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CONDITIONS

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A REVIEW BY THE
FEDERAL RESERVE BANK OF CHICAGO
NOVEMBER, 1941

Business Conditions in the Seventh Federal
Reserve District
Although production, employment, and trade continued
at a high level during September and the first half of Octo­
ber, there was a noticeable slackening in the upward sweep
of business in the Seventh Federal Reserve District. This
was brought about in part by the shifting of industry from
civilian to defense production which is an engineering
problem that involves more than just the utilization of
machines. In the adaptation of machine tools to the pro­
duction of specific defense items, questions of plant balance
must be studied, if serious dislocations in the productive
capacity are to be avoided. Although progress has been
made in the solution of these technical problems, raw mate­
rial shortages still exist, and lack of plant facilities in some
industries and incomplete utilization in others continue to
retard the production program. Employment and wage pay­
ments edged upward, and the cost of living in the principal
cities of the district continued to advance.
Durable goods industries helped maintain a high level
of productive activity. This was particularly true in steel
which continued to operate above rated capacity through­
out September although handicapped by the steel scrap
situation which became tighter. Notwithstanding price
adjustments which were made, the increases were not suffi­
cient to overcome freight differentials and draw supplies
of scrap from other districts. The pig iron industry estab­
lished a new average daily production record of 34,852
tons, w'hich is an increase over the previous high attained
in August. Castings, both steel and malleable, were pro­
duced in tempo with the activity of the industry and wrere
up over the previous month.
Maximum quotas set for automobile production were
not attained, although the number of units coming off
assembly lines exceeded the ten-year average, and weekly
production rose from a September low of 33,000 to 77,000.
Reporting paper mills showed no gain, and pulp produc­
tion was maintained at the levels recorded the month pre­
vious. Furniture, which is one of the important industries
of the district, continued to operate at 97 per cent of
capacity.
Although the new policy in building construction laid
down by the Supply Priorities and Allocations Board was
not in effect during September, contracts awarded declined
from the high figure reached in August, with more than
three-fourths of the loss being due to a smaller volume of
public financing. Awards for industrial plant expansion
which are financed through Government agencies fell off 28
million dollars, accounting for almost half of the total
decrease. Contracts awarded for public works and public




utilities declined 20 million dollars from the preceding
month, and residential building shared in the general cur­
tailment, to the extent of 8 millions. Homes erected for rent
or sale were affected more sharply by this decline than were
those constructed for direct ownership.
Employment and payrolls resumed a rising trend by the
middle of September, with the most substantial increases
occurring in the transportation equipment industries, w'here
there had been sharp curtailment during August. Reports of
firms that are restricting schedules or reducing employment
on account of a shortage of materials are becoming more
frequent, but the effect upon total employment of these
has not yet become serious.
Wage disbursements and the number of workers engaged
in the production of consumers’ goods continue to expand.
Non-manufacturing industries—merchandising, public util­
ities, coal mining, and construction—showed continued
gains. Margins in comparison with figures for the corre­
sponding period a year ago have fallen off materially
during recent months. This situation reflects the fact that
from July through September of last year, employment and
payrolls were rising at a rate considerably more rapid than
has been the case this year. The current level of factory
employment is 28 per cent higher than a year ago, and
factory payrolls were up by 36 per cent.
A leveling-out process was evident in the retail distribu­
tion of commodities. Department store sales gained only
14 per cent over August, despite the heavy buying of luxury
items which occurred in late September in anticipation of
the excise taxes which went into effect October 1. This
September gain is the smallest recorded in eighteen years for
that month. Dollar volume of stocks on hand was up 15
per cent over August. Outstanding orders which in conjunc­
tion with stocks on hand reflect trade anticipation of sales
were 17 per cent under August totals. Wholesale trade con­
tinued the upward movement which got under way in
January 1939. Lumber and meat packing showed small
sales increases for the month, each advancing about 2
per cent.
The steady gain in commercial, industrial, and agricul­
tural loans of reporting member banks continued. These
loans moved up 20 million dollars during September and
the first four weeks of October. United States bonds held
by reporting member banks increased 30 million dollars
during the same period. Although holdings of Treasury
bills declined 80 million dollars, total loans and invest­
ments increased 46 millions.

Decline in Excess Reserves
Excess reserves of all member banks now
amount to about half of their peak level. This
decline is due in part to the increase in reserve
requirements to the present statutory limit which
became effective November 1, and in part to the
persistent growth of currency in circulation, the
higher level of Treasury deposits with Federal
Reserve banks, and increased required reserves
as a result of higher net demand deposits. The
New York City central reserve city banks have
felt the predominant portion of the continued
decline in excess reserves since January because
of the outward movement of funds to other parts
of the country in the face of the sharply dimin­
ished gold inflow.
On October 29, three days before the increase
in reserve requirements became effective, excess
reserves of all member banks amounted to $4,600
million. Given the present level and distribution
of reserve balances and deposits, it is estimated
that the higher reserve requirements increased
required reserves and lowered excess reserves
for member banks taken as a whole by about $1,­
200 million. It is estimated, therefore, that on
EXCESS RESERVES AND PRINCIPAL DETERMINANTS
JANUARY—OCTOBER 1941.
8 I U_ IONS OF POLL Aft S

October 29 latest date shown.




aU.LIONS OF OQCLARS

November 1 excess reserves of all member banks
were about $3,400 million.
Excess reserves of all member banks reached
a peak of $6,940 million on October 23, 1940.
Excess reserves amounted to almost as much,
$6,896 million, on January 15 of this year when
member bank reserve balances reached their rec­
ord high level.
The decline in excess reserves from January
15 to October 29 amounted to $2,296 million.
The chart shows the chief causes of the decline
during that period. Currency in circulation, at a
record high of $10,307 million on October 29,
increased $1,765 million. Treasury deposits with
Federal Reserve banks were $678 million
greater. Required reserves rose $514 million
from January 15 to October 29. These changes
which caused excess reserves to decline were
offset in part by an increase of $730 million in
the monetary gold stock.
Excess reserves of central reserve New York
City banks declined from $3,545 million on
January 15 to $1,345 million on October 29. It
is estimated that the increase in reserve require­
ments caused a further decrease to about $825
million.
The sharp diminution in the gold inflow since
January has deprived the New York City banks
of a major source of increase in reserves. At the
same time, reserves of New York City banks
have been absorbed by an outward movement of
funds to other parts of the country. Treasury
receipts from new securities, as well as tax col­
lections in the New York District, have exceeded
Treasury disbursements in that area. Commer­
cial and financial transactions, other than Treas­
ury transactions and movement of bankers’ bal­
ances, have caused New York City banks to lose
reserves. From January to the middle of Octo­
ber, there was little change in the balances of
out-of-town banks held with banks in New York
City. Domestic interbank deposits of New York
reporting banks, however, declined $163 million
in the week ending October 22 and $65 million
in the week ending October 29.
Pag* 1

