserve city and country banks,
ments increased moderately, continuing the trend that has
been maintained during the postwar period. The increase
charge-offs on loans decreased sharply to 1 . 7 million dol
in dividends paid by Second District banks, however, again
C ash dividend p ay
lars from 1 0 .1 million dollars in the first half of last year.
exceeded the rise in net profits, so that the volume of earn
The C ity banks cushioned the impact of their current
ings retained and added to capital accounts was reduced
loan charge-offs by making net withdrawals of 2 .1 million
slightly.
SELECTED ECONOMIC INDICATORS
United States and Second Federal Reserve District
Percentage change
1956
Item
1955
Unit
July
June
M ay
July
Latest month Latest month
from previous
from year
month
earlier
U N IT E D STAT ES
Production and trade
1947 -49 =
1947-49 =
1947 -49 =
billions of
billions of
billions of
billions of
billions of
1947-49 =
1 947 -49 =
100
100
100
S
S
S
S
S
100
100
136p
219
—
26. Ip
49.1?)
2 7 .1 p
13. bp
—
257 p
246p
141
221
110 p
2 7 .7
4 9 .1
2 7 .9
1 4 .2
16. Op
269
248
141
217
108
2 7 .8
4 8 .6
2 8 .8
14 .7
15.9
286
237
139
208
107
2 6 .7
4 3 .9
2 7 .0
1 3 .6
1 5 .5
296
231
+
-
4
1
2
6
#
- 3
— 5
+ 1
- 4
- 1
_ 2
+ 5
+ 7
- 2
+12
#
- 1
+ 5
-1 3
+ 6
Consumer pricesf.......................................................................................
Personal income (annual rate)*1[........................................................
Composite index of wages and salaries*...........................................
Nonagricultural employment*{ ............................................................
Manufacturing employment *%..............................................................
Average hours worked per week, m anufacturing!.......................
Unemployment............................................................................................
1 9 47 -49 =
1947-49 =
1947 -49 =
billions of
1947-49 =
thousands
thousands
hours
thousands
100
100
100
$
100
8 8 .6
1 1 4 .Op
117.0
—
—
5 1 , 126p
16,487p
40. Ip
2 ,8 3 3
8 8 .3
1 14.2
1 16.2
3 2 4 .2p
149p
5 1 ,623p
16,861p
4 0 .1
2 ,9 2 7
9 0 .4
1 14.4
1 15.4
3 2 2 .8
148
51,459
16,909
4 0 .0
2 ,6 0 8
9 0 .8
110.5
114.7
3 0 9 .2
142
50,1 9 3
16,648
4 0 .4
2 ,4 7 1
#
#
-1- 1
#
+ 1
- 1
- 2
#
- 3
— 2
+ 3
+ 2
+ 6
+ 6
+ 2
1
1
+15
Total investments of all commercial banks.....................................
Total loans of all commercial banks...................................................
Total demand deposits adjusted..........................................................
Currency outside the Treasury and Federal Reserve B a n k s*..
Bank debits (337 centers)*.....................................................................
Velocity of demand deposits (337 centers)*...................................
Consumer instalment credit outstanding!.......................................
millions of S
millions of S
millions of $
millions of S
millions of S
1947 -49 = 100
millions of $
7 2 , 150p
8 7 ,250p
1 0 5 ,340p
30,782p
78,323
1 4 1 .9p
—
73,570p
8 6 ,030p
1 0 4 ,190p
3 0,629
7 9 ,7 6 0
138.1
28,591
8 0 ,4 2 0
7 6 ,5 7 0
103,940
3 0 ,3 1 4
70,1 2 3
129.4
25,4 7 6
-
1
1
#
#
2
5
1
-1 0
+14
+ 1
+ 2
+12
+ 10
+16
6 ,8 7 9
6 ,2 0 0
3 ,4 4 4
2 ,9 9 4
5 ,3 5 2
3 ,3 5 0
-7 0
-1 9
+ 9
+24
+ 5
+14
—
+
+
+
+
+
+
+
+
- 4
+10
+ 4
+ 2
+ 1
#
+12
+10
+13
+ 7
+ 9
Industrial production*.............................................................................
Electric power output*............................................................................
Ton-miles of railway freight*................................................................
Manufacturers’ sales*...............................................................................
Manufacturers’ inventories*..................................................................
Manufacturers’ new orders, to ta l* ......................................................
Manufacturers’ new orders, durable goods*...................................
Retail sales*.................................................................................................
Residential construction contracts*...................................................
Nonresidential construction contracts*............................................
Prices , wages, and employment
Basic commodity pricesf........................................................................
Banking and finance
72,750p
87,720p
1 0 5 ,080p
30 ,7 2 0
7 6 ,4 8 8
13 5 .0
28,8 9 0
United States Government finance (other than borrowing)
Cash outgo....................................................................................................
National defense expenditures..............................................................
millions of $
millions of $
millions of $
3 ,701
5,6 0 3
3 ,8 2 2
12,192
6 ,8 9 8
3 ,5 0 5
+
+
+
S E C O N D F E D E R A L R E S E R V E D IS T R IC T
Electric power output (New York and New Jersey)*.....................
Residential construction contracts*........................................................
Nonresidential construction contracts*.................................................
Consumer prices (New York C it y )t.......................................................
Nonagricultural employment*...................................................................
Manufacturing employment*.....................................................................
Bank debits (New York C ity )* ................................................................
Bank debits (Second District excluding New York C it y ) * ..........
Velocity of demand deposits (New York C ity )*...............................
Department store sales*...............................................................................
Department store stocks*............................................................................
1947 -49 = 100
1947 -49 = 100
1947 -49 = 100
1947 -49 = 100
thousands
thousands
millions of S
millions of S
1947 -49 = 100
1947 -49 = 100
1947 -49 = 100
150
—
—
114.6
—
—
67,9 1 0
5 ,157
179.8
116
127
158
236p
287p
1 13.8
7 ,7 5 1 .Op
2 ,7 0 5 .7 p
6 5 ,4 9 4
4 ,9 0 1
1 66.0
115
126
153
259
310
11 3 .0
7 ,7 0 6 .4
2 ,6 8 0 .8
70,8 6 9
5 ,1 7 0
1 80.2
110
123
157
211
286
111.9
7 ,6 1 9 .4 r
2 , 6 8 4 . lr
60,7 2 6
4 ,6 9 5
1 59.2
108
116r
5
9
7
1
1
1
4
5
8
1
1
N ote: Latest data available as of noon, August 31, 1956.
p Preliminary.
r Revised.
* Adjusted for seasonal variation.
t Seasonal variations believed to be minor; no adjustment made.
t Revised series. Back data available from U. S. Bureau of Labor Statistics.
# Change of less than 0.5 per cent.
H Revised series. Back data available from U. S. Department of Commerce.
Source: A description of these series and their sources is available from the Domestic Research Division, Federal Reserve Bank of New York, on request.
@FedFRASER