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Page
Rising Incomes and Credit Support Purchases
of Durable G o o d s and H o u se s......................
74
Bank Credit Increases in Second Q u a rte r ............
76
A N e w M easure of the M one y S u p p ly ................
77
This issue released on July 20
VOL. 41 • No. 7 • JULY '59
Rising Incomes and Credit Support Purchases
of Durable Goods and Houses
T h e SPEED with which the American economy has
expanded since its latest recession has been note
worthy. Gross national product, the value of all goods
and services produced in the nation, rose from a sea
sonally adjusted annual rate of $427 billion in the
first quarter of 1958 to $467 billion in the first quarter
of this year, more than $20 billion above the pre
recession high reached in the third quarter of 1957.
Although second-quarter data are not yet available,
GNP in this year’s April-June period was probably
at an annual rate in excess of $475 billion. Consider
ing that prices have increased by less than 1 per cent
over the past year, “real” GNP has shown an expan
sion which was only slightly below the rise in "money”
GNP.
Industrial production, another important indicator
of economic activity, has shown a pattern virtually
identical to that of gross national product. The indus
trial production index, seasonally adjusted, which in
April 1958 had reached a recession low of 126 per cent
of the 1947-1949 average, rebounded sharply and re
gained its pre-recession level of 145 in February of
this year. Since February, business activity has ex
panded at an even faster pace than during the pre
vious ten months. In May the industrial production
index stood at a seasonally adjusted rate of 152, and
rose to an estimated 154 in June. This put the produc
tion increase during the March-June period at an
annual rate of about 20 per cent.
An important element in the business picture has
been the behavior of consumers who, supported by
rising incomes and improved job opportunities, have
sharply increased their expenditures. Growth in con
sumer spending, in turn, has favorably affected busi
nessmen’s expectations and decisions with regard to
future sales. Business plans therefore may have been
at least partly responsible for the increased rate of
growth in economic activity during the second quar
ter of this year.
Page 74
Rising Incomes Lead to Rising Expenditures.
Incomes received by consumers showed remarkable
stability during the recession, in contrast to the de
clines in gross national product and industrial pro
duction. Disposable personal income, that is, total
personal income minus personal taxes, dropped only
slightly from a seasonally adjusted annual rate of
$308.7 billion in the third quarter of 1957 to a reces
sion low of $306.1 billion in the first quarter of 1958.
Two factors which played an important part in pre
venting a considerably larger drop in this after-tax
income were the increase in compensation payments
to the unemployed and the decline in income taxes
collected from individuals. Reflecting the stability
in disposable income, expenditures by individuals and
households were virtually unchanged during the re
cession, declining by less than 1 per cent from peak to
trough.
Since the start of the recovery in the spring of last
year, both consumer incomes and expenditures have
risen sharply. Marked increases in employment, espe
cially this year, longer work weeks, and higher hourly
wages have contributed significantly to the rise in
wages and salaries. While total personal income was
7.6 per cent higher in May of this year than in April
1958, wage and salary disbursements in May were 10
per cent higher.
Consumer expenditures since the upturn in eco
nomic activity have grown at almost the same rate as
personal income, and at a slightly faster rate than dis
posable personal income. Dollar volume of spending
by individuals and households was 5 per cent higher
in the first quarter of this year than in the same quarter
of 1958, a percentage increase virtually identical to
that found in personal income. Disposable income
grew at a slightly lower rate than consumer expendi
tures during the same period, an indication that con
sumers were not inclined to add to their savings at
the same rate as the rise in their incomes.
Consumers Show Preference for
Durable Goods, Homes.
although not yet available, have surpassed the pre
recession high by a considerable margin.
Although consumers have increased their spending
on virtually all types of commodities since the re
surgence in economic activity, they have shown strong
preferences for homes and other durable consumer
items (Chart 1). In retrospect, this is not very sur
prising; while total consumer expenditures decreased
by less than 1 per cent from their pre-recession high
to their recession low, spending on durable goods
dropped about 12 per cent. Consequently, the sharp
increase in demand for durable goods which followed
the recession may be at least partly viewed as the nat
ural reaction against the previously experienced de
cline. First-quarter expenditures on durable consumer
items this year were at a seasonally adjusted annual
rate of $40.1 billion, almost identical to the pre-reces
sion peak rate reached in the third quarter of 1957.
Indications are that second-quarter data for this year,
Among consumer durables, automobiles experienced
the greatest rise in demand. During 1958, approxi
mately 4.6 million passenger cars, including both
domestically and foreign produced units, were sold.
So far this year, however, sales have run at an annual
rate of at least 6 million units, a substantial increase
over last year’s total, but still well below the record
volume of almost 8 million units sold in 1955. One of
the best indications of increased preference for auto
mobiles can be discovered in the relationship between
total personal consumption expenditures and consum
er outlays for automobiles, parts, and accessories. In
1955 consumers spent 7.1 per cent of their total expen
ditures on cars and related items; in 1958 this figure
had dropped to 4.8 per cent, and in the first quarter
of this year had climbed back to 5.7 per cent, season
ally adjusted.
Chart 1
PRIVATE EXPENDITURES
Av. 1957 =
Per Cent
100
Per Cent
Besides showing considerable preference for these
durable goods, consumers have increased their de
mand for homes markedly since last years business
upturn. Total expenditures for residential construc
tion declined from a seasonally adjusted annual rate
of $17.3 billion in December 1957—the high for that
year—to $16.2 billion in April and May 1958. After
having reached this recession low, spending on private
home construction started to rise swiftly, and sur
passed the December 1957 value of residential con
struction as early as August of last year. In February
of this year residential construction expenditures were
at a seasonally adjusted annual rate of $21.8 billion.
This sharp growth represented an increase of almost
43 per cent in the rate of spending for homes, sur
passing by a considerable margin the rates at which
sales of other consumer commodities, except automo
biles, have risen since the trough of the recession. Al
though in recent months expenditures on residential
construction have shown a modest downturn, 1959
may be a year of record outlays for private residential
building.
Rise in Consumer Credit and Mortgage Debt
Accompanies Increased Consumer Spending.
Note: Total consumer expenditures include outlays for durable consumer
goods and one of its major components, expenditures for automobiles and
parts, but do not include residential construction expenditures.
Latest data plotted: First quarter 1959
Source: Survey of Current Business
The marked rise in consumer spending on durable
goods has, to an important extent, been financed by
borrowed funds (Chart 2). Total consumer credit
outstanding at the end of May of this year amounted
to $45.8 billion, almost 7 per cent above the total out
standing at the end of the same month a year ago.
Consumer instalment credit outstanding at the end of
May 1959 was about 9 per cent above the year-ago
level.
C h a rt 2
CONSUM ER CREDIT A N D M ORTGAGE DEBT
O UTSTANDING
Av. 1957 =
Per Cent
100
Per Cent
stalment credit remained ahead of repayments until
January 1958. After January, repayments outstripped
extensions until August 1958 at an annual rate of ap
proximately $1.8 billion.
