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F E D E R A L R E S E R V E B A N K O F C H IC A G O REPORT OF BUSINESS CONDITIONS IN THE SEVENTH FEDERAL RESERVE DISTRICT JANUARY 25, 1920 Compiled January 21, 1920 "OUSINESS is in a peculiar pocket. On one side there are forays against high prices: Society women engineering film propaganda and quasi-boycotts against this or that commodity at the prevailing price; or else pledging themselves to refrain from buying until concessions are made. On the other side there is the obstinate fact that demand for com modities outruns any possibility of providing a supply— that production is low in volume because labor is inefficient and because raw materials are available in quantities much below necessary requirements. These factors combined with others of vital moment— such as car shortage, motive power famine, inadequate transportation facilities and strike rumors— constitute a total of risk elements against which the average man of business dreads to pit his capital. Crown ing all the rest of the difficulties that are piled up around business tranquility stands the foreign exchange situation— most obstinate and unfavorable in its bearings on American hopes. “ The wish is father to the thought,” apparently, when it is asserted that “ prices are on the point of breaking.” Occasionally, it is true, there appear advertisements announcing “ big cuts” in prices; and these are heralded as the beginning of the era of forced liquidation and of declines in the cost of living. Investigation fails to show that these “ leaders” represent the facts of the general market. On the contrary, all the reports sent in, responsive to questionnaires for the purposes of this report, bear out the main point in Governor Harding’s Boston address: namely, that foreign competition, against domestic demands for a terribly curtailed supply of goods, is responsible alike for the obstinate unfavorableness of the foreign exchanges to our sale of goods abroad, and for the persistent maintenance of the “ high cost of living.” Business Continues in Great Volume in M id -W est A DVICES from all parts of the district indicate that the general volume of business in the Middle West continues at a high level and that building operations and other activities will be sufficient to sustain the movement, for the immediate future at least. Farming communities continue to enjoy the prosperity which has resulted from several years of very high prices, and so long as the industrial centers of the agricultural districts continue to be abundantly supplied with purchasing power, there is little indication of any marked decline in domestic trade. There is running through the banking mind in the Middle West, however, the thought that this country cannot long continue the extraordinary volume of foreign exports without some improvement in the foreign exchange situation. A drastic drop in international business, if it should come, would tend to alter the exchange situation. Such decline in exports may be offset to some extent by the tremendous accumulative buying power of our own country, yet this is an unknown factor in the present business situation. Imperative Need of Increased Production Manifesting Itself A DVICES on every hand, however, emphasize Europe’s needs and the great insistence with which European countries having credit are bidding for all the essentials of life that we can export. The American business man realizes the potency of the suggestion of Governor Harding and other financiers both here and abroad, that increased production from the simplest of raw materials to the most highly elaborated products, is the only remedy that will right the situation. So far the rank and file of labor, and those directly interested in maintaining a high price level, either have failed to grasp the significance of this idea or are ignoring it. Some concern has been expressed over the stock of pork left on the hands of the meat producers at the end of 1919, in consequence of the lack of adequate dollar credit among the consuming nations of Europe, where this pork is so urgently needed. This feature may serve to illustrate the necessity of extension of credits abroad in order to establish a market to absorb any surplus stock of pork that may accumulate. It throws much light, also, the effect of the creation of a surplus, even though temporary, on retail prices. Loans at Banks in Middle W est Still Bulk Large. rP H E loan item in the Mid-West banks continue to reflect the rather liberal use of credit in all lines of endeavor. Complaint that farmers are withholding corn from the market is met by a counter complaint of the inability on the part of farmers and livestock