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MONTHLY REVIEW
o Ce it a dB s e sCn itio s
f r d n uin s o d n
S e c o n d

F e d e r a l

Federal R eserve Bank, New Y ork

M o n e y M a r k e t in M a rch
Treasury announcements and operations relating to
the financing of the defense program together with
income tax collections were the dominant influence in the
money market during March.
During the past month the Treasury made two major
announcements concerning the financing of the budget­
ary deficit, arising in large part from the National de­
fense program. The first of these announcements was
in the form of an offering of $500,000,000 or thereabouts
of 2 % per cent Treasury bonds of 1952-54 for cash sub­
scription, coupled with an offer to exchange for the 1 %
per cent Treasury notes maturing June 15, 1941, out­
standing in the amount of $504,000,000, Treasury bonds
of the new issue or % per cent Treasury notes, dated
March 15, 1941 and due March 15, 1943. The offering
of new bonds was heavily oversubscribed and allotments
were made on the basis of 8 per cent of subscriptions,
except that subscriptions for amounts up to and includ­
ing $5,000, where the subscribers specified that delivery
be made in registered bonds 90 days after the issue date,
were allotted in fu ll; likewise, 95 per cent of the Treas­
ury notes maturing June 15, 1941, were exchanged for
the new issues— to a very large extent for the new bonds.
Shortly after this “ market” financing was announced,
the Treasury issued a statement regarding new issues of
United States Savings Bonds and Stamps which have
been planned to help in financing the National defense
program. Sales of Oovernment securities to individuals
afford an opportunity for more active use of the existing
large volume of idle deposits in the banks (and pos­
sibly of some of the currency outstanding in the hands
of the public), and avoid the creation of additional
deposits in the banks which occurs when Government
securities are purchased by the banking system. The
new securities will also provide a means of employing
new savings in the financing of the defense program.
On this point, the Secretary of the Treasury, when an­
nouncing the program of sales of Savings Bonds and
Stamps, stated, “ the Government must do more than
find billions of dollars. It must find these dollars in a
way that will best safeguard the nation against the evils
of inflation, and will give all American citizens a sense
of taking a direct part in the defense of the country.”
The announcement of the Savings Bond program received
widespread favorable comment in the press, and it is
expected that sales of the bonds will be steady and sub­




R e s e r v e

D is tr ic t
A p ril 1, 1941

stantial. Three kinds of United States Savings Bonds
will be sold beginning May 1:
1. A Defense Savings Bond (similar to the present United
States Savings Bond, which it w ill be replacing) w ill be offered
at a discount, w ith a m aturity of 10 years, and w ill provide
an interest return of 2.9 per cent per annum, compounded
semiannually, i f held to m aturity; it is intended chiefly fo r
people of small income, ownership being restricted to in di­
viduals in their own right, with a lim it upon holdings of $5,000
m aturity value of bonds issued in any one calendar year.
These bonds w ill be in denominations of from $25 to $1,000
m aturity value.
2. A Series F Savings Bond, also sold at a discount, with
a m aturity of 12 years, providing a yield o f approximately
2.53 per cent a. year i f held to m aturity; i t can be held not
only by individuals but by trustees, associations, pension funds,
and corporations, with a lim it of $50,000 cost price of bonds
issued in any one calendar year, alone or in combination with
Series G bonds. Denominations w ill be from $100 to $10,000.
3. A Series G Savings Bond, to be issued at par, with 2%
per cent interest payable semiannually during its 12 year term ;
i t may be purchased by individuals and others, the same as
the Series F, up to a total of $50,000 cost price issued in any
one year, alone or in combination with Series F bonds. De­
nominations of this series also w ill be $100 to $10,000.

The bonds of these three series are not transferable but
may be redeemed prior to maturity in accordance with
redemption values which have been fixed to give induce­
ment to holders to retain their bonds to final maturity;
if redeemed prior to maturity, yields will be less than
if the bonds are held to maturity. The Savings Stamps,
announced at the same time as the new issues of Savings
Bonds, represent a new series of Postal Savings Stamps,
priced at 10 cents, 25 cents, 50 cents, $1, and $5 which,
when accumulated by holders in sufficient amounts, can
be exchanged for the Defense Savings Bonds.
Market movements of bond prices in March reflected
further adjustments between the “ tax exempt” and
“ taxable” classes of Government securities and between
these obligations and corporate and municipal securities,
as well as a reappraisal by investors of the appropriate
interest rate levels, under present circumstances, for
Federal Government and other issues. The net result
of these movements was some rise for the month in aver­
age prices of “ tax exempt’ ’ Treasury bonds, strong
advances in the two market issues of taxable Treasury
bonds dated March 15 and March 31, and a decline in
average prices of high grade domestic corporate bonds.
With respect to Treasury transactions during March
affecting the reserve position of the member banks, the
principal operation was quarterly income tax collections

26

MONTHLY REVIEW, APRIL 1, 1941

which, on the basis of figures through the first 27 days of
the month, apparently approximated $1,200,000,000 for
the month, or some 80 per cent more than was collected
in the same period of last year. The size of the March
tax collections gives striking evidence of the substantial
yield of existing income tax rates and provisions at the
rising levels of National income. If collections continue
at the same rate during the remainder of the current
fiscal year, it appears that the total for the year ended
June 30, 1941 will be some $350,000,000 more than was
estimated in the budget presented to Congress last
January.
Largely as a result of income tax collections during the
week ended March 19, supplemented by the sale of
$100,000,000 more of Treasury bills than matured, Treas­
ury receipts far exceeded Treasury disbursements, includ­
ing payment of interest on the public debt, and conse­
quently Treasury deposits in the Eeserve Banks rose
$490,000,000 to a total of $913,000,000 on March 19. The
flow of funds into Treasury deposits in the Reserve Banks
and some loss of reserve funds through other transac­
tions resulted in a decrease in excess reserves of the
member banks to $6,010,000,000 on March 26, the lowest
figure since April of last year.
A further large rise in Treasury deposits in the Reserve
Banks, and concurrent decline in excess reserves of the
member banks, occurred on March 31, when payment
was due for the new issue of approximately $500,000,000
of 21 per cent Treasury bonds of 1952-54, but in forth­
/2
coming, weeks Treasury deposits in the Reserve Banks
are expected to decline fairly rapidly, as National de­
fense expenditures and the other running expenses of
the Government are met. Consequently, bank reserves
should tend to rise again. However, the amount of cur­
rency outstanding has continued to increase, rising above
the Christmas peak of last year to new high levels, and
reserve requirements of the banks may be expected to
rise, following the temporary decline during the week
ended March 19, as further increases in bank deposits
are in prospect owing to expansion of bank loans and
investments and to Government expenditures. These
two factors will probably operate partly to offset the
effect on member bank excess reserves of the disburse­
ment of funds by the Treasury and of moderate gold
imports.
G o v e r n m e n t S e c u r it ie s