Between October 1958 and May of this year exten
sions have again been larger than repayments, the dif
ference amounting to a seasonally adjusted annual
rate of about $3.5 billion. This discrepancy between
extensions and repayments appears to have increased
with the growing expansion of economic activity; dur
ing the January-May period of this year the annual
rate amounted to $4.6 billion, and during May itself
to $5.3 billion.
Repayments of automobile paper exceeded exten
sions at an annual rate of about $1.7 billion between
January 1958 and November of last year. Since that
month, however, extensions have been larger than re
payments, with the difference amounting to an annual
rate of about $1.9 billion. From January until June of
this year the rate at which extensions exceeded repay
ments amounted to about $2.1 billion annually. How
ever, the rate at which automobile paper has expanded
in recent months is still far short of the 1955 rate,
when extensions exceeded repayments by almost $3.7
billion.
Note: Total consumer credit includes automobile paper, but does not include
home mortgages. Home mortgages are limited to nonfarm 1- to 4-family
houses.
Latest data plotted: First quarter 1959—home mortgages, and May 1959—
others
Source: Federal Reserve Bulletin
Total instalment credit, and especially instalment
loans made for automobile financing, has shown some
interesting changes during and after the recession.
Seasonally adjusted monthly extensions of total in
The rate of increase in residential mortgage debt
outstanding has shown very little change in recent
years. This is not surprising; data are only compiled
quarterly, and the short duration of the recession pre
vented any large-scale changes in the magnitude of
the debt. During the second, third, and fourth quar
ters of 1958, however, absolute increases in debt out
standing grew continuously larger, reflecting increased
expenditures on residential construction. The seasonal
slowdown in construction activity during the winter
months kept the increase in mortgage debt during the
first quarter of this year slightly below the rise expe
rienced in the previous two quarters. However, the
expansion was almost 65 per cent larger than in the
first quarter of last year.
Bank Credit Increases in Second Quarter
D,
'EMANDS FOR CREDIT by consumers and real
estate owners as well as others appeared to have
strengthened in the second quarter of 1959. Bank
credit and the money supply, adjusted for seasonal
influences, continued to expand. Open market opera
tions of the Federal Reserve System plus an increase
in member bank borrowing at the central bank pro
vided the reserves necessary for banks to increase
their loans and investments.
The Federal Reserve System increased its average
Page 76
holdings of Government securities by $510 million
from March to June of this year through net purchases
in the open market. These transactions indirectly re
sulted in a credit for a like amount to member bank
reserve balances held at the Reserve Banks. In addi
tion, member banks increased their average borrow
ings from the Reserve Banks by $290 million from
March to June, thereby adding directly to their reserve
accounts.
(Continued on page 83)
A New Measure of the Money Supply
I t HAS LONG BEEN RECOGNIZED that changes
in the money supply may influence economic activity
and prices and that even in a free economy “money
will not manage itself.” Therefore, in the public inter
est, it is important to measure as precisely and current
ly as possible how much money there is in the econ
omy, the proportions of the various types of money
within the total, and changes in the quantities from
period to period.
Money, broadly speaking, includes whatever is typ
ically accepted within an area in payment for goods
and services and in settlement of debt and taxes. In
the United States the money supply is most commonly
defined as including banks’ demand deposits and cur
rency in circulation outside banks. Records of banks,
the Federal Reserve System, and the United States
Treasury provide convenient sources of data for this
measure of the money supply. As is often the case
when accounts kept for one purpose are used for
another, difficult decisions must be made regarding
the selection of items to be used and the ways in
which they are to be combined. This article discusses
some of the problems of compiling measures of the
money supply and presents a measure developed in a
somewhat different manner than the one generally em
ployed.
The most widely used measure of the money supply
is the one prepared by the Federal Reserve System and
published in the Federal Reserve Bulletin. It consists
of seasonally corrected estimates for the last Wednes
day of each month of banks* demand deposits adjusted
and currency outside banks.
The basic feature of the alternative series, presented
here, is that the member bank demand deposit por
tion, which makes up about two-thirds of the total
money supply, consists of daily averages of deposits
for semi-monthly periods instead of the one-day-amonth measures of deposits contained in the previous
ly available series. The daily average member bank
deposits are drawn from reports of deposits subject to
reserve requirements made by the member banks in
connection with determination of their required re
serves. Daily average member bank demand deposits
adjusted for semi-monthly periods from January 1947
through May 1959 are presented in columns 1 and 3
of Table I.
Estimates of currency and nonmember bank dejtosits from the earlier series have been combined with
the seasonally adjusted daily average member bank
deposits to provide a new semi-monthly money supply
series parallel in concept with the one-day-a-month
series. The semi-monthly series is presented in column
6 of this table.
Over long periods of time the average rates of
change of the two series are approximately the same.
The major nonseasonal movements of the money sup
ply seem to be depicted in similar fashion by the two
series. But Chart I shows certain differences in meas
urement over relatively short periods which might
well be significant insofar as the current rate and di
rection of change in the money supply are factors in
formulating monetary policy. Money supply devel
opments over the first half of 1957 and in July of that
year would seem to be subject to different readings
depending on which series is used. Comparison of
annual rates of change for quarterly periods since
1953, given in Table II, also illustrates the differences
in short-run changes shown by the two series. It sug
gests that the larger erratic variations reported in the
series based upon data for only one day a month may
reflect, among other things, the limitations of this ap
proach to measurement.