raisers to obtain cars for shipment of hogs and other animals when fattened and ready to go to the markets. The farmers who are large raisers of hogs are buying corn to meet their 1920 requirements, and most of these transactions are taking place in the local markets. This requires the use of credit, and is reflected in the shifting bf credits. So far, there is little direct evidence of a further curtailment of loans in consequence of the moral suasion campaign to bring about that result, but it is gratifying to note the co-operation which has been given by the member banks in this district to the effort to confine loans to actual requirements, as distinguished from the speculative feature. This is reflected in the ability of the Federal Reserve Bank of Chicago not only to care for the legitimate requirements of busi ness in this district, but to materially assist other districts less fortunately situated. Speculation is Still in Evidence 1 ^ "OTW ITHSTANDING the rather demoralized investment situation existing during the closing weeks of 1919, ' when it was almost impossible to tell what a bond was actually worth in the open market, the coming of the new year has witnessed a most noteworthy improvement. The “ silent panic” in bonds was apparently traceable to several developments, not the least of which was the desire of income tax payers to take all possible losses on securities before January 1. The high rates for call money, particularly in New York, have had no appreciable effect in stimulating a demand for bonds by private investors. This demand, however, has not been what it should have been for some time, for the reason that the desire of the Western investor has been and evidently still is to speculate. Municipal Extravagance Continues TV/TUNICIPAL extravagance continues to be complained of, as evidenced by huge amounts of securities being put out. J.TX There js a tendency toward lower prices in municipals owing to the great values coming on the market. Absorption of Government bonds for permanent investment goes on at an enormous rate and western investment houses are looking forward to much higher prices for United States Bonds within the next two or three years. t There is in evidence some improvement in the public utility situation as it relates to all except street railroads. Even the street railroad situation is reported not to be in as chaotic shape as it was the middle of last year. The financial reports by electric light and power companies, according to Chicago investment bankers show large increases in gross and substantial increase in net earnings. Individual Banks Show Deposit Growth T N D IVID U A L banks continue to show a sustantial growth in their aggregates of individual deposits both as compared with a month ago and a year ago. The fifty member banks in Chicago report $994,785,000 demand and $258,882,000 time deposits, compared with $944,723,000 demand and $250,855,000 time deposits a month previous, and Detroit banks show a substantial increase in both classes, as do the banks in other selected cities. Loans increased sharply during the same period but Chicago and other selected cities indicate that this expansion as a rule did not exceed the increase in demand deposits. The movement of credit reflected in the aggregate debits to individual account continue to indicate great activity, the total debits reported by 184 banks in twenty-two clearing house centers, including dhicago, January 14,1920, being $1,170,475,000, compared with $938,430,000 a year ago. Compared with a month previous, the total reflected a slightly lessened activity, the aggregate December 17, 1919, being $1,224,051,000 for 185 banks. Chicago clearing house ex changes for the first fifteen business days of January aggregated $1,775,651,753, compared with $1,403,806,934 for the corresponding month a year ago. Advices from some of the bankers in the agricultural sections indicate that the March settlements are likely to cause material trouble and litigation on various changes in farm land ownership throughout Iowa. The speculative rise in prices has been checked, however, by the impossibility of making a fair return at ruling rentals, even with the high prices of produce. Agricultural Outlook Regarded Favorable A GRICULTURAL conditions in all parts of the Seventh Federal Reserve District appear to be favorable. Weather conditions in northern Illinois, Iowa, southern Michigan, northern Indiana and southern Wisconsin are satisfactory and in some cases are pronounced ideal. The weather is cold, and while the farmers have not been able to do any work in the fields, the roads are good, which enables them to move their produce, where cars are available. The ground in