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BUSIN CONDITIO A REVIEW BY THE FEDERAL RESERVE BANK OF CHICAGO JUNE Volume 23 19 4 0 Number 5 THIS MONTH District Summary Industrial Activity Employment and Payrolls Merchandising Trends The Agricultural Situation ifiSS Credit and Finance Current Events National Summary A Major Safeguard in Our Banking System DEPUTY CHAIRMAN OF THE BOARD Frank J. Lewis, Deputy Chairman Equipped by years of experience in the fields of industry, finance and utilities, Frank J. Lewis, deputy chairman of the Board of the Federal Reserve Bank of Chicago, will celebrate his fourth anniversary as a director of the bank on July 9. Mr. Lewis has shown an intense interest in the Federal Reserve System and from the time of his first appointment in 1936 has been one of the most active members of the board, delving into all phases of the bank’s services to member banks and the public. He was re-appointed a Class C director on January 1, 1938, representing the public interest, and on January 1, 1940, when General Robert E. Wood was elevated to the chairmanship, Mr. Lewis was designated deputy chairman by the Board of Governors of the Federal Reserve System. Mr. Lewis was born in a farmhouse at LaSalle and Adams Streets, heart of Chicago’s financial district, and the site of the Federal Reserve Bank of Chicago a block away was once the pasture of his father’s farm. He attended the public schools and he began his career as one of the late Victor F. Lawson’s first news boys in 1876, when that publisher started the Daily News, Chicago’s first penny newspaper. Fifty-two years ago, Mr. Lewis organized the F. J. Lewis Manufacturing Company, makers of coal tar products. From an initial plant, the business grew until the company had factories throughout the United States. He also holds large interests in other industrial corporations and in utilities. Interested in human welfare, Mr. Lewis embarked upon a housing project for approximately 2,000 families of wage earners in the Calumet district of Chicago in 1925 at an estimated cost of $10,000,000. For some years he was a member of the board of directors of the De Paul Educational Aid Society, owner of the downtown academic and administration building of De Paul University, and in 1928 the university awarded him an honorary degree of doctor of laws. He founded in 1932 the Lewis Memorial Maternity Hospital in Chicago for families with small incomes and later built the Lewis Holy Name School of Aeronautics at Lockport, Illinois. District Summary of Business Conditions UDDEN intensification of war in Europe has profoundly affected many phases of Seventh district business and agriculture. There has been a drastic reappraisal of values, with the most notable repercussions being felt in the grain and security markets. Available May data indicate that dis trict industrial activity has advanced, particularly in the heavy industries such as steel. Automobile production reached its spring peak in April and has since declined mod erately. Distribution of commodities at retail has held at fairly high levels, and apparently as yet the changed situa tion abroad has had little effect on consumer expenditures. higher than last year. There was practically no change in the level of retail inventories over the month, and depart ment store stocks were only one per cent larger than on April 30, 1939. Wholesale inventories declined in April but were 8 per cent heavier than a year ago at the end of the month. Agriculture—Overshadowing other recent developments in district agriculture was the drastic mid-May decline in grain prices, particularly in wheat. Compared with grains, livestock quotations continued relatively firm. Butter produc tion in April showed a less than seasonal advance, owing to poor pasture conditions, although cheese production had a full seasonal gain for the month. At meat-packing plants, inventories declined as tonnage sales were heavier than production. There was an increase of about 25 per cent in April over last year in tonnage sales of packing-house commodities but a gain of only 5 per cent in dollar sales. April export demand for meat products was disappointing. Much needed rains have improved moisture conditions at district farms, but at the same time they delayed spring field work considerably. Credit and Finance—The major recent development in financial markets has, of course, been the severe decline in securities prices. Although there was little liquidation evi dent in the bond market and practically none by larger weekly reporting member banks, bond prices declined sharply, erasing a considerable portion of the advance made since the low point of last September. Industry—Reflecting generally increased demand and specifications on commitments made at low prices in April, district steel mill operations rose sharply in May. Since the spread of warfare, belligerents have greatly augmented their orders for steel in this country, but these so-called “war” orders are expected to affect this district only in directly, as most finished steel for export is fabricated in the East. Steel firms in this area expect near-term develop ments in the European conflict to dominate trends in domes tic steel business and, if intensified hostilities continue, there may be generated a rush on the part of domestic cus tomers to buy steel, such as occurred last September. Data collected by this bank show that new business of dis trict steel and malleable castings firms increased sharply in April and that output of both types of castings was well over year-earlier levels. Orders and shipments of stove and furnace plants also rose substantially. New business of district furniture manufacturers remained steady and output was higher than last year. Sales by district paper mills in SEVENTH DISTRICT BUSINESS ACTIVITY APRIL 1940 COMPARED WITH APRIL 1939 creased substantially during April. Among the fuel indus tries, petroleum refineries failed to record their customary 50 40 50 20 ID O 10 20 30 40 50 60 10 80 seasonal rise in operations, as gasoline stocks remained PER CENT PER CENT DECREASE INCREASE unusually heavy, while coal production showed a greater INDUSTRY STEEL PRODUCTION.1. than seasonal decline. MFG. EMPLOYMENT During April there was a further sharp seasonal advance MFG. PAYROLLS..................... in contracts awarded for building construction, and for the BUILDING CONTRACTS first time this year total contracts were higher than the 1939 MALLEABLE CASTING SHIPMENTS level, although comparisons for residential building have STEEL CASTING SHIPMENTS..... FURNITURE SHIPMENTS...... been for the most part favorable. Movement of building PAPER SHIPMENTS........ ......... materials showed belated seasonal expansion, following a AUTOMOBILE PR0D..U.S....... dull March. BIT. COAL PROD........................... With minor month-to-month declines, district employment AGRICULTURE continued its irregular downward trend in April. However, FARM CASH INCOME.,LJ.S.!.. the totals for all reporting industrial groups showed an in l MEAT-PACKING PROD,U.S... crease over April 1939 of 8 per cent in employment and 16 CHEESE PROD.,WIS... per cent in payrolls. BUTTER PRODUCTION......... Merchandising—Department store sales increased 2 per cent in April and were 4 per cent heavier than in 1939, with Detroit stores making the best year-to-year showing. Data from larger district stores for the first three weeks of May showed even more favorable gains over last year. There is no indication, from department store sales at least, of any markedly unfavorable trends in retail distribution during the first full week of intensified warfare. Retail shoe sales fell off in April and were lower than last year, but sales of furniture and household furnishings at retail increased much more than seasonally and were 22 per cent heavier than in April 1939. District wholesale busi ness recovered from unfavorable March trends, showing a considerable advance in April, with sales 13 per cent CATTLE RECEIPTS. HOG RECEIPTS.......................... TRADE DEPT. STORE SALES. . DEPT. STORE STOCKS............ RET. SHOE SALES.................. RET. FURNITURE SALES........ WHOLESALE TRADE.................. 1 mm FINANCE MEMBER BANK RESERVES’... REP. NEIIB.BK. DEMAND DEPOSITS, ADJ.’..... REP. MEMB. BK. LOANS.’.......... BANK DEBITS.......................... 1. Ingot rate, Chicago district, for week ending May 25. 2. March data. 3. As of May 15. Page 1 Industrial Activity Steel and Steel Products—From a level slightly under 60 per cent of capacity at the end of April, steel mill opera tions of the Chicago district rose rapidly in the following three weeks to 75 per cent of capacity—the highest rate since the early part of February this year—and it is ex pected that production will be accelerated further over the next few weeks. Responsible in large measure for this in creased rate of output have been specifications on steel prod ucts on which the price was reduced $4 per ton in the first part of April. Announcement was made late in April that restoration would be made May 1 of the prices which had been cut, the stipulation being made at the same time that low-priced business placed before May 1 was to be for shipment by June 30. This action, obviously, stimulated specifications on blanket commitments previously made. However, such business has not been entirely responsible for increased mill activity, as in recent weeks demand has expanded considerably from numerous miscellaneous sources and for a wide diversification of products. At pres ent, mills are taking a much greater volume of orders than they are shipping. Among the major industries now specifying rather heavily are the farm equipment manufacturers. The automobile industry has not yet begun to place orders for the next model year. There has been some buying from makers of railroad equipment, but business from this source remains relatively small. Products in good demand, in addition to sheets and strip, have been wire and wire products, bars, plates, alloy steel, and small structural shapes. Tin-plate mills are oper ating at near capacity. Machine tool plants likewise are quite busy and have heavy backlogs on certain items for export demand. Export business has increased rather substantially since the rapid spread recently of hostilities in Europe, but to date this district has received no great share of such business. PER CENT OF CAPACITY RATE PER CENT OF CAPACITY OF STEEL INGOT PRODUCTION By weeks. Source: Iron Age. In April, for the first time this year, incoming business of Seventh district steel and malleable casting foundries recorded an expansion; in the case of malleable castings, it was the first since the early fall of 1939. Output and foundry operations, however, continued a downward trend during the period. Activity, in general, was above the yearearlier level. Although shipments and production have Pag* 2 been closely matched in recent months, they are still running considerably ahead of the volume of new orders booked. STEEL AND MALLEABLE CASTINGS SEVENTH DISTRICT Steel Castings: April 1940 Per Cent Change from March April 1940 1939 ......... ... ........... ........... Malleable Castings: Orders booked (tons)........... Orders booked (dollars)... Shipments (tons)................... Shipments (dollars).............. Production (tons).................. * * +34.3 +24.8 — 6.1 —6.1 + 1.0 — 1.4 +70 0 +59.0 +59.5 ........... ........... ........... ........... ........... Orders booked (tons)........... Orders booked (dollars).... Shipments (tons)................... Shipments (dollars).............. Production (tons).................. +37.(1 +36.3 — 2.2 — 0.6 — 7.9 + 1.8 + 6.6 +14.1 +18.7 + 9.9 * Data for April covering activity in the stove and furnace industry of this district show favorable trends. Not only did new orders and shipments expand over the preceding month, but also they were substantially heavier than in April 1939. Production increased moderately in each com parison. For the first four months of 1940, output from reporting stove and furnace factories of this area exceeded that for the same 1939 period by about one fourth. Automobiles—Manufacturers of automobiles assembled a slightly greater number of vehicles in April than a month previous. The percentage of increase, however, was small compared with most years, as production was held closely in line with sales in order to avoid further building-up of the already heavy stocks in dealers’ hands. Passenger car output in the United States amounted to 362,139 units during April, or to 3 per cent more than in March and 33 per cent above that of last April; there were 70,607 trucks produced, which number approximates the March volume and exceeds that of a year ago by 10 per cent. In the first half of May, weekly production of automobiles was at a somewhat lower rate, but it is estimated that total output for the month will not be much below that of April. Sales of new passenger automobiles in the nation were well maintained through April, and reports for the early days of May indicate a continued favorable trend. Demand for automobiles in the Seventh district has re mained very good. Sales of new cars at retail by reporting dealers increased further in April by close to 20 per cent and numbered half again as large as in the month last year when some falling-off in sales took place. Wholesale distri bution of new automobiles also recorded gains over a month and a year previous. There was a small increase in dealers’ stocks between the close of March and April 30, but they were no higher in number than at the end of April 1939. Despite moderately heavier sales of used cars during April than in March and substantially larger ones than a year ago, stocks of such cars expanded over the period and numbered about 30 per cent greater at the close of the month than in 1939 at the same time. Furniture—The volume of new business booked during April by Seventh district furniture manufacturers was little changed from that of the preceding month, although ordi narily a moderate decline takes place in the period. A better than 25 per cent increase in orders over a year earlier was by far the largest in this comparison so far in 1940. Ship ments followed the customary trend in April by receding 5 per cent from the March level, but aggregated 10 per cent heavier than in April 1939. They exceeded incoming busi ness by a fair percentage and together with cancellations reduced unfilled orders almost 15 per cent between the end of March and April 30. However, business still on the books on the latter date totaled almost 30 per cent larger than a year ago at the same time. The rate of factory operations was down a few points in April from a month previous, but at 76 per cent of capacity was 8 points higher than in April 1939. Paper and Pulp—Bolstered by news of the cutting-off of Scandinavian supplies, new orders at district paper mills increased substantially in April. Paper and pulp output showed little change but was above 1939 levels. April 1940 Per Cent.Change March April 1940 1939 Orders booked (tons)............................................................................ Orders booked (dollars)...................................................................... Shipments (tons)................................................................................... Shipments (dollars)............................................................................... Production (tons)................................................................................... Stocks at end of month (tons).............................................................. Pulp: Production (tons)................................................................................... Stock at end of month (tons)............................................................. +27.9 +26.7 +0.5 — 0.2 +4.0 +8.8 +18.8 +25.0 +7.6 +17.7 +9.3 +16.1 +2.6 +8.7 +6.1 — 5.4 Building—Reflecting rapidly developing seasonal influ ences, construction contract awards in the Seventh district rose during April to nearly 60 million dollars, a 37 per cent increase over the March volume. Such awards, after having run below year-earlier levels since last September, totaled 15 per cent higher than in April 1939. About 43 per cent of the allotted contracts were for residential units, al most exclusively one- and two-family dwellings, and resi dential contracts as a whole were at a post-1929 high. Although the impetus afforded a year ago by publiclyfinanced projects is now lessened, non-residential building also has felt the seasonal stimulation, increasing from about 14 millions in March to 24 millions during April. The contract for a close to 5-million dollar building for Northwestern University brought a sharp increase in the schools and public buildings category. Awards for com mercial and industrial buildings likewise expanded, reflect ing contracts for a manufacturing plant and garage at Highland Park, Michigan, and an aeroplane factory group CONSTRUCT I ON CONTRACTS By months, January 1934 through April 1940. Corporation. BUILDING CONTRACTS AWARDED SEVENTH FEDERAL RESERVE DISTRICT Period PAPER AND PULP INDUSTRY SEVENTH DISTRICT Paper: at Speedway City, Indiana, each of which was for over one million dollars. Public works and utilities, largely governed by the outflow of public funds, increased somewhat but failed to achieve a volume comparable with April 1939. Early reports for May indicate that construction was proceeding at a rate as rapid as that which prevailed throughout April. Residential awards for the first half of May were about one half as large as recorded for the entire month of April; non-residential contracts were sharply lower, with the greater part of the slack in this type of building taken up by a gain in contracts for public works and utilities. AWARDED Data furnished by F. W. Dodge Total Contracts April 1940.................................................................... Change from March 1940..................................... Change from April 1939......................................... First four months of 1940............................................ Change from same period in 1939........................ $59,594,000 +36.5% +14.9% $160,023,000 -6.0% Residential Contracts $24,960,000 +26.3% +35.1% $65,160,000 +10.7% Data furnished by the F. W. Dodge Corporation. Building permits issued during April in 103 cities scat tered throughout the Seventh district showed a dollar volume of proposed construction 35 to 40 per cent ahead of both March 1940 and April 1939. As in the case of contract awards, volume of these permits was favorably motivated by seasonal influences at this time of year. Indicated cost of projects in the City of Chicago failed by far to show as heavy a seasonal rise as did the district aggregate. The April total for the district’s largest city, however, was nearly twice that of the corresponding 1939 month. Sales and shipments of major building materials finally recorded seasonal expansion in April, after a rather dull March. Brick deliveries in this area were nearly threequarters again as large as in March, while lumber sales showed an increase of nearly 50 per cent, measured in dollars. Cement shipments rose about 80 per cent, and for the first time this year exceeded the 1939 level—an unusually favorable record in view of reduced public works as well as lower foreign demand at exporting centers. Petroleum Refining—Daily crude runs to refinery stills in the Midwestern area averaged somewhat lower during April than in March, although an increased rate of activity over this period has been customary in past years. Indicated consumption of gasoline showed the normal seasonal in crease, but refinery operations were not stepped up accord ingly, apparently because of the high level of gasoline stocks already on hand. Such inventories declined but slightly during April. Stocks of fuel oils rose somewhat, as is usual at this season. During the first two weeks of May, refinery operations were expanded in connection with increasing de mand for gasoline, and stocks worked slightly lower. Output of Illinois crude continued at a level which, though slightly below the peak rate established in March, was nevertheless heavy enough to maintain currently the State’s third-ranking position, exceeded only by Texas and Cali fornia. Coal Production—Daily average April output of bitumi nous coal in the Middle Western fields declined somewhat more than ordinarily from the March rate and, for the first time this year, fell below the 1939 level. As renewal in May of labor contracts for the principal producing fields was Page 3 not impending as was the case a year ago, a strong incentive for building up fuel inventories against possible interruption of supplies failed to manifest itself during the current period. Employment and Payrolls Employment at district manufacturing industries resumed during April the slightly downward trend which, with the minor exception of March, has been evident since the peak in employment reached last December. The month-to-month decline affects about 23,000 workers, while the net loss in manufacturing employment since December has been about 85,000. Almost half of the decrease this year has been con tributed by the metal industries group, which was operating at a high level at the end of 1939; the number of workers in the food products, vehicles, and wood products classifica tions has also fallen off substantially in the first four months of this year. Since the employment level last December was the highest recorded since 1937, current indexes continued above those in 1938 or most of 1939. Comparisons with corresponding figures for April 1939 show substantial increases in the above four major groups; the year-to-year gain for district manufacturing industries as a whole amounted to about 10 per cent, or the equivalent of 150,000 workers. The only loss in this yearly comparison was a minor one reported for the leather products group. In the current March-to-April period, the construction in dustry, as well as stone-clay-and-glass products, showed strong seasonal gains, while the customary curtailment in coal mining was reflected in a sharp decline in employment and payrolls. The net effect of the various changes within the non-manufacturing groups was a practically stable em ployment volume for the classification as a whole. As com pared with a year ago, there also has been little change in the number of workers employed, the index number for the non-manufacturing classification showing a gain of less than 2 per cent. EMPLOYMENT AND EARNINGS SEVENTH FEDERAL RESERVE DISTRICT Week of April 15, 1940 Report ing Firms No. Wage Earn ers No. Earn ings (000 Omitted) S 1,762 398 280 455 2,895 439,640 365,229 18,303 44,836 868,008 Textiles and Products.......... Food and Products............... Chemical Products............... Leather Products.................. Rubber Products................... Paper and Printing................ Total........................................ 388 1.051 304 173 32 728 2,676 Total Mfg., 10 Groups.............. Industrial Group Change from March 15, 1940 Wage Earn ers % Earn ings 12,968 13,124 448 975 27,515 — — + — — 0.8 2.6 4.2 1,8 1.5 — — + — — 1,212 2,686 1,061 501 459 2,107 8,026 — — + — 4— — 1.5 1.7 1.0 3.8 0.3 — — + — + + — 6.9 0.5 0.8 8.7 4.1 0 1 1.5 5,571 1,184,686 35,541 — 1.4 5,417 1.000 51 748 140,894 100,132 7,768 9,548 3,118 3,404 171 303 — 0.6 + 0.9 —14.1 +11.9 — 0.6 + 1.3 —25.2 + 15.3 Total Non-Mfg., 4 Groups....... 7,216 258,342 6,996 — 0.1 + 0.1 Total, 14 Groups........................ 12,787 1,443,028 42,537 — 1.2 — 0.8 % EMPLOYMENT AND PAYROLLS ___ _ Index numbers adjusted to Census of Manufactures through 1937. 1923-1925 average =100. Merchandising Trends Department Store Trade—April business of Seventh district department stores showed a small gain of 2 per cent over the March volume and totaled 4 per cent larger than a year ago. On a daily average basis, sales increased 4 and one per cent in the respective comparisons. Detroit, of the larger cities in the district, recorded the greatest improvement in trade over a year earlier; while Milwaukee store sales rose most over a month previous, owing to special promotional sales in the current period. In the three weeks ending May 18, sales of the larger department stores in this area ran 7 per cent in excess of the corres ponding 1939 period. With Chicago and Milwaukee firms carrying lighter in ventories on April 30 than at the same time in 1939, district department store stocks totaled only one per cent above the year-ago level. Inventory volumes were practically the same at the end of April as on March 31. So far this year, the rate of stock turnover has approximated that in 1939. — 0.9 Merchandising............................ Public Utilities.......................... Coal Mining................................ Construction............................... ____ MANUFACTURING 0.2 1.5 8.0 2.0 0.8 64,784 101,119 35,139 25,877 15,661 74,098 316,678 Because of greater stability in the non-manufacturing industries, total industrial employment generally fluctuates considerably less than employment in the manufacturing industries alone. Current April employment in all reporting industry groups was 8 per cent higher than in the 1939 period, while the corresponding wage payment data recorded a 16 per cent gain. Durable Goods: Metals and Products'........... Vehicles................................... Stone, Clav, and Glass........ Wood Products...................... Total........................................ DEPARTMENT STORE TRADE IN APRIL 1940 Non-Dttrable Goods: 0.1 1.1 'Other than vehicles. Data furnished by State agencies of Illinois, Indiana, Michigan, and Wisconsin. Page 4 Locality Per Cent Change April 1940 from April 1939 Per Cent Change First Four Months 1940 from Same Period 1939 Ratio of April Collections to Accounts Outstanding End of March Stocks End of Month Net Sales 1940 1939 3.6 6.9 4.2 2.6 2.6 3.0 — 3.7 + 5.5 42.1 46.9 41.2 45.0 +i3.6 — 1.9 + 8.2 + 5.4 + 8.1 +10.9 + 5.8 + 4.2 + 5.8 39.4 38.0 36.1 38.6 37.2 34.9 + 4.1 + 0.8 + 5.9 41.5 40.2 Net Sales + + + + + + •Include Fort Wayne. Retail Shoes—Subsequent to the favorable showing made in March by the retail shoe trade of the Seventh district, sales fell off 15 per cent in April and totaled 13 per cent smaller than last April when Easter buying continued to exert an effect in the first week of the period. The declines in shoe sales by department stores were much less than those recorded by retail dealers in both the monthly and yearly comparisons. For the cumulative period through April this year, the dollar volume of shoes sold by dealers and department stores aggregated 2 per cent in excess of the same 1939 period. Little change took place between the close of March and April 30 in shoe inventories, and they were 9 per cent heavier on the latter date than a year ago at the same time. Retail Furniture—Sales of furniture and housefurnishings by dealers and department stores in this district rose 25 per cent during April over the preceding month, which increase is much better than usual for the period. Further more, such sales were 22 per cent larger than in April a year ago, although dealer sales recorded a gain of but 7 per cent in this comparison. At the end of April, inven tories of furniture and housefurnishings totaled only 3 per cent heavier than at the close of the 1939 month; they were at practically the same level as a month previous. SALES OF INDEPENDENT RETAIL STORES (As compiled by the Bureau of the Census) Total All Groups*............................. Apparel Group.................................... Drugstores........................................ Pood Group........................................ Furniture and Appliances................ Hardware Stores............................... Jewelry Stores................................... Lumber and Building Materials... Motor Vehicle Dealers..................... Per Cent Change April 1940 from April 1939 Illinois Indiana Iowa Michigan Wisconsin +10.7 +2.4 +1.1 +5.9 +1.2 —12.3 —14.3 —15.5 — 0.4 — 9.6 +3.2 +5.2 —2.2 —3.3 —4.1 +1.3 —0.4 —3.0 —1.6 —6.3 +16.1 +13.4 +9.9 +27.8 +19.8 +21.6 +18.2 +16.0 +9 2 +12.1 +15.6 +3.4 +0.7 +10.5 +9 7 +25.7 +12.6 — 3.7 + 7 0 + 9.7 +37.7 + 4.5 +26.2 +35 2 +15.0 ♦Includes classifications other than those listed. Wholesale Trade—For the most part the wholesale dis tribution of commodities in the Seventh district was greater in April than in the preceding month when trends had been generally unfavorable. Comparisons with a year earlier were quite good, dollar sales of all groups reporting to the Department of Commerce totaling 13 per cent larger than in April 1939. Wholesale inventories, in the aggregate, were, at the close of April, slightly under the level of a month previous but 8 per cent heavier than a year ago. WHOLESALE TRADE IN APRIL 1940 Per Cent Change from Same Month Last Year Commodity Net Sales Stocks Accounts Outstanding Collections Drugs and Drug Sundries........... Electrical Goods........................... Groceries......................................... Hardware........................................ Meats and Meat Products........... Paper and Its Products............... Tobacco and Its Products.......... Miscellaneous.................................. + 0.7 — 2.3 + 0.7 + 0.4 +21.4 +15.6 +14.4 +22.9 +11.2 + 1.7 + 7.7 +16.1 +11.7 + 9.3 +14.1 +15 6 + 2.5 +18.5 +24.7 + 3.8 + 6.6 — 0.4 — 3.5 +12.2 +11.8 + 8.9 + 15.3 + 9.2 + 8.8 + 4.8 + 3.3 Data furnished by Bureau of the Census, United States Department of Commerce. The Agricultural Situation Crops—There was further improvement in subsoil moisture and growing conditions at Seventh district farms during the first half of May, following frequent rains over most of the district. However, some areas still show a deficiency in sub soil moisture. Spring work was considerably delayed by the rains. As of May 1, pastures and hay fields were in better than average condition, though worse than last year; subsequently, both showed great improvement and by mid-May pastures were long enough for livestock grazing. Abandonment of winter wheat has been lighter than last year, and good progress in the growing crop was made through mid-May; however, a reduction in acreage is ex pected to bring a shorter harvest this year. Oats and other spring grains were in fair to good stand and somewhat further advanced than in 1939. Corn planting was even later this spring than in 1939, up to May 14. Thereafter, however, rapid progress was made. An offsetting factor to the lateness in tbe planting season is the even higher percentage of hybrid seed used this year. Because of frosts and lateness in blossoming, fruit pros pects are as yet uncertain. However, the peach crop is ex pected to he unusually small. CROP PRODUCTION Estimated by the United States Department of Agriculture on May I Condition (In thousands of bushels) Five States Including Seventh District United States Forecast Final Average Forecast Final Average 1940 1939 1929-38 1940 1939 1929-38 Winter Wheat...................... 79,191 87,529 89,420 459,691 563,431 571,067 Rye....................................... 7,058 7.644 8,324 36,476 39,249 38,095 Grain Marketing—After advancing in April to the highest levels since 1937, domestic wheat prices declined precipilately in mid-May. Ignoring almost completely the ordinary developments which usually affect prices and which were for the most part constructive, the wheat market reacted violently following the invasion of Holland and Belgium and the widening of war activity into France. Wheat futures were off as much as 34 cents for the movement, declining the limit of 10 cents on three different days. Corn and oats prices also declined, but not so sharply as did wheat. Cash corn held relatively firm, reflecting a continued holding attitude on the part of farmers, and furnished some support to futures prices. At the request of the Secretary of Agriculture, directors of all United States grain exchanges set minimum quota tions on grain futures trading. The low prices set were closing quotations of May 18, which at Chicago were 781/o cents for July wheat and 59 cents for July corn. Following setting of these pegs, grain prices advanced somewhat above the support level. The Government crop report indicated a winter wheat crop of 459 million bushels, an advance of 33 millions over the April 1 estimate, but still substantially lower than last year’s or average harvests. The spring wheat crop has made an excellent start. MOVEMENT OF GRAIN AT INTERIOR PRIMARY MARKETS IN THE UNITED STATES (In thousands of bushels) Wheat: Receipts... Shipments. Corn: Receipts... Shipments. Oats: Receipts... Shipments. April 1940 March 1940 April 1939 April 1930-39 Avg. 29,424 8,890 21,984 8,639 16,316 11,225 12,178 11,471 11,958 10,019 11,923 6,029 12,635 8,849 15,232 11,412 4,257 4,430 4,781 4,450 4,442 5,808 5,396 6,961 Livestock and Meat Packing—Livestock shipments to public stockyards in the United States increased during April over March with the notable exception of hogs, Page S receipts of which declined seasonally. Cattle marketings expanded 15 per cent above March, although little change has been shown over this period on the average in past years. Federally inspected slaughter of hogs declined seasonally, but that of other livestock increased. All types of slaughter exceeded the levels of last year. Steer prices rose during April, but later maintained moderate stability. Hog quota tions at Chicago decreased about 50 cents per hundredweight in the third week of May. Sales in the meat-packing industry exceeded current pro duction in April, with consequent reduction of inventories. These sales were about 3 per cent higher than in March, while production registered a decline of about the same proportion. The sales increase was particularly encouraging in view of continued diminishment in export business, which trade was confined principally to Latin America. Compari sons with April 1939 reveal a sharp difference between tonnage and dollar sales. The increase in the latter amounted to but 5 per cent, while tonnage sales were 25 per cent higher. Sharply reduced prices obtainable for most animal products offers the explanation for this wide discrepancy. Prices of most packing-house commodities advanced through April and the first half of May. Exceptions to the trend in May were some hog products, notably lard. In line with reduced production during April, payroll costs of the meat-packing industry declined from March, though continu ing well above 1939 levels. April shipments of animal products into the United States from foreign countries showed a moderate increase over March. Dairy Products—With pastures making an unusually slow spring start, milk production per cow increased less rapidly than usual in April. However, in most of the im portant dairy States of the Great Lakes region, as well as in Iowa, milk production on May 1 was 4 per cent or more above the ten-year average, and with the improvement of pastures in May, production increased substantially. Poor pasture conditions exerted their influence on the April butter make; reports from district creameries show a less than seasonal advance of 7 per cent for the month. Creamery butter production for the entire country likewise recorded smaller than usual gains; both district and national production figures were at approximately year-earlier levels. Butter prices declined seasonally in April and May. In contrast to trends in butter manufacture, cheese pro duction in April made full seasonal gains. Manufacture of American cheese in the United States was about 14 per cent heavier than last year, while in Wisconsin, which produces one half to one third of the nation’s cheddar type cheese, production was almost one fourth greater than in April 1939. Cheese prices were steady in May, after declining slightly a month previous. PRICES OF FARM PROOUCTS AT CHICAGO MEAT PACKING—UNITED STATES _ HOLLARS PER tOO POUNDS POUNDS Per Cent Change in April 1940 from April March April 1930-39 1940 1939 Avg. Tonnage produced................................................... —3.3 +18.0 +13.2 Tonnage sold............................................................ +3.0 +24.9 +17.2 Dollar sales.............................................................. +2.5 +4.8 +11.9 Inventories................................................................ — 6.0 +36 3 +15.3 NjD'IVE BEEF STEERS As previously mentioned, most of the April export volume went to Latin America. Belligerents took practically no American packing-house products, while shipments to Bel gium (a neutral in April) and to Switzerland were at best considered moderate. Unavailability of Danish supplies to the Allies has had no effect on American exports, and little demand from this source is anticipated in the near future; England and Canada apparently retain heavy supplies of meat products. Even the trade with Latin America has been on a very conservative basis, with little evident desire to build up storage stocks. Prices realized in foreign markets were on a parity with Chicago levels. Reports indicate that CENTS PER BUSHEL -CENTS PER BUSHEL CENTS PER POUND CENTS PER POUND LIVESTOCK SLAUGHTER (In thousands) Lambs and Sheep Cattle Hogs Yards in Seventh District, April 1940................................ ............... April 1939................................ ............... 221 166 635 471 261 240 Calves 93 92 Federally Inspected Slaughter, United States: April 1940................................ ............... March 1940............................................. April 1939................................ ............... 774 721 677 3,610 3,981 2,931 1,355 1,266 1,224 480 440 457 1957 Credit and Finance AVERAGE PRICES OF LIVESTOCK (Per hundred pounds at Chicago) Native Beef Steers (average).. Fat Cows and Heifers................ Hogs (bulk of sales)................... Lambs........................................... Page 6 Week Ended May 18, 1940 ............... $ 9.80 ............... 8.35 ............... 10.50 ............... 5.80 ............... 9.70 April 1940 $ 9.40 7.90 9.25 5.40 10.15 By weeks, 1937 through May 18, 1940. Weekly Reporting Member Banks—Loans of weekly Months of March 1940 $ 9.30 7.70 woo 5.10 10 10 April 1930 $10.20 8.30 9.25 6.95 10.00 reporting member banks in the Seventh district expanded further during the four weeks ended May 15, standing by the end of that period at the highest level in over two years. Most of the increase fell in the commercial, industrial, and agricultural loan classification. However, holdings of all types of Government securities were reduced, particularly of Treasury bills, with the result that total earning assets showed a slight decline. Demand deposits adjusted, after receding sharply around April 1, in connection with tax operations, rose steadily and stood on May 15 at the record high level of $2,710,000,000. WEEKLY REPORTING MEMBER BANKS Selected Seventh District Banking Data FEDERAL RESERVE BANK OF CHICAGO, SELECTED ITEMS OF CONDITION (Amounts in thousands) May 15, 11340 $271,208 8271,208 163 0 Total bills and securities........................................... Bills discounted................................................... Bills bought........................................................... U. S. Government securities direct and guaranteed: Bills................................................................. 0 Notes...................................................................... 123,558 Bonds...................................................................... 147,150 Total Government securities......................... 270,708 Total reserves.............................................................. 2,648,234 Member bank reserve deposits................................ 1,700,064 All other deposits........................................................ 90,760 Federal Reserve notes in circulation...................... 1,092,557 Ratio of total reserves to deposit and Federal Reserve note liability combined .. 91.8% Change from April 17, May 17, 1940 1939 $+699 $—18,570 —34 +40 —71 0 0 —32 +765 +733 +80,513 +109,882 —39,454 +8,357 —53,395 -8,147 +45,123 -16.419 +358,886 +371,351 —129,942 +101,271 +0.3* +1.8* ♦Number of Points. CONDITION OF REPORTING MEMBER BANKS SEVENTH DISTRICT £ICT (Amounts in millions) 3ns) Assets Wednesday figures for reporting member banks in leading cities of the Seventh district, January 6, 1937, to May 15, 1940. Member Bank Reserves—Reserves maintained against their own deposit liability by district member banks at the Federal Reserve Bank of Chicago increased sharply during the four weeks ended May 15. On that date these reserves totaled in excess of 1,700 million dollars, having risen 110 millions during the period indicated. Largely instrumental in the increase were redemptions of maturing Treasury bills held by district investors. Such redemptions, in gross volume of over 120 millions, exceeded district purchases of newly issued bills by nearly 90 million dollars. Routine com mercial and financial transactions with other districts con tinued to add to local reserves, the current inflow amounting to 56 million dollars. Currency circulation, as measured by the excess of this bank’s outgoing payments over incoming receipts, expanded 11 millions. The effect of this lastmentioned operation, obviously, tended to reduce reserves by that amount. Note circulation of the Federal Reserve Bank of Chicago on May 15 totaled 1,093 millions. This was a record high except for a brief period in March 1933, when such out standings reached a level in excess of 1,100 millions and then rapidly declined to around 800 millions in the ensuing two months. Securities Markets—As in many other fields of the na tional economy, recent developments in the bond market have been dominated by intensification of warfare abroad. Bond quotations dropped sharply thereafter, all grades being affected, although the market was for the most part orderly. The showing of high-grade utility liens was perhaps the least adverse of any major groups. However, those familiar with the bond market in this area agree that little actual liquidation occurred and that the lower quotations resulted from a small volume of trading in all bonds, including Governments. The $75,000,000 United States Steel Corporation serial refunding issue in mid-May, brought out shortly after the German invasion of the Lowlands, met with a reasonably Loans and investments—total.................................. Loans—total................................................................. Commercial, industrial, and agricultural loans... Open-market paper..................................................... Loans to brokers and dealers in securities............ Other loans for purchasing or carrying securities. Real estate loans......................................................... Loans to banks............................................................ Other loans................................................................... U. 8. Treasury bills................................................... U. S. Treasury notes.................................................. U. 8. Treasury bonds................................................. Obligations fully guaranteed byU. S. Government Other securities............................................................ May 16, 1940 $3,339 953 574 39 39 75 118 0 108 262 288 1,033 271 532 Change from April 17, May 17, 1940 1939 $—30 $+263 +17 +90 +12 +73 0 +9 +4 0 0 —4 +4 +17 0 —3 —3 —2 -38 +118 -*-2 —104 —14 +110 —5 +8 +12 +41 Liabilities Demand deposits—adjusted*................................... Time deposits.............................................................. Borrowings.................................................................... 2,710 967 0 +101 +3 0 +373 +54 0 *The annual velocity of demand deposits (unadjusted) in the four weeks ended May 15 was 19.20 times, as compared with 22.93 times in the preceding four weeks and with 20.14 times in the corresponding period of 1939. BANK DEBITS, SEVENTH DISTRICT (Amounts in millions) Chicago.......................... Dos Moines.................... Detroit........................... Fort Wayne................... Grand Rapids............... Indianapolis................... Milwaukee..................... Peoria............................. South Bend................... 32 smaller cities............ Total 41 cities............... ....... ....... ....... ....... ....... ........ ....... ....... ....... ....... ....... April 1940 $3,146 106 1,005 33 59 211 261 63 46 519 5,449 Per Cent Change from April 1939 +15.1 +15.0 +22.4 +8.5 +22.2 +13.6 +11.7 +15.7 +17.9 +13.7 +16.1 First Four Months of 1940 $12,396 393 3.964 127 232 846 1.090 232 166 2,030 21,476 Per Cent Change from Same Period of 1939 +14.5 +3.9 +19.1 +10.1 +20.8 +13.0 +9.0 +13.4 +19.6 +13.3 +14.7 VOLUME OF OPERATIONS IN PRINCIPAL DEPARTMENTS FEDERAL RESERVE BANK OF CHICAGO „ „ Items Handled Commercial checks................................................................... Non-cash collections (Drafts, coupons, and securities)_ _ 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 April 1940 April 1939 487,000 491,000 2,005 2,106 1,039,000 1,005,000 430,000 490,000 473 473 1,057 1,095 1,773 1,926 Dollar Amounts Commercial checks................................................................... Non-cash collections (Drafts, coupons, and securities)... . 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....................................... Value of securities held in safekeeping at end of month... $94,870,000 2,852,000 4,372,000 56,175 71,711,000 23,230,000 964,182,000 $86,068,000 2,640,000 4,246,000 51,839 62,920,000 13,545,000 862,537,000 Page 7 favorable reception under prevailing conditions. As of about May 20 a few bonds still remained in the hands of the under writers, but distribution was reported as being largely complete. Banks, however, took many less bonds than anticipated, making it difficult to dispose of the remainder of the issue after the large institutional investors had filled their requirements. By contrast the $81,600,000 Union Pacific issue, representing the largest piece of railroad financing in several years, which was offered a little earlier in the month, moved very readily. The bonds soon sold at an appreciable premium in spite of the comparative preference among investors for other types of securities and the some what longer than customary maturity of the bonds. The most important immediate effect of recent foreign developments has been the postponement of virtually all contemplated new financing; all substantial issues which were in registration have been deferred. Chicago bond men refuse to hazard an opinion as to the ultimate status of these issues, most of them stating that their business is on a day-to-day basis. Although interest in April data is overshadowed by more recent developments, new corporate bond issues during that month totaled substantially higher than in March, and also exceeded the April 1939 total. Stock prices, as is generally known, have declined drastically. The Chicago Journal of Commerce average of 20 Chicago stocks receded from around $51.00 in early May to $36.38 on May 21. $1100—laaU'isdn Ralph H. Buss, managing director of the Detroit Branch of the Federal Reserve Bank of Chicago, died May 26 at the Illinois Masonic Hospital in Chicago after an illness of two months. Born in Deadwood, South Dakota, the son of a clergyman, Mr. Buss attended the public schools in Fremont, Nebraska, and the Fremont Normal School. Mr. Buss began his career as a banker in 1907 as a clerk with the Farmers and Merchants Na tional Bank in Fremont. In 1917 he came to the Federal Reserve Bank of Chicago and from 1919 to 1926 he was manager of loans. He went to Florida as executive vice president of the City National Bank of Miami in 1926. In 1932 he became examiner for the Reconstruction Finance Corporation in Washington and the West Indies, and later was made assistant chief examiner. Mr. Buss returned to the Federal Reserve Bank of Chicago May 15, 1933, as assistant deputy gov ernor and on July 1,1934, was appointed managing director of the Detroit branch. Current Events * * Two Additional Member Banks * MONTHLY BUSINESS INDEXES Data refer to Seventh district and are not adjusted for seasonal variation unless other Apr. 1940 wise indicated. 1923-1925 average = 100 Mar. 1940 Feb. 1940 Apr. 1939 Mar. 1939 Feb. 1939 107 105 108 106 108 106 95 87 95 86 94 85 102 98 103 100 103 100 98 94 99 96 99 95 106 104 107 105 107 105 96 89 97 89 96 88 Manufacturing Industries:* Durable Goods: Non-Durable Goods: Total: Pig Iron Production: Automobile Production—(XT. S.): Casting Foundries Shipments: Stoves and Furnaces: Furniture Manufacturing: Building Contracts Awarded: Total ........................................................ Meat Packing—(U. S.): Department Store Net Sales: 97 98 115 79 85 76 124 187 121 188 115 176 93 170 102 192 83 160 70 60 58 71 75 65 59 73 93 87 67 85 40 31 49 62 41 32 61 79 39 31 47 63 166 136 119 134 130 96 64 72 65 76 65 70 49 65 64 76 63 60 President Schaller Invites Visitors 85 87 67 64 39 47 63 76 62 64 35 56 95 100 87 98 97 85 102 92 83 81 80 83 90 92 85 78 79 85 84 106 108 100 87 91 92 85 105 116 95 87 92 94 71 84 83 73 69 74 92 82 101 107 98 84 89 86 89 102 105 97 83 92 98 64 74 75 68 63 67 84 President George J. Schaller has issued an invitation to banking groups, student bodies, and business organizations to visit the Federal Reserve Bank of Chicago to witness at first hand how the Chicago Reserve bank serves its more than 800 member banks and their customers. Groups wishing to make arrangements for personally con ducted tours of tbe bank may do so by addressing Louis G. Meyer, assistant cashier in charge of the bank’s personnel department. Since January 1 more than 2,000 persons have visited the bank and inspected its major operations. •New index series adjusted to Census of Manufactures through 1937. Page 8 Admissions to membership in the Federal Reserve System of the Ludington State Bank, of Ludington, Michigan, and the Elston Bank & Trust Company, of Crawfordsville, In diana, were announced on May 17 and May 24, respectively. The two new members are the eighth and ninth State banks in this district to join the Reserve System since January 1. The others are the First Bank of Berne, Indiana; Roachdale Bank and Trust Company, of Roachdale, Indiana; Linden State Bank, of Linden, Indiana; The Farmers and Merchants State Bank, of Oldenburg, Indiana; The State Bank of Caledonia, Caledonia, Michigan; The Morrice State Bank, of Morrice, Michigan; and The Pendleton Banking Co., of Pendleton, Indiana. A tenth, The State Bank of Lincoln, Illinois, became a member when it was converted into a national bank. It is now known as the State National Bank of Lincoln. The Ludington State Bank has total deposits of $1,363,000, and Mr. Joseph Sahlmark is president of the institution. The Crawfordsville bank has deposits of approximately $2,250,000; John C. Snyder is chief executive officer of the hank. National Summary of Business Conditions (By the Board of Governors of the Federal Reserve System) INDUSTRIAL PRODUCTION INDUSTRIAL ac.tivity was steady Index of physical volume of production, adjusted for sea sonal variation, 1923-25 average = 100. Durable manufac tures, nondurable manufactures, and minerals expressed in terms of points in the total index. By months, January 1934 to April 1940. FREIGHT CAR LOADINGS 1934 1935 1936 1937 1938 1939 1940 Index of total loadings of revenue freight, adjusted for seasonal variation. 