Chart I
Money Supply
Two Measures of Seasonally Corrected
Demand Deposits Adjusted
and Currency Outside Banks
Billions of Dollars
Billions of Dollars
Daily Average E stimates,
,
<7
Sem i - Monthly
h
r
^
VNA_ y x
jy
\ / "Last Wednes day" Estimates,
Montihly
1957
1958
1959
Page 77
TABLE I
D e m a n d D eposits
M O N E Y SU PPLY
Adjusted
All Member Banks
Daily Average Basis
Private Active Sector
Semi-monthly, 1947-1959
(Daily Average Basis)
(Millions of Dollars)
S e a s o n a l l y Adj us t ed Series
Semimonthly
period
Demand
deposits
adjusted
member
banks
Demand
deposits
adjusted
nonmember
banks
Currency
in
circulation
outside
banks
TOTAL
Demand
deposits
adjusted
and
currency
outside
banks
12,201
100.3
98.6
98.5
98.0
96.9
97.7
98.2
98.1
99.4
99.2
99.2
99.7
99.6
99.8
100.7
100.8
100.1
100.9
100.9
101.8
102.5
103.1
66,106
66,044
66,102
66,192
65,849
66,606
67,059
67,643
67,843
68,188
69,214
69,739
70,282
70,532
70,432
70,381
70,506
70,635
70,929
71,160
71,259
71,071
71,415
71/532
12.907
12,934
12,999
13,049
13,075
13,047
13,115
13,148
26.546
26.547
26,551
26,557
26.565
26.566
26,555
26,529
26,489
26,460
26,442
26,407
26,357
26,302
26,244
26,265
26,365
26,383
26,319
26,271
26,237
26,214
26,204
26,178
104,853
104,788
104,860
104,970
104,569
105,461
105,979
106,639
106,814
107,181
108,370
108,948
109,535
109,769
109,582
109,534
109,778
109,952
110,247
110,480
110,571
110,332
110,734
110,858
103.0
102.6
100.7
99.5
99.2
98.1
96.9
97.7
98.2
98.4
99.4
98.9
99.0
99.4
99.6
99.8
100.4
100.4
100.1
100.9
100.8
101.4
102.5
103.1
71,505
71,589
71,698
71,608
71,623
71,356
71,414
71,238
71,181
71,138
70,875
71,132
70,808
70,825
70,934
71,042
71,016
70,867
70,929
70,862
70,933
70,907
70,732
70,563
13,162
13,186
13,205
13.185
13.185
13,130
13,133
13,094
13,061
13,040
12,984
13,023
12,958
12,954
12,963
12,975
12,965
12,926
12,918
12,891
12,894
12,880
12,841
12,800
26,136
26,099
26,069
26,024
25,996
25,905
25,839
25,799
25,784
25,777
25,776
25,769
25,757
25,746
25,738
25.733
25.733
25,716
25,684
25,668
25,666
25,631
25,563
25,509
110.803
110,874
110,972
110,817
110.804
110,391
110,386
110,131
110,026
109,955
109.635
109,924
102.5
102.4
100.8
99.9
99.7
98.4
70.537
70.410
70,337
70,070
70.411
70,478
70,237
70,558
70,579
70.538
70,523
70,576
70,660
70,594
70,624
70,582
70,659
70.629
70.629
70,755
70,804
70,949
71,073
70,999
12,782
12,751
12.734
12,678
12.726
12.727
12,676
12,730
12,732
12,726
12,725
12.735
12,750
12.736
12.738
12.728
12,740
12.736
12.738
12,760
12,765
12,788
12,809
12,792
25,467
25,424
25,380
25.364
25.376
25.376
25.364
25,352
25,342
25,313
25,266
25,222
25,182
25,151
25,127
25,084
25,020
24,975
24,948
24,920
24,892
24,860
24,826
24,809
108,786
108,585
108,451
108,112
108.513
108,581
Without
seasonal
correction
(Millions
of dollars)
Seasonal
adjustment
factors
68,221
103.2
67,893
66,300
65,265
64,861
65,274
64,980
66,087
66,622
66,892
68.799
69,181
69,720
70,320
70,150
70,240
71.000
71.200
71.000
71.800
71,900
72,350
73.200
73,750
102.8
73.650
73.450
72.200
71,250
71,050
70.000
69.200
69,600
69.900
70.000
70.450
70,350
70,100
70,400
70.650
70.900
71,300
71,150
71.000
71.500
71.500
71.900
72.500
72,750
72.300
72.100
70,900
70,000
70.200
69,350
68.200
69,500
69,450
69,550
70.100
69.800
69,600
70.100
70.200
70.300
70.800
70.700
70.700
71,250
71.300
71.800
72,850
http://fraser.stlouisfed.org/
73.200
(Percent)
97.1
98.5
98.4
98.6
99.4
98.9
98.5
99.3
99.4
99.6
100.2
100.1
100.1
100.7
100.7
101.2
102.5
103.1
Federal Reserve Bank of St. Louis
12,197
12,207
12,221
12,155
12,289
12,365
12,467
12,482
12,533
12,714
12,802
12,896
12,935
12.906
12,888
109,523
109,525
109.635
109,750
109,714
109,509
109,531
109,421
109,493
109,418
109,136
108,872
108,277
108,640
108,653
108,577
108.514
108,533
108,592
108,481
108,489
108,394
108,419
108,340
108,315
108,435
108,461
108,597
108,708
108,600
Demand Deposits
M O N EY SUPPLY
(Continued)
(Continued)
Demand
deposits
adjusted
member
banks
Demand
deposits
adjusted
nonmember
banks
Currency
in
circulation
outside
banks
TOTAL
Demand
deposits
adjusted
and
currency
outside
banks
71,345
71,680
71,726
71,828
71,894
72,115
72,615
72,690
72,967
73,124
73,360
73,512
73,931
74,115
74,145
74,422
74,700
74,925
75,226
75,174
75,273
75,445
75,731
76,186
12,851
12,907
12,911
12,930
12,946
12,984
24,808
24,807
24,807
24,825
24,859
24,888
24,909
24,899
24,857
24,817
24,779
24,746
24,716
24,685
24,655
24,629
24,611
24,601
24,602
24,613
24,626
24,647
24,675
24,696
109,004
109,394
109,444
109,583
109,699
109,987
110,592
110,667
110,951
111,092
111,328
111,477
111,950
112,146
112,159
112,467
112,782
113,033
113,376
113,312
113,428
113,638
113,988
114,532
76,582
76,582
76,957
77,023
77,241
77,232
77,198
77,880
77,515
77,439
76,842
77,923
78,061
78,109
78,362
78,318
78,908
79,208
79,507
79,821
80,178
80,395
80,526
81,033
13,709
13,697
13,754
13,755
13,782
13,777
13,774
13,898
13,834
13,821
13,716
13,902
13,911
13,904
13,933
13,910
13,997
14,048
14,113
14,184
14,266
14,318
14,352
14,457
24,710
24,738
24,776
24,802
24,820
24,840
24,864
24,904
24,959
25,018
25,080
25,150
25,230
25,302
25,364
25,423
25,475
25,524
25,570
25,613
25,655
25,704
25,762
25,812
115,001
115,017
115,487
115,580
115,843
115,849
115,836
116,682
116,308
116,278
115,638
116,975
117,202
117,315
117,659
117,651
118,380
118,780
119,190
119,618
120,099
120,417
120,640
121,302
14,464
14,507
14,557
14,583
14,613
14,663
14,707
14,658
14,752
14,798
14,838
14,928
14,905
14,940
14,959
15,010
15,049
15,086
15,117
15,153
15,149
15,159
15,222
15,205
25,854
25,885
25,907
25,939
25,981
26,015
26,041
26,075
26,117
26,184
26,278
26,338
26,366
26,407
26,463
26,518
26,570
26,630
26,700
26,773
26,847
26,910
26,962
27,014
121,289
121,497
121,745
121,841
121,969
122,223
122,445
122,079
122,678
122,994
123,291
123,844
97.9
98.9
98.6
