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*- * Mi %i»t ffilHf ■■ ■■ r uR|i 2® Jnftfci. llpuSf IP ■ ...-.., Nfcrfisaci; —■»■—*®k, C■ : ■ safK ■■■ ,i * HI S llti 1 '-■■ • 4- ■ ■ " ‘ #S: . - i- ■ ^ISmMSC mr . Sliif A REVIEW BY THE FEDERAL RESERVE BANK OF CHICAGO MAY, 1943 Results of Second War Loan Drive Goal Exceeded by More Than Five Billion Dollars Sales of 18,533 million dollars in the Second War cates and tax notes, more than doubled their subscrip Loan Drive conducted during April surpassed all expec tions as compared with December and took the largest tations and exceeded the original goal of 13 billion dol share of sales to nonbanking investors. This large in lars by 43 per cent. Approximately 68 per cent of the crease in purchases by corporations probably reflected securities sold in the April drive were taken by non the accumulation of funds which normally would be banking investors, according to preliminary figures re spent for replacement, coupled with the reduced need leased by the Treasury. The nonbanking classification for additional working capital as the overall growth in excludes subscriptions by U. S. Government agencies and inventories tended to decline. Purchases by individuals, trust funds and subscriptions of dealers and brokers not partnerships, and personal trust accounts were about distributed or earmarked for nonbanking investors. This twice as large as in December and were the second largest compared with about 52 per cent in December and rep source of nonbanking subscriptions. Insurance com resented 157 per cent of the 8 billion dollar quota set for panies and savings banks increased their purchases sub nonbanking investors. Allotments of securities to banks stantially above those of December. were limited to about 5 billion dollars, consisting of ap With sales of 1,705 million dollars to nonbanking in proximately 2.1 billion each of % per cent certificates vestors, according to the Treasury’s preliminary figures, and 2 per cent bonds and 800 million dollars net addi the Seventh District exceeded its 1,050 million dollar tion to the amount of Treasury bills outstanding. nonbanking quota by 62 per cent, or by 5 per cent more The tapping of non-bank funds on such a huge scale than nonbanking investors in the nation as a whole. The was made possible by the greatly intensified sales effort District also accounted for a slightly larger share of non of the national and regional War Finance Committees banking subscriptions in April than in December. How which welded the activities of the Victory Fund Com ever the favorable implications of this performance are mittees and War Savings staffs into a single joint effort tempered somewhat by the fact that, although the Dis during the drive. Credit is especially due the banks trict ranged third in percentage achievement of the goal for lending their wholehearted support to the campaign set by the Treasury for corporations and other institu by performing the all-important function of actively tional investors, it was in eighth place in percentage at selling securities to their depositors. tainment of the Treasury’s goal for individuals, partnerCorporations, concentrating their purchases on certifi (Continued on inside back cover) ANALYSIS OF SUBSCRIPTIONS TO SECURITIES OFFERED DURING SECOND WAR LOAN By Classes of Investors and By Issues Amount of Subscriptions—In Millions of Dollars Class of Investor I Savings Bonds Tax Notes Series Series E F and G Series C 2M% Bonds 1964-9 2% Bonds 1950-2 Vs% Certifi cates Bills1 Total Nonbanking Investors: (a) Individuals, partnerships, and personal trust accounts......................................................................... (b) Insurance companies....................................................... (c) Savings banks.................................................................... (d) Eleemosynary institutions............................................. (e) State and local governments......................................... (f) Other corporations and associations............................ 1,473 — — — — — 425 — — — — 242 132 — --- ' — — 1,520 540 1,582 550 35 181 504 472 703 539 41 82 789 246 123 105 41 241 1,983 — — — — — — 3,290 2,408 1,195 117 503 5,038 (g) Subtotal—all nonbanking investors............................ 1,473 667 1,652 3,392 2,626 2,738 — 12,550 — — — — 2,110 2,138 800 5,048 — — — — — — — 369 189 10 355 13 — — 544 391 1,473 667 1,652 3,761 4,935 5,244 800 18,533 11 Banking sources (allotments only)...................................... Ill Other sources: (a) Dealers and brokers3. . .................................................... (b) U. S. Government agencies and trust funds............. IV Total—all investors.................................................................. Note: Classifications are preliminary and some figures are partly estimated. Figures are rounded and do not necessarily add to totals. :Net increase in amount outstanding during month only. Excluding the amounts distributed or earmarked for distribution to nonbanking investors. These have been redistributed among the appropriate nonbanking investor classes. Detroit Arms the Allies Key Industrial Center Nears Full Production Detroit—the world’s largest industrial war center—is now rapidly achieving full production from vastly ex panded manufacturing facilities, but not without in cessant problems of manpower and material shortages, and revised production schedules. An unprecedented vol ume of war materials now pours forth daily from De troit to supply Allied forces on world-wide battlefronts on a scale substantially above equivalent production in record peace-time years. The growth which war has brought to Detroit can be described only as phenomenal. Since 1939, Detroit has received the largest volume of war supply and facilities contracts of any industrial area in the United States. Employment has increased at least 50 per cent. Factory payrolls have more than doubled, reflecting both higher wages and longer hours. More workers have in-migrated to the Detroit area than any other industrial area in the nation. Power consumption has expanded a third. Railroad tonnage is up a fourth. Bank deposits and