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Business conditions in the Philadelphia Federal Reserve District FEDERAL OF RESERVE BANK PHILADELPHIA January 2, 1918 HE industries of this district which are engaged in the produc tion of materials and supplies needed by the Government for war purpose liave been tu n in g to, a.-* near capacity as pos sible. Other, industries, however, have felt to a considerable extent the factors, of labor shortage and transportation. difficulties which have been cutting ds wjv their output; in addition, they have been unable to meet the wages which the munition factories offer, and the demand for their products has decreased, so their position is far from satisfactory. T Railroad situation Referring to the railroad problem and the solution of the country’s transportation diffi culties, we are in receipt of a most interesting letter from one of the Vice-Presidents of the principal railroad system in this country, who says in substance, that the present necessities of the railroads are as follows: 1— Immediate increases in rates to meet increasing operating expenses and to strengthen railroad credit are imperatively necessary, because for years the railroads have been deprived of remunerative rates sufficient to give them a proper credit basis and to enlarge their plants to meet the growing traffic of the country. There is no railroad problem, outside of the need of rates to meet the tremendous increase in the cost of materials, labor and other expenses. As a new development, there is the further problem of securing capital to meet maturing obligations and to provide additional equipment and facilities, because the Government has absorbed the money market. 2— The present congestion of traffic has arisen from the causes specified above in item 1 and because of the world wide war, with the consequent tremendous expansion of our industrial, agricultural and mining activities. This situation, however, should soon correct itself to a large extent because most of the troops have been moved; cantonments are nearly completed; many of the shipyards are built; a regular service for camp supplies has been inaugurated; and the northwest has been relieved of its coal shortage. 3— Most of the railroads need more locomotives immediately and enough new cars to replace those worn out. There are approx imately 3,800 locomotives and 33,000 cars on order for American railroads, but they have not been delivered. Government priority orders are essential for prompt delivery of such equipment. A— Approximately 2,000 locomotives and 150,000 cars in addition to those now on order will be necessary to meet the require ments of next year. Tnis r, more than the railroads usually require each yeai and represents a cost of approximately $500,000,000 5— Railroad men should be drafted and assigned to railroad service until actually needed for military service; this applies especially to firemen and skilled shop men, wlic become expert only after considerable experience. The rates heretofore allowed the rail roads have ro« allowed a proper margin Vc keep the best work men in the service, so they have taker, positions in other indus tries at higher wages. Any congestion which now exists cannot be remedied com pletely under any form of control or money expenditure. It results from an unprecedented war in which we are trying to equip and feed ourselves and several other nations as well. No complaint can be made as to the lack of efficiency of the railroads. For several months they have handled 50% more busi ness than in 1915 without material enlargement of plants. They do not need a billion dollars or any other sum like it to meet their financial necessities. Railroad maturities during 1918 will be in the neighborhood of $250,000,000; this and other necessities must be met. The repeal of the Anti-Trust Act and the Anti-Pooling Laws are not essential at present to produce maximum efficiency, but they should never have been applied to railroads, because railroad rates and activities are uniform and are regulated by Federal and State commissions. It may, however, be desirable to have these subjects considered, so that, directly or indirectly, there may be no obstacle, legal or otherwise, to the railroads unifying their operations and facilities and combining for that purpose to help win the war and serve the American people. No matter what kind of Government control or policies may be instituted the eastern railroads will require increased rates. Coal The supply of coal is in no way equal to the demand and many industries, including even some of those which pro duce war materials, have been forced to shut down, at least tempo rarily, due to their inability to secure fuel. That the production of coal has not lessened but is greater than ever before is shown by the fact that the Reading, Pennsylvania, and Baltimore and Ohio Railroads transported a total of approximately 85,000,000 tons of bituminous coal during the first eleven months of 1917 as compared to 80,000,000 tons during the same period in 1916. As a natural consequence, the supplies which are reaching each locality are likewise larger, but the demand has so largely increased, that the net result is, to all intents and purposes, a coal shortage. The output of the central Pennsylvania fields of late has aver aged from 80 to 85 per cent of their possible capacity. The chief cause of this loss, as shown by Government reports, was the in ability to secure a sufficient number of cars. Solid trainloads of coal have been shipped and