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f SIMSSS CONDI r A REVIEW BY THE FEDERAL RESERVE BANK OF CHICAGO "V olume 23 AUGUST 1, 1940 SIR Number 7 THIS MONTH District Summary Industrial Activity Employment and Payrolls Merchandising Trends * r v The Agricultural Situation Credit and Finance Current Events National Summary ■ ' The Currency Function ::: MAX W. BABB, CLASS B DIRECTOR Max W. Babl»9 Class B Director Among its Class B directors, the Federal Reserve Bank of Chicago has a well known and important manufacturer of the Seventh district—Max W. Babb, president of the Allis-Chalmers Manufacturing Company of Milwaukee, Wis consin. Class B directors on the respective Boards of the Federal Reserve banks represent the interests of commerce, agriculture, or industry in the various Reserve districts, and must be actively engaged in business; they are elected by the member banks. In addition to his being an established manufacturer, Mr. Babb is widely known as a lawyer. Born in Mt. Pleasant, Iowa, Mr. Babb was graduated from Iowa Wesleyan College and then studied law at the University of Michigan, where he received his LL. B. degree. After leaving the University of Michigan, Mr. Babb moved to Chicago to become associated with the Allis-Chalmers Company as its attor ney. He has continued with that company and its successor, the Allis-Chalmers Manufacturing Company, to the present time. From 1913 to 1932, Mr. Babb was sole vice president of the Allis-Chalmers Manufacturing Company, and in 1932 he became its president. This company is a large producer of heavy in dustrial machinery and electrical equipment, and also manufactures agricul tural implements and equipment. It employs over 15,000 men, and its products are distributed internationally. Mr. Babb is a director and member of the Executive Committee of the AllisChalmers Manufacturing Company and also is a trustee and member of the Executive Committee of The Northwestern Mutual Life Insurance Company. He is a director of Cutler-Hammer, Inc., and a trustee of Milwaukee-Downer College of Milwaukee, Wisconsin. Mr. Babb is a member of the American Bar Association and of the Wisconsin Bar Association, and has been a director of the Chamber of Commerce of the United States. Indicative of the esteem in which the member banks hold Mr. Babb is the fact that this year he entered upon his fourth consecutive three-year term as a director of the Federal Reserve Bank of Chicago, his first term having begun in 1930. District Summary ol Business Conditions /STRICT industrial activity has continued at a high level. A few branches of production, such as automo biles, have slackened seasonally, but many heavy industries are operating at near capacity. The armament program is only beginning to have a direct effect on industrial output. Reflecting a sustained volume of employment and wage payments, consumer buying has been well maintained. Crop prospects continue better than last spring’s expectations, and the higher July level of livestock prices has somewhat improved the general farm outlook. Industry—Following advances over recent months in gen eral business activity, there was a gain during June of one per cent in industrial employment and 2 per cent in wage payments. The trend from May to June is usually downward. Operations at Chicago district steel mills continued high through July and by the fourth week of the month had reached 96y2 per cent of capacity. Because of increased production facilities, this rate represents the highest output on record. Demand for steel has been good from almost all types of customers. District firms report that there has been considerable domestic buying for inventory purposes. Trac tor manufacturers have been operating at near capacity and machine tool plants continue at practically capacity levels. At district steel casting firms there was a moderate expan sion in output, as new business increased substantially, while at malleable casting plants orders increased somewhat, but shipments continued to decline. There was a seasonal fall ing-off in June in orders received by stove and furnace man ufacturers. By late July output of 1940 models by automobile manu facturers had been nearly completed. Automobile plants are carrying forward rapidly a somewhat earlier changeover to new models. The unexpectedly good June trends in retail automobile sales continued into July and reduced field stocks of new cars to more nearly normal proportions. District furniture manufacturers slackened their opera tions seasonally during June, but shipments of furniture continued about one fourth heavier than last year. At paper mills, orders and production declined in June; shipments, however, advanced further. Although operations of district petroleum refineries remained at an unusually high level, unwieldy stocks of petroleum products were reduced some what as consumption rose seasonally. June production of soft coal decreased but was 50 per cent heavier than in the 1939 month. There was a moderate decline in contracts awarded for construction work. Residential contracts, though less than in May, continued in good volume, being about one third higher than for last June. Merchandising—The June level of district department store trade continued 6 per cent heavier than last year and, on a seasonally adjusted basis, sales were the best for 1940 to date. The larger stores of the district reported trade in the first half of July as 8 per cent greater than in the 1939 period. Retail shoe sales expanded in June; furniture and housefurnishings sales at retail declined somewhat less than seasonally during the period, following four months of in creasing business. Trade in most wholesale lines continued better than last year. Retail inventories declined in June, and by the end of the month those of department stores were fractionally lower than in 1939. Agriculture—Most district crops have made fair to good progress, and harvesting of small grains has come along nicely. Wheat prices are generally lower, but corn prices have been relatively firm since mid-June. The recent advance in livestock prices, particularly in hogs, has greatly im proved feeding ratios. Meat-packing production has con tinued heavy, being about 10 per cent greater than last year in June, and inventories of meat products remain in large volume. June production of milk and dairy products was at a seasonally high level. Credit and Finance—From mid-June to mid-July, de mand deposits of weekly reporting member banks rose fur ther to new record high levels. Commercial, industrial, and agricultural loans by these banks also increased, and reserve deposits were up substantially. Following a period of prac tically complete inactivity, there were several flotations of securities in the bond market in late June and in July. These new offerings had a favorable reception. Prices of high-grade bonds have been firm since mid-June. SEVENTH JUNE DISTRICT BUSINESS ACTIVITY 1940 COMPARED WITH JUNE 50 40 50 20 10 INDUSTRY STEEL PRODUCTION.!... MFG. EMPLOYMENT MFG. PAYROLLS......... BUILDING CONTRACTS MALLEABLE CA5TING SHIPMENTS STEEL CASTING SHIPMENTSl FURNITURE SHIPMENTS.... PAPER SHIPMENTS_ _ _ _ AUTOMOBILE PROO„U.S.... BIT. COAL PROD. 1939 10 20 50 40 50 60 IQ BO PER CENT DECREASE PER CENT INCREASE ------ u-'-u-™ 1 AGRICULTURE FARM CASH INCOME?......... MEAT-PACKING PR0D.,U.S... CHEESE PROD.,WIS._ BUTTER PRODUCTION CATTLE RECEIPTS............... HOG RECEIPTS................ | 1 1 TRADE DEPT. STORE SALES........ DEPT. STORE STOCKS. . . . . . . . . . RET. SHOE SALES........ RET. FURNITURE SALES...... WHOLESALE TRADE. . . . . . . . . . . . . . . ■ H ■ FINANCE MEMBER BANK RESERVES.?... REP. MEM. DEMAND DEPOSITS, ADJ.?.... REP. MEMB. 8K. LOANS.?........ BANK DEBITS. . . . . . . . . . . l 1. Ingot rate, Chicago district, for week ending July 27. 