bank debits have more than doubled. Retail sales have grown a third. Department store sales have gained more than half. The city of Detroit forms the nucleus of the Detroit Industrial Area which includes Wayne and Oakland counties, comprising a land area of 1,484 square miles. Important war plants have been built in adjoining Macomb and Washtenaw counties. Few sections of the nation are more heavily concentrated with industrial facilities than the Detroit region. During the 18 months of defense preparations when manufacturing was $till principally for civilian use, and during the period of about the same length since Pearl Harbor, most of Detroit’s established plants have been converted to war production and scores of new plants have been built. A few of the latter remain to be tooled and completed. Further' output gains are to be ex pected but on a comparatively small scale because each productive unit is being pressed closer to its capacity. Detroit’s contribution to the war effort, nevertheless, is likely to continue for some time to be larger than any other industrial center in the nation, although the gov ernment is, at present, directly discouraging construction of any additional manufacturing facilities in the area because of the critical labor supply situation. The present levels of production and general business activity and the shift from the manufacture of civilian goods to war materials obviously have not been realized without serious problems, including temporary conver sion unemployment, inadequate housing and transporta tion for workers, over-taxed public utilities, and man power and material stringencies—a number of which remain unsolved. INDUSTRIAL ROLE IN PEACE AND WAR Throughout the ’20’s and ’30’s Detroit was synony mous with the automobile industry which employed fully two-thirds of the wage-earners in the Detroit area. Roughly half of the nation’s motor vehicles and . more than three-fourths of all passenger cars were built in the area in and about Detroit. In 1939, the Detroit industrial area ranked fourth in wage-earners, third in value of manufactured products, and third in value added by manufacture among the thirty-three recog nized industrial areas in the United States. The New York City-Newark-Jersey City, Chicago and Philadelphia-Camden industrial areas exceeded the Detroit area in number of wage-earners, and the first two in value of products and value added by manufacture. On a per capita basis, however, Detroit surpassed all others in value of products manufactured. In addition to motor vehicles, bodies, parts and acces sories, Detroit’s plants during peacetime produced im portant quantities of iron and steel products, machinery, non-ferrous metal products, chemical and allied products, machine tools and accessories, and many others. Collec tively these several industries, including automobiles, represented at least three-fourths of Detroit’s total peacetime output. Conversion to war has increased markedly the im portance of Detroit’s already dominant industries. Ex perience gained in mass production methods during pre war years has been put to use with striking results. During 1942 the Detroit “arsenal of democracy” pro duced tanks, planes, engines, parts, military transport, service and combat vehicles, guns, shells, and tools valued probably in excess of $4 billion. The production value of what might be considered Detroit’s comparable indus tries in 1939 was set at $1.8 billion. With allowance for price increases, overall output of actual goods is now conservatively twice the pre-war level and many times greater in cases of some specific products. Estimates for 1943 indicate that production will be considerably above what it was in 1942. Production of the nation’s entire automobile industry this year is expected to reach the $7 billion level, equivalent to roughly 10 million peacetime motor vehicles. The record automobile production year was 1929 when 5.4 million units were built. Output in 1941 was 4.8 million vehicles. The machine tool and accessories industries led the Page 1 way in the Detroit area and elsewhere in making possible the mass production of war materials. Thousands of machine tools and several times more machine tool acces sories including dies, jigs, fixtures, and gages are of course indispensable prerequisites to mass production. The automobile companies and scores of small independ ent manufacturers who had served the automobile indus try for twenty years or more boosted machine tool output far above all previous records, particularly after Pearl Harbor. Tool and die makers had been encouraged to expand their facilities early in the defense period and many new plants were constructed. In a comparatively few months after the outbreak of war the machine tool bottleneck in general was broken, although a shortage of certain specialized machine tools still impedes some production. The current level of machine tool production is roughly five to six times the 1939 level, but now that more and more war plants have become “tooled up” for war production it becomes certain that overall ma chine tool output will decline. The War Production Board announced on May 12, 1943 that ‘ ‘ no purchase of new machine tools, machinery or equipment or erection of buildings will be authorized until it has been con clusively proven that the work cannot be done by existing facilities.” In numerous instances machine tool firms are already beginning to note a sharp drop in new orders, and expect to rely to an increasing extent in the future upon replacement demand and direct production of war materials. While Detroit’s steel producing facilities are insuffi cient to meet the requirements of all of its war indus tries, available steel making capacity which grew up with the development of the automobile industry has been of tremendous help in furthering the war production pro gram. Low hauling costs on Michigan and Minnesota ores, and close proximity to limestone, coal, and scrap iron from the automobile plants were important reasons for the original construction of the Detroit steel mills, especially as steel came to replace wood in the manu facture of many automobile parts. Since many war prod