are being shipped, but they become tied up at some congested point and only serve to emphasize the lack of adequate transporation facilities. The extent of this short age of cars available for coal carrying can be judged from the fact that many mines are getting less than 15 per cent of their car allot ment. It has been hard to secure sufficient labor, and, in addition, the mines are having great difficulty in holding the men now in their employment due to the alluring wages offered elsewhere. An increase in the production of coal can only be secured by giving coal priority in shipment over other articles of commerce and furnishing an adequate supply of cars to the mines. Government officials are doing all in their power to make these things possible, and it is hoped that the situation will be improved in the near future. Primarily the situation depends upon the right solution of the transportation Commodity Tft<* index nurrH?er of commodity prices as givferi'to# t t a * Statistical agencies in this country are somewhat at variance, as may be seen by the following comparison: Dec. 1 1916 D u n s .................................... 168.090 Bradstreet’s ......................... $13.6628 Annalist ............................... 209.797 Nov. 1 1917 Dec. 1 1917 220.750 $17.0701 278.006 220.172 $17.8113 280.655 It would seem, however, that we have about reached the high level in commodity prices. There may be some increase in the future, but as the Government gets a stronger hold on the situation by means of price regulation, it may be expected that prices will prob ably remain more nearly stationary in the future than has been the case during the last two years. Crops The crops raised in this district during the year 1917 were very large. According to the Pennsylvania State Depart ment of Agriculture, the five cereal crops show an excess of 8,560,417 bushels over the 1916 crops. All of the cereals show in creases, but oats present the largest gain. This showing is remark able in view of the scarcity of labor, which has been such an impor tant factor throughout the year. At the present time, the farmers are prosperous and ask for little accommodation at the banks. The labor situation is their chief concern, and owing to this it appears that the acreage planted in winter wheat is not quite up to what was hoped. The Lancaster county tobacco crop is nearly all sold. The small amount which remains in the hands of the growers is held in the hope of getting 30 cents a pound. The season has been marked throughout by prices beyond all precedent. Food storage In our last report, we indicated that the cold storage holdings of various dairy products and eggs were in excess of the holdings in the same month of 1916. As compared to December 1, 1916, there was an increase of 92 per cent in the holdings of American cheese on December 1, 1917; eggs—28 per cent increase; and creamery butter—9 per cent increase. Christmas Our inquiries last year as to the amount of savings funds “ Christmas Savings Fund” payments by banking institutions in this district resulted in such inter esting returns that we continued our inquiries this year. Replies were received from only 74 per cent of the banking institutions. Four hundred and thirty-four institutions reported payments to depositors amounting to over $10,200,000, and depositors to the number of 359,186, or an average of $28.30 each. figures for 1917 and 1916 follow : N um ber o f B an ks P er In Reply” d is t r ic t in g reP1y ' B an ks R e p o rtin g N um ber o f No F u n d ," D e p o s ito r s fu n ds Comparative A m ou nt o f D e p o sits 1917 National banks . . State institutions.. Totals .............. 628 427 511 266 81% 236 61 • 107 275 159 155,940 203,246 1055 777 73% 434 359,186 $10,200,393.35 343 $4,642,774.59 5,557,619.16 1916 National banks . . State institutions.. 632 361 576 296 91 82 303 1 12 273 184 $3,948,319.00 5,447,525.00 Totals .............. 993 872 88 415 457 $9,395,844.00 Retail trade Outside of Philadelphia reports indicate that Christmas trade has not been up to normal, it be ing asserted that the people are economizing more and more. In Philadelphia, however, it is stated that trade has been good. There seems to be the strongest demand for materials and articles of a medium quality. An official of one of the largest department stores states that the rich have not been buying as costly articles as for merly, and that those who had previously favored cheaper articles have been purchasing goods of better quality. The dry goods trade is said to be abnormally good with a shortage in all kinds of colored cotton goods and consequently higher prices. General industrial conditions Following the suggestion of some of the leading wool organizations, the W ar Trade Board promulgated regulations which placed restrictions on importations of wool. Under these regula tions the Government is to take an option on all imported wool at a price 5 per cent below the basic price at Boston on July 30, 1917. One of the effects to be expected from these rulings is the curbing of speculation in wool, which is without a doubt to be desired. At present the wool market rules quiet and prices remain firm. Stocks are very light and offer a rather poor selection to the buyer. The cotton yarn market during November was marked by a distinct wave of buying which has somewhat receded of late. Prices, however, have been more than maintained, though it is ex pected that they will recede somewhat after the first of the year. The cotton goods market is adjusting itself to