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Busin Finance, In d u stry Agriculture, and Trade V o l. 29 Fourth Federal Reserve fDistrict Federal Reserve Bank of Cleveland No. 2 Cleveland O hio, February 1, 1947 URBAN REAL ESTATE FINANCE Importance of Real Estate Lending Next to food, shelter is probably the most funda mental requirement o f man. Modern civilization has added clothing to the list o f fundamental wants, but primitive man undoubtedly was interested first in food and, second, in shelter. The provision o f house hold shelter and for manufacturing, trade and business is, therefore, o f utmost importance to the economic system. Similarly, the financing of this shelter con stitutes one o f the most important fields o f finance. At the close o f June 1946, the volume o f obligations secured by real estate mortgages amounted to more than 338 billion, or more than one-fourth o f all private debts in the land. As o f the close o f the year it probably exceeded 340 billion. The total amount o f interest paid on this mortgage debt at the present time probably ranges from # 1 ^ to $2 billion per annum. M ost o f the mortgage debt is held by private lenders. O f the 338 billion on June 30, 1946, the com mercial banks held nearly 36 billion or about 15 per cent and the savings banks about 343^ billion or about 11 percent, while life insurance companies and building and loan associations each held about 3 6 ^ billion or about 17 percent. About $2% billion o f the mortgage obligations were held by Federal agencies, chiefly the Federal Land Bank and the HOLC. O f the 338 billion o f mortgages, about 35 billion was on farm land and the remainder, about 333 billion, was on nonfarm properties. Housing Developments During the War From 1940 to 1945 the number o f occupied nonfarm dwelling units increased by 3,500,000, or an average of about 630,000 units per year. This compares with an average increase of about 450,000 per year in occupied nonfarm dwelling units during the decade of the ’Thirties and an average o f less than 600,000 per year during the decade o f the ’Twenties. Average annual increases during the past forty-five years are shown on an accompanying chart. The data for 1945 are based on a sample survey and are subject to the errors o f sampling which for totals are probably not unduly large. They show that the supply o f dwelling units was increased during the five-year rearmament and war period at a more rapid rate than during any preceding decade o f the Twentieth Century. Notwithstanding the recordbreaking increase in supply, the improvement in Occupied Nonfarm Dwelling Units Occupied Dwelling Units Average Annual Increase THOUSANDS 800l------- 600 400 200 1__ r 1 DI I 1 z q I ee 2 MONTHLY BUSINESS REVIEW Occupied Dwelling Units (in thousands) Total Nonfarm Farm 1900......................... 15,964 10,274 5,690 1910......................... 20,256 14,132 6,124 1920......................... 24,352 17,600 6,751 1930......................... 29,905 23,300 6,605 1940......................... 34,855 27,748 7,107 1945..................... 37,600 31,281 6,319 Source: Bureau o f Census— Statistical Abstract 1944-45, p. 910; Housing Census, 1940, Volume II, Part I, United States Summary, Table II, p. 3; and Special Reports Series H-46, No. 1. (These data are not strictly comparable throughout the entire period but they probably give a fair indication of the trend.) quality o f dwelling units, and the induction into the armed forces of about 12,000,000 persons, a severe housing shortage developed which, by the close of 1945, had become almost the major political issue o f the day. Many returning veterans have experienced difficulty in finding places in which to establish homes, and urban real estate prices have been rising. The development o f this shortage during a recordbreaking expansion in the number of occupied dwelling units may be attributed to four closely related factors: 1. An unprecedented growth of incomes. 2. A “ spreading out” or “ thinning out” of fam ilies among the available dwelling units, a trend made possible by higher incomes. 3. The character o f rental and housing controls imposed as a wartime necessity. February 1, 1947 The growth in incomes appears to have been general throughout the income scale. Individuals who gen erally have very low incomes received larger incomes and those farther up the income scale also received much larger incomes. While the data are not too reliable, nonetheless it is apparent that fewer persons or family units received low incomes while the number receiving incomes in excess o f $2,000-$3,000 increased. Spreading Out of Families This expansion in incomes occurred at a time when the supply of consumer goods and services was re stricted, when supplies were rationed, and when prices of most consumers’ goods were controlled and rents were frozen. As a consequence, those who received higher incomes had more money to spend on housing and sought better accommodations than they had heretofore been able to afford. There was a reduction in the number of tenant-occupied low-rental units and an increase in the number o f tenant-occupied highrental units. The changes are shown in the following table and on an accompanying chart. In this and the following tables, some of the variation shown may be attribut able to errors o f sampling, but it is highly unlikely that this factor seriously affects the broad picture shown. 4. The ready availability o f relatively cheap money for financing the purchase o f real estate. Distribution of Tenant-Occupied Urban and Rural Nonfarm Dwelling Units (According to Contract Monthly Rent: 1945 and 1940) The Unprecedented Growth in Incomes Estimated Number Increase, 1940-1945 1945 1940Number Percent --------------- 000 om itted--------------T O T A L ........................ 15,403 16,335 -9 3 2 -5 .7 Monthly Rent Per Dwelling Unit: Under $5...................... 251 900 -6 4 9 - 7 2 .1 $ 5 to $9...................... 991 1,962 -9 7 1 - 4 9 .5 510 to $14.................... 1,518 2,305 -7 8 7 - 3 4 .1 #15 to $19.................... 1,790 2,238 -4 4 8 - 2 0 .0 $20 to $24.................... 1,812 2,031 -2 1 9 -1 0 .8 $25 to $29.................... 1,979 1,854 125 6.7 $30 to $39.................... 3,488 2,546 942 37.0 $40 to $49................... 2,066 1,310 756 57.7 $50 or more................. 1,508 ‘ 1,189 319 26.8 Source: Bureau o f Census, Special Reports— Housing, Series H-46, No. 1, Table 13. In 1940, income payments to individuals amounted to about $76 billion. The volume of income payments increased sharply each year thereafter until it reached the level o f 3164 billion in 1946, more than double that o f 1940. Even though taxes also increased and a much higher proportion of income was put into savings during the war years, consumers’ disbursements for goods and services including housing and shelter (but not repayment of mortgage debts) increased by 60 percent or from about $65 billion in 1940 to about $105 billion in 1945. During 1946, consumer expen ditures were higher than in any other year o f record, increasing further the pressure on available housing. Size of Occupied Dwelling Units Number of Rented Nonfarm Dwelling Units Percentage Change 1940 - 1945 W*CINT Percentage Change 1940 -1945 PERCENT February 1, 1947 3 MONTHLY BUSINESS REVIEW The table and chart show reductions in the number o f units renting for less than 325, whereas gains occurred in the number renting for 325 or more. Furthermore, the decreases recorded in the number of units under 325 were particularly sharp in the lowest rental categories. In the over 325 brackets, the largest gains occurred in the 340-349 classification. The largest number o f units in any class was in the group renting for 330-339. Nearly one-fourth o f all rental units was in this class and the number showed an increase o f 37 percent over 1940. People not only demanded more expensive places in which to live; they also demanded more space and put fewer persons in that space. One- and two-room units were reduced sharply in number (by % million) while the number o f three-, four-, five-, and six-room units increased substantially (four million). This includes both owner-occupied and tenant-occupied units. The data are shown in the following table and on an accompanying chart. Distribution of Occupied Urban and Rural Nonfarm Dwelling Units By Number of Rooms: 1945 and 1940 Estimated Number Increase, 1940-1945 1945 1940Number Percent --------------- 000 om itted--------------T O T A L .............................31,281 27,748 3,533 12.7 Number of Rooms In Unit: 1 room .......................... 