ucts, especially tanks, commonly require different types and shapes of steel from civilian automobiles, peacetime steel making facilities also have been altered to meet the demands of new war industries. Vital war materials are now currently flowing from the assembly lines of well-known peacetime companies having major plants in the Detroit area. General Motors and its subsidiaries are engaged in producing war goods ranging from anti-aircraft guns to aircraft engines— from spark plugs to tanks. Chrysler is best known for its tank arsenal but is also constructing an array of air craft parts and other equipment. The mammoth Ford Willow Run bomber plant has finally swung into vohime production although substantially below7 original pre Page 2 dictions principally because of manpower shortage. At other plants Ford is contributing hundreds of other critical war materials, particularly trucks, mobile equip ment, and air-cooled aircraft engines. Hudson Motor Company has undertaken the difficult task of naval arsenal work besides production of a large volume of aircraft assemblies and parts. Murray Corporation of America converted early to war work specializing in airplane wing assemblies. Briggs Manufacturing Com pany also produces highly important aircraft assem blies including the famous gun turrets. Packard’s chief war product is the Rolls-Royce Merlin aircraft engine now turned out on mass production scale. The amphibian tractor is the Graham-Paige specialty. Other important Detroit companies performing important war work are too legion to mention. In almost every instance each is supported by scores of sub-contracting firms within the Detroit area and in other sections of the nation. WAR CONVERSION RAISES PROBLEMS Initially there was some optimism in Detroit that the change-over from peace to defense or war production could be accomplished with only a minimum amount of unemployment. Naturally because of the overwhelming importance of the automobile industry in the area, the conversion of its war plants largely determined the ef fects of the new production program upon the region. In mid-April, 1941, automobile manufacturers officially announced a voluntary agreement to reduce output 20 per cent in the 1942 model year beginning in July, 1941. Price Administrator Leon Henderson announced in July 1941 that the cut would be 50 per cent. In August, 1941 actual production was decreased by 26.5 per cent for the August-November period as compared with the 1940 level. The War Production Board ordered a complete stoppage of civilian automobile production in February, 1942. “ ^ - A serious recession in the Detroit area resulted from the reduced production schedules and change-over of plant and equipment facilities. Industrial employment fell off after July, 1941 and continued generally down ward until late in the first quarter of 1942. The em ployment index fell to its 1939 level and did not resume record gains until mid-1942. Other indicators of busi ness activity, such as railroad tonnage and power con sumption, reflected the conversion slump. The Automotive Council for War Production which banded together the automobile manufacturers of the nation after Pearl Harbor to further the war effort played an important part in meeting many conversion problems. The group pledged the complete interchange of mass production information, time saving techniques, product improvements, tooling shortcuts, and other man ufacturing developments to speed output. Many un- ** used machines were brought into production through the activities of the Automotive Council. The growth following the transition period has alreadybeen indicated. Re-tooling which had been accomplished early because of the large volume of war production orders which flooded the automobile firms after Pearl Harbor shortened the conversion period considerably. By the end of 1942 virtually all of the conversion work had been accomplished. The gain in factory employment in the Detroit area during 1942 is estimated to have been more than 170,000 hourly paid workers, bringing the estimated total to more than 500,000 persons. The increase in payrolls was even more striking. Wayne County factory wage-earners received an estimated $1,200 million in 1942 as compared with 1941 ’s previous record of $842 million, an increase of more than 40 per cent. The conversion recession in the Detroit area retarded industrial output substantially for nearly a year but once accomplished has enabled the Detroit area to make an all-time record breaking contribution to the nation’s war effort. Employment indexes reveal that Detroit actually had fewer wage-earners employed at the end of 1941 than a year earlier. Important gains were made during 1941 in the Seventh Federal Reserve District and the nation as a whole. Despite the change-over difficulties of 1942, Detroit had a relatively greater increase in em ployment during the year than the Seventh District, but slightly less favorable than the nation. Since the begin ning of 1943, Detroit’s gains have far outdistanced either of the other two designated areas—in the face of ever pressing problems of insufficient material and manpower. CRITICAL MANPOWER SHORTAGE The present serious shortage of workers is the prime problem now confronting industry and trade in the Detroit area. An estimated 200,000 additional workers PCI CENT MANUFACTURING EMPLOYMENT 1939- 100 DETROIT METROPOLITAN AREA UNITED STATES SEVENTH DISTRICT 1 1 I i I I I I I I I, J-1..1 I I I I I I I l will be needed to fulfill production goals in 1943 accord ing to the War Manpower Commission. In October, 1942 the WMC classified Detroit as a labor shortage area. The area has remained continuously in this classification with little likelihood now that the critical situation will be more than partially alleviated in future months. The first attempt to control the movement of workers from one industry to another in Detroit to minimize labor turnover and labor pirating was the voluntary labor stabilization plan placed in operation during De cember, 1942 by the WMC. Under this plan a worker had to obtain a release from his employer before he could change jobs and the transfer had to be cleared through the