FEDERAL RESERVE BULLETIN

Transcription

1 FEDERAL RESERVE BULLETIN VOL. 24 DECEMBER, 1938 No. 12 REVIEW OF THE MONTH Buine activity increaed in November, continuing the rie which began early lat Summer. Indutrial pro- Further increae in d uc tion, a meaured by buine activity the Board eaonallyadjuted index, reached a level lightly over 100 percent of the average a compared with 96 in October and an average of 77 in the econd quarter of the year. The advance in November reflected chiefly a further ubtantial increae in teel production and increae alo in output of automobile and textile. Available figure for department tore ale and freight-car loading and report on ale of new automobile indicate a rie in ditribution of commoditie when allowance i made for uual eaonal change. There were ome decreae in price of indutrial material during November, while price of farm product and food howed little change. Since lat ummer the amount of money in circulation ha increaed omewhat more rapidly than i uual for thi Recent change eaon of the year. For evcl Sn in eral year United State money technically defined a in circulation, that i, the amount outide the Treaury and the Federal Reerve bank, ha hown a gradual riing tendency. The amount in circulation during November of thi year exceeded $6,700,000,000, a larger volume than at any previou time except for a hort period during the banking holiday in 1933, when there had been large temporary currency withdrawal. The increae in money in circulation during recent month ha reflected in large part expanding indutrial payroll, enlarged relief payment, and hipment of United State money abroad in connection with the European crii. During* September and October total United State money in circulation howed an increae of about $200,000,000, of which $60,000,000 wa in large-denomination currency, i.e., in bill of fifty dollar and over. Currency hipment to Europe by New York City bank amounted to $15,000,000 in September and to $11,000,000 in October, the larget amount reported for any two-month period ince collection of the figure began in Mot of thee hipment were in large-denomination currency. The total increae in circulation from the eaonal low point near the end of July to the end of November thi year amounted to about $370,000,000, compared with $140,- 000,000 in the ame period lat year, when buine activity wa declining, and with about $350,000,000 in 1935 and 1936, when buine wa increaing rapidly. The ubtantial growth in the amount of money in circulation over the pat eight year to a new high level ha reflected 1033 Long-term ctr cuiation principally increaed holding of individual aving in the form of currency and a hift from bank depoit to currency a a mean of current payment. In the decade ending in 1930 the general level of currency in circulation howed little change. In thi period there wa a growth in the ue of bank check for making payment, and from 1926 to 1929, notwithtanding an expanion in the total amount of money payment, the volume of currency in circulation declined omewhat. In 1930, with decreaing buine activity, there wa a more pronounced decline. In the period from the end of 1930 until the banking holiday in March 1933 there were ubtantial withdrawal of bank depoit in the form of currency for hoarding. Thi wa reflected in a marked rie in the demand for largedenomination paper currency, which i more

2 1034 FEDERAL RESERVE BULLETIN DECEMBER 1938 convenient for hoarding than the maller note and coin. The chart how total circulation of note of fifty dollar or more and the total of all other paper currency and coin for end-of-month date from October 1930 to October The growth hown in the maller denomination from 1930 to March 1933 wa in ten- and twenty-dollar note, which were probably hoarded, while one- and five-dollar note and coin, which are ued more largely for day-to-day payment, howed little change. IILLIONS OF DOLLARS MONEY IN CIRCULATION BY LARGE AND SMALL DENOMINATIONS ILL1ONS OF DOLLARS Following the banking holiday there wa a ubtantial return flow of large-denomination currency in 1933 and to ome extent in 1934, but the amount outtanding continued ubtantially larger than in 1930, indicating the retention in hoard of a coniderable amount of money. From 1934 to the end of 1936 there wa a renewed increae in money in circulation. Thi wa a period of riing buine activity, and much of the increae in circulation wa in coin and the maller-denomination currency. There wa alo a fairly teady growth in the amount of larger-denomination currency. In the middle of 1936 a harp rie in circulation accompanied the payment in cah of the veteran' adjuted ervice certificate. A a reult of a ceation of the rie in buine early in 1937 and the receion beginning in the latter part of that year, the amount of money in circulation did not increae in 1937, a it had in the two previou year. In 1938 circulation continued cloe to the 1937 level until September, when, a previouly indicated, there wa a renewed rie. The higher level of currency in circulation that ha been maintained ince 1936 at about $2,000,000,000 above that of 1929 repreent increae both in large-denomination currency and in coin and mall-denomination bill. The increae in large bill reflect in part the holding of aving in the form of currency rather than in bank depoit, ecuritie, or other property. The banking difficultie in the early thirtie may be partly reponible for the increae in the volume of aving held in currency rather than in bank, notwithtanding the afeguarding of bank depoit after 1933 by Federal depoit inurance. Another factor i probably the reduction in interet rate paid on aving and other time depoit. Increaed circulation of coin and malldenomination bill indicate that there ha alo been a relatively greater ue of cah for current payment. Thi tendency, which may have been due at firt to banking difficultie and the abence of banking facilitie in ome communitie, ha been furthered by the extenion of ervice charge on checking account. Relief payment, made to large number of people without bank account, may alo have increaed the demand for currency. Impoition of ale taxe in many State and citie may have had an effect in increaing the demand for coin. Another factor increaing the amount of currency reported a in circulation i a