war conditions. Trade in fancy cotton goods has fallen off considerably, but there is a strong demand for the simpler products. The Government has ordered so much of the output of the knitgoods manufactories for delivery during the first half cf 1918 that very little of the product has appeared on the market, and then only at large increases in price. The manufacturers of silk goods report that the market is still quiet, since buyers will not order ahead until they are more certain of the trend of demand and prices. It is expected that after the first of the year the demand will be stronger. Reports from the leather market give emphasis to the funda mentally strong position of good leather, due to the tremendous world demand and a lessened world supply of leather and leather materials. Buyers of footwear for civilian use, however, have not been so urgent in their demands of late, which is to be expected until after the holiday season. At this date the shipyards along the Delaware River have on hand Government contracts for 272 vessels of an estimated tonnage of 2,240,000. Eleven shipyards in this vicinity are now employing 44,000 men, and ultimately hope to increase their force to 84,000. The nature of the stupendous amount of work which the yards are facing can be judged from the fact that one of the plants now being erected must construct 120 ships in 20 months, or an average of 6 a month. Iron and steel It is reported that operating conditions among the eastern Pennsylvania steel mills and blast furnaces are the worst that have been experienced since the begin ning of the European war. The plants of some of the largest steel companies, which heretofore have been fairly free from serious difficulties, are now troubled by shortage of coal and coke, and in some cases production has been cut down to 50 per cent and less. Among the smaller mills the situation is reported to be still more serious. The steel makers have so far been unable to see any per manent relief in sight which will give them a better supply of coal and coke. Unless the situation is much improved, the shortage in steel products will seriously hinder our war program. Orders can be had in great quantity, but the companies cannot guarantee de livery at particular dates. The market is rather quiet, and nothing of importance has developed within the last month. The port Exports from the port of Philadelphia in November amounted to $32,000,000, a decrease of 49 per cent as compared to October and 22 per cent as compared to November of 1916. Imports amounted to $4,000,000, a decrease of 6 per cent from the figures for October and 31 per cent below November, 1916. Petroleum and lumber made up the bulk of the imports. The reasons advanced for this decrease in our foreign trade are the great scarcity of ships and the embargoes which have been placed on trade with neutral countries. Building operations Building operations have fallen off sharply throughout the district. A list of twelve important cities in this district in Bradstreet’s shows build ing permits issued amounting to $2,322,662, as compared to $5,864,127 in November of 1916. In Philadelphia, building permits during November amounted to $1,712,520, which is a decrease of 15 per cent from October. For the first eleven months of 1917, there was an average decrease of $1,000,000 per month in the amount of building permits issued in Philadelphia, as compared to the first eleven months of 1916. The building situation has been rendered more difficult by the commandeering of sand and gravel supplies by the Government. M oney The money market has been rather quiet with a slight increase in rates. The Federal Reserve Bank has made some increases in discount rates during the last month, amounting in no case to more than y2 per cent. The market rate for call money is 6 per cent, and the rates for commercial paper 5y2 to 6 per cent. Bank clearings in the district fell off slightly during November. The national banks in Philadelphia reported net profits of 27.2 per cent for the year ending November 20, 1917, which were close to the best figures ever attained. FINANCIAL INDICATORS D ec. 17, 1 91 7 I Percentage increase or decrease compared with -----------+ : ------------------- ---------------------------- — Previous month Last year Philadelphia banks: Loans .............................. Deposits . . . ................... $588,129,000 640,987,000 Federal Reserve Bank: Discounts and collateral loans ........................... Cash reserve .................. 90-day discount rate. . . 34,819,052 49% 4!/2% + 116 - 26 4% +463 9 4% 5V 4 % 5|/2% 41/ 2 % Commercial paper.............. November, 1917 - + + 4 5 8 2 Percentage increase or decrease compared with Previous month Last year Bank clearings: In Philadelphia.............. Elsewhere in district. . . $1,532,681,531 99,531,560 - . 2 9 + + 20 17 Total ........................... $1,632,213,091 - 3 + 20 32,309,000 4,106,000 - 49 8 - 22 31 1,712,520 - 15 - 62 1,077,1 15 + 11 + 30 Port of Philadelphia: Exports................ Imports.............. Building permits in Philadelphia ................ Post-Office receipts in Philadelphia .............. Commercial failures in district (per Bradstreet's) . (Actual) 60 F ederal R eserve (Actual) 65 Bank of R ichard L. A u s t in , (Actual) 86 P h il a d e l p h ia Chairman Compiled Dec. 2 8 , 1 9 1 7 The purpose of this report is to provide member banks and the business community in general with a brief monthly review of prevailing business conditions in this particular Federal reserve district.