560 994 -4 3 4 -4 3 .7 2 rooms........................ .....2,009 2,288 —279 —12.2 3,909 713 18.2 3 room s........................ .... 4,622 4 rooms........................ .....6,064 5,055 1,009 20.0 5 rooms........................ .....7,573 5,908 1,665 28.2 6 rooms........................ .....5,888 5,094 794 15.6 7 rooms........................ .....2,399 2,129 270 12.7 8 or more room s............. 2,166 2,371 —205 — 8 .7 Source: Bureau of the Census, Special Reports— Housing, Series H-46, No. 1, Table 11. The number o f persons per dwelling unit was reduced. The number o f units occupied by one or two persons increased sharply (about 30 percent or an increase o f more than 2,500,000 units). The number occupied by three or four persons increased by 14 percent or 1,500,000, while the number occupied by six or more persons declined substantially (22 percent or 800,000 units). The data are shown in the follow ing table and on an accompanying chart. Distribution of Occupied Urban and Rural Nonfarm Dwelling Units by Size of Household 1945 and 1940 Estimated Number Increase, 1940-45 1945 1940Number Percent ------------- 000 omitted -------------T O T A L . . . ................. 31,281 27,748 3,533 12.7 Number of Persons. . . in Houseold: 1 person....................... 3,158 2,316 842 36.3 2 persons...................... 9,044 7,242 1,802 24.8 3 persons...................... 7,330 6,383 947 14.8 4 persons...................... 5,693 5,063 630 12.4 5 persons...................... 3,198 3,066 132 4.3 6 persons...................... 1,522 1,704 — 182 —10.7 7 persons...................... 672 912 -2 4 0 - 2 6 .3 8 or more persons. . . . 664 1,062 —398 —37.5 Source: Bureau o f the Census, Special Reports— Housing, Series H-46, No. 1, Table 10. As a result o f these changes in occupancy o f exist ing dwelling units, available space is used much less intensively today than in prewar years. From 1940 to 1945, there was an increase o f 36 percent, or more than three million, in the number of dwelling units with one-half or less persons per room. These units constituted two-fifths of all occupied dwelling units. Eighty-seven percent o f all occupied nonfarm dwelling units were occupied by one or less persons per room. All o f the increase in dwelling units was in those oc cupied by one or less persons per room. These units increased by 43^ million. The number o f dwelling units occupied by more than one person per room was reduced by one million. The figures are presented in the following table and the changes are shown on an accompanying chart. Distribution of Occupied Urban and Rural Nonfarm Dwelling Units According to Number of Persons Per Room: 1945 and 1940 Estimated Number Increase, 1940-1945 1945 1940 Number Percent ------------- 000 om itted---------------31,281 27,748 3,533 12.7 T O T A L ........................ Number of Persons per Room 8,888 12,109 3,221 0.50 or less................... 0.51 to 1.00................. 15,197 13,972 1,225 1.01 to 1.50................. 2,712 2,908 -1 9 6 1.51 or more................ 1,263 1,980 -7 1 7 Source: Bureau o f the Census, Special Reports— Housing, Series H-46, No. 1, Table 12. Size of Households Persons Per Room Percentage Change 1940-45 KflCENT Percentage Change 1940-45 PCTCCNT 36.23 8.76 - 6.75 - 3 6 .2 2 MONTHLY BUSINESS REVIEW 4 The spreading out reflected in part the ability of many families, members o f which had been inducted into the armed services, to maintain themselves in their original quarters and in part a tendency o f some to maintain dwellings in more than one place because of their war work. It also reflected the efforts o f many whose incomes had increased to improve their stand ards of living. The return o f veterans to civilian life and and the release o f others from war work during 1946 served on the one hand to increase again the rate or intensity o f occupancy, and on the other, to increase substantially the demand for housing. Character of Rental and Housing Controls Population shifts accompanying industrial con version to a wartime basis, coupled with expanding incomes and purchasing power, increased the demand for housing accommodations. Several alternatives were available for allocating the existing supply o f housing o f which the following represented the two extremes: 1. Rents could have been left free to rise until they absorbed the ability o f people to pay more so that everyone would have found shelter at some price. Concurrently with this, o f course, real estate prices would have been left free to rise. This would have been the traditional method o f allocating resources through the price mechanism. The objection to this device was that it would have led to competitive bidding for resources needed in the war effort. Some form o f housing control was necessary in order to prevent an undue diversion o f productive resources from war purposes to housing. Construction was there fore controlled by a system o f priorities. 2. At the opposite extreme rents and sales prices could have been controlled and the existing supply o f dwellings could have been rationed to assure the housing o f the population. Actually neither o f these extreme but logically con sistent courses was taken. The nature o f the com promises adopted has resulted in a real estate boom of record proportions. Rents were controlled, but people were left free with higher incomes to seek more spacious quarters. The resulting pressure on facilities led to increased demand for nonrental housing. While rents were controlled, sales and sales prices were not, and prices o f nonrental properties increased. Advancing prices for real estate coupled with rigid rent controls led to the sale o f properties heretofore held for rent as investment property. As a consequence, the supply o f rental units was reduced.