2. May data. 3. As of July 17. Page 1 bookings of machine tools have been augmented substan Industrial Activity tially of late by orders from the agricultural machinery Steel and Steel Products—Chicago district steel mills industry. Inquiries for machine tools also have been numer have continued busy this past month working off the heavy tonnages of orders received in June as well as current volumes of incoming business. With the exception of the week containing the July 4 holiday, operations were main tained throughout July at levels approximating practical capacity; in the fourth week of the month, a rate of 96% per cent was reached, which was the highest since 1929. Principally because of a decline in sheet specifications after the June 30 deadline on low-priced commitments, the ag gregate volume of new business in July fell somewhat below that of June. However, orders for bars, structural shapes and plates, semi-finished steel, and manufacturers’ wire were received at a heavy rate, in some cases in excess of shipping capacity and resulting in a further growth of backlogs. RATE OF STEEL CHICAGO PER CENT OF CAPACITY INGOT PRODUCTION 01STRICT PER CENT OF CAPACITY ous from Federal agencies and heavy industries preparing bids on tanks, armored scout cars, and the like. Despite the capacity level of production being maintained, deliveries of machine tools, for the most part, are far extended. June pig iron shipments in the Illinois and Indiana area were well above May, and July shipments were even better than in June. In late June, scrap iron and steel prices were lowered, because of an increased supply and light trading, and with certain exceptions, this position remained un changed through July. * * * A generally higher level of activity prevailed during June at steel casting foundries of the Seventh district, as compared with both May and a year ago. After declining continuously in each month of 1940 subsequent to Janu ary, tonnage shipments and production expanded mod erately in June, while incoming business showed a sub stantial increase for the third successive month. Output lagged behind the volume of new orders received. At malleable casting foundries, shipments continued the declining trend begun last December, despite a further rise in orders booked, and the tonnage thereof was slightly under a year earlier. A small gain took place in production over the period. Shipments were considerably under the volume of new business, but production closely matched it. STEEL AND MALLEABLE CASTINGS SEVENTH DISTRICT By weeks. Source: Iron Age. Although demand has been good from all classes of steel consumers, it has emanated to a great extent from industrial and farm tractor plants, makers of agricultural and other heavy machinery, tank builders, structural fabricators, drop forgers, and steel warehouses. There has been some degree of buying by the railroads from which further orders are expected over the next several months. As yet the auto mobile industry has not bought heavily for its 1941 model requirements, but expanding activity is expected before long from this major source of demand. Foreign business has accounted for a small to moderate percentage of the total volume in recent weeks; rails for Great Britain have con stituted a goodly portion of this business, and a sizable quantity of shell steel also has been rolled. It appears that considerable buying by domestic con sumers of steel has been for inventory-building purposes, in view of possible delivery delays later. However, such buying is reported not to be excessive other than perhaps in sheets and strip and warehouse products. As the national defense program gets under way, activity is being stimulated among steel-consuming industries in general, and further direct effects from this program should be felt shortly. Makers of industrial and farm tractors in the district are operating at or not far from capacity, with current sales markedly above the low level prevailing a year ago at this time; the manufacture of farm implements also is well above last year. No great amount of business has as yet been received by this industry as a result of the United States armament program. Steel is being bought somewhat in advance of the normal production requirements. Domestic Page 2 June 1940 Per Cent Change from May June 1940 1939 +20.8 +55.0 + 8.5 +44.0 + 7.5 +21.1 + 2.8 +21.3 + 6.0 +28.9 Steel Castings: Orders booked (tons)... Orders booked (dollars) Shipments (tons)............ Shipments (dollars)....... Production (tons)........... Malleable Castings: Orders booked (tons)... Orders booked (dollars) Shipments (tons)............ Shipments (dollars)....... Production (tons)........... + 7.3 + 6.9 —14.5 —13.4 + 3.8 +52.4 +54.5 — 1.6 + 1.0 +13.8 Automobiles—By mid-July a number of automobile com panies had finished production of 1940 cars and were pre paring for the changeover to 1941 models. A few manu facturers began this action with the July 4 holiday and others followed it rapidly thereafter. It is believed that by the end of the month output of 1940 model automobiles will have virtually ceased. The changeover to 1941 cars is somewhat earlier than usual this year, partly due to the advanced dates of the annual shows this fall. June producPASSENGER PRODUCTION 1AUTOMOBILES ANO NEW CAR REGISTRATIONS jp\ . / " W V / V\\ / 1f \» \\i \ // / n-- /.'** V /; V \ \ ! IT'S \ V \\ \ \ \ I* \ r\ PRODUC TION V. A 5TRATIONS * -J—L-L. J.-.L. 1 .1 1 I I 1 Number of new passenger automobiles produced and registered each month in the United States. June 1940 registrations estimated. Sources: Production, United States Department of Commerce; Registrations, R. L. Polk & Company. tion of automobiles in the United States declined further; it recorded a continued though narrower margin of gain over a year ago. Output of passenger cars in June numbered 286,040 and that of trucks 58,596. These volumes represent respective decreases of 12 and 11 per cent from the pre ceding month, and an increase of 16 per cent in passenger automobiles but a decline of 7 per cent in trucks from the same 1939 period. Data for the first six months of 1940 indicate the assembly of 2,027,430 passenger cars—28 per cent more than in the first half of last year—and of 401,098 trucks, or a 6 per cent greater number than in the 1939 period. Production of automobiles was remarkably steady throughout the first half of this year. Retail sales of passenger vehicles in the nation were unexpectedly good during June, especially in the latter part of the month, and continued so into July, stimulated in part by anticipated higher prices on the 1941 model auto mobiles. In consequence, the heavy field stocks of new cars have been reduced. Seventh district automobile dealers reporting to this bank sold only slightly fewer new cars to consumers in June than in May and 35 per cent more than in the month last year. At the end of June their stocks of new automobiles numbered one fourth lighter than on May 31; these stocks, furthermore, were almost 10 per cent below those in 1939 at the same time, whereas a month previous they had been about one fifth heavier in a similar comparison. Used-car sales recorded just a moderate increase this June over last, and although the number of used cars on hand showed some further reduction in the period, stocks exceeded those of a year ago by close to 40 per cent. Registrations of new automobiles in the States of Illinois and Indiana continued above the 1939 level in June, but those in Michigan fell slightly below it for the first time this year. Paper and Pulp—New orders booked during June by Seventh district paper manufacturers declined from May, measured both in tons and in dollars, although the decrease in tonnage was the more noticeable. Shipments continued to expand against a receding volume of production, with the result that inventories diminished 14 per cent. Produc tion of pulp likewise decreased during June. PAPER AND PTJLP INDUSTRY SEVENTH DISTRICT June 1940 Per Cent Change from Paper: 1940 Orders booked (tons)............................................................................ —11.6 Orders booked (dollars).................................................................... ’ —8*6 Shipments (tons)...................................................................................... +6.6 Shipments (dollars)................................................................................. +5.5 Production (tons)................................................................................... —8.2 Stocks at end of month (tons)............................................................ —14.0 1939 +18.9 +29*3 + 9.2 +18'6 +4-6 +0.5 Pulp: Production (tons)................................................................................... —5.0 Stock at end of month (tons)................................................................ +7.5 +5.5 +13.7 Furniture—There was a considerable falling-off in June from the sizable volume of new business booked during May by the Seventh district furniture industry. Furthermore, orders were sharply lower than a year ago when the summer furniture marts were held in June rather than July as is customary. The decline in each comparison amounted to approximately 30 per cent. Shipments decreased 6 per cent this June, in accordance with seasonal trend; the favorable margin over a year earlier remained close to 25 per cent. Order backlogs decreased moderately over the current period, and at the end of June totaled about one fifth smaller than at the same time in 1939 because of the aforementioned expansion in business last June. Factory operations slackened somewhat to 68 per cent of capacity, which rate, however, was 4 points above that of a year ago. Building—There was a moderate decline during June in the volume of contracts awarded for building and other construction work. This trend is not unusual for June when the May volume has shown continued seasonal expansion. Public works projects, as well as residential building, were responsible for the decrease; public fund expenditures fell off $1,500,000 as against a $3,000,000 curtailment in the support afforded by private funds. Despite the decline from a month earlier, residential contracts recorded a continued favorable margin of 33 per cent over a year ago, while non-residential building totaled about 15 per cent and public works and utilities over 20 per cent larger in this comparison. Both private and public fund expenditures were heavier than last June. MILLIONS OF DOLLARS MILLIONS OF DOLLARS CONSTRUCTION CONTRACTS AWARDED — QUARTERLY C=] ALL OTHER Hi RESIDENTIAL 1338 1940 Source: i'\ W. Dodge Corporation. A total of about $280,000,000 represents the contracts awarded in the Seventh district during the first six months of 1940. While this amount is only a little higher than in the corresponding period of either last year or 1937, it exceeds considerably that for any previous year since 1930. Comparison with the first half of 1939 shows a gain of $18,000,000 this year in residential building, all of which was in the construction of single-family dwellings, as the combined figure for other residential building registered a slight decline. Building for industrial and commercial pur poses also aggregated about $20,000,000 more this year than last. These increases, however, were largely offset by the declines in non-residential building, other than industrial and commercial, as well as by a sharp curtailment in public works and utilities. Publicly-financed construction in the first six months of 1940 totaled approximately one fourth less than in the same period of 1939. BUILDING CONTRACTS AWARDED SEVENTH FEDERAL RESERVE DISTRICT Period Total Contracts Residential Contracts Change from May 1940.............................................. Change from June 1939............................................... First six months of 1940................................................. Change from same period in 1939............................ $ 56,767,000 - 7.2% +21.3% 2279,018,000 + 5.4% $ 24,158,000 -14.3% +32.8% *119,897,000 +18.2% Data furnished by the F. W. Dodge Corporation. There was some decline during June in the wholesale distribution of lumber, sales falling below those of a year ago and a month earlier as well. Retail yard sales increased Page 3 very slightly in line with usual seasonal trend, and they also totaled somewhat higher than last June, both in dollar and board-foot volumes. Cement shipments increased about seasonally and, according to preliminary reports, were 15 per cent above those in June 1939. Brick deliveries in the Chicago territory were as large in June as in May and one fifth heavier than a year ago; other sections of the district, however, recorded declines in the monthly and yearly com parisons. Prices of building materials as a whole, according to the U. S. Bureau of Labor Statistics wholesale price index, were one-half per cent higher the early part of July than a month previous and about 3y2 per cent above the level shown at the same time in 1939. as the trend in previous years for which records are avail able has generally been slightly downward. The aggregate level remained above that of a year ago by practically the same percentage as was shown a month earlier—11 per cent in number of workers and 17 per cent in wage payments. Throughout the year to date, employment and payrolls in the district have been substantially higher than in either 1939 or 1938 but considerably below the level prevailing in 1937. EMPLOYMENT AND PAYROLLS -SEVENTH FEDERAL RESERVE DISTRICT Week of June 15, 1940 Petroleum Refining—Crude petroleum runs to refinery stills in the Middle Western area continued during June at about the same high level which had prevailed in May. Daily average gasoline production, reflecting a somewhat greater yield per barrel of crude, rose by 2 per cent over the May rate. Despite the larger output, refinery stocks of gasoline declined 10 per cent during June in the area, as consumption rose seasonally. Nevertheless, inventories con tinued well above a year ago, although the spread was nar rowed from that of a month earlier. These stocks at the end of June stood at a level 23 per cent higher than a year previous. During the first six months of 1940, production increased 20 per cent over the same 1939 period, while in dicated sales rose but 17 per cent. Output of Illinois crude oil continued heavy, averaging, according to American Petroleum Institute data, 517,000 barrels daily during the week ended June 29, a new record high. Industrial Group Per Cent Change from May 15, 1940 Wage No. of No. of Payments No. of Wage (000 Reporting Employes Employes Payments Firms Omitted) Durable Goods: Metals and Products1........... Vehicles................................... Stone, Clay, and Glass........ Wood Products...................... Total......................................... 1,761 399 277 452 2,889 445,513 347,271 21,697 44,278 858,758 $13,542 12,068 558 960 27,128 + — + + +- 3.1 2.8 3.9 1 0 0.5 + + + + + 3.5 0.2 5.9 2.4 2.1 Textiles and Products........... Food and Products............... Chemical Products............... Leather Products.................. Rubber Products................... Paper and Printing................ Total........................................ 387 1,045 305 175 33 711 2,656 63,434 110,161 38,777 26,109 17,954 76,496 332,931 1,179 2,939 1,185 540 516 2,239 8,598 — + — -I+ + + 1.4 7.0 0.0 2.0 4.1 0.1 2.3 + + — + — — + 2.0 7.0 1.8 5.4 2.1 0.3 2.4 Total Mfg., 10 Groups.............. 