98.4
99.4
99.4
99.1
100.6
100.9
101.3
102.7
103.6
80,971
81,105
81,281
81,319
81,375
81,545
81,697
81,346
81,809
82,012
82,175
82,578
82,329
82,406
82,404
82,571
82,646
82,746
82,846
83,002
82,953
82,971
83,252
83,108
103.2
103.2
101.5
100.1
100.4
99.6
83,043
82,897
82,808
83,117
83,516
83,384
15,200
15,182
15,176
15,246
15,336
15,329
27,068
27,116
27,158
27,203
27,249
27,287
Without
seasonal
correction
(Millions
of dollars)
Seasonal
adjustment
factors
73,200
73,400
72,300
71,900
71,750
71,250
70,800
71,600
71,800
72,100
72,700
72,850
72,600
73,300
73,700
74,050
74,700
75,000
75,000
75,700
75,800
76,350
77,700
78,700
102.6
102.4
100.8
100.1
99.8
98.8
97.5
98.5
98.4
98.6
99.1
99.1
98.2
98.9
99.4
99.5
100.0
100.1
78,650
78,650
77,650
77,100
77,550
77,000
102.7
102.7
100.9
100.1
100.4
99.7
1
II
May 1
II
June 1
II
July 1
II
Aug. 1
II
Sept. 1
II
Oct. 1
II
Nov. 1
II
Dec. 1
II
iyoz —
Jan. 1
II
Feb. 1
II
Mar. 1
II
Apr. 1
II
May 1
II
June 1
II
75,500
76,400
76,275
76,200
76,150
77,300
76,500
77,250
77,500
77,300
78,750
79,050
78,950
80,300
80,900
81,440
82,700
83,950
97.8
98.1
98.4
98.4
99.1
99.2
98.0
98.9
98.9
98.7
99.8
99.8
99.3
100.6
100.9
101.3
102.7
103.6
83,400
83,700
82,500
81,400
81,700
81,300
79,900
79,800
80,500
80,700
81,600
82,000
103.0
103.2
101.5
100.1
100.4
99.7
97.8
98.1
98.4
98.4
99.3
99.3
July
1
II
1
II
1
II
1
II
1
II
1
II
80,600
81,500
81,250
81,250
82,150
82,250
82,100
83,500
83,700
84,050
85,500
86,100
i yoj
Jan. 1
II
Feb. 1
II
Mar. 1
II
85,700
85,550
84,050
83,200
83,850
83,050
Semi
monthly
period
1950
Jan. 1
II
Feb. 1
II
Mar. 1
II
Apr. 1
II
May 1
II
June 1
II
July 1
II
Aug. 1
II
Sept. 1
II
Oct. 1
II
Nov. 1
II
Dec. 1
II
1951
Jan. 1
II
Feb. 1
II
Mar. 1
II
Apr.
Aug.
Sept.
Oct.
Nov.
Dec.
(Percent)
99.7
100.7
100.7
101.2
102.6
103.3
13,068
13,078
13,127
13,151
13,189
13,219
13,303
13,346
13,359
13,416
13,471
13,507
13,548
13,525
13,529
13,546
13,582
13,650
123,600
123,753
123,826
124,099
124,265
124,462
124,663
124,928
124,949
125,040
125,436
125,327
125,311
125,195
125,142
125,566
126,101
126,000
Demand Deposits
MONEY SUPPLY
Demand Deposits
M ONEY SUPPLY
{Continued)
(Continued)
(Continued)
(Continued)
Without
seasonal
correction
(Millions
of dollars)
Seasonal
adjustment
factors
Demand
deposits
adjusted
nonmember
banks
Currency
in
circulation
outside
banks
TOTAL
Demand
deposits
adjusted
and
currency
outside
banks
15,368
15,418
15,404
15,439
15,469
15,474
15,468
15,500
15,579
15,572
15,561
15,590
15,620
15,589
15,583
15,583
15,633
15,601
27,316
27,352
27,394
27,419
27,427
27,430
27,425
27,427
27,438
27,452
27,468
27,470
27,455
27,440
27,424
27,406
27,384
27,373
126,188
126,457
126,334
126,496
126,581
126,539
126,448
126,597
127,043
126,951
126,850
126,965
127,049
126,777
126,705
126,669
126,953
126,694
27,375
27,364
27,335
27,307
27,281
27,252
27,217
27,201
27,203
27,192
27,167
27,142
27,117
27,093
27,070
27,051
27,036
27,030
27,035
27,036
27,031
27,030
27,032
27,041
127,058
127,147
126,991
127,047
127,013
127,122
126,427
126,882
127,520
127,656
127,900
127,893
128,257
128,465
128,506
128,834
129,702
129,311
129,206
129,767
129,942
130,430
130,250
130,618
(Percent)
Demand
deposits
adjusted
member
banks
81,750
82,850
82,450
82,300
83,350
83,050
81,800
82,750
82,850
82,500
83,150
83,150
97.9
-99.0
98.7
98.4
99.6
99.3
97.9
98.9
98.6
98.3
99.2
99.1
83,504
83,687
83,536
83,638
83,685
83,635
83,555
83,670
84,026
83,927
83,821
83,905
83,050
84,250
84,200
84,600
85,950
86,650
98.9
100.6
100.6
101.1
102.4
103.5
83,974
83,748
83,698
83,680
83,936
83,720
86,700
86,700
85,250
84,150
84,400
83,850
82,050
83,200
83,900
83,350
84,600
84,450
83,500
84,550
84,350
84,300
85,900
85,500
103.2
103.1
101.5
100.1
100.4
99.6
98.1
99.0
99.2
98.4
99.6
99.4
97.9
98.9
98.6
98.2
99.2
99.1
84,012
84,093
83,990
84,066
84,064
84,187
83,639
84,040
84,577
84,705
84,940
84,960
85,291
85,490
85,548
85,845
86,593
86,276
85,250
86,850
87,350
88,200
89,000
90,450
98.9
100.2
100.6
101.1
102.2
103.5
86,198
86,677
86,829
87,240
87,084
87,391
15,671
15,690
15,666
15,674
15,668
15,683
15,571
15,641
15,740
15,759
15,793
15,791
15,849
15,882
15,888
15,938
16,073
16,005
15,973
16,054
16,082
16,160
16,134
16,186
90,250
90,350
89,350
88,150
88,250
87,650
86,750
88,300
87,900
87,650
87,950
88,450
87,400
87,850
87,750
87,450
88,150
88,750
103.2
103.0
101.5
100.1
100.1
99.5
98.5
99.7
99.2
98.3
99.1
99.5
98.3
98.9
98.6
98.2
99.2
99.5
1
88,450
II
89,300
89,250
Nov. 1
II
89,750
Dec. 1
91,000
92,450
II
IOC/
i yoo
Jan. 1
92,450
91,900
II
90,200
Feb. 1
89,250
II
89,400
Mar. 1
89,080
II
Apr. 1
88,570
II
89,470
88,630
May 1
87,900
II
88,920
Junefor 1FRASER
Digitized
89,610
II
98.9
100.2
100.3
100.7
102.0
103.5
87,452
87,718
88,030
88,062
88,162
88,090
88,071
88,566
88,609
89,166
88,749
88,894
88,911
88,827
88,996
89,053
88,861
89,196
89,434
89,122
88,983
89,126
89,216
89,324
16,185
16,231
16,292
16,299
16,318
16,306
16,303
16,395
16,402
16,506
16,434
16,462
16,463
16,446
16,477
16,489
16,454
16,522
16,572
16,522
16,505
16,544
16,575
16,609
27,057
27,074
27,090
27,104
27,119
27,136
27,154
27,169
27,179
27,190
27,201
27,222
27,252
27,281
27,309
27,325
27,331
27,345
27,367
27,390
27,412
27,417
27,407
27,423
130,694
131,023
131,412
131,465
131,599
131,532
131,528
132,130
132,190
132,862
132,384
132,578
132,626
132,554
132,782
132,867
132,646
133,063
133,373
133,034
132,900
133,087
133,198
133,356
103.5
102.9
101.2
100.0
100.0
99.3
98.7
99.9
99.0
98.0
99.1
99.8
89,324
89,310
89,130
89,250
89,400
89,708
89,737
89,560
89,525
89,694
89,728
89,790
16,621
16,631
16,612
16,650
16,694
16,767
16,785
16,767
16,778
16,823
16,841
16,863
27,464
27,490
27,500
27,514
27,530
27,541
27,549
27,557
27,564
27,578
27,599
27,607
133,409
133,431
133,242
133,414
133,624
134,016
134,071
133,884
133,867
134,095
134,168
134,260
Semi
monthly
period
Apr.