3 DECEMBER 1938 FEDERAL RESERVE BULLETIN 1035 growth in vault cah holding of bank. Thi increae ha amounted to about $300,000,000 ince the end of 1933, mot of which ha been at member bank. When bank had no exce reerve they ordinarily held no more vault cah than wa needed to meet current demand of cutomer and depoited with the Federal Reerve bank any exce currency that they received. With the growth of exce reerve, however, bank have not been under preure to return redundant currency, and a few bank have withdrawn a part of their reerve in the form of large-denomination currency. At a time uch a the preent, when bank do not need to borrow to get currency, an increae in money in circulation i not an important development. It i only a reflection of a light hift in the public' need or preference a between bank depoit and cah. The increae of $2,000,000,000 in currency ince 1929 hould be conidered in relation to the $50,000,000,000 which repreent the total of bank depoit in the United State. A the reult of gold import and the releae by the Treaury of gold previouly held in an inactive account, bank Recent banking depoit have increaed condevelopment.. iderably ince lat pring, and the total of bank depoit and money in circulation i now a large a at any previou time. Gold import added about $1,500,000,- 000 to the country' depoit between the middle of April and the end of November, and Treaury diburement from it cah holding and balance with the Federal Reerve bank added $500,000,000. Thee addition were offet in mall part by an increaed demand for currency by the public. The growth of depoit ha been accompanied by a decline in their rate of turnover to an extremely low level. In the firt half of the year there wa a ubtantial repayment of bank loan, following an increae in 1936 and 1937, and bank holding of United State Government obli- gation alo decreaed chiefly becaue of a reduction in the volume available for purchae by bank. Since July, with an increae in offering of Government ecuritie, bank have increaed their holding. Volume of depoit at member bank declined omewhat in 1937 and in the firt quarter of 1938 but ha ince Growth in hown a ubtantial increae. bank depoit. Except for lat year, depoit at bank have increaed almot continuouly ince the ummer of 1933, a i hown by the chart. Practically all of the increae during ALL MEMBER BANKS > y * ^ OANS AND DEMAND DEPOS ADJUSTED /IE Di 03, r~ 1 NVESTMEN' TS \ -4 TtTi \ / J r ^v _- - p the firt nine month of thi year, a et forth in the following table, wa in demand depoit at bank. At country bank depoit howed a eaonal decline in the firt half of the year and thereafter an increae. Adjuted demand depoit at member bank, which exclude interbank and United State Government depoit and item held by bank in proce of collection, and which may, therefore, be called cutomer' depoit, increaed by $1,200,000,000 in the firt nine month of the year and at the end of September amounted to about $21,600,000,000, cloe to the larget amount ever reported. It appear from partial report that adjuted demand depoit of member bank increaed further during October and November to above the peak level reached at the end of Interbank depoit have alo rien to a new high level. S N -v *