5,545 1,191,690 35,726 + 1.0 + 2.1 Merchandising............................ Public Utilities.......................... Coal Mining................................ Construction............................... 5,367 1,091 54 741 141,065 103,926 6,215 12,378 3,175 3,496 146 414 + 1.2 + 13 —10.7 + 6.3 + — — + Non-Durable Goods: 1.6 0.1 7.6 8.5 Total Non-Mfg., 4 Groups....... Freight Carloadings—Railway freight carloadings orig inating in the Chicago industrial area advanced in June for the second successive month. As was the case in May, daily average loadings, excluding 1937, were the best for the period since 1930. An average of about 17 per cent more cars was loaded daily in this area during June than in the same 1939 month. Employment and Payrolls Reflecting somewhat belatedly the general rise in indus trial activity in recent months, employment in Seventh dis trict industries increased one per cent and weekly wage payments two per cent during June over May. The metal industries, apart from the vehicles group, added about 18,000 men to their working forces and expanded wage payments by approximately $600,000. The vehicles group maintained payrolls at practically the same level as a month earlier but showed a reduction of nearly 10,000 in the number of men employed. Stone-clay-and-glass and wood products recorded a defi nitely rising employment trend, as did also most of the non-durable goods industries. A 7 per cent expansion took place in the food products group. The chemicals group, which had shown considerable increases over the preceding three months, registered a slight curtailment in the current period. Within the non-manufacturing industrial classifica tion, coal mining continued a seasonal decline and the construction industries a seasonal rise, the two trends prac tically offsetting one another. Aggregate non-manufacturing employment rose, however, owing mainly to the merchan dising group which added a substantial number of workers and increased payrolls correspondingly. The change from May to June in total industrial employ ment and payrolls may be considered especially favorable, Page 4 7,253 263,584 7,231 + i.i + 0.9 Total, 14 Groups........................ 12,798 1,455,274 42,957 + 1.0 + 1.9 fOther than vehicles. Data furnished by State agencies of Illinois, Indiana, Michigan, and Wisconsin. Merchandising Trends Department Store Trade—Although preliminary esti mates based on weekly data of the larger department stores in the Seventh Federal Reserve district had indicated that June business would exceed that of the corresponding 1939 period by a noticeably greater percentage than in May, final June figures for all reporting firms in this area re corded the same increase as a month previous—6 per cent. Difference in the dates of holding special sales this year than last accounted to a considerable extent for this fact; as did a small variance in trading days, daily average sales bettering those of June 1939 by 9 per cent. Favorable trends as compared with a year ago continued through the first half of July; in that period, business of the larger district department stores totaled 8 per cent above the first half of July last year. Comparisons for June with the preceding month show slightly smaller aggregate sales in the current period, but on a daily average basis sales were one per cent above the May volume. Furthermore, the seasonally adjusted index of Seventh district department store trade indicates that June was the best month of 1940 so far. June sales of stores in the City of Chicago increased 3 per cent in the total over a month earlier, and Milwaukee trade was a little greater, while other cities of the district recorded declines from May. Department store inventories, which at the end of May were still 2 per cent above a year ago, at the close of June totaled fractionally lower than in 1939 at the same time. Stock turnover for the first half of 1940 was at a very little higher rate than in the 1939 period, averaging 2.29 times as compared with 2.25 times a year earlier. trend; in the total for all lines sales were off one per cent in June from May. Wholesale inventories, with little change in the aggregate between May 31 and the close of June, continued above the 1939 level by around 7 per cent. DEPARTMENT STORE TRADE IN JUNE 1940 Per Cent Change June 1940 from June 1939 Locality Net Sales Stocks End of Month Chicago..................... Detroit...................... Fort Wayne.............. Indianapolis............. Milwaukee................ Other Cities*........... + 3.1 + 7.1 + 8.6 +11.8 + 7.5 +11.2 _ 37 + 2.8 7th District.............. + 6.0 Per Cent Change First Six Months 1940 from Same Period 1939 Net Sales Ratio of June Collections to Accounts Outstanding End of May 1940 1939 5.0 8.0 8.2 6.4 5.1 7.7 43.4 46.5 42.0 46.3 +i4.6 - 1.3 + 4.3 + + + + + + 38.i 41.0 32.7 38.5 44.6 31.7 — 0.2 + 6.1 41.2 40.6 *Include Fort Wayne. Retail Shoes—As in other recent years, sales of shoes by reporting district retail dealers expanded sharply in June over May. Consequently, despite a small decline over the period in such sales by department stores, the total dollar volume of shoes sold through these channels exceeded that of the preceding month by 12 per cent. The margin of gain over a year ago was widened from only 3 per cent in May to 8 per cent in June, both dealers and department stores sharing in this improvement. The retail shoe business for the first half of 1940 was 4 per cent better than for the same 1939 period. Although retail stocks of shoes were re duced 15 per cent between May 31 and the close of June, they remained approximately 3 per cent larger than a year earlier. Retail Furniture—The usual downward trend was noted during June in the retail furniture trade of the Seventh district, following seasonal expansion in the four preceding months. However, the decline of 15 per cent from May in aggregate sales of furniture and housefurnishings by dealers and department stores was less than customarily is shown in the period, and the volume of business continued to exceed that of a year ago by as much as 19 per cent. Retail inventories of furniture and housefurnishings diminished further through June, but at the end of the month they were still heavier by 6 per cent than in 1939 at the same time. Wholesale Trade—A large majority of wholesale trade groups in the Seventh district continued in June to record favorable sales comparisons with a year ago. However, the percentage increases were smaller in some instances than a month previous and a few lines did less business than in the 1939 month, so that the gain in aggregate sales of all groups reporting to the Department of Commerce was re duced further from 7 per cent in May to 5 per cent in the current period. Experience varied in the month-to-month WHOLESALE TRADE IN JUNE 1940 Commodity Drugs and Drug Sundries........... Electrical Goods........................... Groceries......................................... Hardware........................................ Meats and Meat Products........... Paper and Its Products............... Tobacco and Its Products.......... Miscellaneous................................. Per Cent Change from Same Month Last Year Accounts Net Sales Stocks Outstanding Collections — 3.4 +11.7 + 1.4 + 8.9 —10.3 + 3.9 +14.0 + 6.9 + 3.8 — 1.6 + 4.2 + 9.7 +10.0 + 7.1 —13.4 +10.0 0.0 + 4.7 +17.7 +15.2 + 3.7 + 3.2 + 7.7 + 5.6 +14.6 —10.0 — 1.2 + 3.3 +12.6 +14.3 + 4.4 — 0.8 Data furnished by Bureau of the Census, United States Department of Commerce. The Agricultural Situation Crops—Seventh district corn was much less advanced in the third week of July than at the corresponding time last season and was about ten days behind the average for the past three years. Principal causes for this backwardness were lateness in planting and the lack of adequate rainfall and warm weather. In general, the crop was still of good color; the dry weather has promoted a good root growth, but soaking rains were needed before mid-August to pre vent deterioration. Chinch bugs have caused some damage in spots. Early corn is beginning to tassel on shorter than usual stands. Soy bean prospects are fair to good. Threshing of winter grains is well advanced in central areas and progressing in the north; yields in the soft wheat areas are running below earlier expectations, but those of hard wheat are better than had been anticipated. Shock threshing of oats has begun; the crop is of good to excellent quality, except for some chinch bug damage, principally in Iowa. A sat isfactory crop of early hay was cut under favorable weather conditions, but prospects for late hay and pastures are now declining. July weather conditions have been adverse for garden truck, although prospects are for fairly good crops. Early potatoes are nearly ready for market, the canning of early peas is about completed, and a fair to good condition prevails for other vegetables. The Seventh district crop of spring pigs was about 3 per cent smaller than a year ago but 13 per cent above the 1929-38 average; the national crop showed a larger de cline from last year and a smaller increase over the ten-year average than did that of the Seventh district. CROP PRODUCTION Estimated by the United States Department of Agriculture on July 1 Condition (In thousands of bushels, unless otherwise specified) Seventh District United States Forecast Final Average Forecast Final Average 1940 1939 1929-38 1940 1939 1929-38 Corn........................... 938,220 1,132,703 849,234 2,415,998 2,619,137 2,299,342 Oats........................... 412,987 359,529 435,287 1,031,622 937,215 1 024 852 Barley....................... 40,894a 47,199a 45,079a 287,377 276,298 225,486 All Wheat..................... 58,263 58,683 02,426 728,644 754,971 754,685 Rye............................ 6,705a 7,644a 8,324a 36,848 39,249 38,095 Potatoes (White)... 44,959 46,211 50,703 371,623 364,016 366,949 Beans (dry edible)1. 3,804b 4,529b 3,995b 14,111 13,962 13,086 Sugar Beets8............. 885c 1,033c 792c 10,019 10,773 8,937 Peaches..................... 2,031d 5,048d 3,608d 52,436 60,822 52,723 Pears.......................... 2,595d 2,688d 2,036d 31,240 31,047 26,333 Canning CropB: Snap Beans2.......... 20e 20e 17e 102 94 82 Green Peas2.......... 108a 72a 98a 285 198 204 Tame Hay2 ................. 20,806 17,426 15,360 85,301 75,726 69,650 thousands of 100-Ib. sacks, 2Thousands of tons. a—Five States including Seventh Federal Reserve district, b— Michigan and Wisconsin, c—Michigan, d—Michigan, Illinois, Indiana, and Iowa, e—Wisconsin, Michigan, and Indiana. Grain Marketing—Though rallying temporarily in late June and early July, domestic wheat prices have trended gradually lower since May. June declines reflected chiefly increased crop prospects, the June 1 outlook for both winter and spring wheat being raised from May expectations. Through most of July, the wheat market was a rather dull affair, interest at times being hardly sufficient to absorb small hedging sales, and prices declined further. In spite of some reduction in late June in the condition of spring wheat, the crop as a whole made a record re covery from the poor prospects indicated early in the year. Late declines in the spring wheat outlook were offset by Page 5 gains in winter wheat, and, whereas a crop considerably below domestic requirements had been earlier expected, the Government July 1 forecast indicates a total outturn of 729 million bushels, which is more than 50 million bushels greater than normal domestic disappearance. Exports of wheat this year have been greatly reduced, as a result of the European military and political situation, as well as the continuance of a domestic price level con siderably above the export parity. Europe is harvesting an unusually small crop this summer; the Department of Agriculture has estimated Europe’s wheat harvest to be the smallest in over a decade, though only about 10 per cent below an average crop. The normal degree of self-sufficiency in wheat varies greatly among European countries. The United Kingdom, Belgium, Holland, Switzerland, Norway, and Ireland are usually heavily dependent on imports, while the Danube basin area, Russia, Turkey, and North Africa normally have a surplus of wheat. Most of the other Euro pean countries generally produce the bulk of their own requirements. Unknown factors in the European food sit uation are stocks and reserves of wheat and future avail ability of imports. 15,309 13,436 Shipments.......................................... Corn: Receipts.............................................. 24,162 Shipments.......................................... 13,960 Oats: Receipts................................................... 1,873 Shipments............................................... 2,651 28,275 19,267 45,925 14,830 17,432 17,462 17,326 12,973 2,966 4,391 4,577 5,266 5,035 5,343 Not so sensitive to changes in the foreign situation, corn prices have not declined to the same extent as have those of wheat in the past two months, and cash prices for corn held relatively firm from mid-June through late July. Do mestic demand for corn has been supported by large num bers of livestock on farms, and the Government loan pro gram has resulted in the sealing of a large amount of the grain. Declining prices for hogs in June brought the hogcorn ratio to the lowest in over three years, but by mid-July there was a sharp improvement in the ratio, reflecting the increase of over one dollar in hog prices. Stocks of corn are at record levels; as of July 1 there were 862 million bushels on farms, equal to 36y2 per cent of last year’s production of corn for grain. Farm disappearance during the second quarter was indicated at 423 million bushels, about 14 per cent greater than average. HOG-CORN RATIOS UNITED LIVESTOCK SLAUGHTER (In thousands) Lambs and Sheep Cattle Hogs 177 175 729 504 169 164 64 72 738 796 778 3,886 3,890 3,185 1,378 1,420 1,401 437 501 448 June 1939 $ 9.30 7.80 9.15 6.35 9.60 Yards in Seventh District: June 1940.................................... ........... June 1939.................................... ........... Federally Inspected Slaughter, United States: June 1940.................................... ............ May 1940................................... ........... June 1939.................................... ........... Calves AVERAGE PRICES OF LIVESTOCK 23,104 15,954 12,417 17,276 rise in prices of hogs in late June and the first half of July, and cattle prices firmed somewhat. Average prices for hogs at Chicago had fallen as low as $4.90 in June, which level, except for a few days in early April, was the lowest since 1934; by the second week of July these prices had risen to $6.20. Receipts and slaughter of hogs have continued un usually heavy. Substantially smaller slaughter supplies of hogs have been forecast by the Department of Agriculture for the marketing year beginning next October 1. This prospective decline—around 10 per cent—is due to the decrease in the 1940 spring pig crop and an expected lighter fall crop. Supplies of slaughter cattle are also expected to be smaller, but those of sheep and lambs larger. (Per hundred pounds at Chicago) Week Ended Months of July 20, June May 1940 1940 1940 Native Beef Steers (average). ................ $10.00 $ 9.70 $ 9.80 Fat Cows and Heifers................... ........... 8.05 8.30 7.95 Calves.......................................... ............. 9.75 8.75 10.25 Hogs (bulk of sales)....................... ............. 5.65 6.05 5.00 Lambs............................................... ........... 