Treasury bond prices continued to move irregularly
upward in the first half of March, and on the 15th the
price average for the longest term “ tax exempt” Treas­
ury bonds was only 1 % points below the record high of
December 10, 1940. Subsequently quotations for tax
exempt bonds tended somewhat lower as the main buying
interest shifted to the newly offered taxable 2y2 per
cent bonds and to some extent to the 2 per cent Treasury
bonds of 1948-50 which were issued March 15 in exchange
for maturing Treasury notes, and there were indications
of switching transactions involving the sale of tax ex­
empt issues. Later in the month, however, a firm tone
developed in both the taxable and tax exempt bonds.
The average price of tax exempt issues closed with a net
gain of 1 point for the month, and the newly issued




2 and 2 % per cent taxable issues closed at 101% and
1 0 2 1/4 , respectively.
The average yield on 3 to 5 year tax exempt Treasury
notes fluctuated within a comparatively narrow range
during March, but was somewhat lower in the second
half of the month after the Treasury financing was
announced. Similar movements occurred in yields of
the taxable % per cent National Defense note issues
of 1944 and 1945.
The Treasury bill issues of March 5, 12, and 19 were
offered in the amount of $200,000,000 a week. Of the
funds so obtained, $100,000,000 each week was used to
retire maturing bills, the other $100,000,000 representing
“ new money.” The issue dated March 5 was awarded
at an average rate of 0.086 per cent, that of March 12
at 0.120 per cent, and that of March 19 at 0.117 per cent.
In the following week the Treasury bill offering was
reduced to $100,000,000, the amount of currently matur­
ing bills. This issue, dated March 26, was awarded at
0.065 per cent.
Money Rates in New York
Mar. 30, 1940 Feb. 28, 1941 Mar. 31, 1941
Stock Exchange call loans......................
Stock Exchange 90 day loans................
Prime commercial paper 4-6 m onths...
Bills— 90 day unindorsed........................
Average yield on Treasury notes (3-5
years).......................................................
Average yield on Treasury bonds (not
callable within 1 2 years).....................
Average rate on latest Treasury bill
sale, 91 day issue..................................
Federal Reserve Bank of New York
discount rate..........................................
Federal Reserve Bank of New York
buying rate for 90 day indorsed bills

1

1

*134
K -M

*1H
V 2 -H

1
* 1 Vs
V2-5
A
V*

7
/ie

7
/ie

0 .4 0

0.49

2 .2 1

2.16

2.09

t

0.043

0.065

1

1

1
H

0 .5 0 f

M

* Nominal.
J Negative yield.
tChange of + 0 .0 1 per cent from previous yields due to dropping from the
average the 1 per cent Treasury note issue of March 15, 1944, which matures
within three years.

Security M a rk e ts
No major change occurred in prices of domestic stocks
and medium grade bonds during March. Fluctuations
in the average price of common stocks included in Stand­
ard’s 90 stock index were within the narrowest monthly
range since December, the spread between the March
high and low amounting to only 3 per cent. Reflecting
particularly firmer tendencies in second grade railroad
obligations, medium grade corporate bonds (as measured
by Moody’s price average for Baa issues) moved up
during the month to attain a new high. Daily average
sales of stocks of about 430,000 shares were at around
the same low level as in February.
Prices of the highest grade corporation bonds receded.
After showing little change in the first part of the month,
the average price of domestic corporate bonds, classified
as Aaa by Moody’s Investors Service, dropped 1 % points
between March 18 and 27 to reach the lowest level since
September, 1940, but at this point the average price was
only Z1 points below the record high of last December.
/^
Prime municipal bond prices strengthened somewhat
during March. The volume of bond trading, accelerat­
ing towards the end of the month, was heavier than in
February.

FEDERAL RESERVE BANK OF NEW YORK
Central B ank R a te Changes
The discount rate of the Bank of France, as well as
the rate for thirty day loans on the collateral of Gov­
ernment securities, was lowered from 2 to 1 % per cent,
effective March 17. The higher rate had been in force
since January 4, 1939, and the present rate is the lowest
since the bank was founded.
Effective March 31, the discount rate of the Bank of
Portugal was lowered from 4 % to 4 per cent, the former
rate having prevailed since February 20, 1941.
Recent publications report that the Bank of Mexico
on January 2 established uniform rates of 4 per cent for
first class bills (more than one solvent signature, or one
such signature with collateral), and 5 per cent for sec­
ond class paper (one solvent signature without collateral,
or collateraled paper with no solvent signature), with
a maximum maturity of 180 days. Previously there had
been sixteen different rates, ranging from 3 to 7 per cent,
for paper maturing within 180 days.

27

scope of the free market, continued to decline sharply
during the early part of the past month, touching a five
month low of $0.2295 on March 5. Some renewed de­
mand subsequently became evident, however, and the
free rate for the peso held at about $0.2315 throughout
the second half of the month. On March 7 the first auc­
tion of foreign exchange available for “ nonessential”
imports into Argentina was held in Buenos Aires under
the new exchange regulations. Average bids of 4.521
and 4.714 pesos to the dollar (equivalent to $0.2212 and
$0.2121 per peso, respectively) were reported for the
tenders; the dollar exchange for which tenders were
invited was apparently divided into two categories ac­
cording to the degree of desirability of the imports
involved.
These rates compared with official selling
rates for foreign exchange, applicable to “ essential’ ’
imports, corresponding to $0.2680 and $0.2365 per peso.
Among the Far Eastern currencies, the Shanghai or
National Chinese yuan showed an easier tendency
throughout the month, receding from 5 % to about 5 %
cents.