Detroit United States Employment Service office. Employers were not to hire any worker who did not have a proper release. Enforcement of this plan proved difficult because it was possible for workers to obtain releases on almost any pretext. In April, 1943 a new regional plan for Detroit, con forming to the regulations of the WMC, was established. Fundamentally the plan is similar to the earlier one but states that no worker who quits an essential job can be rehired unless his separation is approved by the USES and he is issued a statement of availability. Workers in non-essential jobs may go to essential industry without the necessity of a formal release. The regional plan also provides for control over migration which has been an important factor in supplementing Detroit’s labor sup ply during the war, but this migration has aggravated employment problems in other production centers of the nation. No in-migrant may be hired except with the ap proval of the USES, and the migrant must have a release from the USES office of his point of origin. Workers who are unemployed for 30 days are considered free agents and may accept new jobs. No statement of avail ability is to be issued solely on the ground that an indi vidual’s wage or salary is below the prevailing level of the same or similar work. The 48-hour week became effective in the Detroit area on April 1,1943, covering most workers in establishments employing' eight or more persons. The order actually af fected a comparatively small proportion of all workers because most of the large manufacturing concerns and retail establishments were already on a 48-hour or longer workweek basis. A few thousand workers were report edly released for more essential work by the ruling. Strong efforts are now being made by public and pri vate groups to encourage thousands of additional indi viduals in the Detroit area to accept employment. Women and physically handicapped persons offer the greatest possibilities. The personnel problem facing trade and service activities is equally as great as that confront ing industrialists. Inability to replace workers lost to Page 3 Selective Service and war industries has forced numer Available equipment is fast wearing out because of over loaded conditions. Transportation inadequacies are held ous businesses to suspend operations. to be one of the major causes of absenteeism among war No single order or plan is likely to remedy completely workers in the Detroit area. The principal solution— the manpower situation in the Detroit area in the cal other than new cars and busses, which seem unlikely at culable future. Some alleviation is expected, however, from greater use of women and others not normally in present — appears to lie in greater use of car-sharing cluded fully in the labor supply, the longer workweek, among workers. Average weekly earnings have advanced sharply, par decreased absenteeism, labor stabilization, and a more ticularly for skilled workers whose numbers throughout even flow of materials through the manufacturing the emergency have always been far below the needs processes. of plant managers. Average weekly earnings of Wayne OTHER EFFECTS OF INDUSTRIAL EXPANSION County workers rose from $32.79 in January, 1939 to In-migration of probably more than 450,000 persons $59.00 in January, 1943, according to the Michigan since 1940 has caused an acute housing stringency in the Department of Labor and Industry. Earnings of highly Detroit area. The decentralization of a large portion of skilled machine tool builders and similar craftsmen have the new and expanded industrial plants to smaller unin been far above this average. corporated districts outside the city of Detroit has ag Cost of living has risen steadily in Detroit as else gravated the housing problem because of the lack of where in the nation. The U. S. Bureau of Labor Statis dwelling units and utility facilities to meet the needs tics index, based upon a 1935-1939 average, increased of the expanding population. Room for expansion and from 99.8 during 1939 to 122.1 in February, 1943. tax considerations have no doubt contributed largely to Banking statistics reflect forcefully the effect of war the new plant locations. conditions in the area. From 1939 to 1943 total deposits Housing vacancies in Detroit have fallen from 3.6 per of Detroit banks increased almost $1 billion or more cent at the time of the 1940 Census of Housing to almost than 107 per cent, and bank debits advanced about $10 none at the present time. On the basis of present USES billion or in excess of 90 per cent. Check collection oper in-migration estimates, the housing shortage in the city ations of the Detroit Branch of the Federal Reserve of Detroit alone will probably be as much as 12,000 units Bank of Chicago increased, on a daily average basis, by July, 1943. The WMC has estimated that about from 64,000 items in 1939 to more than 103,000 items 90,000 additional in-migrant workers will be needed in during January-April, 1943, a gain in excess of 60 per the Detroit area before the end of the year, indicating an cent. even more severe housing problem throughout the re WHAT LIES AHEAD FOR DETROIT? gion, particularly when workers’ families are included Manpower clearly will remain the principal problem in the estimates of numbers and sizes of dwellings re of the Detroit area for some time. The closely associated quired. housing and transportation problems similarly present Illustrative of the housing shortage and manpower serious difficulties which are not likely to be remedied situation is the inability of the Ford Willow Run plant, in the immediate future. Important to Detroit’s war some 30 miles west of Detroit City, to obtain sufficient industries in future months will be the availability of manpower to operate at capacity. The number of work materials, the possibility of obtaining their more co ers needed is now estimated above 30,000. Few housing ordinated flow, and the nature and extent of changes units exist near the Ford plant. in demand for war goods currently in production. It is Already Detroit industrialists independently as well too early now to speculate on the effect of the cessation as at the request