* While the total num ber o f occupied nonfarm dwelling units increased from 1940 to 1945 by 3,500,000, the number occupied by tenants was actually reduced by 932,000, while the number occupied by owners increased by nearly 4,500,000. The proportion o f dwelling units that were owner-occupied has increased from about 40 * An additional factor that may have affected some decisions was that the profits from sales o f real estate were taxed at the preferential rates of capital gains, whereas the rents received taxed at high wartime income tax rates. Digitized forwere FRASER February 1, 1947 percent in 1940 to over 50 percent in 1945 while the proportion occupied by tenants has been reduced from about 60 percent to less than 50 percent. Availability of Cheap Money The expansion of deposits and savings which resulted primarily from deficit financing placed mortgage lenders in supply o f large quantities o f funds to invest. At the close of 1946, nongovernment institutional lenders alone had a mortgage lending capacity o f at least double their holdings o f mortgages. At the same time, Federal insurance or guaranty provisions for reducing the risk o f mortgage lending have been liberalized. The G. I. Bill o f Rights has been enacted with guaranty provisions to help veterans acquire homes. These developments have driven interest rates on mortgage loans down and have increased further the already expanded purchasing power available for expenditure on shelter. This purchasing power has been increased not only by the expansion in incomes and the reduction in interest rates, but also because longer maturities on loans reduced the size o f pay ments required on a mortgage o f a given amount. Put in other terms, consumers have been able to capitalize their monthly expenditures into larger and larger amounts. The Present Situation These forces have generated a real estate boom with some unique characteristics. The boom has been accompanied by a very high level o f building output as measured by starts but a very low level o f activity as measured by completions. More than one million dwelling units were started during 1946. That figure includes conventional houses, factory-built houses, trailers, and structures to be reconditioned or remodeled for use as dwellings including temporary reuse. While the number o f permanent units started was less in 1946 than in 1925, the peak year o f the 1920 boom, the number o f permanent and temporary units started appears to have been higher in 1946 than in any other year.** The number o f completions, however, was only about 650,000 for 1946. A large number, possibly one-fifth or more, o f these comple tions represented starts in 1945. Apparently in housing as in other industries, we have been accumulating a sizable inventory o f “ goods in process.” The number o f units in process might be as high as 350,000. Should building materials become plentiful, a record number o f dwelling units may be completed within the next year or two. In fact, the volume o f new housing may become great enough to drive selling prices well below current levels. The present boom market is also characterized by the highest level o f real estate transfers on record, by sharply advancing prices, and by a rapid expansion o f mortgage debt at a time when the supply o f prop erties is expanding very slowly. ** In proportion to the total number of family units, activity was not as high in 1946 as in the building boom o f the ’ Twenties. MONTHLY BUSINESS REVIEW February 1, 1947 The expansion in nonfarm real estate debt has been more rapid in 1946 than in any other year on record. This growth in debt without a correspond ing increase in new properties to be financed indicates that people are taking their money out of nonfarm real estate and the lenders are putting it in. People are buying real estate; but they are borrow ing to do it. The persons to whom they pay the money are taking that money out o f real estate. The seller may put his money back into real estate, but that only means that someone else takes the money out. While some o f the money may be used to pay off a previous mortgage, if the total o f mortgage debt outstanding increases, the money is being taken out o f real estate by investors more rapidly than it is being put in. Under such circumstances the lenders are assuming greater and greater proportions o f the risks. If the expansion in mortgage loans accompanies the financing o f new properties, the money that is “ taken out” o f real estate is used directly to pay for wages, for materials and for the enterprising effort that produced the structures. However, when the expan sion in loans is predicated upon transfers o f existing properties at ever higher prices, the money that is “ taken out” o f real estate does not represent a pay ment for production purposes. The real wealth o f the nation has not been increased, but the lenders’ risk has. It is difficult to measure the extent o f price advances of nonfarm real estate. Costs o f construction are higher now than they were in the ’Twenties and fourto eight-room houses generally have been selling at prices substantially above replacement costs less depreciation. The greatest rise in prices has been in the class o f home that could qualify for pur chase by veterans under provisions o f the G. I. Bill o f Rights. When the supply o f dwelling units increases or the demand for housing decreases, these prices will decline to the level o f reproduction costs and ultimately, because o f the character o f much o f the construction o f these smaller units, may go to fairly substantial discounts below reproduction costs o f new similar sized units. Larger, more expensive structures have not participated in the boom to the extent characteristic o f the smaller structures. Factors Affecting the Outlook The present real estate boom appears to have reached record-breaking proportions. In the past, culmination o f such booms has been attended with crises, liquidation, losses, and bankruptcy. Whether or not the present boom can be liquidated without serious loss to property owners and to the financial community must depend upon the efficacy o f the following: 1. Widespread use o f amortization. 2. Improved appraisal and lending practices. 3. Adequacy o f mortgage insurance and devices for Government financial support. 4. Policies with regard to losses and trouble loans. 5. Economic stability in the nation. Amortization The practice o f amortizing mortgage loans is Digitized FRASER nowforwidespread, whereas in the ’Twenties and the 5 early ’Thirties it was the exception rather than the rule among lenders other than building and loan asso ciations. Amortization undoubtedly does reduce risk but does not appear to be sufficient in itself to assure avoidance o f difficulties. The building and loan associations which used the amortized loan in the ’Twenties did not escape trouble in the ’Thirties. The bulk o f the loans in institutional hands in the early ’Thirties had been made within the five years immediately preceding the onset o f difficulties. If these loans had had an average maturity o f 15 years, the reduction in principal would have averaged about 20 percent or 25 percent. Those loans were made generally at 50, 60, and 66% percent o f appraisal in the ’Twenties. During the present boom loan repayments have been so accelerated that loans have been turning over at a three-to-five-year rate. This rapid rate o f pay ment may be attributed to a number o f factors of which three may be enumerated: a. Sales o f properties with resulting payoff or transfer of mortgage. This does not appear to be very important and is, o f course, offset by the new loans extended to the buyers o f the properties. b. Payment o f temporary borrowing used to finance real estate transfers. It is not un common for a purchaser to buy a house before he sells his currently-held property. In such a case he finds it necessary to contract an unusually large mortgage loan to finance the purchase before receipt o f proceeds from sale o f the previously-held property. The pro ceeds are deposited with the lender (usually within 30 to 60 days) for liquidation o f the excessive* part o f the loan and the borrower is left with a more customary mortgage debt. c. High levels o f income and a shortage o f other goods to compete for the consumer’ s dollar. The slowness with which household equipment and other durable goods became available in 1946 was a disappointment to many. It is possible that some savings and incomes origin ally intended for expenditure on durable goods have been used to reduce mortgage debt either because the expected articles did not mate rialize, or because o f the inflation in prices. When the supply o f consumers’ goods in creases, purchases o f those goods can be