On November 1, Chicago central reserve city
banks carried reserve balances of $1,173 million.
On that date required reserves amounted to
$734 million on the old basis, and $841 million
on the new basis. Excess reserves of Chicago
central reserve city banks, therefore, declined
from $439 million to $333 million as a result of
the higher reserve requirements. It is estimated
that the increased reserve requirements caused
excess reserves of member banks in the Seventh
Federal Reserve District to decline from about
$800 million to about $630 million.
In consideration of the reserve position of
member banks, attention must be given to bal­
ances of correspondent banks and balances due
to banks, as well as to excess reserves. To some
extent, banks are adjusting their reserve posi­
tions by withdrawing balances held with corre­
spondent banks in New York City, Chicago, and
other cities. Further adjustments may take place
during November, for until December 1 penal­
ties for deficient reserves will be based upon the
old reserve requirements. Withdrawal of bal­
ances due to banks will cause further declines in
excess reserves of correspondent banks. On Oc­
tober 29, weekly reporting member banks in

RESERVE BALANCES, REQUIRED RESERVES, AND
EXCESS RESERVES OF ALL MEMBER BANKS
JANUARY 15 — OCTOBER 29, 1941
(In millions of dollars)

Jan. 15

Factors, Increases in Which
Increase Reserve Balances:
Reserve bank credit outstanding......................................
Gold stock....................................
Treasury currency......................
Factors, Increases in Which
Decrease Reserve Balances:
Currency in circulation.............
Treasury cash holdings............
Treasury deposits with
Federal Reserve banks........
Foreign deposits..........................
Other deposits.............................
Other Federal Reserve
accounts......................................
Member Bank Reserve
Balances...........................................
Required Reserves........................
Excess Reserves..............................

Oct. 15

Oct. 22

Oct. 29

Change
from
Jan.15
to
Oct. 29

2,254
22,066
3,092

2,313
22,778
3,207

2,291
22,786
3,214

2,250
22,796
3,219

—4
+730
+127

8,542
2,195

10,283
2,222

10,278
2,195

10,307
2,209

+1,765
+14

237
1,230
512

259
1,188
732

977
1,141
659

915
1,189
721

+678
—41
+209

283

292

292

292

+9

14,414
7,518
8,896

13,321
8,091
5,230

12,749
8,089
4,660

12,632
8,032
4,600

—1,782
+514
—2,296

New York City and Chicago had domestic in­
terbank deposits of, respectively, $3,747 million
and $1,050 million. A survey of the reserve posi­
tion of individual member banks, made by the
Board of Governors and the Federal Reserve
banks for the week ending June 25, 1941,
showed, however, that at that time about threefourths of the member banks had excess reserves
more than sufficient to meet the present increase
in reserve requirements.

FACTORS WHICH DETERMINE EXCESS RESERVES OF ALL MEMBER BANKS
•

.

Factors which supply and use reserve funds

Reserve balances

Factors, increases in which increase reserve balances:
Monetary gold stock
Treasury currency outstanding
Reserve bank credit outstanding
Factors, increases in which decrease reserve balances:
Currency in circulation
Treasury deposits with Federal Reserve banks
Treasury cash holdings
Foreign deposits with Federal Reserve banks
Other deposits with Federal Reserve banks
Other Federal Reserve accounts

Excess reserves of
all member banks

Required reserves
Reserve requirements:
Set by Board of Governors within statutory limits
Vary with classes of deposits and member banks
Amount of net demand and time deposits
Pape .2




CONVERSION OF GUARANTEED ISSUES
INTO TREASURY BONDS
The Treasury has adopted a policy of con­
verting guaranteed obligations of Federal agen­
cies into direct Treasury obligations. The
retirement of the maturing United States Hous­
ing Authority notes on November 1 and the
exchange of one per cent Treasury notes, dated
November 1, 1941 and due March IS, 1946, for
the maturing Reconstruction Finance Corpora­
tion notes and the maturing Commodity Credit
Corporation notes are in keeping with this pol­
icy. “In order to reduce the number of financing
operations in the market in behalf of the Gov­
ernment and to simplify the financing program,”
the Treasury announced, “it is contemplated that
all of the Government guaranteed issues now
outstanding in the hands of the public will
eventually be converted into Treasury issues, so
that the market will ultimately be dealing with
the one class of Government obligations.” In
the future, new money needed by Federal agen­
cies will be borrowed from the Treasury, and
will result in an increase in direct Treasury
obligations rather than in guaranteed issues.
MATURITY SCHEDULE OF SECURITIES GUARANTEED BY
THE UNITED STATES1
(In millions of dollars)
Callable
Fixed
Issues
Maturity
(Classified
Cumulative
Issues
Description of Security2
by year in
Total
(Classified
which issues
by year in
are first
which due)
callable)
1942
%%
3%
2%%
1%
2H%
K%

RFC
FFMC
FFMC
RFC
HOLC
RFC

310

Total...............................
1943
%% CCC
1 %% RFC

Notes R—1/1S/42.. ..
Bonds —1/15/42-47..
Bonds —3/1/42-47...
Notes S —7/1/42........
Bonds Q —7 /I /42-44...
Notes U —10/15 /42...

906

Notes F—5/1/43........
Notes V —7 /15 /43....