G old M o v e m e n ts
March imports of gold into the United States were
somewhat larger than in the previous month, and the
increase in the gold stock was about $135,000,000. Gold
held under earmark for foreign account at the Federal
Reserve Banks at the end of the month, amounted to
approximately $1,905,000,000, unchanged from the fig­
ure at the end of February.
For the four weeks ended March 19, the Department
of Commerce reported the receipt of $192,300,000 of
gold in the following principal amounts: $160,800,000
from Canada, $11,200,000 from Russia, $6,700,000 from
Australia, $3,600,000 from the Philippines, and $2,700,000
from South Africa.
Foreign E xch anges
Aside from the extension during March of the Treas­
ury ’s ‘ ‘ freezing ’ ’ regulations to cover all Bulgarian,
Hungarian, and Yugoslavian property in this country
and the elimination of the currencies of these countries
from the list of those still traded in here, the principal
foreign exchange development of the past month was
provided by the Cuban peso, which appreciated sub­
stantially against the dollar. The discount on the Cuban
currency, after having been as much as 7 % per cent
during the latter part of February, narrowed steadily
to 314 per cent on March 28, the smallest discount on
the peso since May, 1939. This improvement appears
to have reflected several factors, including expectations
of an Export-Import Bank loan to finance the sugar
surplus and seasonal strength associated with the export
of sugar. Considerable stimulus was offered toward the
end of the month by reports that the British were nego­
tiating for the purchase of 200,000 tons of Cuban raw
sugar. The amount would represent about one-half this
year’s estimated surplus.
The free rate for the Argentine peso, which had de­
clined to $0.2345 at the end of February as the result
of new Argentine exchange regulations limiting the




N e w F inancing
Corporate and municipal new security flotations dur­
ing March aggregated $290,000,000. Corporate financing,
which totaled $175,000,000, included about $64,000,000
of issues for new capital purposes. In general, the cor­
porate security offerings moved somewhat slowly but
the larger municipal flotations were rapidly taken up by
investors.
Unsettled conditions in the security market were cited
as the reason for abandonment by the Standard Oil Com­
pany of Ohio of a proposed issue of 150,000 shares of
preferred stock and for the continued deferment by the
Republic Steel Corporation of a public offering of
$90,000,000 of bonds and debentures. Toward the close
of the month, the Pacific Gas and Electric Corporation
issued $20,000,000 of bonds for new capital purposes,
having decided against its earlier plan of a $110,000,000
operation, primarily refunding in nature. Among the
other issues sold to raise new capital were $15,000,000
Commercial Investment Trust Corporation notes,
$14,900,000 Philip Morris and Company preferred stock,
and $7,800,000 Monsanto Chemical Company preferred
stock. Issues for refunding purposes included $30,000,000
Wheeling Steel Corporation bonds and $24,800,000 Publice Service Company of Oklahoma bonds and preferred
stock. The $35,000,000 State of Arkansas issue publicly
offered on March 19 represented a portion of the
$90,000,000 of bonds sold to date by the Reconstruc­
tion Finance Corporation from its original block of
$136,000,000 purchased last month.
The Columbia Gas and Electric Corporation has filed
with the Securities and Exchange Commission an appli­
cation for approval of the issuance of $120,000,000 of
new securities chiefly for the purpose of refunding out­
standing 5 per cent obligations. The trustees of the
Associated Gas and Electric Corporation have been
authorized by a Federal court to take the necessary
steps toward effecting the refinancing of about $37,000,000
of Virginia Public Service Company securities.

28

MONTHLY REVIEW, APRIL 1, 1941

REFUNDING

NEW CAPITAL

M on th ly A v e ra g e V olu m e o f D om estic C orp ora te S ecu rity Issu es fo r
R efu n d in g and fo r N ew Capital (In m illion s o f d o lla rs ; first
q u arter 1941 data p relim in a ry)

As is indicated in the accompanying chart, the monthly
average volume of corporate financing in the first quar­
ter of 1941 was considerably less than in the preceding
quarter, $254,000,000 as compared with $347,000,000,
but still well above the monthly average of every full
year since 1936. A less favorable comparison is shown
by the monthly average of issues for new capital pur­
poses which amounted to only $50,000,000, or about
one-half the volume of the previous quarter.
B usiness Profits
The high level of business activity which prevailed
during 1940 was only partially reflected in increased
corporate profits, owing primarily to the heavier tax
burden imposed on corporations under the two revenue
acts of 1940. Aggregate net profits during 1940 for
1,099 industrial and mercantile corporations, shown in
the accompanying table, were 19 per cent higher than
in 1939 and were about equal to net profits in 1937.
Largely as a result of higher tax deductions, profits of a
list of companies whose figures are available on a quar­
terly basis, which had shown large increases over a year
previous in the first half of 1940, were slightly smaller in
the last quarter of the year than in 1939, despite the
higher level of business activity.
The statements of a selected list of 154 industrial and
mercantile corporations, whose figures were readily
available, indicate that reserves for Federal taxes set
aside in 1940 were over two and one-half times the
1939 total and accounted for 33 per cent of aggregate
net profits before taxes, as against approximately 18
per cent in each of the three preceding years. Compared
with the year 1937, net profits before Federal taxes of
the 154 companies were 25 per cent greater, Federal
taxes were 124 per cent higher, and net profits after
taxes increased only 3 per cent.
With respect to the individual groups listed in the
accompanying table, sharp year-to-year profit gains were
recorded by those durable goods industries such as auto­
mobile parts, aircraft manufacturing, building supplies,
copper and brass fabricators, electrical equipment, ma­
chinery and machine tools, railroad equipment, ship­
building, and steel and iron, in which the normal sales
were greatly augmented by orders connected with the
National defense program. In the case of some com­




panies in the durable goods groups it was not necessary
to make provision for excess profits taxes, owing to
the large amounts of invested capital on which an 8
per cent return is allowed under the Second Revenue
Act of 1940 before an excess profits tax must be paid.
On the other hand, in some other companies in the
durable goods industries, and in many companies in
the nondurable goods groups where fewer defense orders
were placed, taxes were relatively more burdensome and
net profits were either lower than a year previous or
only slightly higher., Most of the groups of companies
producing food products, household supplies, leather
and shoes, metal and glass containers, and silk and rayon
showed profits somewhat below those of 1939, and profits
of the chemical, clothing, petroleum, and tobacco com(Net profits in millions of dollars)

