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M ONTHLY R E V IE W of Credit and Business Conditions S e c o n d F e d e r a l R e s e r v e D is tr ic t A ugust 1, 1938 Federal E eserve Bank, New York M o n e y M a r k e t in Ju ly During the past month the volume of member bank reserves in New York City, and in the country at large, rose to new high levels and excess reserves rose to the highest points ever reached, except for a short period in the early part of December, 1935. As in the two preced ing months, the increase in bank reserves during July was due chiefly to disbursements by the Government of funds derived from the desterilization of gold in April. The accompanying diagram shows the movement of excess reserves for New York City banks and for all member banks. The rise in member bank excess reserves close to the previous maximum volume, despite the fact that the percentages of reserves which member banks are required to maintain against their deposits are still nearly 75 per cent above those prevailing in December, 1935, draws attention to the magnitude of the increase in bank reserves that has occurred during the intervening period. In a little over a year and a half $3,300,000,000 has been added to the supply of funds from which member bank reserves are derived. Of this amount approximately $600,000,000 has been absorbed by an increase in the volume of currency outstanding, nearly $400,000,000 has been added to Treasury cash in the Reserve Banks or elsewhere, which presumably will be added to bank reserves in coming months as Government expenditures increase, and most of the remainder has been added to bank reserves, but has been a little more than offset by increases in reserve requirements — due much more largely to the increases in the percentages of reserves which member banks are required to maintain than to expansion in bank deposits. As the accompanying table indicates, the major factors in the increased supply of reserve funds have been the continued increases in the gold stock of this country and in the amount of “ Treasury currency” (chiefly silver and silver certificates). The gold inflow recently has been much less rapid than it was a year ago, but it is note worthy that the gold stock of this country has continued to rise gradually (and by amounts in excess of domestic production and recovery) despite the heavy withdrawals of short term foreign funds from this market during the past nine months, chiefly because of the large excess of merchandise exports over imports during the period. As a consequence, the gold stock of the United States is now just above $13,000,000,000, and represents more than one-half the total world supply of monetary gold. Changes between December 11, 1935 and July 13, 1938 (In millions of dollars) Sources of Funds: Increase in gold stock................................................................................ Increase in Treasury currency.................................................................. Federal Reserve Bank purchases of U. S. securities.............................. Other Federal Reserve Bank credit......................................................... 2,912 269 134 — 12 Total............................................................................................ 3,303 Disposition of Funds: 603 384 83 Increase in money in circulation.............................................................. Increase in Treasury cash and deposits in Federal Reserve Banks. . . . Increase in nonmember deposits and other Federal Reserve accounts.. . Total............................................................................................ 1,070 Remainder added to member bank reserves........................................... Increase in member bank reserve requirements.................................... 2,233 2,384 Net change in excess reserves................................................................... — 151 The actual amount of member bank reserves in the latter part of July was more than four times the amount just after the bank holiday in 1933, and about three and a half times the average amount in the boom years, 1928 and 1929. Had it not been for the increase in the per centages of reserves which member banks are required to maintain against their deposits, excess reserves would have risen to an amount almost double reserve require ments, and the banks would have been under far greater pressure to extend credit in amounts disproportionate to ordinary business requirements or to compete with each other for the available supply of loans and investments. Under present circumstances, with reserves already ample and money rates very low, the effect of such inten- 1934 1935 1936 1937 1938 Excess Reserves of New York Central Reserve City Banks and of All Member Banks in the United States M O N T H L Y R E V I E W , A U G U S T 1, 1938 58 sified pressure on the banks could hardly help but make more difficult the maintenance of sound banking con ditions. The expansion in member bank reserves has now been halted temporarily, largely through developments in the financing operations of the Treasury and of the Recon struction Finance Corporation, which have affected the balance between Treasury receipts and disbursements. After reaching a maximum of $3,150,000,000 on July 13, excess reserves of all member banks were reduced $110,000,000 in the following week, as a result of the sale on July 