9.10 10.60 9.65 MOVEMENT OF GRAIN AT INTERIOR PRIMARY MARKETS IN THE UNITED STATES (In thousands of bushels) May May June 1930-39 June 1940 1940 1939 Avg. ypheat * Receipts.............................................. Livestock and Meat Packing—There was a notable STATES Activities of slaughtering establishments in the United States continued through June and the first half of July at a level substantially above both a year earlier and the 1930-39 average for the month. Though showing some de cline in the aggregate from a month earlier, June produc tion was slightly greater on an average daily basis than in May. The tonnage sold remained in large volume but fell slightly under current production. Shipments for export showed little change from the restricted tonnage of a month earlier, although heavier tonnages were forwarded to Latin America. Notwithstanding some further purchases by the F.S.C.C., inventories of lard and pork in the United States continued to increase. Owing to lower prices obtaining than a year ago, dollar sales of packing-house commodities ag gregated slightly less this June than during the correspond ing month of 1939. Quotations for most packing-house products eased in June from May, but some grades of beef advanced. Production trended downward in the first half of July and prices firmed somewhat. MEAT PACKING—UNITED STATES Per Cent Change in June 1940 from June May June 1930-39 1939 Avg. 1940 Tonnage produced........................... ....................... — 0.8 + 9.8 +14.9 4- 6.7 Tonnage sold.................................... ....................... —4.2 +11.3 Dollar sales...................................... ....................... —3.0 — 0.8 + 9.1 Inventories....................................... ....................... +2.1 +37.7 +21.9 S Number of bushels of corn equal in value to 100 pounds of hog live weight at local markets. July 1940 estimated. Source: United States Department of Agriculture. Page 6 The British Ministry of Food placed a contract for 20, 000,000 pounds of lard, but otherwise trade with Europe was negligible in June; sales to Canada were also light. Trade with Cuba improved during the month; Porto Rican demand was steady until toward the close of the period at which time there was a slackening in lard purchases. New business with other Latin American nations fell off in June because of difficulty in obtaining exchange for settlements. Imports of animal products into the United States de creased in June from May, according to the preliminary figures. Selected Seventh District Banking Data Dairy Products—With pasture conditions particularly good over the entire Seventh district area except in parts of eastern Iowa, June production of milk on district farms was unusually high. By July 1 the flush period of early June had been passed, but total milk production per cow in the United States averaged the highest for the date in more than ten years. Reflecting the heavy June milk flow, national output of manufactured dairy products in that month was estimated at about 3 per cent higher than in June 1939. United States production of butter showed a similar gain of 2 per cent and that of American cheese one of 7 per cent. July 1 cold-storage holdings of butter were unusually light for the period, but those of cheese and evaporated milk were heavy. Prices of dairy products have not changed much recently, except that cheese prices have been raised. Manufacture of butter by district creameries advanced seasonally in June and continued close to last year’s level. Wisconsin production of American cheese did not show a full seasonal increase and was at about the 1939 level, after having been substantially higher than a year ago for several months. FEDERAL RESERVE BANK OF CHICAGO, SELECTED ITEMS OF CONDITION MONTHLY BUSINESS INDEXES Data refer to Seventh district and are not adjusted for seasonal variation unless other June wise indicated. 1940 1923-1925 average = 100 Manufacturing Industries: Durable Goods: Employment................... Payrolls........................ Non-Durable Goods: Employment........................... Payrolls.................................. Total: Employment....................... Payrolls..................................... Pig Iron Production: Illinois and Indiana...................... Automobile Production—(U. S.): Trucks....................................... Casting Foundries Shipments: Steel—In Dollars..................... In Tons.......................... Malleable—In Dollars............ In Tons................... Stoves and Furnaces: Shipments............................ Furniture Manufacturing: Orders in Dollars............. Shipments in Dollars.......... Building Contracts Awarded: Residential........................ Total.............................. Meat Packing—(U. S.): Production.................................. Sales Tonnage............... Sales in Dollars................ Department Store Net Sales: Chicago.................................. Detroit............................... Indianapolis................... Milwaukee......................... Other Cities................. . ..................... May April June 1940 1940 1939 May April 1939 1939 July 17, 1940 $ 260 U. S. Government securities direct and guaranteed: Bills.............................................................................. Notes...................................................‘'' ’" ’ ‘' Bonds.........................................................’’’’’’ Total Government securities.............................. ... Total reserves...................................... Change from June 19, July 19, 1940 1939 S -11 $ —12 0 120 140 260 2,874 1,833 131 1,138 -46 —8 +42 —12 +649 +530 —29 +140 92.6% All other deposits.............................................. Federal Reserve notes in circulation............. Ratio of total reserves to deposit and Federal Reserve note liability combined. 0 —4 -7 —11 +103 +54 +13 +24 +0.6* +2.2’ *Number of Points. CONDITION OF REPORTING MEMBER BANES SEVENTH DISTRICT (Amounts in millions) Change from July 17, June 19, July 19, Assets 1940 1940 1939 Loans and investments—total....................... S3 407 S +56 $+158 Loans—total............................................................... ............. ’ +19 +103 Commercial, industrial, and agricultural loans.. . 607 +16 +102 Open-market paper.................................................... +1 +6 Loans to brokers and dealers in securities.......... . 30 +2 —7 Other loans for purchasing or carrying securities . 69 —4 —13 Real estate loans....................................................... +i +17 Loans to banks......................................................... 0 0 Other loans.......................................................... +3 —2 U. S. Treasury bills................................................. +9 +23 U. S. Treasury notes............................................................. ovo —8 —122 U. S. Treasury bonds.................................................... ' ’' ’ j 015 +5 +91 Obligations fully guaranteed by U. S. Government . 293 +26 +26 Other securities........................................................................ 526 +5 +37 Cash reserves, other than items in process of coilection. i. 2,165 +22 +547 Liabilities 107 106 106 104 105 102 102 107 105 106 103 134 111 98 156 111 59 48 49 60 57 43 56 70 165 203 60 68 84 73 83 95 87 98 94 89 97 101 103 90 100 107 92 85 92 94 87 105 109 93 92 93 92 July 1-17, 1940 18.32 +91 +5 +15 —30 +402 +44 +261 —3 June 1940 18.19 July 1939 19.47 BANK DEBITS, SEVENTH DISTRICT (Amounts in millions) 70 31 58 71 62 64 72 49 101 87 80 108 91 92 ol± 971 1,278 105 Turnover velocity of demand deposits (annual rate). . 