289
324

276
320

236
103
875
1,214

2,120

613
1944
m%
3X%
1%
3%
3%

USHA
FFMC
RFC
HOLC
FFMC

Notes B —2 /I /44........
Bonds —3/15/44-64..
Notes W —4 /15 /44....
Bonds A —5 /I /44-52...
Bonds -5/15/44-49..

571

114
95
779
835

Total...............................

685

1945
1 y„% CCC Notes G —2 /15 /45.. . .
1H% HOLC Bonds M—6 /I /45-47...

412

Total...............................

412

1,709

5,127

755
755

6,294

Excludes Federal Housing Administration debentures.
2The abbreviations refer to the following corporations: Home Owners’ Loan
Corporation, Reconstruction Finance Corporation, Commodity Credit Corporation,
Federal Farm Mortgage Corporation, and United States Housing Authority.
Source: Bulletin of the Treasury Department, September 1941, Page 38.




The maturity schedule of securities guaran­
teed by the United States shows the extent to
which the public debt may be expected to rise
as a result of the conversion of guaranteed issues
into Treasury issues. In the calendar year 1942,
fixed-maturity guaranteed issues amounting to
$906 million become due, and callable guar­
anteed issues amounting to $1,214 million are
first callable. The entire amount of guaranteed
securities becomes due or is callable within the
next four calendar years.
BALANCING THE HOG-CORN SCALES
Ups and downs in the numbers and production
of livestock in the United States are familiar to
everyone who is acquainted with agriculture.
These changes have come to be referred to as
cycles of production.
The Hog Cycle
Such cycles occur in the production of hogs.
One may start at any place in the hog cycle and
trace the processes of expansion and contraction.
If one starts at the low point or “trough” of
production, the numbers on farms are found to
be relatively small. At this point, hog prices are
usually favorable, especially in relation to the
price of corn, the principal hog feed. That is,
hogs will be “high” and corn “cheap” when hogs
are relatively scarce. With fewer hogs being fed,
corn is relatively abundant. Producers facing
this situation will then begin to increase their
hog breeding and farrowings, eventually mar­
keting cheap corn in the form of high-priced
hogs. As this expansion proceeds, the relation­
ship between corn prices and hog prices changes
to a less favorable one. The increased production
of hogs calls for more feed—more corn. This
increased demand raises the price of corn. When
the increased numbers of hogs come on the mar­
ket, the increased supplies of pork relative to
consumer demand for pork and pork products
result in lower hog prices. In time, a situation
is reached where hogs have become relatively
cheap and corn prices relatively high. When
corn is dear and hogs are cheap, many producers
can no longer continue to feed at the same rate
and remain liquid. Corn as a cash crop has be­
Page 3

come more attractive to them, hogs less attrac­
tive. At the time that they begin to shift their
productive enterprise from hogs to corn, or to
other enterprises, a peak is reached in the hog
cycle. There then follows a period of readjust­
ment in which production of hogs is reduced
relative to the production of corn. This process
continues until a new “bottom” is reached in
hog numbers.
The cycles do not have exact lengths in time,
such as the exact mathematical timing for the
pendulum of a clock. They do have an approxi­
mately regular rhythm, sometimes long, some­
times short. The hog cycles tend to run about
five years in length. The expanding side with
rising numbers usually runs about three years,
while the contracting side with falling numbers

runs about two years. The cycle is subject to
many influences in the economic world other
than just the relationship between corn prices
and hog prices. Corn must compete with other
grains. Pork and hogs must compete with beef,
veal, lamb, and poultry. The drouths of 1934
and 1936 upset the cycles because of the destruc­
tion to standing crops and the forced sale of
breeding stock. Present governmental policies of
supporting pork and corn prices will alter the
cycle from the pattern it otherwise would have
followed.
The Hog-Corn Ratio
The hog-corn ratio is a measure of the phase of
the hog cycle existing at any given time. The
ratio is obtained by dividing the price of 100

MONTHLY HOG-CORN RATIOS 1934-41

Jan.

Feb.

Mar.

Apr.

May

June

July

Aug.

Sept.

Oct.

Nov.

Dec.

Mthly.
Avg.

Illinois

1934...........
1935...........
1936...........
1937...........
1938...........
1939...........
1940...........
1941...........

....
....
....
....
....
....
...
....

7.4
8.4
19.0
9.7
16.0
16.1
10.6
14.3

9.5
9.1
19.6
9.3
17.2
18.6
9.8
13.9

9.4
11.3
19.6
9.2
19.3
18.5
9.6
13.2

8.6
10.4
19.2
7.5
16.9
17.0
9.2
13.6

7.4
10.6
15.8
8.0
15.7
15.0
9.2
12.7

7.2
11.4
16.2
9.0
17.1
13.9
8.1
13.7

7.7
11.5
12.2
9.7
18.4
15.6
10.1
15.5

7.2
14.1
10.2
12.5
18.2
14.5
10.2
15.7

8.5
14.7
9.6
11.7
19.5
14.5
10.8
16.4

7.3
13.5
10.2
20.8
20.5
16.0
10.3

6.9
16.6
9.5
20.2
20.0
14.5
10.2

6.0
18.8
9.9
17.3
16.7
10.9
11.2

7.8
12.5
14.3
12.1
18.0
15.4
9.9

Indiana

1934...........
1935...........
1936...........
1937...........
1938...........
1939...........
1940...........
1941...........

....
....
....
....
....
....
....
....

8.3
9.2
20.7
10.2
17.4
16.7
10.8
13.6

10.5
9.9
21.4
9.8
18.7
18.1
10.2
13.3

10.0
11.6
21.3
9.7
20.9
17.2
9.6
12.9

8.3
10.7
21.0
7.9
18.0
15.5
9.1
12.6

7.6
11.0
17.2
8.3
16.6
14.6
9.3
12.3

7.7
11.8
19.0
9.3
19.1
12.7
8.0
12.9

8.1
12.0
12.5
10.0
18.0
15.2
10.1
14.8

7.5
14.5
10.7
12.6
17.8
13.7
9.8
14.8

8.7
15.2
10.1
12.3
18.7
14.0
10.0
15.5

7.9
13.9
10.5
19.8
20.6
16.8
10.0

7.6
18.2
10.7
22.6
20.8
14.2
10.5

6.6
20.2
10.7
18.4
17.0
10.4
10.4

8.2
13.2
15.5
12.6
18.6
14.9
9.8

Iowa

1934...........
1935...........
1936...........
1937...........
1938...........
1939...........
1940...........
1941...........