20 of $200,000,000 of R.F.C. notes, the pro ceeds of which were paid into the Treasury balance with the Reserve Banks, and considerably exceeded Treasury payments for the redemption of $50,000,000 of Treasury bills on the same date and the excess of other Government disbursements over current receipts during the week. Consequently, Treasury balances in the Reserve Banks, after declining steadily from over $1,400,000,000 on May 4, to a little over $600,000,000 on July 13, rose nearly $100,000,000 during the week ended July 20. The present Treasury program of arranging Treasury bill maturities so that $100,000,000 of three month bills will be turned over each week, calls for the sale of $100,000,000 of bills against maturities of only $50,000,000 for each of the six weeks beginning July 27, and the net receipts from these sales will go toward meeting Government expenditures during that period, and thus will tend to prevent further drawing down of Treasury balances at the Reserve Banks and consequent further increases in bank reserves. The seasonal increase in currency circulation, which usually starts with the July month end, will also operate against further expan sion of bank reserves. In the September income tax period, since there are no so-called tax date Treasury bills maturing at that time, the collection of taxes will transfer funds from the banks to the Treasury account in the Reserve Banks and thus will tend to cause a temporary reduction in bank reserves. Nevertheless, the July 20 re duction and any further reductions in excess reserves that may be in prospect during the next few months are of little consequence in view of the very large volume that will remain, and eventually the excess of Government expenditures over current receipts is expected again to reduce Treasury balances in the Reserve Banks, and to increase bank reserves to new high levels. Money Rates in New York July 31, 1937 June 30, 1938 July 28, 1938 Stock Exchange call loans...................... Stock Exchange 90 day loans................ Prime commercial paper— 4 to 6 months Bills—90 day unindorsed....... .............. Customers’ rates on commercial loans (Average rate of leading banks at middle of month)............................ Average yield on Treasury notes (3-5 years)................................................... Average yield on Treasury bonds (more than 8 years to maturity or call date). Average rate on latest Treasury bill sale 91 day issue......................................... 142 day issue....................................... Federal Reserve Bank of New York re discount rate....................................... Federal Reserve Bank of New York buying rate for 90 day indorsed bills. . * Nominal 1 *1X 1 1 *1K X * iV 1 *1X X A 1.67 1.63 1.63 1.38 0.67 0.70 2.54 2.36 2.33 0.01 0.06 1 1 6!37 ix V2 X X M on ey R ates The additions to the supply of high grade securities of short and intermediate maturities, involved in the sale of R.F.C. notes and the prospective increase in Treasury bills outstanding during the next six weeks, appear to have been one factor in a slight rise in the yields on such securities during July; the yields, however, remained extremely low. Average yields on longer term securities of the highest grade were practically unchanged dur ing July. M e m b e r B a n k C r e d it The decline in the volume of member bank loans and investments which occurred in the latter part of June, following a temporary increase early in the month in connection with June Treasury financing, continued during the first half of July, and total loans and invest ments of reporting member banks in New York City and elsewhere reached new low points since 1935 or early 1936. The largest reduction was in commercial and industrial loans which have followed a generally down ward course since last October. There was also some further liquidation of loans by security dealers, which, however, appears to have been partly offset by some slight increase in the borrowings of security brokers accompanying the strong rise in stock prices that began on June 20. Although the item of “ loans to brokers and dealers in securities” declined somewhat in July, it did not recede quite to the low point preceding the June rise. Holdings of direct obligations of the Government also declined moderately, chiefly because of a net reduc tion in the amount of Treasury bills outstanding. On July 20, however, there was an increase of $150,000,000 in the total loans and investments of all reporting member banks, due to bank purchases of the R.F.C. notes mentioned above, and to purchases of State and municipal securities. The sale of $300,000,000 of Treasury bills in excess of maturities during the six weeks beginning July 27 will tend to cause some further increase in the earning assets of the banks, and except in years of declining business, a seasonal increase in commercial and industrial borrowing ordinarily begins around the first of August. Demand deposits of the reporting banks, after tem porary decreases in the latter part of June and the first week of July, caused by income tax payments, monthend and Fourth of July currency withdrawals, and loan repayments, have again turned upward, and subsequently reached the highest levels in more than a year. G o v e r n m e n t S e c u r it ie s The Treasury on July 11, on behalf of the Reconstruc tion Finance Corporation, offered through the Federal Reserve Banks a $200,000,000 issue of 3 year % per cent notes of the Reconstruction Finance Corporation, fully guaranteed by the United States, The issue was heavily oversubscribed and $211,450,000 of notes were allotted. Market quotations have fluctuated between a premium of % and % point over the issue price of par. Treasury bill financing operations in the three weeks ended July 20 resulted in a further reduction of $150,000,000 in the volume of outstanding bills to $1,000,000,000, the smallest amount since December, FED ER AL RESERVE B A N K OF N E W Y O R K 1933, but new issues between July 27 and August 31 will increase the volume to $1,300,000,000 on the latter date. The rates at which Treasury bill financing was con ducted tended successively higher during July, although continuing at very low levels. The $100,000,000 issue of 91 day bills dated July 27 was awarded at an average rate of 0.059 per cent, as compared with the record low of 0.011 per cent on the similar issue of June 29. Treasury note prices eased somewhat during the first two weeks of July, at a time when Treasury bond prices were showing moderate strength, indicated by a rise of nearly % point in the average price of all outstanding issues of more than 8 year term to call date or maturity and an advance in the 2 % per cent Treasury bonds issued June 15 to 102 8/32 on July 12. Continued pressure on the Treasury note market subsequently, attributed in part to the direct financing in the market by the R.F.C., spread to Treasury bond prices, and by the 20th of the month all of the advance during the preceding part of the month had been lost. The decline in Treasury notes in this period was reflected in a rise in the average yield on maturities of 3 to 5 years to 0.73 per cent, as com pared with 0.67 per cent at the end of June. After July 20, Treasury notes and bonds moved irregularly although both made slight gains on balance. C o m m e r c ia l P a p e r a n d B il l s The open market rate for average grade prime 4 to 6 month commercial paper continued to prevail at % per cent during July. Some less well known paper sold at slightly higher levels, while especially choice paper was sold at % per cent on the few occasions when such names came into the market. New drawings of paper remained far short of the amount for which bank investment inquiry was made. The volume of paper outstanding through commercial paper houses declined $26,000,000 further during June to approximately $225,000,000, and was $60,000,000 less than a year ago. The discount market for bankers acceptances remained quiet during July, due to the small quantity of bills which became available to dealers for resale. As indi cated in the accompanying table, the further small de cline in outstanding bills which occurred in June was ocasioned by decreases in acceptances arising out of foreign trade. (Millions of dollars) Type of acceptance Domestic shipment................................. Domestic warehouse credit................... Dollar exchange...................................... Based on goods stored in or shipped be tween foreign countries...................... Total......................................... June 30, 1937 May 31, 1938 June 30, 1938 157 77 13 42 1 81 64 9 49 1 79 63 9 49 1 74 64 268 264 C en tral B a n k R a te C hanges Effective July 1, 1938 the discount rate of the Bank of Lithuania was lowered from 5 % per cent to 5 per cent, and the rate of the Central Bank of the Republic of Turkey was lowered from 5 % to 4 per cent. The last previous change at the Lithuanian bank took place on July 1, 1936 and at the Turkish bank on March 2, 1933. In d u strial L o an s Following the severe decline in business that began early last autumn, there has been a considerable increase in the number of inquiries from business concerns regarding the possibility of obtaining loans from this bank. The amendment of the Federal Reserve Act of June 19, 1934, authorized Federal Reserve Banks “ In exceptional circumstances, when it appears to the satis faction of a Federal Reserve bank that an established industrial or commercial business located in its district is unable to obtain requisite financial assistance on a reasonable basis from the usual sources” to “ make loans to * # * such business * # * on a reasonable and sound basis, for the purpose of providing it with working capital” , but it provided that “ no obligation shall be acquired * * * with a maturity exceeding five years” . As in the period just following the enactment of this legislation, it has appeared in recent discussions with prospective borrowers that in a large percentage of the cases the needs were for permanent additions to pro prietary capital or for other types of loans that are ineligible for this bank under the law, or that the condi tion of the business of the prospective borrower was such as to provide no sound basis for bank credit. In such cases, the inquirers were not encouraged to undertake the work of preparing the information that would be required in connection with formal applica tions ; nevertheless, the number of applications filed dur ing the past few months has increased to the highest point since the first half of 1936. The number of inquiries and the number of formal applications received since the legislation was enacted are shown by quarterly periods in the following table. Quarterly period Inquiries Applications 1934 June to September.......................................................... October to December..................................................... 