of the government are locating new of hostilities upon the Detroit area. Obviously there will plant additions in others sections of the country because be a period of reconversion, but this time largely to of tight manpower and housing conditions existing in products with which the leading Detroit manufacturers the Detroit area. have had long years of experience. Transportation of workers between residential and in The most remarkable features of Detroit’s growth dustrial centers in the Detroit area has proved extremely during the past three years are its conversion from pro difficult. Several new highways have been completed to duction of peacetime goods to war materials and its abil relieve some of the automobile traffic congestion resulting ity to expand production despite critical shortages and from the high proportion of workers depending upon dislocations in men, materials, and facilities. The ulti private automobiles to get to and from work. Bus and mate victory of the Allied forces will unquestionably rest street railway facilities are jammed, especially during to an important degree upon the production, pastpeak hours, causing delays and further congestion. present-and-future, of Detroit’s war industries. Page 4 District Land Values Rise Loans to Farmers Decline Rising cash farm incomes have given impetus to land values in the Seventh Federal Reserve District. Values in the District on April 1 were up 16 per cent from a year ago and have risen 5 per cent since January 1 of this year, according to replies to an opinion poll made by over 600 member banks in the Seventh District. The figures represent the collective judgment of the bankers who participated in the survey. Sales of farms were reported as moderately active throughout the District, with some areas reporting brisk activity, while many other spots reported the land mar ket quiet. Present values of land per acre, as reflected by sales, are reported to be about 16 per cent above “normal” value based upon long-time earning power per acre. Down payments on farms are generally sub stantial, but a considerable number of deals based on equities below 25 per cent are reported. On the other hand very many farms are being sold for “all cash.” Operating farmers dominate non-operating investors by only about two to one. The reports indicate that about half of the farmer-operator buyers are graduating from the tenant to the owner-operator class. Farmers of the District are estimated to be devoting about 42 per cent of the increase in their net cash income to the payment of mortgages and other debts. About 13 per cent is going into war bonds, while 40 per cent is represented by increased bank balances and currency holdings. With farmers in a strong cash position, demand for short-term agricultural credit is generally reported as much below normal. Over three-fourths of the bankers reporting said that they were faced with competition from Federal farm credit agencies, many of the bankers characterizing the competition as serious, with one or more agencies canvassing the farmer directly for loans normally handled by bankers. The greatest rise was for Indiana, where the increase was indicated to be 17 per cent above April 1942, while Illi nois showed a rise of 16 per cent. The year’s rise in Iowa land values amounted to nearly 15 per cent, ac cording to the reports. RISING LAND VALUES Bankers were asked what they considered to be the present value of improved farm land in their areas, as reflected by sales prices, and what they thought to be the normal value, based on long-time earning power PERCENTAGE INCREASES IN LAND VALUES April 1942 January 1943 State to April 1943 to April 1943 Illinois ............... ................ ........ 16 5 6 Indiana .............. ___ __ ____ 17 Iowa ...L............... 6 Michigan ............ .......... ....... 11 5 Wisconsin .......... ........................ 10 3 Total Seventh District...... 16 5 Reports from the various states were broken down into six or more areas within the state. On this basis the rates of increase in values for the year April 1942 to April 1943 varied from a low of 5 per cent in the northern part of lower Michigan to well over 20 per cent in north western Indiana. Differences between regions are largely explained by the suitability of the land for production of the com modities that have received the greatest stimulus from the war, such as hogs and dairy products, and by the strong investors’ demand that has developed for land. The rises have been particularly sharp in eastern Illi nois and northern Indiana, where the investment demand of city purchasers in the Chicago area has been potent. These percentage rises for the Seventh District por tions of the five states are somewhat larger than those reported for the whole states by the Department of Agriculture. The Department of Agriculture report also indicates that most of the increase occurred in the six months prior to March 1, while the bankers’ reports indicate that two-thirds of the rise came between April 1, 1942 BASIS OF THE SURVEY and January 1, 1943. Taken together, it would appear In making this survey during April 1943, the purpose that the greatest rise was in the last three or four months was to get the judgment of operating bankers familiar of 1942. with farm and agricultural credit conditions. Bankers A report of the National Association of Real Estate were specifically asked not to consult records but to give Boards shows that the median rise during the past year, their judgment of the situation based upon their general in the judgment of its respondents, was 15 per cent for knowledge and current experience. In this sense, there the nation. fore, the answers made constitute an “opinion” poll. PRESENT VALUES ABOVE “NORMAL” Land values throughout the Seventh District were up 16 per cent above the vahies of one year earlier, and 5 per cent above the level as of January 1 of this year. Page 5 per acre. Average of these current values for the Dis trict was $119, compared with an estimated “normal” value of $103, showing present values 16 per cent above “normal.” Indiana, with present values estimated to average $103 per acre against a “normal” of $83, was