ex pected to increase, and accelerated payments on mortgages to diminish. Improved Appraisal and Lending Practices Appraisal and lending practices are believed to be better today than in previous booms. More consider ation is being given to location and neighborhood trends, to reproduction costs, to the sources o f funds for repayment o f debt, and to the ability o f borrowers to meet their obligations. Present tendencies in lending practices, however, raise some questions with respect to risk in mortgage lending. I f credit is *The term “ excessive” is not used here in a legal or bank supervisory sense. February 1, 1947 MONTHLY BUSINESS REVIEW 6 extended more liberally because o f better appraisals, what is the combined effect on risk o f loss today as compared with earlier periods? I f loans are made on an amortized basis for a higher proportion o f the value o f a presumably more accurately appraised property and for longer maturities with consequent slower rates o f payoff, what is the combined effects o f these changes on risk? Implications of Mortgage Insurance and Government Financial Support Approximately 25 percent o f the nonfarm mortgage debt on one-to-four-family residential structures held by institutional lenders is protected by FHA insurance or by Veterans Administration guar anties. This represents protection against loss. Such insurance reduces the hazard o f concentration o f risk to the individual lender. The insurance premium required on FHA loans forces the lender and the borrower to recognize the possibility o f risk by setting aside a small sum to pay losses. Insurance and Government guaranties reduce the direct risk borne by the lender. They do not, how ever, eliminate or reduce the over-all risk o f mortgage financing. The FHA mutual mortgage insurance plan has been very successful over the past twelve years, a period in which the ability o f debtors to pay debts has improved almost continuously. Very few mortgage loans went into default between 1923 and 1929. While Government guaranties may reduce the direct risk borne by each lender, they may actually increase the risk or hazard o f private finance generally. Should the Government be called upon to make good those guaranties and thus protect the financial system from losses resulting from that system’ s mistakes, while individual borrowers, many of them veterans, were sustaining heavy losses, the political repercus sions might be serious. A financial system that sub stitutes Government guaranties for sound lending practices, collects income and profits on its loans but transfers losses to the Government, may not survive as private enterprise. Policies With Regard to Losses and Trouble Loans Success in dealing with adverse developments will depend first on the efficacy o f policies followed on loans which get into trouble and on the extent to which lenders have made provision for absorbing losses. The ability o f lenders to absorb losses is dependent on their capital and on the extent to which reserves are accumulated during good times to meet the losses which must be taken during bad times. The regular setting aside o f a part o f interest income as a reserve for losses is a recognition that a part o f the charge for the use o f money is a premium for risk. Formal accounting anticipation o f the losses inherent in the risks o f financing increases a lender’ s ability to meet those losses when they occur. The manner in which lenders deal with borrowers who during periods o f adversity may have difficulty in meeting their obligations in full, and the manner in which lenders handle the real estate which they necessary to take over, will affect market develop Digitizedfind for FRASER ments and influence the course o f any general business recession which may occur. T o the extent that tem porary modifications and adjustments are feasible, the interests of both borrowers and lenders can be protected, forced liquidation with its attendant losses avoided, and human suffering alleviated. Where properties must be taken over, the skill with which liquidations are handled so as to avoid accumulative market pressures during the most adverse periods will have an important bearing on the welfare o f finance and business in the community. Economic Stability in the Nation Economic fluctuations and the instability which accompanies them are the most important factors affecting mortgage loan experience. Shelter costs and property operating costs are for the most part relatively stable. Such items as interest, amortiza tion, taxes, utilities and heating vary but little. Cost o f services, maintenance, and repairs fluctuates some what more. Consumer incomes and rents, however, out of which must be paid shelter costs, fluctuate considerably. Consumer costs or prices for such items as food, clothing, and other essentials also fluctuate considerably. A decline in incomes and rents could affect adversely the ability o f borrowers to meet their obligations. A decline in incomes could lead to doubling-up o f families, reducing the demand for housing, relieving the existing shortage and could thus precipitate a sharp decline in real estate prices. An increase in other consumer prices or costs might have a similar effect. Higher rents might result in more intensive use o f existing space, thus reducing the pressure on existing housing facilities. Higher rents would also affect the family budget. Should increased expenditure on rent exceed anticipated reductions in expenditures for food, the demand for other products might be reduced with adverse effects on the business situation and em ployment and with a consequent reduction in level o f incomes. Conclusion The record with regard to the financing o f nonfarm real estate will depend chiefly on the future course o f employment, incomes, construction, housing costs, and other consumer expenditures. A decline in em ployment and incomes can reduce the ability o f consumers to maintain housing expenditures and can bring about a sufficient amount o f doubling-up to alleviate the housing shortage and cause declines in real estate prices. Such a development might jeopard ize loans made on the basis o f scarcity value. The maintenance o f a high level o f construction will tend to sustain employment and incomes and bring about a more gradual elimination o f the housing shortage and o f the scarcity premiums on existing housing. Increases in rents and in other consumer prices and costs will affect adversely the demand for housing and may tend to reduce the premium on existing housing. Loans that involve commitments that borrowers can meet out o f incomes only with severe sacrifice will in general be the first to get into diffi culties. February 1, 1947 MONTHLY BUSINESS REVIEW 7 THE OUTLOOK FOR PRICES Recent declines in open market prices o f some basic commodities have encouraged the belief that prices in general are close to the postwar peak and that the entire price structure will be subject to some down ward adjustment in the coming months. Such a direct inference, however, is subject to the qualification that significant changes in prices are not necessarily accomplished in unison. The various sections o f the market are not all exposed to the same set o f influences. The forces which determine prices differ among markets. As a matter o f fact, there is no single compre hensive index by which changes in the so-called general price level can be measured. Current and prospective price changes can be described only in terms o f those commodities and services which possess a common denominator. One o f these denominators is the kind o f market in which any given prices are recorded, such as the organized commodity markets. Another common quality that ensures