1935 January to March.......................................................... 1,754 658 277 258 362 291 372 234 161 114 124 87 215 118 74 47 72 55 28 28 35 29 21 34 20 14 8 10 299 207 42 50 4,750 1,348 July to September.......................................................... October to December.................................................... 1936 January to March.......................................................... July to September.......................................................... October to December..................................................... 1937 January to March.......................................................... July to September......................................................... October to December..................................................... 1938 January to March.......................................................... Total................................... 63 364 59 When applications for such loans are received, they are carefully analyzed by a staff assigned for that pur pose, and the facts are presented to the Industrial Advisory Committee (consisting of five business men of varied interests who serve without compensation), which then recommends to the bank approval or disapproval of the applications. The final decision rests with the Board of Directors of the Federal Reserve Bank which, although it may in individual cases differ with the recommendation of the Advisory Committee, has to date approved at least M O N T H L Y R E V I E W , A U G U S T 1, 1938 60 as many loans as were recommended favorably by the Committee. The disposition of the applications received by this bank to date may be summarized as follows: Applications approved and advances or commitments made.................. Applications approved but withdrawn by the applicants after approval. . Applications approved and awaiting closing.............................................. Total applications approved .................................................. Applications declined . ...................................................................... Applications on hand awaiting consideration............................................ Grand total . ................................................................ .. 351 151 2 504 768 66 10 1,348 The total amount of advances and commitments made by this bank on approved applications during the four year period is approximately $24,500,000. The loans ranged in size from a $300 loan to the proprietor of a delicatessen store to a $4,200,000 loan to an automobile company. In many cases it has been found that the loans made, either directly or in conjunction with commercial banks, have served a useful purpose in enabling the borrowers to maintain or increase employment and to rehabilitate their businesses. But although great care was exercised in the original review of the applications, and constant supervision has been maintained, it has been necessary to place a number of the loans on the ** trouble’ ’ list of this bank, and in a few cases the borrowing concerns have failed despite the receipt of loans. In general, the experience of this bank with this type of loan indicates that the income received, even at rates as high as 6 per cent, is not adequate to cover expenses and losses. Security M a rk e ts Following the sharp upswing in the latter part of June, there was little further advance in stock prices during the first half of July. However, on all except one day of the period, average prices of industrial stocks remained above the June high, and railroad and public utility shares continued above throughout the period. Around the middle of the month, the rise of stock prices was resumed although at a much less rapid rate than in the latter part of June. Industrial stocks rose 8 per cent between July 14 and July 25, railroad stocks rose 12 per cent, and public utilities 5 per cent. Near the end of the month stock prices underwent a sharp decline, from which there was a partial recovery at the month end. Largely as a result of the June and July advances, the general average of stock prices near the end of July was about 51 per cent higher than at the low point reached at the end of March, and was at the highest point since October, 1937. The advances from the March lows in the classes of stock shown in the accompanying dia gram amounted to 58 per cent for railroad shares, 51 per cent for industrials, and 43 per cent for public utilities. The more active markets which developed in the latter part of June continued to be the rule in July. The volume of trading on four days exceeded 2,500,000 shares, and for the month as a whole averaged 1,800,000 shares per day, as compared with 1,000,000 shares in June, and 600,000 in May. IN D E X M ovem e n t o f S tock P rices (Stan dard S ta tistic s C om pany w eekly in d exes; 1 9 2 6 = 1 0 0 per cen t) Further advances in medium and lower grade corpo ration bonds occurred in the first half of July when stock prices were showing little net change, and quotations for these bonds continued to rise until the last few days of the month. For the month as a whole, the average price of bonds rated Baa by Moody’s Investors Service rose 5 points to a level 16 points above the year’s low reached on March 31; 12 points of this rise have occurred since June 18. Measured