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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.