most sections is covered by a good mantle of snow and in most sections there have been practically no thaws since winter set in. The acreage of fall crops, however, in Iowa is considerably smaller than that of a year ago, but crops have gone into winter in good condition, with a good snow covering protecting them. The same is true of the greater portion of Illinois lying in this district. Some sections of Indiana had alternating freezing and thawing weather early and many farmers there are reporting the Hessian fly working in the wheat. The Michigan wheat and rye crop, though below the previous year acreage, are in good condition. There is a smaller acreage of wheat in Wisconsin but it is well protected. Industrial Conditions Reflect Counter Currents IN D U S T R IA L conditions over the district reflect counter currents at work. There is running all through the correspondence from various industrial centers uncertainty caused by threats of strikes, inadequate production of coal, iron and basic materials, fickleness and consequent inefficiency of labor. Conditions in the various industries in the Seventh Federal Reserve District as reflected by these replies may be epitomized as follows: COAL— Is a hand to mouth proposition. Production since December 10 (the end of the strike), has been about normal, or a little above the winter average, but consignments were kept up to normal, current burning demand, only by artificial measures on the part of railways; and with the removal of these favors to the mines, great dangers con fronted all industry, for the reason that all fuel stocks were exhausted by the strike and have not been replenished owing to the car and engine shortage on the carrier lines. When the most essential of all commodities, coal, is thus dangerously scarce, it need not be said that manufacturers of all kinds are in precarious supply— and such is the case. STEEL—Almost impossible to obtain. Production sold far ahead and output now limited by innumerable factors, of which not the least is the difficulty of re-establishing trade with Europe at existing rates of exchange and no feasible scheme of extending dollar credits of long maturity except by burdening American banks. STRUCTURAL TRADES— At one half normal speed, due to inability to obtain beams, girders, angles, labor, stone and even common brick. B RIC K — Extreme scarcity and prohibitive prices, owing to efforts of legislators to fix prices below the level set by fuel and labor cost elements. Result: Cessation of manufacture, exhaustion of yard stocks, and virtual famine at a time when the need of building is most urgent. COTTON AND WOOL— Exceedingly short supply of the best grades of both fibre staples. Coarse wools abundant but not acceptable to the public. No sale for cheap wools for apparel purposes; outlet of coarse wools limited by the high cost and low efficiency of mill labor in the carpet industry. LEATHER— Stocks in all positions very scant. Enormous demand all the world over. Shortage due to the depletion of animal population by war and slaughter of breeding stock to avoid high cost of feeding. Result: High prices for the best grades and moderate demand for lower grades. RECEIPTS OF LIVE STO C K AT CH ICAG O, C O M PARED Receipts of live stock at the Chicago market during the four weeks ending January 10, compared with the corresponding period of 1919, are as follows: ♦Decrease. Cattle 257,928 308,259 Calves 49,250 41,587 Hogs 917,846 906,538 Sheep 361,445 351,236 ♦50,331 1920................................ .........................- ...................................... 1919.............................................................................. ..................... 7,663 11,308 10,209 RECEIPTS AND S H IP M E N T S OF IM P O R T A N T C O M M O D IT IE S AT CH ICAGO (000’s omitted) Flour, barrels................. ......... .................. Wheat, bushels....................... ................. Corn, bushels........................... Oats, bushels.......................... ................. Cured Meats, pounds............. ............... . Fresh Meats, pounds.............. ................. Lard, pounds............................ ................ Cheese, pounds........................ Butter, pounds......................... ................. Eggs, cases........... ..................................... Potatoes, bushels............ ......................... Hides, pounds.......................... ................ ......... ...... ......... Lumber, thousand feet— --------------- Receipts-----------—November— — December— 1919 1918 1919 1918 1,167 616 1,145 1,057 3,342 5,629 7,137 2,095 4,851 6,139 7,457 5,489 5,515 10,957 5,620 12,472 12,402 11,736 11,635 13,156 81,491 111,538 97,904 137,515 11,166 10,767 14,087 12,959 17,505 11,958 12,190 10,334 18,671 16,122 15,704 14,544 117 124 48 85 2,010 2,262 1,177 1,494 17,101 12,959 17,186 17,088 176 142 226 163 ----------------Shipments— —November— — December— 1919 1918 1919 1918 797 346 783 706 2,466 7,736 3,939 8,498 3,357 3,274 1,996 5,268 6,761 4,991 9,436 9,435 118,071 111,423 114,055 85,385 294,410 250,336 262,900 159,620 57,677 52,864 58,033 57,437 19,112 4,744 14,453 5,480 19,041 20,750 15,290 18,577 219 205 303 311 321 688 303 978 40,347 15,791 28,683 27,522 70 72 79 60 C O M PARATIVE STATISTICS OF BUILDING AN D EN G IN EE R IN G O PERATION S Contracts awarded in States north of the Ohio and east of the Missouri Rivers, from December 1, 1919, to January 1, 1920. 1919........................................... $2,559,625,000 1918........................................... .. 1,689;242,000 1917— ..................................... _ 1,618,157,000 1916....... 1915........... 1914........... $1,356,989,397 ........-'940,089,334 .......... 720,241,300 S857.698.500 868,103,000 777,456,313 1913 1912 „ 1911..... Contracts awarded in Seventh Federal Reserve District States— Illinois, Indiana, Iowa, Michigan and Wisconsin —also Northern Missouri and Eastern Kansas. 1919.............. ............. _..............„ $891,729,000 1918 ............................... ........ 495,919,000 1917....... ..................... ............... .. 596,479,000 1916—.......................................... -$455,696,897 1915_............................................_ 307,653,600 1914................................................ 212,476,800 1913......... 1912.............. 1911...... $185,057,000 175,078,000 148,514,313 BUILDING P E R M ITS OF SEVEN TH FEDERAL RESERVE DISTRICT CITIES — December, 1919— No. of Estimated Permits Cost .... 17 $ 106,785 .... 294 8,974,750 233,000 .... 16 588,900 .... 34 50,385 .... 33 Illinois Aurora................. Chicago............... Decatur............... Peoria.................. Rockford_______ Indiana Fort Wayne..... . Hammond______ Indianapolis____ Richmond............ South Bend......... Terre Haute........ Iowa Cedar Rapids._ _ Davenport______ Des Moines_____ Dubuque— .......... Sioux City______ Michigan Battle Creek....... Bay City_______ Detroit______ __ Flint________ __ Grand Rapids..... Jackson---- -------Lansing-............. Saginaw________ Wisconsin Kenosha.............. Madison.... .......... Milwaukee______ — December, 1918— No. of Estimated Permits Cost 9 $ 13.700 112 1,410,350 8 2,340 7 13,900 — .... 25 .... 16 .... 329 .... 19 .... 91 __ 32 155,068 261,420 716,101 13,575 78,697 27,501 39 14 222 18 19 20 92,525 37 167,339 10,975 2,945 16,160 .... .... .... 18 33 60 8 37 146,000 111,595 307,890 21,145 204,182 9 39 26 1 20 17,000 18,900 71,090 1,500 66,400 .... 22 .... 14 .... 955 .... 134 .... 47 .... 39 .... 66 __ 67 51,000 10,546 6,696,600 229,515 158,857 111,100 168,410 123,856 17 6 318 30,000 5,325 541,865 33 21 8 17 27,376 24,225 9,246 31,888 .... .... __ 208,582 59,130 3,027,972 45 3 93 30,274 6,700 495,601 .... 67 20 95 SELECTED M E M B E R BANK STATISTICS— SEVEN TH DISTRICT * (000’s omitted) * Detroit Chicago ------ 50 Member Banks----------- 12 Member Banks-----Jan. 3, Jan. 9, Jan. 3, Dec. 5, Jan. 9, Dec. 5, 1920 1919 1919 1920 1919 1919 $97,897 $81,411 $89,571 Total U. S. Securities owned................... $103,496 Loans— $8,720 Secured by U.S. war obligations.$61,160 8,037 49,363 53,694 8,794 (a) Liberty Bonds........................ ........ 13,897 2,892 2,984 (b) Victory notes................................... 15,585 2,135 67 733 (c) Certificates of indebtedness______ 4,040 Loans secured by stocks and 382,557 49,077 bonds other thanU.S.securities........... 369,595 52,976 814,253 244,085 282,265 287,426 All other loans and investments.848,008 770,445 Reserve Balance with Federal 129,277 21,886 141,418 26,468 29,766 Reserve Banks............................ 108,825 42,737 42,130 13,821 14,280 15,186 Cash in Vault.__________________ 44,555 Deposits— 206,416 944,723 994,785 162,048 210,310 Net Demand_________________ 794,398 258,882 193,850 250,855 155,896 198,959 Time.............................................149,859 13,964 22,242 Government................................. 13,962 31,925 30,088 12,951 ♦Figures for January 3, 1919, were from 44 Chicago banks and 44 banks outside of Chicago and Detroit. Jan. 3, 1919 Other 5 Member Banks-----Jan. 9, Dec. 5, 1919 1920 $61,052 $62,422 $13,420 13,193 2,560 449 13,412 2,592 296 280,939 45,420 290,575 46,977 300,315 25,241 15,811 26,777 14,511 30,387 15,441 209,707 89,211 6,189 219,761 107,470 7,983 236,218 109,892 8,861 —
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