....
....
....
....
....
....
....
....

7.7
8.3
19.4
8.8
16.0
17.4
10.9
16.1

10.6
9.0
19.8
8.5
17.1
20.9
10.4
15.1

10.3
10.8
19.2
8.6
20.0
20.3
10 0
14.7

9.4
9.9
20.2
7.5
17.7
18.3
9.6
15.1

7.9
10.2
17.1
8.0
16.8
16.7
9.5
14.4

7.7
11.4
17.8
9.2
18.6
14.8
8.3
15.2

7.8
11.6
12.0
9.4
18.9
16.9
10.5
16.8

7.2
14.3
9.6
12.2
20.0
14.4
10.7
16.7

8.7
14.7
9.3
12.8
19.8
14.8
11.5
17.8

7.2
14.1
9.3
21.1
21.5
16.9
11.3

6.8
17.7
8.7
19.5
21.2
14.2
11.0

5.7
19.1
8.9
17.2
17.6
11.0
11.9

8.0
12.6
14.3
11.9
18.8
16.4
10.5

Michigan 1934...........
1935...........
1936...........
1937...........
1938...........
1939...........
1940...........
1941...........

....
....
....
....
....
....
....
....

6.6
8.4
17.7
9.9
13.9
15.7
10.0
11.6

8.2
9.1
18.5
8.6
14.8
16.5
9.4
11.8

8.0
10.6
18.5
9.5
16.3
16.0
9.4
11.7

7.1
10.4
18.7
7.9
15.0
14.4
9.2
12.2

6.5
10.3
17.0
8.1
14.3
13.7
8.9
12.2

6.0
10.9
17.7
8.7
15.3
12.0
8.2
12.8

6.8
10.9
12.8
9.3
15.4
14.0
9.8
14.3

6.3
13.5
10.2
11.2
15.2
12.8
9.5
14.2

7.4
14.0
10.1
10.9
16.2
13.1
10.0
14.4

7.0
13.2
9.8
13.9
15.0
12.9
9.7

6.7
15.4
9.4
15.6
16.2
12.0
9.1

6.1
18.0
9.6
14.5
15.2
9.6
8.9

6.9
12.1
14.2
10.7
15.2
13.6
9.3

Wisconsin 1934...........
1935...........
1936...........
1937...........
1938...........
1939...........
1940...........
1941...........

....
....
....
....
....
....
....
....

6.4
8.5
15.9
8.6
12.9
14.5
9.4
13.1

8.3
9.0
16.3
8.3
13.4
15.7
8.9
12.9

8.0
10.8
15.1
8.3
14.6
15.7
8.7
12.7

7.4
10.3
15 3
7.1
13.3
13.8
8.4
13.8

6.5
10.7
13.9
7.4
13.0
12.8
8.5
13.1

5.8
10.9
14.3
8.2
14.3
11.4
7.5
13.8

6.4
11.0
11.3
8.7
14.2
12.4
9.2
15.0

6.3
13.2
9.1
11.1
13.8
11.5
9.2
14.9

8.2
13.5
8.6
10.6
15.0
12.3
9.7
15.5

6.8
13.0
8.5
13.6
14.1
12.4
9.7

6.9
13.9
8.3
14.8
15.9
12.1
9.0

6.0
15.5
8.5
13.7
14.8
9.3
10.0

6.9
11.7
12.1
10.1
14.1
12.8
9.0

Page 4




—

pounds of live hog by the price per bushel of
corn. The resulting quotient indicates the num­
ber of bushels of corn which 100 pounds of live
hog will buy at the prices used. The corn re­
quired to finish a hog for market is, in general,
a fairly constant physical quantity. The ratio is
said to be favorable to current feeding operations
when over approximately twelve bushels, and
unfavorable when under this figure. The pro­
duction cycle tends to swing upward toward a
peak of expansion as long as the ratio is rising,
and to swing downward toward the lowest
point as long as the ratio is falling. Since the
ratio expresses a proportional relationship be­
tween prices of hogs and corn, it does not depend
upon actual prices for its favorable or unfavor­
able showing, but does depend entirely on the
relationship between two prices. Ignoring other
costs, the ratio is just as favorable to feeding
when hogs are $6.00 and corn is 45 cents as when
hogs are $12.00 and corn 90 cents.
In the accompanying tables, the hog-corn ra­
tios for the five states lying in whole or in part
within the Seventh Federal Reserve District are
given by months from January 1934 to October
1941. In calculating these ratios, average prices
received by farmers in each state for hogs and
corn were used. The importance of a series of
ratios such as these lies not so much in the abso­
lute number of bushels shown by the ratio for
any one month, but rather in the direction in
which the measure is moving; that is, whether
the ratio is becoming more, or less favorable.
The chart gives a graphic idea of the relation­
ship between the ratio and the production cycle.
In this chart, the average United States hog-corn
ratio for each year has been plotted with the
number of sows farrowed in the United States in
the spring and fall of the succeeding year. For
example, the monthly average ratio for 1939 was
13.4 bushels. This is plotted on the chart with
the index of 1940 farrowings. Throughout the
chart the ratio is plotted with the farrowings of
the following year, since obviously it is the ratio
up to and at breeding time, rather than at far­
rowing time, that influences the producer’s de­
cisions.
The ratio thus may be said to serve as a rough



THE HOG-CORN RATIO AND HOG PRODUCTION.
INDEX QF u.S NUMBERS OP SOwS F&ftROwED

A
/ \h0

_______

u S HOG CORN RATIO

G-CORN R ATiO

A

/\
/ :
\
// \V / /K\ \
>

\
i/S?'
\j

/...