considered to be 24 per cent above “normal.” Illinois showed a present valuation of $156 against a ‘ ‘ normal ’ ’ of $129, or 21 per cent above. In Michigan the present and “normal” values were $72 and $61, respectively, with present value 18 per cent over “normal.” Present values were estimated to be about 10 per cent above “normal” for both Iowa and Wisconsin. Estimated cur rent values in Iowa averaged $113, in Wisconsin $97. Averages of the two measures showed percentage rela tions of present value to “normal” varying widely in different District areas. Highest percentages were shown for northeastern Illinois, and southeastern and south western Indiana, with present values 28 to 31 per cent above “normal.” The location of these areas is shown in the map. Southwestern Michigan’s percentage was 36 per cent. At the other extreme are the northwestern and west central areas of Wisconsin, which showed present values 3 to 15 per cent below “normal,” respectively. A similar picture was shown for northwestern Michigan, where present worth was reported to fall short of ‘! nor mal” by 19 per cent. The Iowa areas ranged from 1 per cent below to 16 per cent above “normal,” with four areas under the 10 per cent average for the state.. The balance of Wisconsin areas showed values 10 to 15 per cent above “normal.” Six areas of Michigan ranged from 12 to 22 per cent above “normal.” The southern three areas of Illinois and the northern four areas of Indiana reflected values 20 to 25 per cent over” normal.” The significance of these figures thus far given is that there has been some inflationary rise in land prices, and that with values much above the level which sober judg ment would indicate as the value based upon long-time earning power of the land, future trouble may be brew ing for current buyers. It is a rather common saying that in land inflation, the lower valued land gets most over-valued. However, the results of this survey indi cate that no such principle is operating at present, for there are high value and low value lands alike showing present market price very high above normal, and there are also both high and low value lands showing a tend ency to be little above normal. It should not be for gotten, however, that these reports are the judgment of men, and some error of judgment is normally to be expected. But there is a tendency under the present relations of costs to gross income for farmers to feel that Deported Increase in Land Values on Aprtl 1.1943 (As reflected by sales prices, ■ W.E increase since • S.E Bottom: % increase since January 1, 1943 U. "(---- Page 6 21$ they can “afford” to pay $5 to $15 per acre above nor mal value, basing their calculations on what appears to them a strong probability that they can expect one or two more favorable years such as they have just experi enced, which will give them a safety margin to justify paying above-normal values. EQUITIES OF CURRENT BUYERS GENERALLY SOUND An important measure in sizing up the characteristics of a land boom is the size of the down payment put into the property by the buyer and representing his equity. Bankers were asked to say whether equities in their com munities were: “thin” (up to 25%); “substantial” (25% to 50%); or “sound” (50% and over). Equities were reported predominantly thin by 74 banks, while 294 said they were substantial and 339 indicated that down payments were sound, with a very large number of banks making the point that many deals are entirely cash. On this score Illinois bankers reported the best situation with about 5 per cent of the banks reporting the equities as thin, 30 per cent reporting them as sub stantial, and two-thirds as sound. In Iowa, where equi ties have ordinarily been somewhat thinner than in other parts of the District, nearly one-fourth of the bankers reported equities as predominantly thin, a half said they were substantial, while a little over one-fourth said they were sound. Indiana bankers’ reports were distributed at 5 per cent thin, 40 per cent substantial, and 55 per cent sound. For Michigan the returns showed 9 per cent of the bankers think equities are thin, 40 per cent think them substantial, and a half think them sound. The distribution for Wisconsin was 10, 50, and 40 per cent, respectively. In each of 22 of the 31 regions into which the Seventh District was divided for this study, two or less banks reported equities as predominantly thin. In all six regions of Iowa, banks reporting equities as substantial outnumbered those reporting them as sound. In Illinois reports of sound equities far outnum bered those showing them substantial. The situation in Wisconsin was similar for each region to that described for Iowa, while Indiana’s regions were similar to Illinois regions. In Michigan a mixed situation prevailed, with some areas showing more reports of substantial equities than sound ones, while others showed more reports of sound than substantial down payments. From the standpoint of land inflation the size of down payments which represent the buyers’ equity is impor tant because when price declines and reduced incomes occur, the owner’s ability to withstand an unfavorable economic period depends, to a very large degree, upon the size and interest burden of his debt. Therefore, the larger his equity the smaller will be his debt and his interest cost, and the less potentially will be the pressure upon him for foreclosure of the mortgage in time of difficulty. WHO IS BUYING FARMS? Limitations of labor and machinery furnish something of a cheek on farmer buying of land. Yet swelling in comes for both farmers and city people have resulted in an active land market. In analyzing the situation, it is of value to have some idea of the relative importance of farmers and non-farming investors as purchasers of farms. The bankers were asked to indicate which pre dominated in the buying of farms in their communities. In the Seventh District nearly one-third of the report ing banks said investors who will not operate were the predominant buyers in their area. Illinois bankers’ re ports on this question show that over 40 per cent of them considered investor buying predominant over farm er buying of land. In the