Corporation group
Advertising, printing, and pub­
lishing ......................................
A utom obiles................................
Automobile parts and accessories
Aircraft m anufacture...................
Building supplies:
Brick, glass, and gypsu m ------C em ent........................................
Hardware.............................. ..
Heating and plum bing.............
Lumber and roofing p rod u cts..
Paints and varnishes................
All other......................................
Chemicals........................................
Containers (metal and glass).. . .
Copper and brass fabricators.. . .
Drugs and cosmetics.....................
Electrical equipment.....................
Food and food products:
Bakery..........................................
Beverages....................................
Confectionery.............................
Dairy p ro d u cts..........................
Flour milling and cereal pro­
ducts .........................................
Meat packing..............................
All other......................................
Household supplies:
Electrical goods............... ..
Furniture and floor covering. .
All other................................
Leather and shoes...................
Machinery:
Agricultural..........................
Machine tools.......................
Store and office equipm ent----Industrial machinery and ac­
cessories........................... ..
Mining:
C oal............................................
Copper............................... ........
Gold and silver................ ..
All other....................................
M otion p ictures...........................
Paper, pulp, and allied products .
Petroleum..................................
Railroad equipment................
Retail trade:
Department and apparel stores
Food stores...........................
Mail order houses...............
Variety stores.......................
All other................................
Rubber and tires.....................
Shipbuilding..............................
Steel and i r o n ..........................
Textiles:
C lothing.................................
Silk and ra y o n .....................
All other................................
T ob a cco......................................
Transportation:
A ircraft..................................
Shipping................................
Miscellaneous...........................
T otal, 54 groups.
Class I railroads, net in co m e ...
Telephone companies, net oper­
ating incom e.. .....................
Other public utilities, net income

-D
eficit.

No. of
cos.
14
13
73
15

20
14
1
1
14
16
9
9
39
9
9
14
35

14
25

1
1
1
1
1
0
13
21
15

1
1
20

1937

1938

1939

1940

14.3
259.1
6 1.0
9 .9

11.5
103.1

16.6
228.6
52.4
21.7

17.6
249.3
7 6.4
53.9

3 9.6
8 .7
7 .5
2 7.5

16.2
4 .9

3 1.6

3 7.0

5 .9
16.8
9 .5

7 .0
22.4
12.4
9 .9
7 .4
184.5
40.7
11.4
34.2
135.6

2.0

16.3

1.8

10.2

10.2

190.0
43.3

3 .0
4 .5
5 .0
4 .7
114.7
30.1

7 .0
180.1
4 2 .5

32.2
129.2

3 0.6
55.5

34 .5
93.1

22.2
64.4
20.0
22.0

25.8
6 1.8
18.4
23.6

24.3
7 0.3
2 2.7
28.1

21.5
67.5

25.4
9 .7
3 1.4

36.1
- 3 .4
2 6.6

3 8.0
14.3
29.9

34.5
16.9
3 4.1

11.6
10.4
8.8
6.0

-2.8

10.0
6.0

20.8
2 5.5

9 .1
14.3

3 .4
1.3

7 .6
14.1

6 .9
13.3

3 7 .2

2 7 .4

3 9 .8

3 6 .5

15

10.7

3 .8

13.2

10.5

1
2

3 8.0
2 .4
20.9

3 1.9

6.8

16

7 4.3
9 .1
3 0.5

2 1.3

52.7
14.7
26.9

103

82.1

29.1

53.2

77.5

18
13
17
15

2 .5
138.6
4 0.5
83.7
5 0.6
3 5.6
262.5
5 4.8

- 4 .5
69.1
35.3
50.9
3 3 .8
17.1
131.4
-0 .9

- 2 .5
103.2
35.7

10.3
127.9
33.1

3 9.2
2 7.5
151.7

45.9
36.2
162.3
4 2.6

23.2
11.0
45.7
51.7
6 .7
23.1
3 .9
- 4 .2

29.1
17.9
67.3
58.3

17
13
7
57

24.1
11.5
53.9
6 2.8
10.9
2 7.2
2 .4
246.7

40.6
7 .3
155.2

30.3
15.7
62.1
52.8
12.7
40.6
16.3
291.0

20
19

5 .6
13.3
5 .5
9 7.1

0 .7
7 .1
- 9 .3
93.3

8 .9
16.3
11.7
96.2

9 .4
15.4
14.4
99.6

4
48

- 1 .5
2 .3
17.0

- 1 .3
0 .4

12.2

1.9
2 .3
18.2

5 .0
15.8

1,099

2,569.1

1,312.7

2,170.5

2,577.7

136

98.7

121.3

9 4 .7

191.1

94
69

226.8
252.5

209.8
226.9

239.3
256.0

243.3
265.2

1
0

44
55
24

13
17
5

1
1

22
24

68.8
21.1

12.6

66.0

2.6

FEDERAL RESERVE BANK OF NEW YORK

29

panies were only slightly higher. Coal mining companies
as a group had a substantial net profit in 1940, whereas
they showed an aggregate deficit in the previous year.
Generally speaking, those industries in which defense
contracts are largest also showed sizable gains in profits
as compared with 1937. In addition, however, net profits
of most of the food manufacturing groups, although
below 1939 levels, were higher than in 1937. Gains over
that year were also shown among the textile and retail
trade groups. In summary, of the 1,099 companies
listed, 500 producing durable goods had net profits in
1940 some 7 per cent above 1937, 128 concerns provid­
ing services showed a similar gain, while net profits of
408 companies producing nondurable goods and 63 mining
companies were 5 per cent and 11 per cent, respectively,
lower than in 1937.
Reflecting a considerably higher level of traffic, net in­
come of 136 Class I railroads in 1940 totaled $191,000,000,
an amount more than twice as large as the 1939 earnings
and the largest for any calendar year since 1930. Net
operating income of large telephone companies and net
income of other public utilities increased moderately
during the year and reached the highest levels since 1931.