1
II
1
II
1
II
1
II
1
II
1
II
1
II
Nov. 1
II
Dec. 1
II
i nr a
i yo4
Jan. 1
May
June
July
Aug.
Sept.
Oct.
Feb.
Mar.
Apr.
May
June
July
Aug.
Sept.
Oct.
1
II
1
II
1
II
1
II
1
II
1
II
1
II
1
II
1
II
Nov. 1
II
Dec. 1
II
i yoo
Jan. 1
II
Feb. 1
II
Mar. 1
II
Apr. 1
II
May 1
II
June 1
II
July 1
II
Aug. 1
II
Sept. 1
II
Oct.
TOTAL
Demand
Without
seasonal
correction
(Millions
of dollars)
Seasonal
adjustment
factors
July
1
II
Aug. 1
II
Sept. 1
II
(Percent)
Demand
deposits
adjusted
member
banks
Demand
deposits
adjusted
nonmember
banks
Currency
in
circulation
outside
banks
adjusted
and
currency
outside
banks
88,260
88,710
88,320
88,070
89,000
89,395
98.4
98.9
98.6
98.3
99.2
99.5
89,695
89,697
89,574
89,593
89,718
89,844
16,855
16,861
16,836
16,836
16,853
16,869
27,601
27,592
27,582
27,588
27,610
27,626
134,151
134,150
133,992
134,017
134,181
134,339
Oct.
1
II
Nov. 1
II
Dec. 1
II
11yj/
O C7
88,900
90,010
90,145
90,445
92,010
93,255
99.1
100.2
100.3
100.6
102.0
103.5
89,707
89,830
89,875
89,906
90,206
90,101
16,833
16,849
16,852
16,881
16,944
16,929
27,638
27,664
27,705
27,741
27,771
27,796
134,178
134,343
134,432
134,528
134,921
134,826
Jan.
1
II
Feb. 1
II
Mar. 1
II
93,175
92,835
91,185
90,140
90,015
89,315
103.5
102.7
101.0
99.6
99.8
99.0
90,024
90,394
90,282
90,502
90,195
90,217
16,920
16,995
16,982
17,029
16,972
16,979
27,814
27,825
27,831
27,827
27,811
27,814
134,758
135,214
135,095
135,358
134,978
135,010
Apr.
1
II
May 1
II
June 1
II
88,965
90,400
89,260
88,315
89,350
89,670
98.7
100.1
98.8
98.0
99.3
99.7
90,137
90,310
90,344
90,117
89,980
89,940
16,969
17,004
17,009
16,966
16,943
16,946
27,836
27,837
27,817
27,830
27,874
27,902
134,942
135,151
135,170
134,913
134,797
134,788
July
1
II
Aug. 1
II
Sept. 1
II
88,410
89,280
89,130
88,450
89,290
89,040
98.4
99.2
99.2
98.4
99.6
99.4
89,848
90,000
89,849
89,888
89,649
89,577
16,946
16,995
16,989
17,016
16,987
16,994
27,914
27,923
27,929
27,943
27,966
27,964
134,708
134,918
134,767
134,847
134,602
134,535
Oct.
88,770
89,790
89,900
90,015
90,970
92,060
99.1
100.3
100.4
100.6
102.0
103.2
89,576
89,521
89,542
89,478
89,186
89,205
17,018
17,030
17,053
17,055
17,007
17,019
27,936
27,917
27,910
27,910
27,918
27,911
134,530
134,468
134,505
134,443
134,111
134,135
91,890
90,985
90,315
89,130
89,320
88,840
103,2
102,5
101.0
99.5
99.6
98.9
89,041
88,766
89,421
89,578
89,679
89,828
16,999
16,951
17,074
17,107
17,136
17,174
27,890
27,880
27,882
27,869
27,842
27,843
133,930
133,597
134,377
134,554
134,657
134,845
Apr.
1
II
May 1
II
June 1
II
88,820
90,295
89,185
88,780
90,835
90,240
98.8
100.2
98.8
98.0
99.4
99.5
89,899
90,115
90,268
90,592
91,383
90,693
17,195
17,247
17,287
17,367
17,542
17,434
27,873
27,907
27,945
27,967
27,975
27,986
134,967
135,269
135,500
135,926
136,900
136,113
July
1
II
Aug. 1
II
Sept. 1
II
89,565
90,570
90,770
90,300
91,760
91,455
98.4
99.4
99.3
98.5
99.8
99.4
91,021
91,117
91,410
91,675
91,944
92,007
17,522
17,567
17,649
17,729
17,812
17,853
27,999
28,019
28,045
28,057
28,053
28,058
136,542
136,703
137,104
137,461
137,809
137,918
Oct.
1
II
Nov. 1
II
Dec. 1
II
11yoy
0^0
91,370
92,660
93,290
93,155
94,697
96,077
99.1
100.3
100.7
100.5
102.0
103.2
92,200
92,383
92,642
92,692
92,840
93,098
17,915
17,969
18,035
18,045
18,073
18,124
28,074
28,097
28,127
28,151
28,171
28,197
138,189
138,449
138,804
138,888
139,084
139,419
Jan.