K

•

*

\\ s:
\j
V

S„/so WS

1924*25

‘26 *27

‘28

‘29 ‘30 ‘31

32

‘33

FARROWED

’34 ‘35 ‘36 ‘37 ‘38

‘39

‘40 '41

'42

★Preliminary.
Index of number of sows farrowed: base 1924-1940= 100.

sort of barometer for the hog industry. At this
point, question may be raised as to why, if this
measure is of any use as a guide, does not the
producer follow the guide and stop expanding
before price relationships have gone so far as to
make retrenchment necessary. There are a num­
ber of valid reasons why producers do not behave
in this fashion. After a producer makes a de­
cision to expand, time is required to put the de­
cision into effect. That is, sows must be bred,
following which time is required for gestation.
Before the pigs are ready to market, the feed situ­
ation may turn to a less favorable one, and, when
the pigs are marketed, they serve to aggravate a
situation already turned bad. If the timing of
the cycle in prices were accurate, it would, of
course, be possible for the producer to forecast
accurately just when the peak would be reached
and when to curtail his expansion. But the tim­
ing is an irregular thing at best, and the most that
the producer can do is to make a rather rough
guess as to when the peak will be reached (or the
bottom). Another limitation on the possibility
of evening out the cycle is the fact that produc­
tion must take place in indivisible units. The
producer might decide that the price situation
is favorable and calls for an expansion of 10 per
cent. But many producers are small-scale opera­
tors, and must breed all their sows in order to
make a living. Another difficulty is that a large
proportion of the hogs produced comes from
farms where hogs are not the major enterprise
and are produced and sold by producers who do
Page 5

not watch the basic price relationships closely,
not having the time to become close students of
the market situation and the market’s future
outlook.
The high levels for the ratio in recent months,
as shown in the table, are to some extent artificial
levels. Last spring the Department of Agricul­
ture announced a policy of supporting hogs and
corn at 85 per cent of parity to stimulate produc­
tion for lend-lease aid requirements. Govern­
ment purchases under this program, added to
improved domestic demand, have raised hog
prices. Declines in hog prices during September
and October have been more than offset by
declines in corn prices, leaving the ratio highly
favorable.
Hog-corn ratios for the five states shown in
the table will be carried currently hereafter in
the statistical section.
PASSENGER CAR PRODUCTION
AND SALES
Production of passenger cars in the United
States was 78,529 units during August and
167,790 units during September. This is a
substantial volume, considering the problems en­
countered in this year’s changeover to new
models which required unusual mechanical re­
visions due to the use of substitute materials not
earmarked for defense purposes. The OPM pas­
senger car quota was 111,429 units for August
and 235,124 units for September, actual produc­
tion being about 70 per cent of these quotas for
both months.
It was inevitable that certain materials used
in the manufacture of passenger c'ars would be
diverted to defense production. Automobile en­
gineers have done an efficient job on the 1942
models, eliminating and conserving these critical
materials and maintaining the customary excel­
lence of their product. As armament production
continues to expand in the months to come, the
number of passenger cars to be produced will be
determined by the labor and materials available.
Weekly production data for passenger cars are
not available. The combined total for passenger
cars and trucks in the United States and Canada,
however, has shown a steady increase from 33,Page 6




000 units reported for the week ending Sep­
tember 6 to 92,000 units for the week ending
October 25. During the twelve-week period be­
ginning the first week in August, 730,000 pas­
senger cars and trucks were assembled. This
volume was exceeded only twice in any similar
period of the last ten years. Material scarcity
is reported to be retarding automobile produc­
tion somewhat.
PASSENGER CAR PRODUCTION.

n PASSENGER CAR PRODUCTION 10 YR. AVERAGE
Qf O.P M PRODUCTION CEILING QUOTAS
PASSENGER CAR PRODUCTION AUG. AND SEPT. 1941

New Passenger Car Sales Decline
The current decline in new passenger car sales
is attributed by dealers to various causes. News
of future trends expected in the automobile in­
dustry was responsible for an unprecedented
wave of purchasing during the spring and sum­
mer months of this year, satisfying the demands
of customers, many of whom ordinarily would
have awaited the 1942 model cars. The current
prices on fully equipped and delivered 1942 pas­
senger cars are considerably higher than most
prospective purchasers anticipated. Lower pre­
determined book values are being quoted by
dealers on cars offered for trade-in, with prac­
tically no dealer discounts in evidence. The
actual dollar difference between present usedcar allowances and the total equipped and de­
livered price, including taxes, has widened suffi­
ciently so that many buyers are postponing their
purchases. The excessive appraisals previously
allowed by dealers for automobiles offered by
customers for trade-in have caused purchasers to

expect higher allowances than could possibly be
realized by dealers in the used-car market.
Where trade-ins were not involved, a discount
from the delivered price was requested and often
received by the purchaser. Dealers’ profits con­
sequently were reduced.
There is little evidence of pressure salesman­
ship or extensive advertising. The elaborate
pamphlets containing automobile specifications
and colored pictures of the new models, so promi­
nently displayed in other years, are frequently
omitted. Fewer demonstration cars are avail­
able, and unless a dealer is quite certain that the
prospect will buy, demonstration rides are sel­
dom offered. Due to curtailed production
schedules at factories, dealers believe that they
will have ample demand for all the automobiles
they will receive, and that while the volume of
new car sales might remain low, a greater profit
will be realized on each car sold.
The regulation of consumer credit issued by
the Board of Governors of the Federal Reserve
System, effective September 1, limits the credit
value of a new or used automobile to 66^ per
cent of its fully equipped and delivered price.
It is not yet possible to know to what extent the
regulation has influenced the volume of automo­
bile sales. Occasionally a customer wishing to
trade-in a used car whose value is not equal to
the required one-third down-payment is reluc­
tant to add the necessary cash to cover the initial
payment. These instances are few, as the value
of most popular makes of automobiles which
have not received more than one to three years’
service is usually more than sufficient to cover
the down-payment now required to purchase a
new automobile. Financing the balance in eigh­
teen equal monthly installments is considered
constructive regulation.
Less fortunate are certain used-car dealers
whose sales had been financed by loaning
agencies willing to offer longer terms and accept
little or no down payments from customers who
otherwise could not afford to purchase an auto­
mobile. These dealers are certain to lose sales,
as all finance companies are now required to
abide by the terms outlined in the regulation.