United States increased by over 260,000 persons during
February, reaching a total of 36,600,000. The estimate
for February, 1940 was 34,400,000. Although most of
the rise over January is attributable to the gains in fac­
tory employment, all major employment categories shared
in the increase. In each of the forty-eight States employ­
ment was at a higher level than a year ago. Military
and naval forces (not included in the estimates of non­
agricultural employment) increased 187,000 during the
month to 1,145,000. There were 450,000 persons at­
tached to the military and naval forces in February,
1940.
As strikes in defense industries mounted in frequency
and importance, President Roosevelt announced on
March 19 the creation of a National Defense Mediation
Board “ to assure that all work necessary for National
defense shall proceed without interruption and with all
possible speed.”
The Board, which is to aid in the
settlement of labor disputes only after other agencies
have failed to secure an adjustment, has no power to
force the settlement of a controversy, but if mediation
or arbitration fails it may make public its findings and
recommendations.

E m p lo y m e n t and P ayrolls

P roduction and T ra d e

According to the State Department of Labor, factory
employment in New York State increased 3 % per cent
during February and payrolls rose about 5 per cent; in
both cases the increases were greater than usual and
this bank’s seasonally adjusted indexes of New York
State employment and payrolls reached the highest
levels in over twenty years. Increases in employment
and payrolls occurred in all industrial areas of the State
during the month. As is common in February, the larg­
est gains were reported in the clothing and millinery
industries, but working forces also expanded in every
branch of the metals and machinery group, including
shipbuilding, aircraft, and other defense industries, as
well as many enterprises supplying principally civilian

From early indications it appears that business activ­
ity moved steadily higher in March. Owing to the fact
that near capacity production had already been attained
in many important lines, however, the seasonal rises
characteristic of the month probably were not fully
realized in certain cases. The volume of new orders for
steel continued to exceed shipments from the mills and
production mounted to virtually 100 per cent of reported
capacity by the end of the month. As the accompanying
chart indicates, in each month since last July daily aver­
age production of steel has exceeded the previous high
point reached in May, 1929. Production during the first
quarter of this year ran a third above the average level
of 1929 and almost two-thirds above that of 1917, the
peak year for steel production during the World War.
First quarter output was equivalent to an annual rate

needs. Another factor leading to favorable comparisons

was the settlement of certain strikes which began in
January. There were 18 per cent more workers em­
ployed this February than in the corresponding month
last year, and payroll disbursements were 31 per cent
larger. Over the two year period, February, 1939 to
February, 1941, employment in New York factories
increased 31 per cent and payrolls 48 per cent.
During February factory employment in the United
States as a whole showed a rise of 2 per cent and pay­
rolls increased 4 % per cent— about the usual gains. In
both cases the gains were well distributed; 80 per cent
of the industries surveyed employed more workers and
almost 90 per cent reported larger payrolls. The air­
craft, electrical machinery, shipbuilding, and machine
tool industries continued to show exceptionally large
increases in both working forces and payrolls. Com­
pared with February, 1940, total factory employment
was 12 per cent higher and payrolls were 27 per cent
larger.
According to the estimates of the Bureau of Labor
Statistics, total nonagricultural employment in the




THOUSANDS OF

Daily Average Steel Production (M
arch, 1941 estim
ated)

30

MONTHLY REVIEW, APRIL 1, 1941

of 82,100,000 net tons a year as compared with actual
production of 67,000,000 net tons during 1940.
In March, all supplies of nickel, magnesium, and
neoprene (a synthetic rubber product) were placed
under mandatory priorities by the Office of Production
Management. Similar action in respect to aluminum
and machine tools had been taken in February.
The automobile industry again was extremely active
in March; the weekly production rate around the middle
of the month was higher than at any time since the
spring of 1937. Heavy mill sales of cotton textiles
were reported during March and gray goods prices were
advanced. It is believed that on the basis of orders
already booked, the current high rate of mill opera­
tions could be maintained through the summer. Bitu­
minous coal mining expanded with the approach of
the expiration date of the present wage agreement,
March 31, while scattered labor disputes interrupted
r
production in a number of different lines of industry.
During February this bank’s index of production
and trade advanced further to 104 per cent of estimated
long term trend, the highest level since December, 1929.
The figure for January was 103 (revised from 102), and
for February a year ago 90. Aside from continuing
pressure for increased output in defense and allied indus­
tries, February was marked by active consumer demand
for durable goods and relatively high rates of operation
at plants producing such goods. Both production and
retail sales of passenger cars were unusually large for
February, and demand for household furnishings and
appliances was considerably larger than in the corres­
ponding month a year ago. The accompanying dia­
gram indicates the extent of the rise during recent
months in the distribution of goods to consumers. Among
producers’ goods industries, particularly large gains
over a year ago occurred in aircraft and machine tool
plants, in shipbuilding, and in the production of iron
and steel, nonferrous metals, building materials, elec­
trical apparatus, motor trucks, and textiles. Electric
power production and railway freight traffic in Febru­
ary held at approximately their January levels after
adjustments for seasonal changes.

1927 1928 1929 1930 1931 1932 1933 1934 1935 1935 1937 1938 1939 1940 1941
Index of D istribution to C onsum er (Fed eral R eserve B ank of N ew
Y o rk index, expressed as a percentage of estim ated long term
trend, and ad ju sted for seasonal variation)




(Adjusted for seasonal variations and estimated long term trend;
series reported in dollars are also adjusted for price changes)
1940
Feb.

1941
Dec.

Jan.

Feb.