from the year’s lows, railroad bonds of this grade, which had previously suffered the heaviest declines, have shown recoveries of about 18 points, public utility issues 16 points, and industrials 8 points. Among the best grade corporation bonds— those rated Aaa— railroad and industrial issues continued during July the advance of the second half of June, while public utility bonds continued to hold steady. Toward the end of July, Aaa industrial bonds were close to the January, 1938 highs and public utility bonds were about 1 point above their February, 1938 highs, while railroad bonds averaged some 4 % points lower than in January, 1938. As compared with the January, 1937 peak of high grade bond prices, both industrial and public utility averages currently are about 1 point higher, but the railroad average is 9 points lower. N e w F in an cin g During July corporate security financing, according to preliminary data, amounted to about $150,000,000, of which some $105,000,000 represented the raising of funds for new capital purposes. The past month’s total was less than the amount of corporate issues offered dur ing June, but nevertheless continued well above the amount in earlier months of 1938, and was somewhat larger than the total for July, 1937. The high grade issues offered during July met with a ready market not withstanding the very low interest rates on these obliga tions. Some financing was postponed from July until August, which together with issues already in registra tion with the Securities and Exchange Commission or about to go into registration, indicates that August will be an active month in the new issues market— probably more active than July. FED ER AL RESERVE B A N K OF N E W Y O R K The largest flotation in July was the Standard Oil Company of New Jersey financing, consisting of $50,000,000 of 2 % per cent debentures of 1953, which were offered at 99, and $35,000,000 of 1% -2 % per cent serial notes of 1943-47, $4,000,000 of which was placed privately. The entire proceeds of these issues will be used for new capital expenditures. Southwestern Bell Tele phone Company sold $30,000,000 of 3 per cent first and refunding mortgage bonds of 1968, of which $28,900,000 was offered publicly at 100 and the remainder taken by internal pension funds. Two other sizable corporate issues were offered during the month: $10,000,000 Crown r Cork and Seal Company 4 % per cent debentures of 1948, priced at 99, and $7,500,000 Industrial Rayon Corpora tion 4 % per cent first mortgage sinking fund bonds of 1948, also offered at 99. State and municipal bond issues during July declined to about $35,000,000, as compared with about $145,000,000 in June and $85,000,000 in July, 1937. Included in the past month’s total were $8,100,000 of securities acquired by security dealers from the Reconstruction Finance Corporation and publicly reoffered during July, of which the largest portion was $5,100,000 of New York City 4 per cent bonds of 1939-64. Short term borrowing during July included $100,000,000 of New York State 7 month 0.25 per cent notes which were allotted to ninety-five banks and bond houses in the State, and two $10,000,000 issues of New York City special revenue bills which were sold to twenty-six banks. The monthly financing by the Federal Intermediate Credit Banks amounted to $25,000,000, all for refunding. F oreign E xch anges During July, continued strength in the dollar carried the pound to the lowest level, and the sterling price of gold in London to the highest quotation, since April, 1937. From $4.98*4 on June 15 and $4.95% on June 30, the pound fell to $4.91 9/16 on July 19, before recover ing to $4.92 11/16 on July 26. From this level it de clined to $4.91% at the month end. The sterling price of gold at fixing rose from 140s 9d on July 1 to 141s 6d on July 20, but the dollar equivalent declined from $34.88 to $34.781 over the same period. Although the London 4 gold price did not fall quite to the theoretical gold ship ping point to the United States, two shipments aggre gating $2,263,000 were arranged near the end of the month. Quotations for the French franc and the guilder fluctuated in rough correspondence with the pound, while the belga and the Swiss franc declined against the dollar in approximately the proportions of the fall in the dollar equivalent of the London gold price. Like the similar fall this year from $5.01 in April to $4.94 in May, the June-July decline in sterling was associated with political tension in Europe and an increase in gold hoarding. But in contrast with the earlier movement, the current appreciation of the dollar was stimulated by the improvement in the outlook for business in the United States, and by the subsidence of rumors of dollar devaluation and the substitution of equally unfounded rumors that the sterling-dollar rate would be provisionally stabilized at the pre-1931 $4.8665 parity under the forthcoming Anglo-American trade 61 DO LLARS Sterling E x chan ge Q uotations in the N ew Y o r k M a rk et (L a te s t figure is for Ju ly 2 7 ) agreement. In neither period did any marked change occur in the flow of funds between the United States and abroad since additions to foreigners’ holdings of dollars were continuously absorbed by dollar expenditures for foreign net imports of merchandise from this country. The French franc had a minor decline in early July when the rate weakened from 177% francs per pound on July 7 to 178 11/16 