BUILDING CONTRACTS AWARDED
SEVENTH FEDERAL RESERVE DISTRICT

Period

Total
Contracts

Residential
Contracts

September 1941..............................................................
Change from August 1941........................................
Change from September 1940.................................
First nine months of 1941.......................
Change from same period of 1940..........................

*61,107,000
-49%
-12%
1724,013,000
+54%

*27,312,000
-22%
-20%
*267,024,000
+29%

Data furnished by the F. W. Dodge Corporation.
PERCENTAGE CHANGE FROM AUGUST 15,1941 TO SEPTEMBER 15,1941
IN THE COST OF GOODS PURCHASED BY WAGE EARNERS
AND LOWER-SALARIED WORKERS, BY GROUPS OF ITEMS
City

Average:
Large Cities
in the
United States
Chicago.........
Detroit..........

All
Items

Food

Cloth­
ing

Rent

Fuel,
Elec­
tricity,
and Ice

+1.8
+2.6
+2.0

+2.6
+5.7
+1.7

+3.6
+3.8
+3.9

+0.5
+0.3
+2.0

+0.5
+0.1
+0.6

House Miscel­
Furnish­ laneous
ings

+10
+0.6
+1.9

+2.8
+1.6
+1.5

INDEXES OF THE COST OF GOODS PURCHASED BY WAGE EARNERS
AND LOWER-SALARIED WORKERS, BY GROUPS OF ITEMS,
SEPTEMBER 15, 1941
(Average 1935-39= 100)
City

Average:
Large Cities
in the
United States
Chicago.........
Detroit..........

All
Items

Food

Cloth­
ing

Rent

Fuel,
Elec­
tricity,
and Ice

108.1
109.6
109.6

110.8
114.3
108.9

110.8
108.5
110.7

106.8
111.0
114.7

103.7
102.6
104.8

House Miscel­
Furnish­ laneous
ings

112.0
110.1
112.0

105.0
104.2
107.2

Data furnished by the Bureau of Labor Statistics.

MONTHLY BUSINESS INDEXES
Data refer to Seventh District and are nol
adjusted for seasonal variation unless other Sept. Aug.
wise indicated.
1941 1941
1935-39 average=100

July
1941

Sept. Aug.
1940 1940

July
1940

Manufacturing Industries:
Durable Goods:
Non-Durable Goods:
Total:
Pig Iron Production:*
Automobile Production—(U. S. and
Canada):

156
186

153
179

155
179

117
133

108
122

102
109

125
142

123
139

121
134

107
111

104
108

103
108

146
172

143
167

143
165

114
126

107
117

103
109

211

204

202

179

173

169

74

49

140

85

27

73

413
231
199
169

311
199
180
157

281
198
202
175

137
116
123
114

129
109
117
108

121
105
101
93

205

173

148

162

134

103

203
206

183
190

257
168

157
143

141
124

145
97

137

135

132

107

111

116

168
166
Bituminous Coal Production:*
Illinois, Indiana, Iowa, and Michigan......... 116
Building Contracts Awarded:
237
155
Department Store Net Sales:*
132
195
162
154
142
151
137

161
152

163
156

147
140

146
141

146
143

Casting Foundries Shipments:

Stoves and Furnaces:
Furniture Manufacturing:
Paper Manufacturing:*
Petroleum Refining—(Indiana, Illinois,
Kentucky Area):*

.116

123

110

94

77

303
302

307
243

297
176

229
159

222
149

115
126
140
126
130
122
154

86
97
106
98
93
92
131

112
159
139
126
115
125
114

92
86
99
93
100
92
117

75
73
86
77
74
75
107

•Daily average basis.
Page 7

EMPLOYMENT AND PAYROLLS
SEVENTH FFDERAL RESERVE DISTRICT

STEEL AND MALLEABLE CASTINGS
SEVENTH FEDERAL RESERVE DISTRICT
Per Cent Change from
September 1941
August 1941

Week of September 15, 1941
Industrial Group

September 1940

Steel Castings:

Orders booked (tons).................................................
Orders booked (dollars)............................................
Shipments (tons).........................................................
Shipments (dollars)....................................................
Production (tons)........................................................

+28
+72
+16
+33
+ s

+74
+264
+99
+202
+96

+30
+30
+ 7
+ 9

+53
+61
+50
+66
+41

Per Cent Change
from August 15, 1941

Wage
Number Number Payments Number
of
of
(In
of
Reporting Employes thousands Employes Wage
Payments
Firms
of dollars)

Durable Goods:

Metals and Products1...........
Transportation Equipment..
Stone, Clay, and Glass.........
Wood Products......................
Total........................................

Orders booked (tons).................................................
Orders booked (dollars)............................................
Shipments (tons).........................................................
Shipments (dollars)....................................................
Production (tons)........................................................

+ 6

DEPARTMENT AND APPAREL STORE TRADE
SEVENTH FEDERAL RESERVE DISTRICT
Net Sales
Per Cent
Change

September 1941 from
August
1941

Locality

Stock on Hand
(End of Month)
Per Cent Change
September 1941 from

September
1940

1941
from
Jan.-Sept.
1940

+ 8
— 3
— 7
+10
+ 6
+ 11
+44
— 8
+15
+ 5
+15
— 1

+22
+22
+32
+22
+22
n -37
- -29
-10
-25
-27
-28
h-27

Chicago.................
Peoria....................
Fort Wayne..........
Indianapolis.........
Des Moines...........
Sioux City............
Detroit..................
Flint......................
Grand Rapids. .. .
Lansing.................
Milwaukee............
Other Cities.........

•

August
1941

September
1940

+n
+ 15
+28
+20
+12
+14
+25
+26
+17
+30
+21
+24

+16
+30
+35

+25
+26
+23

+16

22,406
17,020
767
1,708
41,901

+0.6
+5.4
+0.2
—0.9
+2.2

+1.5
+9.2
+0.0
+2.4
+4.5

Textiles and Products..........
Food and Products...............
Chemical Products...............
Leather Products..................
Rubber Products...................
Paper and Printing...............
Total........................................