some degree of homogeneity is the stage o f the production and distribution process at which prices are measured. A third common denominator is end use, as in the case o f commodities and services which are purchased by individuals for personal use and consumption. The best known statistical devices for measuring price changes within these three significant areas are known more specifically as the “ 28 Basic Commodity” series compiled by the Bureau o f Labor Statistics, The Department o f Labor’ s Wholesale Price Index, comprised o f 889 series, and the Consumers’ Price Index published by the same Department. Basic Raw Materials The Daily Spot Market Index of 28 Basic Com modities measures price changes o f basic raw materials. Many o f these items are quoted on organized com modity exchanges and are very sensitive to changes in market conditions both at home and abroad. O f the 28 commodities, 18 are important in world trade. Eleven are imported into the United States in large quantity. About two-thirds o f the commodities are the product o f agriculture. The following table indicates the varying rates at which prices o f these 28 basic commodities rose from 1939 to date: 28 Basic Commodities—Spot Market Prices Percentage Change A u g .’ 39 N o v .’ 41 Ju n e’ 46 A u g .’ 39 to to to to N o v .’ 41 June’ 46 N o v .’ 46 N o v .’ 46 28 Basic Commodities. + 5 5 % +27% + 48 % +190% Imported.................... + 5 6 -flO -+65 +183 Domestic.................... + 5 4 +39 +37 +195 Even before this country became involved in hostilities, the 28 basic commodities advanced 55 percent in the two years prior to November 1941. It should also be recalled that nearly all industrial raw materials had been brought under either informal or formal price control by August 1941. Domestic agricultural products were not controlled, however, until the General Maximum Price Regulation was promulgated early in 1942. Price control slowed the advance to 27 percent from November 1941 to June 1946. It should be noted, however, that this was accomplished through heavy subsidization o f imported items. Essential and strategic foreign materials were acquired abroad by the Government regardless o f cost and then resold on the domestic market at fixed prices. Domestic prices of imported raw materials were thereby held to a 10 percent rise, while raw materials produced in the United States increased 39 percent. The artificiality o f the prices o f imported raw materials became apparent when price controls lapsed in June 1946. In five months, those prices spurted an additional 65 percent, while domestic raw materials increased 37 percent. A large part o f this increase was due to the elimination o f subsidy payments and the reinstatement o f tariffs which were virtually suspended while the Government was the sole importer. World-wide shortages o f most o f the imported materials were also a decided factor. Over the entire period from August 1939 to November 1946 the 28 basic commodities advanced nearly 200 percent. Taken as a group, there is evidence that the 28 raw materials are near the top o f their advance. The accompanying charts illustrate the divergent price movements o f seven o f the commodities included in the index. Steel scrap held to its ceiling price o f $18.75 a ton until early November when a sharp rise began, carry ing the price to $31.00 by the end o f December for a gain o f 65 percent within a few weeks. Continued shortages and heavy demand may push ferrous scrap prices still higher. Lead prices have jumped from 8.2 cents per pound to 12.6 cents, or an increase o f 54 percent. Onefourth o f this, however, is due to reimposition o f the tariff o f 1.0625 cents per pound. Lead and other nonferrous metals may continue to rise as a result o f unprecedented demand, and in some cases, wardamaged supply facilities. Comparative Changes in Various Price Indexes (August 1939=100) PERCENT MONTHLY BUSINESS REVIEW 8 Agricultural prices, on the other hand, are already below the peaks o f October and November. Butter, for example, rose 73 percent above the June average and then lost nearly half o f that gain under the com bined weight o f consumer resistance and increased supply. Prices were still decreasing in January. Corn prices, at the close o f December, were 8 percent below the June level after an initial spurt in July. W heat prices are below the July high, and it is appar ent that Government buying for export purposes is serving to maintain that market. Hide prices doubled with the final removal of controls in November, but buyer resistance as well as increased offerings have tended to push prices down again. Textile materials are also under pressure. Supplies o f non-mineral oils are low but increasing steadily, and prices appear near their peaks. Natural rubber is below the wartime high and synthetic com petition should hold it in line. All indications, there fore, point to a gradual decline in basic commodity prices through 1947. They will be the first to reflect the balancing o f supply and demand o f basic raw materials and point downward as shortages are over come and as stockpiles are replenished. Wholesale Prices The movement o f wholesale prices is usually described in terms o f the Wholesale Price Index of February 1, 1947 889 commodities compiled by the Department o f Labor. The accompanying table indicates the changes that have taken place in the general wholesale prices and in four major subdivisions: Wholesale Prices—889 Commodities Percentage Change Aug. ’ 39 Nov. ’ 41 June ’ 46 Aug. ’ 39 to to to to Nov. ’ 41 June’ 46 Nov. ’ 46 N ov. ’ 46 +22% +24% 1 products—889........ + 2 3 % + 86% + 131 Raw materials........ + 36 +40 + 21 Manufactured + 25 + 70 products............... + 19 + 14 + 178 + 55 Farm products. . . . + 4 9 + 21 Products other + 24 + 70 than farm ............ + 19 + 15 The entire index has risen about the same proportion in each o f the periods, that is, prewar, war-andpostwar price control, and price freedom. In the seven years, wholesale prices have risen 86 percent, but within this broad grouping, different classes o f goods have advanced at much different rates. Products o f agriculture moved upward most rapidly over the entire interval. Farm products rose 49 percent in the two-year period prior to the war. During the war and up to the end o f price control, this group advanced an additional 55 per cent, and from June through November another 21 percent rise took place. Over the entire period, farm products skyrocketed 178 percent. Daily Spot Market Prices for Seven Basic Commodities June 1946 = 100 PERCENT PERCENT D O LLA R S CENTS PERCENT PERCENT C ENTS CENTS February 1, 1947 Compared to farm commodities, manufactured products behaved relatively mildly, going up only 70 percent in seven years. Nineteen percent o f this took place before the war. Although in contrast to raw materials and agricultural products prices o f manu factured goods have always fluctuated with smaller amplitudes, some o f the disparity between the two rates o f increase is the result o f price control policies. Manufactured goods moved upward only 14 percent while raw materials jumped 40 percent and farm prod ucts increased 55 percent. When these higher material costs are considered in conjunction with greater labor costs, it is evident that maintenance o f price ceilings on finished goods was becoming more difficult. After price controls were eliminated, prices o f manufac tured goods advanced 25 percent or only four per cent more than the additional cost o f raw materials. These price movements lend support to the belief that producers o f many products nave endeavored to hold prices at a level that would facilitate the market ing o f a large output. As productivity