on July 12, as the French Stabiliza tion Fund, according to press reports, was subject to pressure. With the announcement in the middle of the month that a 75,000,000 guilder loan had been con tracted for the French railways, however, the rate firmed to 178 5/16. Some easing of the tension in Europe, and some improvement in the French balance of payments also gave support to the franc, which closed the month about *4 higher. Quotations on three month forward contracts eased from a discount equivalent to 3 per cent per annum on July 7, to the equivalent of 7 per cent per annum discount on July 12, but recovered to 6 per cent near the end of the month. Canadian exchange, which had been under heavy pressure since March, recovered sharply during Ju^v, moving from a discount of 15/16 per cent at the first of the month to a discount of % per cent near the month end. The completion of mid-year debt service operations lifted pressure from the exchange, and sup port was given by the expenditures of American tourists in Canada. G o ld M o v e m e n ts Preliminary figures for imports of gold affecting the United States gold stock in July indicate that receipts at New York were limited to $1,000,000 from British India and $100,000 from Australia. On the West Coast, how ever, $28,800,000 was received from Japan, $2,500,000 from Australia, and $1,200,000 from Hong Kong. There was also a gain to the gold stock through the release of $2,200,000 from foreign earmarked holdings at the Federal Reserve Bank of New York and through receipts of newly mined and scrap gold. As a result of all these transactions the gold stock increased approximately $60,000,000 during July. 62 M O N T H L Y R E V I E W , A U G U S T 1, 1938 PER CENT E m p lo y m e n t a n d P ayrolls Owing to a further reduction in factory employment, the Bureau of Labor Statistics estimates that the num ber of workers engaged in nonagricultural pursuits declined by approximately 100,000 in June. The reduc tion, however, was only about one-third as large as that which occurred in May. Changes from May to June in employment outside manufacturing were relatively small and largely seasonal in character. The decline in factory employment amounted to 2 per cent and wage disbursements decreased 3 per cent; both declines were more than seasonal. The reductions in working forces continued to be more pronounced in the durable goods industries, particularly in the manufacture of steel, machinery, and automobiles. Among the non durable goods industries, employment at food manufac turing plants and woolen mills increased somewhat more than is usual at this time of the year. Compared with a year ago factory employment was 25 per cent lower and wage disbursements were down 35 per cent. New York State factory employment declined about 2 per cent from May to June and payrolls about 1 per cent. As in the two preceding months, these reductions were in excess of the average seasonal decrease. The most marked reductions in employment were in the clothing and millinery, and metals and machinery industries, while gains were reported in the food and tobacco, fur, leather and rubber, and textile industries. Compared with a year ago, the curtailment of working forces has amounted to 20 per cent and payrolls have been re duced 27 per cent. P rodu ction an d T ra d e The general level of business operations appears to have been maintained better than usual between June and July. Automobile production tapered off in the latter part of the month as some assembly lines were stopped to retool for 1939 models, but reports indicated that cotton textile mill activity continued near the June level instead of declining as in other years, and electric power production, bituminous coal mining, and railway freight traffic increased over June. Steel production, which ordinarily declines in July, displayed a rising tendency following Independence Day shutdowns. As indicated in the accompanying diagram, steel mill opera tions at the end of July were estimated at 37 per cent of capacity, the highest rate since last November. Although price reductions and adjustments of basing point differ entials were reported to have retarded steel buying tem porarily pending study of the new price structure, expansion in sales was indicated during the latter part of the month. Department store sales showed less decline from June to July than in most years. There was no material change in the general level of production and trade between May and June. Seasonal declines occurred in steel production and automobile assemblies, and there were also reductions in copper output, zinc smelting, and shoe production. On the other hand, the usual seasonal decline in cotton textile mill operations did not occur; wool and silk mills were Steel M ill A c tiv ity (In g o t ou tput exp ressed as percentages o f cap acity) somewhat more active; and bituminous coal mining, lead output, and plate glass production expanded. Railway loadings of merchandise and miscellaneous freight were virtually unchanged between May and (Adjusted for seasonal variations, for estimated long term trend, and where necessary for price changes) 1937 1938 June Industrial Production Passenger cars........................................... Motor trucks............................................. Bituminous coal r...................................... Crude petroleum....................................... Electric power........................................... Cotton consumption................................. Wool consumption..................................... Meat packing............................................. Tobacco products...................................... Machine tool orders*................................ Employment Employment, manufacturing, U. S......... Employee hours, manufacturing, U. S. . . April May June 94 117 96 108 87 96 97 116 114 115 76 82 55 171 39 63 38 48 68 91 83 70 48 104 79 88 53 78 36 58 35 46 61 83 84p 70 58 104p 80 87 54 61 36 49p 31 46 63p 79p 84p 74 63p 90p 78 82 50 61 103 94 80 64 79 63 77p 61 p Construction Residential building contracts................. Nonresidential building and engineering contracts................................................ 35 24 30 31 65 45 63 47 89r 93 87 109 68 63 92 61 69 61 90 59 69 63 85p 63p 91r 87r 92 97 103 91 81 78 99 91 91 47 77r 75 101 86 90 43 80p 79 lOOp 88 86 39p 66 36 56 35 57 34 59p 39p 68 61 61 60 43 40 38 42 162 151 109 152 149 110 152 148 110 152p 149p IlOp Primary Distribution Car loadings, merchandise and misc....... Car loadings, other................................... Distribution to Consumer Department store sales, U. S................... Department store sales, 2nd District. . . . Chain grocery sales......................... .. Other chain store sales............................. Mail order house sales.............................. New passenger car registrations.............. Money Payments Bank debits, outside New York City.. . . Bank debits, New York City................... Velocity of demand deposits, outside New York City**.................................. Velocity of demand deposits, New York General price levelj................................... Cost of livingj. ......................................... Composite index of wagesf....................... p Preliminary. r Revised. * Not adjusted for price changes. **1919-1925 average = 100. $1913 average = 100; not adjusteid for trend. t!926 average = 100; not adjusted for trend. FED ER AL RESERVE B A N K OF N E W Y O R K June, while movements of bulk freight increased. Sales of department stores and chain stores other than grocery gained from May to June after allowance for seasonal factors, but mail order house sales and registrations of new passenger cars were smaller than in May, and adver tising lineage was reduced more than is usual. 6 3 PERCENT B u ild ing The daily rate of construction contract awards in the New York and Northern New Jersey area declined 40 per cent from May to June. Residential contracts showed an increase of 17 per cent, but contracts for heavy engineer ing work, which had been especially large in May, were reduced by 72 per cent. Compared with June, 1937, total construction contracts were 26 per cent lower. Residen tial contracts were at approximately the same level as a year ago, but the other major classifications showed reductions. Percentage Change in Average Daily Contracts N.Y. and Northern N.J. 37 States Jan.-June Jan.-June 1938 1938 June, 1938 compared June, 1938 compared with with compared compared with Jan.-June with Jan.-June June, 1937 1937 1937 June, 1937 Building + 1 — 56 — 8 — 16 — 27 —43 + 1 —23 — 8 — 52 — 19 — 24 —23 —47 + 5 — 23 Public works............................... Public utilities........................... All engineering....................... — 22 — 90 — 46 +18 +92 +48 + 7 —70 — 16 +20 — 3 +13 All construction..................... —26 — 3 —21 — 13 Residential................................. Commercial and industrial....... Public purpose*......................... All building............................. Engineering * Includes educational, hospital, public, religious and memorial, and social and recreational building. For the 37 States covered by the F. W . Dodge Corpora tion report, the daily rate of contract awards in June was 15 per cent below the May average. Residential and nonresidential building contracts remained virtually un changed but the total was affected by the large reduction in heavy engineering work in the New York District. The June contract total was 21 per cent below a year ago, as all of the major classifications with the exception of public works registered declines. However, privately financed residential work, which at present constitutes the greater part of all residential work, increased 8 per cent over June, 1937. In the accompanying diagram a comparison is made be tween residential building and commercial and industrial building since 1929. Both types of building in the period from 1935 to 1937 showed substantial increases from the extremely low levels of the three preceding years; the rise in residential building during 1935 and 1936 was more pronounced than the increase in commercial and industrial building, but the recovery in the latter classi fication continued into the early summer of 1937. Subse quently both types of building declined sharply, but residential building, stimulated by the liberalization of Federal Housing Administration terms and other reduc tions in cost, has had a considerable recovery this year while commercial and industrial building has remained comparatively low. Va lu e o f C ontracts Aw arded for R esidential and for Com m ercial and Industrial B uilding in 3 7 S tates ( F . W . D odge Corporation data converted to a 1 9 2 9 base) Data for the first half of July indicate some further decline in the daily rate of total