419
999
306
177
35
704
2,640

77,832
144,412
41,035
35,442
24,550
91,347
414,618

1,744
4,044
1,406
903
790
2,940
11,827

+0.2
+4.4
+2.1
—0.3
—1.0
—1.5
+13

+1.8
+6.3
+3.5
+0.8
—9.6
—1.6
+1.7

5,618

1,513,123

53,728

+2.0

+3.9

Merchandising............................
Public Utilities..........................
Coal Mining................................
Construction...............................

5,195
1,000
45
441

159,173
100,579
7,652
9,127

3,750
3,495
251
392

+4.2
+0.5
+5.3
+4.8

+2.3
+0.6
+2.8
+2.9

Non-Durable Goods:

Total Non-Mfg., 4 Groups.......

6,681

276,531

7,888

+2.8

+1.6

Total, 14 Groups........................

12,299

1,789,654

61,616

+2.1

+3 6

JOther than transportation equipment.
Data furnished by State agencies of Illinois, Indiana, Michigan, and Wisconsin.

+50

+ 8
+14

612,411
397,341
25,679
63,074
1,098,505

+21

+15

1,858
401
269
450
2,978

Total Mfg., 10 Groups..............

Malleable Castings:

+40
+24

Total.....................

+14

+25

+18

+15

+19

+35

+18

+ 9

(In thousands of dollars)

+26

Apparel Stores__

BANK DEBITS
Debits to deposit accounts, except interbank accounts

+20

Sept.
1941

Aug.
1941

Sept.
1940

15,514
14,328
16,264
3,700,595
12,570
25,191
9,942
11,154
80,556
38,644
28,756

11,409
13,198
14,163
2,674,049
9,545
17,677
8,236
9,343
59,581
26,918
26,181

Per Cent Change
September 1941
from
Aug.
1941

Sept.
1940

+i

+37

Illinois

SALES OF INDEPENDENT RETAIL STORES
SEVENTH FEDERAL RESERVE DISTRICT
Per Cent Change September 1940 to
September 1941
Illinois
Total All Groups*.....................
Apparel Group...........................
Drug Stores................................
Eating and Drinking Places..
Food Group................................
Furniture-Household-Radio
Group.......................................
Hardware Stores.......................
Jewelry Stores...........................
Lumber and Building
Materials.................................
Motor Vehicle Dealers............

Indiana

Iowa

+20
+33
+14
+11
+14

+21
+26
+ 19
+ 17
+17

+24
+33
+13

+33
+27
+81

+22
+31
+81

+ 17
—21

+16
—20

Michigan Wisconsin

+ 3
— 8

+14

+26
+28
+24
+23
+18

+26
+28
+14
+20
+16

+20
+16
+68

+23
+27
+65

+47
+32
+98

‘Includes classifications other than those listed.
Data furnished by Bureau of the Census, United States Department of Commerce.

Aurora......................................
15,631
Bloomington...........................
14,703
C hampaign-Ur bana..............
16,681
Chicago.................................... 3,772,362
Danville..................................
13,371
Decatur....................................
22,622
Elgin.........................................
10,307
Moline......................................
11,176
Peoria.......................................
83,027
Rockford.................................
40,174
Springfield..............................
30,550
Indiana

Per Cent Change
September 1940 to September 1941
Commodity
Net Sales

Stocks

Accounts
Outstanding Collections

+28
+96
+25
+31
+35
+35
+36
+17
+43

+ 7
+29
+22
+36
+ 2
+ 2
— 3
+15
+ 7

+26
+74
+20
+25
+19
+18
+11
+14
+32

+20
+85
+24
+30
+74
+34
+32
+ 18
+46

Total..............................................

+36

+20

+27

43,167
22,777
11,039
260,768
50,548
29,245

30,981
17,304
8,473
198,764
40,090
22,976

—3

Cedar Rapids.........................
Clinton.....................................
Davenport..............................
Des Moines.............................
Dubuque..................................
Mason City.............................
Muscatine................................
Sioux City...............................
Waterloo..................................

35,095
7,564
25,955
109,433
12,535
11,958
4,487
54,134
24,621

34,292
7,488
26,404
102,441
12,029
12,654
4,360
51,487
24,463

24,853
6,180
21,092
95,022
9,752
9,558
3,708
42,248
18,519

+2
+1
—2

Adrian.....................................
5,232
Battle Creek..........................
18,343
Bay City.................................
16,140
Detroit..................................... 1,337,019
Flint.........................................
32,968
Grand Rapids........................
72,469
Jackson....................................
21,897
Kalamazoo..............................
32,403
Lansing....................................
30,751
Saginaw...................................
30,415

5,251
19,880
15,124
1,339,803
33,646
75,642
21,323
30,494
29,673
29,992

3,991
12,133
11,870
946,600
26,900
55,945
14,948
23,161
23,211
21,538

19,913
9,537
333,906
11,166
24,130

20,342
9,192
342,700
11,255
24,265

15,173
6,689
241,682
8,621
15,908

41 Cities..................................... 6,749,274

6,655,258

4,848,190

Iowa

+36

Data furnished by Bureau of the Census, United States Department of Commerce.
Page 8




+6

41,920
23,058
11,490
278,135
52,529
29,467

Wisconsin

Drugs and Drug Sundries..........
Electrical Goods.........................
Groceries.......................................
Hardware.....................................
Jewelry..........................................
Meats and Meat Products.........
Paper and Its Products.............
Tobacco and Its Products.........
Miscellaneous................................

*

+3
+4

Fort Wayne............................
Gary.........................................
Hammond..............................
Indianapolis............................
South Bend.............................
Terre Haute............................

Michigan

WHOLESALE TRADE
SEVENTH FEDERAL RESERVE DISTRICT

+3
+3
+2
+6
—10
+4

Green Bay...............................
Manitowoc..............................
Milwaukee...............................
Oshkosh..................................
Sheboygan..............................

Seventh District
United States

274 Cities................................. 43,870,000 42,847,000 33,812,000
‘Increase of less than one per cent.
“Decrease of less than one per cent.