increases and raw materials decline in cost, prices o f manufactured goods should tend to recede. It appears that there is a relatively close correla tion between the movement o f the 28 basic commodi PERCENT DOLLARS PERCENT DOLLARS 9 MONTHLY BUSINESS REVIEW ties and wholesale prices. Although the basic com modities move more rapidly, the broader wholesale index usually follows the trend in basic commodities with only a slight lag in time. Therefore, it can be expected that when primary prices o f raw materials and farm products turn down, wholesale prices will soon follow. However, if manufacturers’ costs should rise sufficiently to endanger customary profit margins, some prices would rise thus offsetting the effects of declines in other commodities. Farmers could be squeezed as prices o f their products decline and the cost o f purchased processed goods advance. Such price changes would operate to raise parity or support prices for the basic agricultural commodities and retard the decline in prices generally. Prices Paid by Consumers The United States Department o f Labor’ s Con sumers’ Price Index reflects the rise in wholesale prices as it affected the retailer and in turn the consumer. The full impact o f rising wholesale prices, however, cannot be seen in the consumers’ price index since it includes among other elements, rental rates which have been held to only a four percent advance. Changes in the Consumers’ Price Index are shown on the following page. PERCENT CENTS Average Base Period (June 1946) Prices Steel Scrap......................................................... 318.75 per ton Lead.................................................................... .082 per pound Hides................................................................... .155 per pound W heat.................................................................. 1.885 per bushel Corn.................................................................... 1.448 per bushel Butter.................................................................. .51 C otton................................................................. .292 per pound Source: Bureau o f Labor Statistics. per pound MONTHLY BUSINESS REVIEW 10 Consumers’ Price Index F ood ......................... . . . Clothing................... . . . R ent.......................... . . . Combined Index. . . . . . Percentage Change A u g .’ 39 N o v .’ 41 Ju n e’ 46 A u g .’ 39 to to to to Nov. ’ 41 June ’ 46 Nov. ’ 46 Nov. ’ 46 + 29% +29% + 101% +21% +38 + 68 +13 7 -0 + 3 + 4 1 + 21 + 14 +12 + 54 + + The substantial rise in farm prices discussed earlier is reflected in consumer food prices. Food costs have doubled over the entire period. They have advanced more than any other element in the index. Before the war, food costs were up 21 percent. Another 29 percent increase occurred under price control. A similar rise took place in the five months succeeding control. Part o f this, o f course, was due to the elimination o f direct and indirect subsidies and the restoration o f wider retail margins. Clothing prices rose altogether 68 percent. If quality deterioration and the dropping o f low and medium priced lines could have been accurately measured, the index would have been considerably higher. More than half o f the measured increase took place under price control. Since June 1946 clothing increased only 7 percent, and much o f this was due to improvement in quality over that o f the war and immediate post-war period. The composite index has risen 54 percent since August 1939 and now stands slightly higher than the peak reached after World War I. Wholesale prices, however, have not yet reached the crest attained in 1920. The immediate future trend o f consumers’ prices is uncertain. Food prices have already turned down and undoubtedly will continue downward. On the other hand it is unlikely that present rent levels can long be maintained. It is reported that rent ceilings already have been raised in a few cities, and some authorities predict that if all rent controls were abandoned, rents would rise at least 25 percent, or perhaps enough to offset the expected drop in foods. Household furnishings, which include many consum ers’ durable goods, may also advance if manufacturers’ labor and transportation costs increase and workstoppages again operate to hold down supply. This may or may not be enough to offset declines antici pated in soft goods lines where competition has become quite keen. The first post-Christmas sales in many years are evidence o f this fact. Fuel costs, as represented by coal, may be expected to rise further in the spring. Electric utilities have February 1, 1947 been able to absorb their increased wage and material costs through more complete utilization o f their facilities. However, expansion now taking place is at a much higher level o f costs; wage rates may be expected to rise further. Continuation o f these trends may bring about a revised rate structure in the not too distant future. Further rises in consumers’ prices could cancel the effective demand of a large segment of the consum ing public and initiate a wave o f unemployment, not only in over-priced durable goods lines, but also in the kinds of business supplying nonessential luxuries and services. Recent trends in fur and liquor sales are striking examples. Declining prices nevertheless can be beneficial to the entire economy. I f manufacturers were to achieve smooth flowing production lines and higher produc tivity from both their labor force and invested capital, unit costs would decrease and selling prices could be progressively reduced. Such action broadens the market, increases employment, and raises living standards generally. It also makes possible addi tional wage increases and stimulates expansion in capital goods investment. In some lines o f endeavor, profit margins have become unusually wide during the war and post-war periods because o f the absence o f effective competi tion or the artificial restriction o f supply. In such cases increasing supply and competition for the con sumers’ dollar will result in lower prices and adequate profits from large volume rather than high unit mark-ups. Likewise, lower prices for important raw materials and food products stimulate consumption. Within reasonable limits such price declines will not impair the incomes o f the suppliers o f these items. Price declines o f a moderate nature are a tonic to the entire economy. Their effects are far different when large groups o f buyers (both industrial and retail) become convinced that certain goods are over priced and abruptly refuse to buy. Such action can result in stagnation o f markets, lay-offs in factories, and finally panicky price-cutting by sellers. As prices drop in response to such developments, buyers tend to postpone purchases awaiting further cuts thus accentuating deflationary tendencies. That type o f downward spiral can be avoided. Intelligent action now, directed toward increased production at more efficient levels, can avert such an event. MONTHLY BUSINESS REVIEW February 1, 1947 Indexes of DepartmentStore Sales and Stocks Daily Average for1935-1939 “ 100 Adjusted W ithout for Seasonal Variation Seasonal Adjustment Dec. Nov. Dec. Dec. N ov. Dec. 1946 1946 1945 1946 1946 1945 SALES: Akron ( 6 ) ................... Canton ( 5 ) ................. Cincinnati ( 9 ) ........... Cleveland (1 0 ).......... Columbus ( 5 ) ........... Erie ( 3 ) ....................... Pittsburgh ( 8 ) ........... Springfield ( 3 ) ........... Toledo ( 6 ) .................. Wheeling ( 6 ) ............. Youngstown ( 3 ) . . . . District (9 8 ) .............. S TO C K SDistrict....................... 