93 170 82 83 100 98 87 Demand deposits—adjusted................................... Time deposits.......................................................... ’.............. Inter-bank deposits...................................................1,278 . U. S. Government deposits.................................... . 79 81 Chicago............. Des Moines....... Detroit.............. Fort Wayne. . . . Grand Rapids.. Indianapolis.... Milwaukee........ Peoria................ South Bend.... 32 smaller cities Total 41 cities.. June 1940 $2,914 91 960 34 56 210 275 64 46 536 5,186 Per Cent Change from June 1939 —10.9 +3.3 +16.3 +8.5 +8.5 +8.1 +8.5 +14.6 +22.4 +9.7 —2.1 Per Cent First Six Change from Months of Same Period 1940 of 1939 $18,399 +9.0 580 +2.8 5,938 +17.9 195 +8.5 348 +18.0 1,266 +11.4 1,638 +9.6 358 +12.5 262 +23.6 3,095 +12.4 32,079 +11.1 VOLUME OF OPERATIONS IN PRINCIPAL DEPARTMENTS FEDERAL RESERVE BANK OF CHICAGO 89 91 88 Credit and Finance Weekly Reporting Member Banks—During the four weeks ended July 17, total earning assets of Seventh district weekly reporting member banks increased 56 million dol lars to a total of $3,407,000,000. Of this rise, 19 millions was in the loan classification, largely commercial, indus trial, and agricultural loans, which have been gradually expanding since mid-March. A 26-million dollar increase in (Amounts in millions) Items Handled Commercial checks................................................................... Non-cash collections (Bills, notes, bonds, coupons, etc.).. Paper currency received and counted.................................... Coins received and counted..................................................... Wire and other transfers of funds (Inter-and intra-district). Securities in and out of safekeeping........................................ Coupons cut from securities in safekeeping.......................... Average for Each Banking Day during June 1940 June 1939 492.000 497,000 2,169 2,241 937.000 1,097,000 344.000 375,000 463 484 774 1,316 3,083 2,983 Dollar Amounts Commercial checks.................................................................... Non-cash collections (Bills, notes, bonds, coupons, etc.).. Paper currency received and counted.................................... CoinB received and counted.................................. Wire and other transfers of funds (Inter-and intra-district) Securities in and out of safekeeping........................................ Value of securities held in safekeeping at end of month... 95,126,000 87,887,000 1.936.000 2,774,000 4.415.000 4,622,000 56,524 47,945 64,151,000 61,409,000 8.355.000 12,638,000 932,344,000 1,031,603,000 Page 7 holdings of Government guaranteed securities constituted the most important change in the security portfolios of these banks during the four-week period. Demand deposits (ad justed to exclude Government and inter-bank deposits and items in process of collection) rose irregularly from $2,786 millions on June 19 to a new record high level of $2,877 millions; this was over $400,000,000 above that of a year ago. Member Bank Reserves—Reserve balances held by mem ber banks at the Federal Reserve Bank of Chicago advanced irregularly over the preceding four weeks to a new all-time high record by July 17. Principally instrumental in this increase was a continued influx of commercial and financial funds from other districts. This heavy inflow—135 millions during the four weeks under review—resulted principally from large shifts in funds from New York and in all prob ability reflected American imports of monetary gold. Partially offsetting this factor were a seasonal increase in currency circulation, prior to the July 4 holiday, and Treas ury operations, which included war-loan withdrawals and an excess of new Treasury bills sold over redemptions of weekly maturities. The above-mentioned increase in cur rency circulation included a rise of 24 million dollars in this bank’s outstanding Federal Reserve notes, which on July 17 were nearly $1,138,000,000, or even more than at the 1933 peak of about $1,115,000,000. There has been a steady increase in note circulation over the past few years. ALL MEMBER BANKS SEVENTH DISTRICT has been independent of any corresponding movement in stock quotations, which moved in a horizontal direction during the first three weeks of July on an extremely small volume of trading. Short-term Treasury securities have been firm, pricewise, as have high-grade corporates, since early June. Long-term bonds, however, have registered little change since the latter part of June. During July, the Treasury made its first 1940 offering of bonds for cash subscription. The new bonds, callable in 1954 and maturing June 15, 1956, of fered in volume of $600,000,000, were dated July 22, 1940, and bore a 214 coupon. The purpose of the issue was to replenish the Treasury’s working balance. Subscribers re ceived an allotment of 9 per cent on subscriptions, except for those who specified delivery of bonds in registered form in 90 days. Such subscriptions, limited to a maximum of $5,000, were allotted in full. Current Events Nine Additional State Member Banks Between June 23 and July 23, nine new members have entered the Federal Reserve System in the Seventh district. These new banks raised the total of State banks now enjoying the benefits of Federal Reserve membership to 287 and the entire district membership to 827. The nine banks are: The First State Bank of Decatur, Indiana; Farmers Trust Company, in Franklin, Indiana; Shelby Loan & Trust Com pany, in Shelbyville, Illinois; Plymouth United Savings Bank, in Plymouth, Michigan; People’s Trust Company, in Brookville, Indiana; State Bank, in Gladbrook, Iowa; the Fairmount State Bank, in Fairmount, Indiana; the Ex change Bank, Warren, Indiana; and the State Bank of Carthage, Indiana. As previously indicated, six of the new members are located in Indiana, raising the total of Seventh district State members in that State to thirty-eight. Bulletin Reprints Made Available Selected items of condition by call dates from December 30, 1933, through June 29, 1940. Securities Markets—A more optimistic atmosphere has prevailed in the bond market since June 15 than at any time since intensification of the European war this spring. June flotations of new long-term corporate bonds totaled approximately $100,000,000, most of the financing occur ring in the latter part of the month. Several additional offerings, mostly refundings, appeared in the first three weeks of July. In most cases, the reception accorded such flotations has been described by underwriters as satisfac tory. Banks in this area appear to be showing some interest in bond investments, following a few months of almost complete inactivity in this respect. Exchange quotations for bonds have been firm since early June, particularly those for medium-grade liens which had previously been de pressed along with the stock market in May. However, the upward trend in speculative bond prices over recent weeks Page 8 Reprints of several special articles appearing in recent issues of the Federal Reserve Bulletin have been made available in pamphlet form. These articles are believed to be of particular current interest: The Gold Problem Today, by E. A. Goldenweiser—4 pages, January 1940. The Par Collection System of the Federal Reserve Banks, by George B. Vest—8 pages, February 1940. The Banks and Idle Money, by Woodlief Thomas—9 pages, March 1940. Cheap Money and the Federal Reserve System, by E. A. Goldenweiser—5 pages, May 1940. Ownership and Utilization of the Monetary Gold Stock —3 pages, May and June 1940. Copies of the above pamphlets may be obtained without charge from this bank or from the Board of Governors of the Federal Reserve System, Washington, D. C. New Examiners Added to Staff Mr. Herschel R. Johnson and Mr. Harold J. Newman have recently accepted positions as senior examiners in the Bank Examination Department of the