1923-1925 average=100. Miscellaneous, coal, and all other expressed in terms of points in the total index. By months, January 1934 to April 1940. DEPARTMENT STORE SALES AND STOCKS PER CENT PER CENT 1939 Indexes of value of sales and stocks, adjusted for seasonal variation, 1923-1925 average=100. By months, January 1934 to April 1940. MONEY RATES IN NEW YORK CITY (NEW ISSUES) For weeks ending January 6, 1934, to May 18, 1940. cline and in the firstduring April increases appeared in some lines, half of May after three months of sharp de particularly steel. Prices of basic commodities showed mixed changes toward the middle of May, accompanying the extension of active warfare in Europe, while stock prices declined sharply. Production—The Board’s seasonally adjusted index of industrial production for the month of April was 102, compared with 104 for March and 109 for February. Steel ingot production was steady during April at slightly over 60 per cent of capacity as compared with an average rate of 64 per cent in March; in the first half of May output rose sharply and currently is scheduled at about 70 per cent of capacity. Automobile production in April continued at about the March rate, although ordinarily there is an increase at this season, and in early May declined somewhat. Retail sales of new cars approximated production in April and dealers’ stocks of both new and used cars remained at earlier high levels. Output of plate glass, used largely by the automobile industry, declined considerably in April, and lumber production showed somewhat less than the usual seasonal increase. In the machinery, aircraft, and shipbuilding industries activity continued at the high rate of other recent months. In the textile industry activity at cotton and woolen mills declined somewhat further in April, following considerable reductions in March. At silk mills activity remained at a low level, while rayon production was maintained at a high rate. Output at meat-packing establishments continued in large volume. There was some further curtailment in shoe production in April; in most other industries producing nondurable goods changes in output were largely seasonal in character. Coal production, which usually declines sharply in April, showed only a small decrease this year. Output of crude petroleum, which had reached record high levels in March, was largely maintained in April and the first half of May, although stocks of crude oil were increasing and gasoline stocks were unusually large. Value of construction contract awards increased further in April, reflecting principally a rise in contracts for private building, according to figures of the F. W. Dodge Corporation. Awards for private residential building were in somewhat larger volume than a year ago. Private nonresidential building was about one third greater than at this season last year and was near the previous peak level reached in mid-1937. Awards for public construction, however, were considerably below the level of last spring. Distribution—Distribution of commodities to consumers showed little change in April and the first half of May. The Board’s seasonally adjusted index of department store sales was 90 per cent of the 1923-1925 average in April, about the level that has prevailed since the first of the year but below the peak of 96 reached last December. Total freight-car loadings in April were in about the same volume as in March. Shipments of coal declined less than seasonally, while loadings of miscellaneous freight, which include most manufactured products, showed less than the sharp rise that is customary at this season. In the early part of May increases were reported in shipments of most classes of freight. Foreign Trade—Exports of United States merchandise, which have been at a high level since last December, declined somewhat in April. A large part of the decrease in April was accounted for by the complete cessation of shipments to northern European countries after outbreak of hostilities there, but declines were also reported in shipments to most other countries. Exports to Canada, the Union of South Africa, and France, however, increased. Shipments of commercial vehicles declined sharply, following a considerable rise in March, and exports of iron and steel products, which had been increasing steadily since last summer, also showed a decline. Exports of cotton and copper decreased further from earlier high levels, while machinery and aircraft shipments continued in large volume. During April, the monetary gold stock of the United States increased by $337,000,000, the largest increase since August 1939. Acquisitions of gold in the first two weeks of May totaled $169,000,000. Commodity Prices—Prices of a number of basic commodities, which had been declining after a rise in April, advanced from May 10 to May 14. Increases in this period were particularly marked for imported materials, such as rubber, tin, and silk. Grain prices rose at first but subsequently showed sharp declines. Price changes for other commodities were mixed; steel scrap advanced, while cotton declined considerably. Prices of certain steel products, which had been reduced early in April, were restored to earlier levels on May 1, and producers announced that steel purchased at the lower prices must be taken by the buyers on or before June 30. Government Security Market—Prices of United States Government securities declined sharply from May 10 to May 14, accompanying the further spread of war in Europe. Prices of long-term Treasury bonds on May 14 were 3% points below the high point reached on April 2. The yield on the 1960-65 2% per cent bonds rose from 2.26 per cent on April 2 to 2.48 per cent on May 14. Bank Credit—Total loans and investments at reporting member banks in 101 leading cities increased during the four weeks ending May 8. Most of this increase was at New York City banks and reflected purchases of United States Government obligations. Deposits and reserves of banks in leading cities continued at record high levels. A Major Safeguard Banking in Our System j In times of emergency, the ability of a bank to convert its assets into ready funds is a prime requisite to a sound banking system. Past experience has amply shown that, in periods of stress, banks cannot successfully provide liquidity by sale of assets at distress values or by collection of loans. Through membership in the Federal Reserve System, a bank has available a medium whereby it can obtain ready funds without resort to forced collection of loans or liquidation of securities in unfavor able markets. The Reserve banks also stand ready at all times to assist a member bank in meeting peak seasonal credit needs of its commercial and agricultural customers. A member bank may avail itself of credit at the Reserve bank by— Rediscounting eligible notes of commercial, industrial, and agricultural borrowers, or customers’ notes secured by obligations of the United States. Borrowing on its own note secured by eligible paper, by obligations of the United States, or by certain obligations of Governmental agencies. Borrowing on its note secured by any asset satisfactory to the Federal Reserve Bank. Under this arrangement, the collateral may be any sound asset owned by the member bank. This liberalized loaning ability on the part of Reserve banks affords the member banks a strong safeguard in these times of swift change.
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