102

103p

104p

94 r

115
109

117p
106p

114p
107p

Consumers’ durable goods.....................
Consumers’ nondurable goods..............

75
96r

80
105

89
100

p
p

90p
lO lp

Primary distribution...................................
Distribution to consumer...........................

5r
94r

95
102

95 p
104p

96 p
108 p

138
84
94
87
106
138
168r
124
113
97

127
101
92

119
115
98 p

87
106
127
148
119p
96
94

107 p
132
158p
117p

105
105

106
105

107p
104p

In d ex of Production and Trade

Production of:
Producers’ durable goods.......................
Producers’ nondurable go o d s ...............

90r
Mr

8

Industrial Production

Automobiles..................................................
Crude petroleum..........................................
Electric pow er..............................................
Cotton consumption....................................
W ool consum ption.......................................
Shoes...............................................................
Meat packing................................................
T obacco products ......................................
Manufacturing Em ploym ent

E m ploym ent.................................................
Man-hours of em ploym ent........................

85
93
89
94
97
106

101

105
103
91

88

95

88

p

100
97

Construction

Residential building contracts..................
Nonresidential building and engineering

42

67

55

57

103

69

84
81r
107
69

99

88
87

100
88
95

92

81

97p
82 p

99
99
107
103
106

100
100
102
101
125

103
lOOp
107
105
142

Prim ary Distribution

Ry. freight car loadings, mdse, and m isc..
R y . freight car loadings, other.................

Distribution to Consumer

Department store sales (U. S .).................
Crocery chain store sales...........................
Variety chain store sales............................
Mail order house sales................................
New passenger car sales.............................

88

99
96
95
95

64

68
100
90

Velocity of D ep osits*

Velocity of demand deposits, outside New
York City (1919-25 average = 100). .
Velocity of demand deposits, New York
City (1919-25 average = 1 00).............
Cost o f Living and W a ges *

Cost of living (1935-39 average = 100) .
Wage rates (1926 average = 1 00)...........
p Preliminary.

r

Revised.

58

62

57

57

26r

30

23

24

105
116r

105
116

105p
116p

104
113

* Not adjusted for trend.

B u ild ing
During February construction contracts were awarded
in the 37 States covered by the F. W . Dodge Corpora­
tion survey at a daily rate 41 per cent above the average
for the same month of last year. The February rate
was slightly greater than that prevailing in January.
The daily rate of residential building awards was
63 per cent higher than in February, 1940, and the
highest for any February since 1929. Awards for one
and two family dwellings, which constituted 78 per
cent of all residential awards, were the highest for any
February since 1928. Nonresidential building awards
were one-third greater than in the corresponding month
of the previous year, and heavy engineering awards
were up one fifth,.
In the first three weeks of March, owing primarily to
sizable gains in building contracts other than residential,
the daily rate of construction contract awards in the 37
States was 34 per cent above the average for February
r
and 63 per cent above the corresponding weeks of 1940.
The defense program continues to be the most im­

FEDERAL RESERVE BANK OF NEW YORK
portant single factor contributing to the present high
level of construction activity. Since last July awards
for industrial building for defense purposes have ac­
counted for a large share of the total volume of this
type of building. During the period from July, 1940,
through February, 1941, total awards for industrial
building were more than triple the volume in the period,
July, 1939, through February, 1940. According to the
Office of Production Management, by March 1 contracts
had been awarded or letters of intent had been issued
for the construction or expansion of 302 Government
plants, certificates of necessity (entitling owners to spe­
cial depreciation rates for tax purposes) had been ap­
proved for 421 privately financed plants, and the expan­
sion of 61 plants had been undertaken with British funds.
Government contracts for construction at army canton­
ments and for housing of defense workers have also
contributed substantially to the high level of residen­
tial building activity. The defense housing program is
still in the early stages. On March 15 funds had been
allocated for 72,300 family dwelling units, contracts had
been awarded for 41,000 units, and 3,900 had been
completed.
In the first important change since 1937, construction
costs as a whole advanced 5 per cent from August through
December, 1940, according to the index of construction
costs compiled by the American Appraisal Company,
but showed no further rise in January or February. The
advance in the latter part of 1940 reflected primarily
higher lumber prices and to some extent increased labor
costs.
In New York and Northern New Jersey the daily rate
of construction contract awards during February was
about one-quarter higher than in the same month of last
year and only slightly below the average for January.
Awards for residential building, which were up 53 per
cent from February, 1940, accounted for most of the
year-to-year increase. The daily rate of awards for
nonresidential building was up only 9 per cent, as a
large increase in manufacturing building was offset to
a considerable extent by a sharp decline (55 per cent)
in public purpose building, including educational, hos­
pital, public, religious, and social building. Heavy engi­
neering awards were off 14 per cent from the previous year.

31

the increased shipments to Britain, while the sharply
expanded scale of industrial operations in the United
States, in conjunction with the National defense pro­
gram, accounts for enlarged imports, particularly im­
ports of vital raw materials.
Exports of nonagricultural commodities during Feb­
ruary were $22,000,000 lower than in the previous month,
but were $15,000,000 higher than a year earlier. Ship­
ments of machine tools, steel in ingot and other crude
forms, and aircraft were not so large as in January,
while exports of finished steel products were about the
same in both months. On the other hand, exports of
firearms and ammunition in February were nearly twice
as large as in January and about fifteen times as great
as in February, 1940.
Exports
of
agricultural
products,
valued
at
$24,000,000, were up slightly from January but were
much lower than a year earlier when $80,000,000 of
such products were shipped abroad. Raw cotton exports
for the first seven months of the 1940-41 crop year
(August through February) amounted to only 397
million pounds, as compared with an average of 2,210
million pounds in the similar period of the five preced­
ing crop years.
The small gain in the value of imports in February
over January was concentrated largely among the food­
stuffs, notably cane sugar and coffee. February entries
of coffee into this country were at a record level and
continued the heavy movement in immediately preceding
months. Imports of strategic raw materials such as
rubber, tin, and nickel, although smaller than in Janu­
ary, showed large increases over a year ago. Receipts
of wool approximated the January volume and were
nearly double those of February, 1940.
C o m m o d ity Prices
Price advances again predominated in the principal
wholesale commodity markets during March. As the
accompanying diagram indicates, the Bureau of Labor
Statistics weekly index of nearly 900 quotations rose to
a new high since December, 1937. On March 22, the
index stood at a level 3 per cent above the 1939 high,
established soon after the outbreak of war.