Federal Reserve Bank of Chicago. Mr. Johnson formerly was an examiner for the Department of Financial Institutions of Indiana. Mr. New man, who will not begin his new duties until August 5, has been with the Board of Governors of the Federal Reserve System as a Federal Reserve Examiner. National Summary of Business Conditions (By the Board of Governors of the Federal Reserve System) INDUSTRIAL PRODUCTION 140 130 120 11 0 100 90 80 70 60 1940 Index of physical volume of production, adjusted for seasonal variation, 1923-1925 average = 100. By months, January 1934 to June 1940. DEPARTMENT STORE SALES AND STOCKS PER CENT ------- 1110 1934 industrial production increased rapidly during of commodities somewllat further in the first half of July. Distribution June and rose through retail and wholesale markets and by rail continued active. Production—The Board's seasonally adjusted index of industrial production advanced from 106 in May to 114 in June. In that month, as in May, increases in activity were most marked in the iron and steel and textile industries where declines earlier in the year had been greatest. Steel ingot production rose from 60 per cent of capacity at the beginning of May to 87 per cent in the latter part of June and was maintained at about that level in the first three weeks of July. Production of coke and pig iron showed similar sharp increases and iron ore shipments down the Lakes were at near-capacity levels. Demand for steel was general as most domestic steel-consuming industries were operating at high rates. Exports of steel, which had declined in April, rose to earlier high levels in May and June, amounting to about 10 per cent of steelproducing capacity. Automobile production, which had begun to decline in May, continued to decrease in June and the first half of July reflecting in large part seasonal influences. Retail sales of automobiles were in large volume and dealers’ stocks of new and used cars declined from the high levels prevailing earlier. In the textile industry there was a further sharp advance in activity at woolen mills, and at cotton mills output wras reduced less than seasonally. Rayon pro duction was maintained at earlier high levels while at silk mills activity remained near the unusually low rate reached in May. Coal production continued in large volume during June, but output of crude petroleum declined in the latter part of the month, owing to reduced production in Texas fields. Value of construction contract awards showed little change from May to June, according to F. W. Dodge Corporation figures for 37 Eastern States. Awards for private residential building decreased more than seasonally, following a sharp rise in May, and contracts for private nonresidential building also declined. Contracts for public construction increased further in June, owing in part to expansion in the construction of Army and Navy air bases. 1940 1935 Indexes of value of sales and stocks, adjusted for seasonal variation, 1923-1925 average = 100. WHOLESALE PRICES OF BASIC COMMODITIES PER CENT PER CENT Federal Reserve groupings of Bureau of Labor Statistics’ data. Thursday figures, January 4, 1934, to July 11, 1940. RATES IN NEW YORK CITY For weeks ending January 6, 1934, to July 13, 1940 Distribution—Department store sales in June were maintained at the May level, although usually there is a considerable decline, and the Board’s seasonally adjusted index advanced to 93 as compared with 87 in May and a level of about 89 earlier in the year. Sales at variety stores showed little change from May to June, con tinuing at the advanced level that has prevailed since the beginning of the year. In the early part of July department store sales declined seasonally from the June level. Freight-car loadings increased further in June. Shipments of coal and miscellaneous merchandise continued to expand and loadings of coke, which usually decline at this season, showed a substantial rise. Commodity Prices—Prices of a number of industrial materials, particularly steel scrap, copper, rubber, and silk, declined from the middle of June to the middle of July. Wheat prices also showed decreases in this period, while prices of livestock and products advanced owing partly to seasonal influences. FOODSTUFFS MONEY UniHMF VULUIvIL Agriculture—Production of major crops this season, according to the July 1 report of the Department of x\griculture, may be slightly lower than last season. Tobacco production will be sharply reduced from last year, when the crop was unusually large. Domestic supplies of wheat and other field crops as well as of vegetables and fruit are expected to show little change from last season. Indicated hog production this year will be about 10 per cent smaller than last year. Bank Credit—Total loans and investments at reporting member banks in 101 leading cities increased during the five weeks ending July 10, chiefly as a result of increases in holdings of short-term United States Government obligations and in commercial loans. Holdings of United States Government bonds and loans to security brokers and dealers declined. The monetary gold stock increased by $885,000,000 in this five-week period, the largest gold acquisition for any corresponding period on record. This inflow of gold was reflected in a growth of $310,000,000 in foreign bank balances with the Federal Reserve banks and in increased deposits and reserves of member banks. On July 10, excess reserves of member banks amounted to $6,833,000,000. Government Security Market—Prices of Government securities, which had advanced sharply in June, showed further increases after July 8 when the Treasury announced a new bond issue for cash subscription. Between June 10 and July 15 the price of the 1960-65 bonds rose about 3 points, and the yield on this issue declined from 2.52 per cent to 2.34 per cent as compared with 2.26 per cent at the year’s peak in prices on April 2. The Currency Function A major purpose in the creation of the Federal Reserve banks was to furnish an elastic currency for the use of the American public. The amount of circulating currency is determined by public demand and currency is always being paid out or deposited at the Reserve banks, the volume of payments or receipts fluctuating with changes in the public need for a circulating medium. At the Federal Reserve Bank of Chicago, the Cash Department carries out this function of supplying an elastic currency to meet the needs of Seventh district business and agriculture. This depart ment is in effect the receiving and distributing center of coin and paper money for the entire Seventh Federal Reserve district. It fur nishes currency, silver, and minor coin in all available denomina tions to member banks for the needs of their customers, and when the money is no longer needed in circulation, it is sent back to the Reserve bank. The Cash Department sorts all used paper money by issues and culls out notes no longer fit for circulation. These unfit notes are cancelled and shipped to the United States Treasury for redemption. Cash Department employes, expert in the detection of counterfeits, are constantly on the alert for fraudulent currency. The principal kind of money now in circulation is Federal Reserve notes, which are issued by the Federal Reserve banks. United States notes, silver certificates, and coin, which the Reserve banks also distribute, are issued exclusively by the United States Treasury. During the month of June, the Cash Department received and counted an average of $4,472,000 on every banking day and paid out to member banks an even greater amount. Expenses of all post age, expressage, and insurance on shipments of currency and coin to and from member banks are absorbed by the Federal Reserve Bank of Chicago.
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