+i

+4
+7
+4
+1

+7
+4

—6

+3

+u

+18
+41
+40
+28
+25
+20
+39
+49
+17
+35
+33
+36
+40
+31
+28
+41
+22
+23
+15
+29
+25
+21

+5
+1

+28
+33

**

+31
+51
+36
+41
+23
+30
+46
+40
+32
+41

—8
+7
—2

—4
+3

+6

+4

+1

—2
+4
—3
—1
—1

+31
+43
+38
+30
+52

+i

+39

+2

+30

INDUSTRIAL

PRODUCTION

National Summary of Business Conditions
(By the Board of Governors of the Federal Reserve System)

INDUSTRIAL October.cont*nue(l advances in theinoutput of defensethe first half of
activi*y Further at a high rate September and products were
accompanied by curtailment in some lines of civilian goods, particularly automo­
biles, rubber, and silk. Prices of industrial products increased further but agri­
cultural prices declined after the middle of September, and on October 16 dropped
sharply in response to international developments.

1940

Federal Reserve index of physical volume of production
adjusted for seasonal variation, 1935-39 average = 100. By
months, January 1935 to September 1941.
DEPARTMENT STORE SALES AND STOCKS

SALES

STOCKS

Federal Reserve indexes of value of sales and stocks, ad­
justed for seasonal variation, 1923-25 average = 100. By
months, January 1935 to September 1941.
WHOLESALE PRICES OF BASIC COMMODITIES

V> FOODSTUFFS

1935

1936

1937

1938

1939

1940

1941

Bureau of Labor Statistics’ indexes based on 12 foodstuffs
and 16 industrial materials, August 1939 = 100. Thursday
figures, January 3, 1935 to October 9, 1941.

MEMBER BANKS IN 101 LEADING CITIES

U. S. GOVT OBLIGATIONS

Production—Industrial output increased by about the usual seasonal amount in
September and the Board’s adjusted index remained at 160 per cent of the 1935-1939
average, the same as in July and August. Continued increases in activity were re­
ported in the machinery, aircraft, and shipbuilding industries. At steel mills, activity
in September and the first half of October was maintained at about 97 per cent of
capacity. Output and deliveries of nonferrous metals likewise remained at about
capacity levels, while lumber production declined somewhat from the high August
rate. Automobile production increased less than seasonally in September, following
the changeover to new models, and, according to preliminary estimates, output in
September was considerably below the maximum quota that had been authorized by
the Government.
_ In the textile industry, activity declined somewhat in September, reflecting
mainly a further sharp reduction at silk mills. Activity at wool mills rose to a new
high level, while at cotton mills there was little change from a rate slightly below
the peak reached last May. Shoe production continued in large volume, and
output of manufactured food products was maintained near the peak August level.
Output of chemicals likewise continued at earlier high rates, but at rubber plants
activity was considerably below the level of last summer, owing to curtailment pro­
grams ordered by the Government.
Coal production, which during the summer months had been unusually large,
increased less than seasonally in September, owing in part to temporary work
stoppages at some bituminous and anthracite mines. Crude petroleum production
advanced to record levels in September and the first half of October, and output of
metals and shipments of iron ore down the Lakes continued at about capacity.
Value of construction contract awards declined in September, according to
figures of the F. W. Dodge Corporation, reflecting chiefly decreases in awards for
public projects which had been exceptionally large in August. Awards for private
residential building also declined, while contracts for other private work increased
somewhat further. Total awards in September, as in August, were 80 per cent
larger than in the corresponding period last year. This higher level reflected mainly
a greater amount of public construction, which was nearly three times as large as a
year ago, compared with an increase of about 10 per cent for private construction.
On October 9, the Supply Priorities and Allocations Board announced that,
effective immediately, no public or private construction projects which use critical
materials could be started during the emergency unless these projects were either
necessary for direct national defense or essential to the health and safety of the
nation.
Distribution—Distribution of general merchandise showed less than the customary
seasonal rise in September, following an unusually large volume of sales in August.
During the past three months, sales have been larger than in the corresponding
period of any previous year. In the first half of October, sales at department stores
declined from the peak reached in late September when there were considerable
consumer purchases, particularly of articles subject to higher taxes on October 1.
Loadings of revenue freight in September increased less than seasonally, par­
ticularly those of miscellaneous freight, which have been high in recent months,
and loadings of coal, which were curtailed during part of the month by work stop­
pages at some mines. Shipments of forest products declined considerably from the
high August level.
Commodity Prices—Prices of industrial products continued to advance in Sep­
tember and the first half of October, and Federal price ceilings were announced
for additional commodities, including leading types of lumber, coke, wastepaper,
paperboard, acetic acid, alcohols, and carded cotton yarns. In some cases these
ceilings were below previously existing market quotations. Price advances were
permitted, however, for some other commodities under Federal control. Prices of
cotton and of foodstuffs increased further in the first half of September, but sub­
sequently declined, owing partly to seasonal influences. On Thursday, October 16,
prices of these commodities dropped sharply.
Bank Credit—Commercial loans at member banks continued to rise during Sep­
tember and the first half of October, reflecting in part defense demands. Increases
were substantial both in New York and in other leading cities. Holdings of United
States Government obligations decreased, mainly at banks in leading cities outside
of New York. Excess reserves of member banks showed little change in this period.

Wednesday figures, January 2, 1935 to October 8, 1941.
Commercial loans, which include industrial and agricultural
loans, represent prior to May 19, 1937 so-called “Other loans”
as then reported.




United States Government Security Market—Following a slight decline in the
first half of September, prices of long-term Treasury partially tax-exempt bonds
increased during the latter half of September and in the first part of October. The
yield on the 2% per cent bonds of 1960-65 reached a new record low of 2.01 per
cent in October. Prices of taxable bonds moved within a relatively narrow range
during the period with yields slightly above previous low levels.




SEVENTH FEDERAL

I OVA

RESERVE DISTRICT


Federal Reserve Bank of St. Louis, One Federal Reserve Bank Plaza, St. Louis, MO 63102