4 1036 FEDERAL RESERVE BULLETIN DECEMBER 1938 DEPOSITS AT ALL MEMBER BANKS, SEPT. 28, 1938 Adjuted demand Time 2 U. S. Government and Potal aving Interbank; Dometic Foreign [In million of dollar] Amount held by all member bank Sept. 28, , , , All member bank +1, Change ince Dec. 31, New York central reerve bank Include Chicago central reerve bank. 2 Exclude interbank and Potal aving depoit. Other reerve banki Country bank Mot of the growth in depoit ince the firt of the year ha been at New York City bank. Thi i hown in the above table and may be explained in part by the fact that a large portion of the proceed of gold import i initially depoited in New York City bank and in part by the increae in interbank balance at thee bank. Total loan and invetment of New York City bank howed little net change in the period. At bank in Chicago and other reerve citie, a at New York City bank, in the firt nine month of thi year there wa a ubtantial growth in depoit, including both PRINCIPAL ASSETS OF ALL MEMBER BANKS, SEPT. 28, 1938 Loan Invetment: U. S. Government obligation Other ecuritie Reerve with Federal Reerve bank: Total. Required Exce Balance with other bank: Cah in vault [In million of dollar] Amount held by all member bank Sept. 28, ,937 13,011 5,678 8,193 5,334 2,859 4, All member bank -1,020 Change ince Dec. 31, , , Including Chicago central reerve bank. New York central reerve bank , , Other reerve banki Country bank ! interbank and other depoit, while total loan and invetment howed no change. At country bank there wa a mall decline in depoit and in reerve, a well a in invetment, while balance with correpondent increaed. Growth in depoit ince the beginning of the year ha not been accompanied by an increae in earning aet of mem- Loan and ber bank. Total loan and inmvetment vetment declined m the firt half of the year and increaed thereafter, howing little net change over the year to date. Loan declined by about $1,000,000,000 in the firt nine month of the year, while invetment holding increaed by $900,000, From the end of September to the end of November both loan and invetment of reporting member bank in leading citie howed little net change. Nearly all of the decline in loan during the firt nine month of the year wa at bank in central reerve and reerve citie. Commercial loan at bank howed a decline of about $1,000,000,000 from the middle of October 1937 through June 1938, following a growth of about $2,000,000,000 in the two previou year. Since June thee loan have hown little change, although there i uually a eaonal increae in the autumn. Loan to broker and dealer in ecuritie, which had declined ubtantially during the lat quarter of 1937, accompanying the fall in tock price, howed a further decline in the firt five month of 1938 and a light increae in ubequent month. They have continued at le than half the maximum of lat year. During the firt half of the year retirement of United State Government hortterm obligation reduced the upply of direct obligation of the Government available for purchae, and bank holding conequently declined. Holding of Government guaranteed obligation increaed, however, reflecting purchae of ecuritie of the Home Owner' Loan Corporation and of the Com-

5 DECEMBER 1938 FEDERAL RESERVE BULLETIN 1037 modity Credit Corporation. In the third quarter of the year member bank holding of direct obligation of the Government increaed. The outtanding amount of publicly-offered Treaury bond roe by $1,000,- 000,000 in thi period, and member bank holding of thee bond increaed by about $450,000,000. Increae amounted to $110,- 000,000 at New York City bank, $230,000,- 000 at bank in Chicago and reerve citie, and $110,000,000 at country bank. Country bank holding of Treaury note alo increaed by about $50,000,000 but otherwie there wa little change in member bank holding of Treaury note or bill. In October and the firt three week of November, Government ecuritie held by reporting bank declined by about $110,000,000 in New York City but increaed by about $140,000,000 in 100 other leading citie. During the firt three quarter of the year, bank increaed their holding of ecuritie other than thoe of the United State Government by about $350,000,000, while holding of country bank howed a decline of about $100,000,000, all of which occurred in the firt half of the year. Holding of thee type of ecuritie increaed omewhat at New York City bank in October but declined in November, reflecting principally fical operation of the New York State and City Government. Correction of October Bulletin On page 873 of the October iue of the BULLETIN appear a table howing earning and expene of member bank including certain operating ratio. The ratio hown againt the caption "Net loe on loan per $100 of loan" are actually baed on gro loe (before deduction of recoverie), and the ratio hown againt the caption "Net loe on invetment per $100 of invetment" are actually baed on gro loe and depreciation. The word "Net", therefore, hould not have appeared in either caption. Reviion in Bulletin Table on Treaury Operation The Treaury recently ha publihed reviion in the allocation of certain expenditure to the claification hown in the daily Treaury tatement beginning July 1, In the regular table on Treaury operation on page 1073 of thi BULLETIN figure beginning with the fical year 1936 have been revied to take account of thee change. Revied figure for the fical year , previouly publihed in the September 1938 BULLETIN, are hown in the table below. The principal reviion include the tranfer of certain net expenditure of the Recontruction Finance Corporation and the Commodity Credit Corporation from "Net expenditure in checking account of Government agencie" to "Recovery and relief." In the fical year 1938 certain item were tranferred alo from "Net expenditure in checking account of Government agencie all other" to the checking account of the Recontruction Finance Corporation and the Commodity Credit Corporation. REVISED DATA ON TREASURY OPERATIONS FOR THE FISCAL YEARS ENDING JUNE 30, * [In million of dollar] General and pecial account: Total expenditure 2 Kecovery and relief expenditure- Exce receipt (+) or expenditure ( ) Trut account, etc., exce of receipt (+) or expenditure ( ) Net expenditure in checking account of Government agencie: Recontruction Finance Corporation Commodity Credit Corporation Fical year ending June 30 4, , , , ,011 2,763-2, ,010 3,369-3, Figure are hown only for thoe column publihed on page 793 of the September 1938 BULLETIN which are affected by the recent Treaury reviion of data. 2 Exclude debt retirement. 3 Exce of credit.