1
II
Feb. 1
II
Mar. 1
II
96,038
95,560
93,926
92,696
92,825
92,491
103.2
102.5
101.0
99.4
99.5
98.9
93,060
93,229
92,996
93,256
93,291
93,520
18,116
18,149
18,104
18,154
18,161
18,206
28,229
28,263
28,302
28,331
28,349
28,379
139,405
139,641
139,402
139,741
139,801
140,105
Apr.
92,875
94,309
92,874
92,161
99.0
100.2
98.8
98.0
93,813
94,121
94,002
94,042
18,263
18,323
18,300
18,307
28,419
28,419
28,531
28,531
140,495
140,863
140,833
140,880
Semi
monthly
period
1
II
Nov. 1
II
Dec. 1
II
1958
Jan.
i
II
Feb. 1
II
Mar. 1
II
1
II
May 1
II
Note: Member Bank Demand Deposits Adjusted data are final; however, other compo
nents and the total for approximately the last thirteen periods are subject to revi
sion. See next page for definitions, sources, and methods.
Steps in measuring the money supply.
The demand deposits used in both the traditional
series and in the series presented here are “demand
deposits adjusted” of all banks in the United States.
Demand deposits adjusted are gross demand deposits
less those due to other banks and the U. S. Govern
ment and less cash items in the process of collection.1
Although some questions have been raised concern
ing whether this is the proper refinement for measur
ing demand deposits which are money, it was felt that
1 “ Gross demand deposits” and “ cash items in process of collection” are
defined in Federal Reserve regulations as follows:
presentation in the United States, including checks with a F ed eral Reserve
Bank in process of collection and checks on hand which will be presented
for paym ent or forw arded for collection on the following business day;
The term “ gross dem and deposits” m eans the sum of all demand
deposits, including dem and deposits m ade by other banks, the United
States, States, counties, school districts and other governmental subdivisions
and municipalities, and all outstanding certified and officers’ checks (includ
ing checks issued by the banks in paym ent of dividends), letters of credit
and travelers’ checks sold for cash, and drafts drawn upon or other
authorizations to charge the member bank’s reserve account at the Federal
Reserve Bank.
The term “cash items in process of collection” means—
(1)
Checks .in process of collection, drawn on a bank, private bank,
or any other banking institution, which are payable im mediately upon
(2) G overnm ent checks and w arrants drawn on the Treasurer of the
United States which are in process of collection;
(3) Such other items in process of collection, payable im m ediately
upon presentation in the United States, as are customarily cleared or
collected by banks as cash items.
Items handled as non-cash collections m ay not be treated as “ cash
items in process of collection” within the m eaning of this regulation.
Source: Board of Governors of the F ed eral Reserve System, Regulation
D, as am ended, effective September 1 6 , 1 9 4 8 , p. 6.
Definitions, Sources, and Methods
Demand deposits adjusted are gross (total) demand deposits other than those due to banks and the
United States Government, less cash items in process of collection. Semi-monthly averages of daily
figures for all member banks' demand deposits adjusted are reported in a footnote to the Board of
Governors’ release, “Deposits, Reserves, and Borrowings of Member Banks (J.l).” For the semi-monthly
periods from first-half January 1947 through first-half November 1958, the volume of United States
Government deposits at member banks was estimated; since then it has been reported by the member
banks.
Seasonal adjustment factors for all member bank demand deposits adjusted were prepared by
adapting the Barton monthly seasonal adjustment method {cf., Federal Reserve Bulletin, June 1941)
to twenty-four periods per year, except that a 31-item weighted moving average (using Spencer weights
adapted to twenty-four period data) through preliminary seasonally adjusted data was substituted for
the free-hand adjustment of the 24-item moving average. The seasonal factors, developed as free-hand
curves through ratios of the original data to the weighted moving average, were revised until math
ematical tests showed virtually no repetitive movements in the adjusted series. The 1959 seasonal
factors are preliminary estimates and subject to revision.
Nonmember demand deposits adjusted are not available on a daily average basis. However, esti
mates of nonmember demand deposits adjusted for last-Wednesday-in-the-month dates from mid-1947
to date may be calculated from the Board's monthly release, “Assets and Liabilities of All Banks in the
United States (G. 7).” Using the once-a-month measures of demand deposits adjusted, ratios were de
veloped of nonmember to all bank deposits. These ratios were then smoothed with a 12-month mov
ing average to suppress whatever seasonal shift of deposits might have taken place between the mem
ber and the nonmember sectors. Each of these monthly moving averages, based on twelve last-Wednes
day figures, is therefore centered at approximately the middle of the seventh month. A ratio for each
semi-monthly period was then obtained by interpolating between the moving average values. Each
semi-monthly estimate of nonmember demand deposits adjusted was then determined by applying the
interpolated ratio to the corresponding seasonally corrected member bank deposit level.
Currency in circulation outside banks is not available on a daily average basis. However, currency
in circulation outside the Treasury and Federal Reserve Banks is available as a reported figure daily.
The unadjusted monthly average of daily figures is published in the Federal Reserve Bulletin. The
Board of Governors has available a seasonally adjusted series based on recently recalculated seasonal
adjustment factors for this monthly data. From the seasonally adjusted data, all-bank vault cash (also
roughly seasonally adjusted) was subtracted to provide monthly currency outside bank estimates. The
approximations of all-bank vault cash were derived from 12-month moving averages through the lastWednesday-of-the-month data available in the Board's monthly release, “Assets and Liabilities of All
Banks in the United States (G. 7).” These monthly seasonally adjusted values for currency in circula
tion outside the Treasury, Federal Reserve, and banks were then apportioned to their respective semi
monthly periods.
The methods used in deriving estimates of semi-monthly averages of daily figures for currency and
nonmember deposits thus necessitate some extrapolation of the moving average values for five months at
the end and six months at the beginning of the time series. (The missing opening six monthly values
were estimated in various ways from related data.) As a preliminary estimate of the moving average
values for the five months at the current end of the series, the last known moving average value is used—
i.e., the last known value is extrapolated forward through the remaining five months of data. As a
result, the semi-monthly periods affected by the extrapolated moving average values (usually 13 semi
monthly periods) are subject to revision when the actual moving average value becomes known.
Page 80
the daily average series described here should be con
sistent with presently accepted definitions.
The deduction of U. S. Treasury balances and inter
bank accounts is made in order to obtain the volume
of privately held deposits. Deposits of state and local
governments, however, are not deducted because they
are not distinguished from private accounts in the
bank reports from which deposit estimates are drawn.
Until November 1958, it was necessary to estimate the
volume of U. S. Treasury balances from Treasury and
other records, but the member banks now make a
direct report of the Treasury deposits they hold.
Cash items in process of collection are deducted in
order to eliminate a source of double counting in the
deposit total reported by the banks. When banks give
depositors immediate credit for checks deposited by
them, deposits at the bank receiving the checks are
increased before the balances in the bank against
which the checks were drawn are reduced. Thus, the
amount of the checks will be included in the reported
deposits of both banks during the time the checks are
going through the collection process, causing total
deposits for all banks to be overstated unless the value
of the checks in process of collection is deducted.