F oreign T ra d e
Total exports of merchandise from the United States
during February, valued at $303,000,000, showed a de­
cline of 7 per cent from the previous month, but on a
daily average basis there was an increase of 3 per cent.
Compared with February, 1940, exports were 13 per
cent lower, because of smaller shipments of agricultural
products. On the other hand, general imports, valued
at $234,000,000, were 2 per cent higher than in January
(13 per cent higher on a daily average basis) and 17
per cent above the total for February, 1940. The result­
ing excess of exports in February was $69,000,000, as
compared with $97,000,000 in January and $147,000,000
in February a year ago. In the comparisons with fig­
ures for February, 1940, the intervening loss of import­
ant export markets in Scandinavia, the Low Countries,
and France appear to have more than counterbalanced




1336

1937

1938

1939

1940

194!

Index of W
holesale Com odity Prices (M
m
onthly range of B
ureau
of Labor Statistics weekly indexes; 1926 average = 100 per cent)

32

MONTHLY REVIEW, APRIL 1, 1941

As a result of transportation difficulties, prices of
imported raw materials continued to show marked gains.
Although raw sugar is placed high on the list of com­
modities voluntarily given priority in shipping space,
and although the marketing quota was increased 3 y 2 per
cent, the price of raw sugar rose 30 points to 3.45 cents
a pound on March 24, a new high since the flurry imme­
diately after the outbreak of war. The quotation for
raw silk in New York advanced on March 31 to $2.95
a pound, the highest level in a year, reflecting in part
strong primary markets and in part a reduction of
stocks here. Despite the announcement by the Inter­
national Rubber Regulation Committee that permissible
rubber exports would be maintained at 100 per cent of
basic quotas during the second quarter, and despite an
arrangement to ship 113,000 tons of rubber from the
Far East during April, the spot quotation rose to 23%
cents a pound on March 27. The present tin export
quota of 130 per cent of standard tonnage was extended
for the remainder of the year by the International Con­
trol Committee, but the spot quotation showed a small
net gain for the month as a whole. The rise of 20 points
in the price of lead to 5.85 cents a pound during March
reflected, in part at least, the increased cost of trans­
porting foreign lead into this country. This is the
highest quotation for lead since October, 1937.
The metals became increasingly subject to regula­
tion during March. The Commodity Exchange restricted
trading in zinc futures after March 4 to liquidating
positions open on that date. At the instance of the
Office of Production Management, a stock pile of zinc
to be allocated to defense needs is to be built up from
5 per cent of production beginning in April. In the
latter part of the month ceilings were set on prices of
zinc scrap and aluminum scrap by the Price Stabiliza­
tion Division of the National Defense Advisory Com­
mission, and it was announced that the Office of Pro­
duction Management would keep aluminum inventories
of fabricators near current requirements through con­
trol of deliveries by producers. Following Copper Insti­
tute reports that stocks of refined copper in the hands
of producers at the end of February were equivalent
to less than one Inonth’s requirements at the February
rate, the Metals Reserve Corporation released part of
its copper holdings to domestic consumers. The Direc­
tor of the Bureau of Mines reported, after an investi­
gation of deposits in this country, that domestic supplies
of mercury and antimony were adequate for all needs
in sight, but urged the development of stock piles of
manganese, nickel, tin, tungsten, and chromite. The
Office of Production Management on March 18 listed
220 critical materials which are subject to preferential
ratings by the Army and Navy Munitions Board. De­
spite official efforts to prevent scrap steel prices from
rising, moderate advances in quotations occurred at
several centers.
Domestic agricultural commodity prices advanced
somewhat accompanying discussion in Congress of larger
loans on 1941 crops. The cash quotation for winter
wheat increased 7 % cents for the month to 88% cents
a bushel. Reports of cold weather in growing areas
were a factor in the price rise. Private estimates of the




winter wheat crop as of March 1 average 616,000,000
bushels, compared with the Government estimate of
633,000,000 based on December 1 conditions. By March
29, cash corn had moved up 7 cents to 68% cents a
bushel. In addition to current record activity at cotton
textile mills, intimations that about $100,000,000 of the
Lend-Lease appropriation would be expended for cotton
contributed to a net rise of 86 points in the spot average
at 10 Southern markets to 11.11 cents a pound.
D e p a rtm e n t Store T ra d e
For the four weeks ended March 29, sales of the report­
ing department stores in this District were about 2 per
cent higher than in the corresponding weeks of 1940,
although sales in these weeks included a smaller part of
the Easter trade this year than last. Sales during this
portion of March averaged higher than in February,
although the gain was no more than usual, the date of
Easter and other seasonal factors considered.
For the month of February, total sales of the report­
ing department stores were 10 per cent higher than in
February, 1940, and after allowing for one less shopping
day this year, the increase in average daily sales
amounted to about 14 per cent. Compared with Janu­
ary, however, the daily rate of sales failed to advance
as much as usual. Sales by departmental classifications
during February indicate that substantial year-to-year
gains occurred in housefurnishings, women’s ready-towear and accessories, silverware, and jewelry.
Percentage changes from a year ago
Department stores

Net sales
Stock on hand
end of month
Feb.
1941

Feb.
1941
New York City (includes B rooklyn)............
Northern New Jersey.......................................
Newark
.......................................................
Westchester and Fairfield Counties..............
Bridgeport.......................................................
Lower Hudson River Valley...........................
Poughkeepsie..................................................
Upper Hudson River V aliev...........................
A lbanv.............................................................
Central New York State..................................
Mohawk River V alley..................................
N orthern New Y ork S tate..............................
Southern New York S tate..............................
Binghamton....................................................