region designated on the map as northeastern Illinois, adjacent to Chicago, investors dominated farmer buyers in nearly 75 per cent of the reports. Investors were more important than farmer buyers in 30 per cent of the Wisconsin reports, and in the southeastern area were dominant in over half of the reports. They w'ere dominant in a little over one-fourth of the reports from Indiana, accounted for one-fourth of the reports from Michigan, and one-fifth in Iowa. Many reports are circulating as to the reasons for the heavy buying of farms by non-operating investors. These reports range all the way from stories about caravans of wealthy “eastern capitalists” combing the country look ing for good farm land as investment hedges against in flation to numerous instances of people with incomes in the lower end of the middle brackets looking for a “refuge” in case things “go to pot,” or for a farm con nection in order to have a little more security against potential food shortages and the rationing program. ARE TENANTS “GRADUATING” TO FARM OWNERSHIP? When reports on farmer buyers of land are broken down as between farmers who were tenants and those who are adding to present holdings ,there was a tendency for “owners adding to holdings” to be reported more frequently than “farmers who were tenants.” For the District as a whole 232 bankers said owners adding to holdings predominated in their territory, while 189 said farmers who were tenants predominated as buyers of farm land. In Michigan and Indiana reports showed that owners predominated as buyers in twice as many cases as did former tenants. For Illinois, owners were mentioned as predominant 50 per cent more frequently than tenants. The reports for Wisconsin were evenly divided between the two groups. Only in Iowa were tenant purchasers predominant more frequently than owners, with 71 bankers reporting tenant purchases as dominant and 52 bankers showing owners adding to pres ent holdings as the predominant farmer-buyers. Page 7 BANKERS' SHORT-TERM FARM LOANS DECLINING Two-thirds of the 630 bankers responding to the ques tion on applications for short-term credit in the last three months said that requests were much below nor mal, another one-fifth of them said they were a little below normal, while only one banker out of every eight thought requests were about normal and only nine bank ers reported applications were above normal, five of whom were in Wisconsin. Although farm production-and-living expenses have been rising, they have not as yet risen at as rapid a rate as has cash income. Farmers are, therefore, generally in somewhat better position to do their own financing than customarily. Furthermore, many items that are nor mally a part of the expenditure pattern for the farm and the farm family are scarce or non-existent. Such loans as are being made by the bankers appear in their judgment to be going into the following expenditures: to buy real estate, 12 per cent; to buy dairy stock, 12 per cent; to buy shoats and sows, 9 per cent; to buy feeders, 18 per cent; to buy feeds, 14 per cent; to carry market ings, 6 per cent; to buy equipment and repairs, 12 per cent; for family and personal use, 11 per cent; other outlets, 6 per cent. In Illinois 40 per cent were reported as being used to buy feeders and feeds, and 43 per cent was the report for Iowa on these items. In Indiana, Michigan and Wisconsin 16 to 19 per cent of such credit was reported as being used to buy real estate. Equipment and repairs were an important use of credit in Michigan and Wisconsin, accounting for 18 and 17 per cent, respectively. In addition to the declining demand for loans on the part of farmers, a very important factor in the banker’s situation is the serious competition from governmentally subsidized and operated farm credit agencies. Out of the banks reporting, 511 said they were experiencing competition from Production Credit Associations. Some 259 said there was a little competition, 231 said it was serious, and only 41 said they were not facing some competition. A total of 302 bankers said Farm Security agencies were competing, 191 said “a little” and 64 said “serious.” An additional 108 bankers said there was no competition from F.S.A. Many bankers went into detail to comment on these agencies, and the consensus of opinion seems to be that, in general, the bankers look upon F.S.A. as operating mostly in a field in which by and large they cannot or do not care to make loans. Regional Agricultural Credit Corporation loans were re ported as in competition by 267 banks, 153 said there was a little competition from this source, and 74 said this competition was serious, while 116 said they were ex periencing no competition from R.A.C.C. as yet. Scores of bankers wrote extended comments on the general prob lem of government competition. Generally they regard Page 8 this governmental competition as unnecessary, unwise, and unfair, especially at a time when banks are being asked to carry—and are willing and anxious to carry— heavy burdens of war work. HOW ARE FARMERS USING INCREASED NET INCOMES? Bankers were asked to give their judgment of the use farmers were making of the increase in their net cash incomes. For the Seventh District as a whole they esti mated that 42 per cent was going to payments of mort gages and other debts, 13 per cent was being invested in war bonds, 32 per cent was accumulating in increased bank balances, 8 per cent was represented by increased currency holdings, and 5 per cent was going to other uses. For four states the payment of mortgages and other debts ranged from 40 ,to 43 per cent, while for Wisconsin the reports showed 50 per cent going to this use. On investment in bonds the percentages reported were: Iowa, 16 per cent; Illinois, 13 per cent; Michigan, 12 per cent; Indiana, 10 per cent; and Wisconsin, 9 per cent. From the standpoint of fighting inflation, the payment of debts is a healthy sign. Every dollar the farmer uses to retire debt is a dollar less he has to put pressure on markets with short supplies of goods and services. If the recipient puts the funds into bonds or otherwise keeps the dollars out of the markets, it aids the fight on inflation. The results of