One reason for estimating deposits for a single day
of each month has been the availability of data, not
only for deposits but also for related bank asset and
liability items and Treasury data. The most complete
banking figures have been provided by reports of con
dition supplied by banks to supervisory authorities a
few times each year. This source has been supple
mented by weekly reports of condition made by the
large banks of the country and monthly reports of
selected asset items from the non-weekly reporting
member banks. In addition, each member bank must
make a report on deposits subject to reserve require
ments. From these various sources it has been pos
sible to construct for the last Wednesday of each
month the "Consolidated Condition Statement for
Banks and the Monetary System” which appears in the
financial and business statistics section of the Federal
Reserve Bulletin. The money supply estimates in the
traditional series are part of the detail of the balance
sheet of the banking and monetary system as a whole,
and, according to accounting convention, as balance
sheet items necessarily relate to the close of particular
days.
The daily average estimates of member bank
demand deposits.
The estimates of deposits for one day a month have
the advantage of being linked with the other items
in the consolidated statement of condition, but they
have certain disadvantages as a time series. Figures
for any one day of a month may not be representative
of the month as a whole in a series in which day-today fluctuations are large.
Figures on member bank deposits and related items
on a daily average basis for semi-monthly periods can
be obtained from member bank reports on their de
posits which are required for determining reserve re
quirements. Central reserve city and reserve city
member banks report their daily figures at the end of
each week, and the country banks report their daily
figures at the end of each semi-monthly period. These
reports are combined to provide daily averages of de
posits and related items for all member banks for each
semi-monthly period. The totals are published in a
mimeographed release of the Board of Governors,
entitled, “Deposits, Reserves, and Borrowings of
Member Banks,” with the identification number “J.l.”
It is from this report that the daily average data on
member bank deposits for the semi-monthly money
supply series have been drawn. Daily average bal
ances due to banks, cash items in process of collection,
and estimates of Treasury balances have been deduct
ed in order to produce a daily average estimate of
demand deposits adjusted for semi-monthly periods.
Member bank demand deposits form the bulk of
the money supply. To these deposits are added esti
mates of corresponding data for nonmember banks
and estimates of the volume of currency and coin out
side the banking system. Because nonmember banks
generally report deposits only a few times each year,
it is necessary to make estimates for the dates between
their report dates. Therefore, the degree of precision
in measuring nonmember bank deposits is consider
ably less than that of member bank deposits.
Since the daily average figures on member bank
deposits are available semi-monthly, the estimates
used for nonmember bank deposits and currency in
the one-day-a-month series were adapted to the semi
monthly reporting period by rough interpolation and
added to the daily average member bank deposits.
The resulting series, called “Total Demand Deposits
Adjusted and Currency Outside Banks” appears in
column 6 of Table I.2
2 A detailed description of the procedures followed in developing the
semi-monthly money supply estimates will be available shortly and will
be supplied on request to the Research D epartm ent, Federal Reserve
Bank of St. Louis.
Page 81
Chart II
Money Supply
Daily Average Basis
Billions of Dollars
The advantage of a daily average money
supply series.
The principal advantage of the daily average meas
ures provided with this article is that they reduce the
danger that reported data may be unrepresentative
because of the daily variation in deposits. The ag
gregate level of demand deposits in the United States
economy is subject to a considerable amount of daily
variation. The importance of this variation may be
illustrated by listing some of its sources. The aggre
gate level of demand deposits adjusted may fluctuate
from day to day because of changes in Federal Re
serve float, variations in System holdings of United
States Government securities, net movements in Treas
ury balances at Federal Reserve Banks, changes in
foreign and certain other deposits with Federal Re
serve Banks, and gold flows. Deposits may also rise
or fall from day to day as the result of changes in out
standing bank credit, i.e., loans and investments, and
yet other factors. Not all these influences on daily
changes in the volume of demand deposits adjusted
can be detailed here, but certain of them might be
noted. For example, demand deposits adjusted fluc
tuate from day to day because of changes in Federal
Reserve float. This is Federal Reserve credit arising
from the fact that cash items collected for member
banks by the Federal Reserve Banks are credited to
Page 82
Billions of Dollars
the depositing bank according to a schedule, and
actual collection is sometimes not made until after the
items have been credited.
A nonseasonal change in float of $200 million in one
day is not unusual; sometimes float rises or falls two
or three times this much in a day. By comparison, the
average monthly change in the cycle and growth com
ponents of the money supply in recent years has been
less than $200 million a month. Thus, the amplitude
and timing of changes in float, which are in large part
erratic and for which satisfactory seasonal adjustment
cannot be made, may substantially influence estimates
of the rate of change of the money supply based on
one observation per month.
As another example of the influence of certain fac
tors, demand deposits adjusted determined on a oneday-a-month basis may not be representative because
of the timing of public subscription to new U. S. Gov
ernment security issues. If payment date comes one
day or a few days before the last Wednesday in the
month, private demand deposits are reduced and
Treasury balances, either in commerical banks or in
the Reserve Banks, are increased. The same shifting
from private to U. S. Government demand deposits
takes place with Federal tax payments, but these pay
ments generally follow a pattern and can be allowed
TABLE II
for to a considerable extent by a seasonal adjustment.
Unevenness of Treasury spending may also sharply
influence demand deposits adjusted from day to day.
The accompanying chart shows the money supply
as measured by semi-monthly averages of daily
amounts from 1947 to the present. In the following
table, referred to earlier, annual rates of change in the
money supply are given for quarterly periods since
1953.
In recent years there has been an increase in the
attention given to changes in the money supply. The
daily average figures presented here are believed to
have advantages in measuring changes in the money
supply over the series that has been in common use.
The development of the daily average series is, how
ever, only a provisional step in the continuing search
for a still better measure of this important economic
variable.
Annual Rates of Change in the Money Supply
Seasonally Adjusted
Quarter
Daily
Average
Series1
LastWednesdayof-Month
Series 2
1953
1st
2nd
3rd
4th
+ 2 .1 %
+ 1.7
+ 1.3
— 0.9
1954
1st
2nd
3rd
4th
1955
1st
2nd
3rd
4th
LastWednesdayof-Month
Series 2
Quarter
Daily
Average
Series1
+ 2 .9 %
+ 1.3
+ 1.0
+ 1.6
1956
1st
2nd
3rd
4th
+
+
+
+
2.0
0.7
0.2
1.5
+ 1.5
+ 1.8
— 2.4
+ 2 .7
+ 1.4
+ 2 .4
+ 4 .4
+ 4 .0
— 0.9
+ 0 .6
+ 6 .3
+ 3 .1
1957
1st
2nd
3rd
4th
+
—
—
—
0.5
0.7
+ 0 .9
+ 1.5
— 3.8
— 2.1
+ 2 .8
+ 3 .2
+ 1.5
+ 0 .9
+ 5 .9
+ 1.2
+ 2 .4
+ 1.2
1958
1st
2nd
3rd
4th
+2.1
+ 3 .8
+ 5 .3
+ 4 .4
+ 2 .4
+ 4 .2
+ 3 .8
+ 7 .9
1959
1st
+ 2 .0
+ 2 .6
0.8
1.1
1 Anual rate of change from semi-monthly period just preceding quarter
to last period in quarter.