290 310 268 255 303 273 247 257 255 219 284 277 288 319 285 269 335 279 272 287 268 252 293 266 246 223 216 193 242 230 190 234 211 186 236 218 458 539 453 403 533 480 395 457 434 414 460 430 340 389 359 307 402 335 324 324 319 297 352 333 389 387 365 305 426 405 303 417 358 351 382 338 258 249 149 214 263 124 11 Fourth District Business Statistics (000 omitted) Fourth District Unless Otherwise Specified Retail Sales: Department Stores— 98 firms............... Wearing Apparel— 14 firms................... Furniture—-48 firms................................. Building Contracts— T o ta l........................ — Residential.............. Commercial Failures— Liabilities............. — Actual N um ber. Production: Pig Iron— U. S..........................Net tons Steel Ingot— U. S..................... Net tons Cement— O., W. Pa., W. V a .. . . Bbls. a November, b October December 1946 3 3 3 3 101,240 3,311 3,214 38,070 12,878 673 8 3,992 5,701 1,483a % change from Novem ber 1945 1946 +27 +16 +35 —23 +34 +370 +300 78,381 2,565 2,706 42,851 19,397 2,158 6 — 8 — 6 +83 4,435 6,410 1,557b Time Deposits*— 12 Fourth District Cities Bank Debits — December, 1946 (29 Fourth District Cities) Bank debits in twenty-nine Fourth District cities were at an all-time high during December. The December total was 15 percent higher than the Novem ber figure, 14 percent above the year ago volume and 9 percent above the previous all-time high set in June 1945. The total for the fourth quarter was also at a record high, exceeding the third quarter figure by 10 percent and the year ago aggregate by 20 percent. The record high level was caused in part by high prices and the great volume o f Christmas buying. Large scale debt retirement operations by the Treasury and December income tax payments likewise were important factors. T E N L A R G E S T C IT IE S In each o f the ten large cities debits attained new quarterly highs and in eight cities new m onthly records were established. The largest per centage increases over year ago figures, during December and the fourth quarter as well, were recorded in T o le d o and Akron. C a n to n with a 25 % percent increase over a year ago ranked third among the ten cities. D a y to n debits during the fourth quarter totaled nearly $600 million for a 29 percent increase over a year earlier. N IN E TE E N S M A L L E R C IT IE S H o m e ste a d and M id d le to w n led the smaller cities in monthly and quarterly percentage gains over the totals for a year ago. O il C ity ranked third in the list of monthly increases while M a n sfield was third in the quarterly column. The smaller centers in general recorded larger percentage gains than did the large cities. The fourth quarter debit total for the smaller centers was up 24 percent from a year ago, compared with 20 percent for the largest cities. (In thousands o f dollars) % change ALL 29 C E N T E R S ., .............. December 1946 36,628,931 10 L A R G E ST C E N T E R S : A kron........................ C anton...................... .Ohio .O hio Cleveland................. .O hio Columbus................. .O hio D ayton...................... .O hio .O hio Youngstown............. .O hio Erie............................ . Penna. . Penna. from year ago + 1 3 .8 3 months % change ended from Dec. 1946 Year ago 318,255,575 + 2 0 .2 254,795H 103.638H 855.080H 1,715,178H 457,047 206.042H 402,305 H 121,359 84,931H 1,823,931H + 3 1 .3 + 2 5 .5 + 1 6 .3 + 4 .5 + 1 .0 + 2 2 .0 + 4 2 .1 + 2 4 .0 + 1 3 .4 + 1 4 .9 736.305H 286.496H 2,389,958H 4,75 7,865 H 1,320,356H 596,755H 1,109,322H 358.368H 230,464H 4,835,807H + 3 3 .0 + 2 3 .0 + 1 7 .2 + 1 3 .7 + 1 4 .2 + 2 9 .0 + 4 6 .4 + 1 8 .8 + 2 0 .3 + 2 1 .1 36,024,306H + 1 3 .3 316,621,696H + 1 9 .8 + 1 2 .9 + 8 .8 + 2 9 .4 + 2 8 .8 + 1 8 .3 + 3 2 .7 + 3 6 .5 + 2 3 .1 + 2 0 .0 + 1 9 .4 + 2 6 .2 + 2 1 .4 + 3 2 .8 + 4 .2 + 2 2 .7 + 3 8 .6 + 3 6 .2 + 2 1 .6 + 1.5 3 105,696 211.713H 88.743H 114,403 H 45.552H 99.176H 89,42 7H 5 7,072 H 122.266H 60,201 H 99,5 77H 64.348H 80,543 H 19,957 53,734H 22.205H 60.337H 67.043H 171.886H + 17.5 + 2 0 .7 + 2 5 .4 + 3 1 .7 + 3 4 .3 + 3 5 .5 + 3 8 .6 + 2 6 .6 + 2 0 .2 + 1 5 .2 + 3 4 .0 + 2 9 .0 + 2 8 .1 - 3 .8 + 2 6 .0 + 3 7 .6 + 3 4 .8 + 1 9 .5 + 1 0 .5 3 1,633,879H 3 604,625 H + 1 9 .0 H denotes new all-time high for one month or quarter-year. + 2 4 .1 T otal..................... 19 O T H E R C E N T E R S : C ovington-N ew port,. K y . 3 Lexington................. .K y . .O hio .Ohio .O hio Mansfield.................. .O hio Middletow n............. .O hio Portsmouth.............. .O hio Springfield................ .O hio Steubenville............. .O hio Warren...................... .O hio Zanesville................. .O hio . Penna. . Penna. . Penna. . Penna. Oil C ity ..................... . Penna. . Penna. Wheeling.................. . W . Va. 37,121 105,605 H 31,244 39,409H 15,751H 35.353H 30,559 19,497 41,878H 21.358H 32,722 22,644H 28.509H 6,998 19.289H 7,647H 21.468H 22,590 64.983H (59 Banks) Average W eekly Change During: ---------------- 1946 ---------------- -4wks. ended First Half Second H alf Dec.24,1946 +31,509,000 3 927,000 +31,630,000 + 606,000 + 429,000 + 204,000 + 410,000 + 163,000 + 313,000 + 202,000 + 96,000 + 168,000 + 203,000 + 92,000 + 152,000 + 122,000 + 107,000 + 101,000 + 81,000 + 14,000 29,000 + 77,000 6,000 54,000 + 81,000 16,000 + 41,000 + 93,000 + 28,000 246,000 + 83,000 1,000 105,000 + 32,000 + 15,000 12,000 City and Number Time Deposits o f Banks Dec. 24, 1946 Cleveland (4 ). . .3 841,816,000 Pittsburgh (13) . 325,600,000 Cincinnati ( 8 ) .. 178,978,000 Akron ( 3 ) ........... 97,984,000 Toledo ( 3 ) .......... 88,248,000 Columbus ( 3 ) . . . 71,015,000 Youngstown (3 ). 52,716,000 Dayton ( 3 ) ......... 49,188,000 Canton ( 4 ) ......... 39,514,000 Erie ( 4 ) ............... 35,964,000 Wheeling ( 6 ) .. . 28,103,000 Lexington ( 5 ) .. . 10,119,000 Total— 12 Cities 31,819,245,000 +33,499,000 +31,848.000 +32,163,000 *of Individuals, Partnerships, and Corporations. Wholesale and Retail Trade D E P A R T M E N T STORES (98) A kron............................................. C anton........................................... Cincinnati..................................... Cleveland...................................... Columbus...................................... Erie................................................. Toledo....................................................................... Wheeling................................................................... Youngstown............................................................. Other Cities............................................................. District..................................................................... WEARING APPAREL (14) Cincinnati................................................................. Cleveland.................................................................. Pittsburgh.......................................................... .. Other Cities............................................................. District...................................................................... FURNITURE (48)j Canton...................................................................... Cincinnati................................................................. Cleveland.................................................................. Columbus.................................................................. Dayton...................................................................... Pittsburgh................................................................ Allegheny County................................................. Toledo....................................................................... Other Cities............................................................. District...................................................................... WHOLESALE TRADE** Automotive Supplies (3 )....................................... Beer (5 )..................................................................... Clothinf and Furnishings (3 ).............................. Confectionery (4 ).................................................... Drugs and Drug Sundries (4 ).............................. Electrical Goods (5 )............................................... Fresh Fruits and Vegetable* (13)....................... Grocery Group (34)............................................... Total Hardware Group (18)................................ General Hardware (6 )....................................... Industrial Supplies (6)...................................... Plumbing ana Heating Supplies (6 ).............. Percentage Changes from Preceding Year SALES SALES STOCK Dec. year Dec. 1946 1946 1946 +19 +19 + 75 +39 + 30 a + 25 + 31 + 77 +32 +29 + 73 + 25 +29 + 72 +18 + 21 +50 +30 +30 + 69 +10 +14 a + 21 + 23 + 64 +18 +27 + 61 +20 +24 a +27 + 33 + 55 +27 +70 +28 + 9 +20 +17 + 13 +16 + 8 +24 +16 +10 + 15 + 52 +70 + 55 + 31 + 53 + 51 +26 +38 + 23 +30 a +47 +25 + 33 +35 +47 + 43 +44 + 47 +59 a +46 + 47 +58 +48 + 55 +74 + 73 a a a a a + 85 +73 + 64 +54 a -1 7 - 6 + 55 +37 a a +27 a a +20 +21 a +107 a a - 6 -0 + 16 +26 +28 +58 +66 + 53 a +70 +71 +56 +64 +19 a +56 +44 a +28 + 6 a Lumber and Building Materials (3 ).................. +155 a a Machinery, Equip, fc Sup. (exc. Elect.) ( 4 ) . .. + 61 a a Paints ana Varnishes (4)...................................... + 139 +46 a +22 Paper and Its Products (5).................................. +46 a Tobacco and its Products (17)............................ +28 +31 +31 +34 Miscellaneous (16).................................................. + 28 + 27 +30 District— All Wholesale Trade (152)................. +31 +39 ** Wholesale data compiled by U. S. Department of Commerce, Bureau of the Census, a Not available. Figures in parentheses indicate number of firms reporting sale?. February 1, 1947 MONTHLY BUSINESS REVIEW 12 SUMMARY OF NATIONAL BUSINESS CONDITIONS B y the Board of Governors of the Federal Reserve System (Released for Publication January 29,1947) Industrial output declined slightly in December owing mainly to a temporary reduction in coal supplies and to holiday influences. Value o f retail trade was maintained close to record levels. Wholesale prices o f industrial products have advanced somewhat further in recent weeks; prices o f some basic com modities, however, like butter, hides, and silver, have shown further marked declines. Industrial Production The Board’ s seasonally adjusted index o f industrial production was 179 percent o f the 1935-39 average in December as compared with 182 in November. Output o f durable goods decreased somewhat, reflecting chiefly a decline in production o f iron and steel owing to the bituminous coal work stoppage. In the early part o f January, steel operations were raised to the peak rates prevailing in the middle of November. Activity in machinery and transporta tion equipment industries showed little change in December. Production o f nonferrous metal products increased somewhat further. Activity in the furni ture industry reached a new record level for the postwar period. Output in industries manufacturing nondurable goods declined to 168 percent o f the 1935-39 level, from 172 in November, owing in part to curtailed operations during the Christmas week. Production o f textile products decreased about 7 percent. Meat packing activity declined from the sharply advanced level reached in November, while output o f most other manufactured foods showed a small increase. Newsprint consumption increased, and production of most chemical and rubber products remained at advanced levels. Output o f minerals in December was at the Novem ber rate. Owing to the termination o f the two-anda-half week work stoppage in the bituminous coal industry on December 9 and the high rate o f output in subsequent weeks, coal production was 9 percent larger in December than in November. Production o f crude petroleum decreased slightly. Employment Nonagricultural employment in December re mained at the November level, after allowances for seasonal increases in trade and government postoffices and the usual decline in construction employ ment. Unemployment increased by about 200,000 persons. Construction Value o f most types o f construction contracts awarded, as reported by the F. W. Dodge Corpora tion, declined further in December, reflecting mainly seasonal influences. Residential awards and awards for public works and utilities, however, were more than double the amounts in December 1945. Value o f other contracts was substantially smaller than in December 1945, but for the year 1946 exceeded all previous years except 1942. Distribution partm en t store sales in December showed the Digitized forAFRASER usual sharp increase and the Board’ s adjusted index was 272 percent o f the 1935-39 average. Total sales in the fourth-quarter holiday shopping season were 23 percent larger than in the same period in 1945 and for the year 1946 sales were 27 percent greater than in 1945. Sales in the first three weeks o f Janu ary showed about the usual seasonal decline. Depart ment store stocks showed a much smaller decline than usual in December and, according to preliminary figures, were 70 percent larger than at the end o f 1945. Outstanding orders for merchandise continued to decline and were about 30 percent smaller than on December 31, 1945. Loadings o f railroad revenue freight in December and the first three weeks o f January exceeded the volume shipped during the corresponding period in 1945-46 by about 10 percent. Loadings o f grain products were the greatest on record for the month o f December owing to large shipments for export. Commodity Prices The general level o f wholesale commodity prices advanced slightly further from the middle o f Decem ber to the latter part of January reflecting increases in prices of industrial products, offset in part by decreases in prices o f most livestock and poultry products, grains, cotton, and canned fruits and vegetables. Among industrial products, prices qf building materials and metal products generally showed the largest increases in the early part o f January. Silver prices, however, declined considerably and a leading manufacturer o f lower-priced automobiles reduced prices slightly. Retail food prices declined somewhat further from earlier peak levels and clearance sales before and after the Christmas holiday resulted in substantial price reductions for various types of merchandise. Retail prices o f most standard types o f goods, however, were maintained or increased further in this period. Bank Credit Real estate and consumer loans at banks in leading cities continued to increase during December and the first half o f January. Commercial and industrial loans, following the rapid expansion o f the summer and fall months, increased only slightly further. Substantial reductions in holdings o f government securities reflected largely the 3.3 billion dollar treasury note retirement o f mid-December. Deposits at member banks increased in the early part o f December, but declined in the latter half o f the month as a result o f income tax and other pay ments. Member bank reserve balances showed similar fluctuation with little net change for the period as a whole. Reserve funds which became available to banks through a post-holiday decline in currency in circulation and through increases in monetary gold stock were about offset by reductions in Government security holdings and an increase in Treasury deposits at the Reserve banks.
@FedFRASER