Jan. and
Feb. 1941

+ 7
+14
+13
+ 16
+19
+18

+ 7
+ 9
+ 8
+ 12

+
+
+
+

+15
+ 8

— 6

+22

+ 11

+ 11

— 1

+13
+ 7
+16

+18
+ 12

+19
+23
+18
+ 23

4
4
4
13

+ 7
+14
+ 5

+21

+15
+21

+20
+20

+14

+42

+ 31

0

+ 12

Niagara Falls.................................................

+15
+ 1
+ 7

+ 10

+ 8

+ 4

+ 8

Western New Y ork State................................

__
+ 3
+ 2
+ 7
+ 4

+ 2

0

+ 12

+ 11

+ 15
+ 4
+ 10

All department stores..............................

Indexes of Department Store Sales and Stocks, Second Federal Reserve District
________________________ (1923-25 average = 100)____________________________
1941

1940
Feb.

Dec.

Jan.

Feb.

Sales (average daily), unadjusted................
Sales (average daily), seasonally adjusted

69

184

86

10 2

78
99

79
97

Stocks, unadjusted. .........................................
Stocks, seasonally adjusted...........................

77r
82r

82
83

73
81

80
85

rR
evised.

FEDERAL RESERVE BANK OF NEW YORK
M O NTH LY REVIEW, A P R IL 1, 1941

Business Conditions in the United States
(Summarized by the Board of Governors of the Federal Eeserve System)
N D U S TR IA L activity and employment increased further in February and
the first h a lf of March. Buying by producers and consumers continued in
large volume and wholesale commodity prices, particularly of imports, advanced.

I

P r o d u c t io n

In d ex o f P h y sica l V olu m e o f Industrial P ro d u c­
tion, A d ju s te d fo r Seasonal V aria tion (1 9 3 5 1939 a v e ra g e rs 100 p er ce n t; durable
m an u fa ctu res, non durable m a n u fa c­
tures, and m inerals exp ressed in
term s o f p oin ts in tota l in d ex)

-

U . S. B ureau o f L a b or S ta tistics Indexes o f
W h olesa le P rices, B ased on 12 F o o d stu ffs
and 16 Ind ustrial M aterials (A u g u s t,
1939 = 100 per ce n t)

In February volume of industrial output, on a daily average basis, rose
more than seasonally, and the Board ? adjusted index advanced from 139 to 141
s
per cent of the 1935-39 average.
Increases in February, as in other recent months, were largest in the
durable goods industries where a large proportion of defense' program orders
have been placed. A c tiv ity continued to rise sharply at machinery plants,
a ircra ft factories, shipyards, and in the railroad: equipment industries. Steel
production fluctuated around 96 per cent of capacity in January and February
and rose to 99 per cent in the first h a lf of March. New orders fo r steel continued
large and, despite the high rate of output, unfilled orders increased further.
Many orders have been placed fo r delivery in the second h a lf of this year,
reflecting the prospect of heavy consumption and some uncertainty on the part
of steel users regarding future availability of supplies. Output of pig iron,
coke, and nonferrous metals was likewise at near capacity rates in February
and unfilled orders fo r these products, too, were at exceptionally high levels.
Demand fo r lumber continued large owing to a high rate of construction
activity and output was sustained in large volume fo r this time of year. Auto­
mobile production increased in February and the first half of March to about
the peak rate attained last November. Retail sales of new and used cars
advanced to unusually high levels.
In industries manufacturing nondurable goods, activity continued at the
record levels reached in the latter part of 1940. There were further increases
in the cotton textile, rubber, and chemical industries and activity at woolen
mills also increased, following a temporary reduction in January. In most
other lines activity was maintained at the high levels of other recent months.
Coal production rose less than seasonally in February but increased con­
siderably in the first half of March when, according to trade reports, there was
some inventory accumulation in anticipation of a possible shutdown on A p ril 1
at the expiration of the present contract between the mine operators and the
miners ’ union. Copper and zinc production increased in February and recently
domestic supplies of copper have begun to be supplemented by imports from
South America. Output of crude petroleum continued at about the rate that
had prevailed during the three preceding months.
Value of construction contract awards in February declined somewhat more
than seasonally, reflecting decreases in both public and private work, according
to reports of the F. W . Dodge Corporation. Awards fo r public construction,
although sharply reduced from the high levels reached in the latter h a lf of 1940,
were somewhat above those of a year ago, and awards fo r private construction
were nearly h a lf again as large as in February of last year.
D is t r ib u t io n

Distribution of commodities to consumers increased more than seasonally
from January to February. Sales at variety stores and by mail order houses
were the largest on record, making allowance fo r usual seasonal changes, and
department stores sales were also at a high level.
Freight car loadings increased by about the usual seasonal amount. Ship­
ments of miscellaneous freight, consisting mostly of manufactured products,
showed an increase while loadings of forest products rose less than seasonally
and grain shipments declined.
W e d n esd a y F ig u res fo r R ep ortin g M em ber
B an ks in 101 L ea d in g C ities (L a te s t fig ­
u res are fo r M a rch 1 2)

W

h o lesale

C o m m o d it y P

r ic e s

Prices of a number of basic imports rose sharply from the early part of
February to the middle of March. Cotton yarns and gray goods and nonferrous
metal scrap showed further increases in this period and there were also advances
in prices of some other domestic commodities, including lead, wheat, cotton,
and oils and fats.
B

ank

Cr e d it

Commercial loans continued to increase at member banks in 101 leading
cities in February and the first half of March and these banks also purchased
additional Treasury notes and bills issued in connection with the defense
program. As a result of the increase in loans and investments, bank deposits
showed a further marked advance.
U n it e d S t a t e s G o v e r n m e n t S e c u r it y P r ic e s

M
oney Rates in N York City
ew




Prices of Government securities increased after February 15, following a
sharp decline in the preceding ten weeks. The 1960-65 bonds on March 15 were
about 3% points above their price on February 15 and about 1 % points below
the all-time peak of December 10. The yield on this issue, which increased
from 2.03 per cent at the peak in prices on December 10 to 2.30 per cent on
February 15, had declined to 2.14 per cent on March 15.