2 Annual rate of change from the last W ednesday of the month preceding
to the last W ednesday of the quarter indicated.
Bank Credit Increases in Second Quarter (Continued from page 76)
The member banks, however, were not able to use
for support of a credit expansion the entire $800 mil
lion reserves provided by the central bank. A gold out
flow, a build-up of foreign balances at the Reserve
Banks, and a seasonal drain due to other money mar
ket factors absorbed $430 million of bank reserves.
Thus, in the second quarter of this year member banks
gained about $370 million of “basic” reserves (i.e.,
reserves provided by the central bank adjusted for
gold movements and seasonal forces). In the corre
sponding quarters of 1954-58, member banks gained
an average of about $170 million basic reserves.
Member banks used only a small part of the $370
million of added basic reserves to support a more
than seasonal credit expansion. The bulk of the new
reserves was absorbed by nonseasonal movements in
float, Treasury operations, currency, and miscella
neous factors. Excess reserves changed only slightly
on balance.
Reflecting both a strong demand for funds and an
increase in reserve balances, commercial bank credit
rose at a relatively sharp rate during the second quar
ter of 1959. Total loans and investments of weekly
reporting banks increased about $900 million. (1.0 per
cent) from the end of March to the end of June. Total
loans and investment of these banks on the average
showed only a modest increase (0.3 per cent) in the
second quarter of 1953, 1955, 1956, and 1957. During
the midst of the 1954 and 1958 recessions bank credit
rose more sharply. Strength during the past quarter
centered in loans, which rose $2.9 billion (or over 5
per cent) in the three months, as businesses, real
estate owners, and consumers were all heavy net bor
rowers. Bank holdings of investments declined about
$2.0 billion, offsetting a large portion of the loan in
crease.
Largely as a result of the expansion in bank credit,
the money supply of the nation on a daily average
basis rose at the annual rate of 1.4 per cent from the
first half of March to the first half of June (latest data
available). In the similar periods of 1955, 1956, and
1957—when business activity was also at a high level
—the average rate of increase in the money supply
was 1.2 per cent per year.
Not only has the money supply increased, but so
has its use. Transactions velocity (number of times
an average dollar is spent) of demand deposits, except
interbank and U. S. Government balances, in report
ing banks outside the big financial centers was at the
rate of 24.7 times per year in the second quarter of
1959, according to preliminary figures. In contrast,
money turned over at the annual rate of 23.8 times in
the first quarter of the year, and an average of 21.7
times in the second quarters of 1955, 1956, and 1957.
The income velocity (gross national product divided
by money supply) of money was approximately 3.40
Page 83
in the second quarter of 1959, as compared to 3.34
times in the previous three months.
Interest Rates.
Despite the rise in die money supply and its rate
of use, interest rates continued to climb during the
second quarter of 1959. Yields on three-month Treas
ury bills increased from an average of 2.80 per cent in
March to an average of 3.21 per cent in June. Sim
ilarly, interest rates on long-term Government bonds
advanced from 3.92 per cent in March to 4.09 per cent
in June. Rates on highest grade corporates rose from
4.13 per cent to 4.46 per cent over the same period,
while those on medium-grade corporates went from
4.85 per cent to 5.04 per cent.
Yields on U. S. Government Securities
Weekly Averages of Daily Figures
Per Cent
Per Cent
ready have been met by this recent offering. On the
other hand, business and consumer demands for credit
may increase if higher levels of economic activity are
attained. For a fuller discussion see "Demand for
Credit Strengthens” in the March issue of this Review.
The sharp increase in the demand for funds has
caused a situation which some people have referred
to as “tight money”; that is, higher interest rates and
more unsatisfied seekers of funds. At the same time,
more credit is being extended, with the money supply
rising and being used more intensively and with sav
ing somewhat higher. Typically, such “tightness” oc
curs during an improvement in business activity and
is characteristic not only of credit but of many other
goods and services as well. The housing market is
“tighter” than a year ago, with prices firming some
what and with potential buyers having more difficulty
finding desirable homes. Yet, many more houses are
being built and sold today than a year ago. Likewise,
it seems that there is a “tighter” situation in autos,
hides, steel, lumber, and other commodities. Also, it
might be said that employment is “tighter”, with aver
age weeldy earnings of workers in manufacturing 10
per cent above year-ago levels and with employers
finding it more difficult to locate qualified workers,
especially those with the desired skills, even though
there are 2 million more people employed today than
there were a year ago.
Reflecting the recent rise in interest rates, yields on
money market instruments in early July were above
their usual relationship to the discount rate (see table).
Selected Money Market Rates
Daily Averages
1958
1959
1951 thru
1958
Latest data plotted: Week ending July 10th
The rise in interest rates in spite of the expansion
in the supply of money and an apparently high rate
of saving reflects in large measure a continuing in
crease in the demand for credit. Mortgage credit out
standing rose about $5 billion in the second quarter
of 1959, compared with $33* billion in the correspond
ing quarter last year. The U. S. Treasury, which was
a heavy borrower of funds over the past year, an
nounced an additional cash offering of $5 billion of
Treasury bills on June 25; $3 billion (dated July 8
and maturing March 22, 1960) were auctioned on
July 1; and $2 billion (dated July 15 and maturing
July 15, 1960) were auctioned on July 8. Indications
are, however, that Treasury borrowing over the next
year should be confined primarily to refundings and
providing for seasonal needs, a portion of which al
Page 84
Prime rate on Commercial Loans.......... .
Prime 4-to-6 month Commercial Paper.. .
Bankers' Acceptances........................
Government securities:
Treasury bills (3 month)................. .
9-to-12 month issues...................... .
3-to5 year issues........................... .
Average of above yields.......... ......
Discount Rate (N.Y.)...................................
Spread between average rate and
discount rate................................ .
3.34%
2.54
2.05
4.50%
3.63
3.25
4.50%
3.95
3.38
1.93
2.11
2.57
'
2.42
2.13
3.08
3.93
4.20
3.77
3.50
3.26
4.24
4.41
'
3.96
3.50
.27
.46
.29
-
As recently as May 29 (the effective date of the most
recent increase in the discount rate), an average of
money market rates was .27 of 1 percentage point
above the discount rate, about the same as the 1951
through 1958 daily average of .29 of 1 percentage
point. By July 1-10 the average spread had risen to
.46 of 1 percentage point.
@FedFRASER