this study showing that 13 per cent of the increase in net cash income is going into war bonds must be considered in light of the estimate that 42 per cent is being used for repayment of mort gages and other debts. From the banking viewpoint there is some interest in the showing made with regard to bank balances and cur rency holdings. For the District as a whole 40 per cent of the increase in net cash income was accounted for by these two items. Increased balances were in a ratio of 4 to 1 to increased currency holdings. In Illinois the ratio was 7 to 1; Iowa’s was a little above 5 to 1; In diana estimates yield a ratio of 3.5 to 1. In Michigan and Wisconsin the increase in net cash income going into currency holdings appears disproportionately large. In Wisconsin the reports show farmers as estimated to be carrying one-third of their increased cash holdings in the form of currency, and in Michigan 40 per cent of the increased cash holdings are estimated to be in this form. These variations in the relationship between cash in bank balances and in currency holdings appear to be largely explained by the number and location of country banks serving the farm territories. The variation in the proportions is rather closely related to the number of country banks per thousand farms in each state. Ap parently more currency is needed in areas with fewer banks and greater distances from the farm to the bank. SALES AND QUOTAS FOR NONBANKING INVESTORS Regions in the Seventh Federal Reserve District (Amounts in millions of dollars) Region Non Bank Quota Sales to Nonbanking Investors Amount Percent of District Percent of Quota Metropolitan Chicago.... Rest of Illinois.................... Indiana.................................. Iowa....................................... Michigan.............................. Wisconsin............................. 370 90 110 100 220 160 705 108 184 136 342 225 41.5 6.4 10.8 8.0 20.1 13.2 190.5 120.0 167.3 136.0 155.5 140.6 Total Seventh District . . . 1,050 1,700 100.0 161.9 RESULTS OF SECOND WAR LOAN DRIVE (Continued from inside front cover) ships, and personal trust accounts. As a result the Dis trict was tied for sixth place with the New York and St. Louis Districts in terms of achievement for nonbank ing investors as a whole. Total sales of Government securities to nonbanking investors in the Seventh District during the April cam paign amounted to 1,700 million dollars, according to final figures compiled by the U. S. Treasury War Finance Committee for the Seventh District. All regions in the District exceeded their nonbanking quotas and the rela tive performance varied from over 190 per cent of the quota for Metropolitan Chicago, consisting of Cook, Lake and Du Page Counties, to 120 per cent of the quota for the rest of Illinois. One of the objectives of the Second War Loan Drive was to obtain a more widespread distribution of Govern ment securities to individuals. While the sale of Gov ernment securities to corporations and institutional in vestors prevents the growth in deposits which would otherwise occur if these same securities were sold to banks, it is important that great stress be laid upon increasing the sale of Government securities to indi viduals. Purchases of Government securities by corpora tions and institutional investors are made from funds which are not likely to exert any significant inflationary pressure in the markets for consumption goods. On the other hand, purchases by individuals are more likely to draw upon funds which would otherwise be spent on consumption goods. Although much remains to be done in expanding the sale of Government bonds to individuals, performance in this regard during the April drive showed improve ment over the December results. Sales to individuals, partnerships, and personal trust accounts totaled 3,290 million dollars in April. This was more than double the comparable figure for December and represented almost 18 per cent of total sales against only slightly more than 12 per cent in December. Purchases by individuals, part nerships, and personal trust accounts supplied over 26 per cent of total nonbanking purchases in April com pared with less than 24 per cent in December. However, the magnitude of the task still confronting us is indi cated by the smallness of these percentages, and partic ularly by the relatively slight increase in the proportion of nonbanking subscriptions taken by individuals, part nerships, and personal trust accounts between the two financing dates. In the next drive, which probably will not come before September, there must be a substantial increase in subscriptions by individual investors. COMPARISON OF SUBSCRIPTIONS BY NONBANKING INVESTORS TO SECURITIES OFFERED DURING SECOND WAR LOAN WITH THE GOALS SET FOR THESE SUBSCRIPTIONS ______ Py Federal Reserve Districts Amounts in Millions of Dollars District Total—all Districts Chicago.................... Boston...................... New York................ Philadelphia............ Cleveland................. Richmond................ Atlanta..................... St. Louis................... Minneapolis............. Kansas City............ Dallas....................... San Francisco.......... Unallocated............. Individuals, Partnerships and Personal Trusts Subscrip tions 3,290 495 166 737 202 304 195 236 155 126 163 149 333 29 Goal Subscrip tions Goal All Nonbanking Investors Subscrip tions Goal 2,500 9,259 5,500 12,550 8,000 400 200 600 150 250 150 125 1,210 933 4,119 444 668 393 211 251 170 175 183 502 650 600 2,400 325 300 200 125 150 100 125 125 400 1,705 1,099 4,856 645 972 588 448 406 296 338 333 835 29 1,050 800 3,000 475 550 350 250 250 175 225 200 675 100 75 100 75 275 Note: Classifications are preliminary and some figures Other Nonbanking Investors Percent of Goal Accomplished Individuals, Other All Partnerships and Personal Nonbanking Nonbanking Investors Investors Trusts 132 168 124 186 83 156 123 172 135 137 122 223 130 197 189 169 155 167 168 170 163 140 199 146 121 126 — — are partly estimated. Figures are rounded and do not necessarily add 157 162 137 162 136 177 168 179 162 169 150 167 124 — to totals. SEVENTH FEDERAL IOWA ILL • INO RESERVE DISTRICT
@FedFRASER