construction awards. Residential construction increased by a small amount, but there was a pronounced reduction in nonresidential building contracts, and heavy engineering awards also were lower. Residential building activity recently has proceeded at a slightly higher rate than a year ago. C o m m o d ity Prices With the exception of wheat and cotton, which were influenced by crop developments, prices of most actively traded commodities showed net advances for July. The extent of the recovery since early June is indicated in the accompanying diagram, which is based on Moody’s Investors Service index of 15 raw products. At the beginning of June this index was about 43 per cent below the April, 1937 high point, indicating the can cellation of about two-thirds of the previous advance from the 1933 low. The general average of prices of actively traded commodities has shown a rather steady advance during the past two months, and at the end of July the index was about 14 per cent above the June 1 PER CENT 64 M O N T H L Y R E V I E W , A U G U S T 1, 1938 low. The current level, however, is about 35 per cent below the April, 1937 peak. Among the individual commodities, the most pro nounced advance during the past month occurred in prices of scrap steel. The quotation at Pittsburgh, which reached a low of $10.75 a ton during May and early June, rose to $15.25 and at Chicago the price increased to $12.75 a ton, as compared with the recent low of $10.25. Gains were shown also in prices of nonferrous metals during the past month. Spot copper, which had held at 9 cents a pound between the middle of May and the end of June, was raised in five successive steps to 10% cents a pound. The price of lead increased 15 points further during July to 4.90 cents a pound, zinc advanced an addi tional 25 points to 4.75 cents a pound, and a further advance of about % cent brought the price of tin to 43% cents a pound. Crude rubber rose 1 9/16 to 16 5/16 cents a pound, the highest level since October, 1937, and net gains also occurred in the prices of livestock, hides, sugar, wool, and corn. Wheat prices moved irregularly during the early part of July, but subsequently turned downward, and rather sizable declines were shown for the month as a whole. The cash quotation for the Number 1 grade at Minne apolis declined 13% cents during July to 84% cents a bushel, 4 1% cents below the high reached last January, and the lowest quotation since May, 1934. The decline in the latter part of the month reflected favorable weather reports and lack of any substantial increase in foreign demand. On July 14 the Government wheat loan program was announced, with loan rates placed between 59 and 60 cents a bushel for wheat at the farm. On a basis of 52 per cent of the parity price, this rate represented the minimum authorized in the Agricultural Adjustment Act of 1938. Spot cotton rose to 9.21 cents a pound on July 6, but later moved irregularly lower to close the month at 8.67 cents, down slightly from the end of June. F oreign T ra d e Exports and imports of merchandise during June were smaller than in the preceding month, and were also below the totals for the corresponding month a year ago. Exports, valued at $233,000,000, showed a 12 per cent decline from a year ago, while imports of $146,000,000 were only about half their June, 1937 value. Calculations made by the Department of Commerce, allowing for price declines during the past year, indicate that the total quantity of American goods shipped abroad was substantially the same as in June, 1937, but that in the case of imports a large reduction occurred in aggre gate quantity as well as in value. For the first six months of 1938, exports totaled $1,592,000,000 and imports $961,000,000. The resulting excess of exports of $631,000,000, which is in contrast with an excess of imports of $147,000,000 in the first six months of 1937, was the largest export balance for the corresponding period of any year since 1921. Exports of agricultural products as a group in the first six months of this year were 29 per cent larger in value than in the corresponding period in 1937, while imports of this classification were 47 per cent smaller. Exports of nonagricultural products declined slightly, while imports of this type of goods decreased in value by more than one-third. Among the agricultural commodi ties, exports of crude foodstuffs, chiefly grains, were nearly seven times the small value of a year ago, and imports of such products decreased almost 50 per cent. The important group of exports of finished manufac tures, which are principally of nonagricultural origin, was somewhat larger than in the first half of 1937, owing notably to increases in shipments of aircraft, agricul tural and industrial machinery, and gasoline. Imports of finished goods, on the other hand, were 25 per cent smaller in value than a year ago. D e p a rtm e n t Store T ra d e A further increase during July in the seasonally ad justed index of department store sales in this district is indicated by figures for the four weeks ended July 23, which appear to have declined less than usual from the June rate. During this four week period, sales were about 7 per cent below the corresponding period of 1937. In June total sales of the reporting department stores in this district were about 9 % per cent lower than last year, and apparel store sales were about 14 per cent less, both smaller declines than in May. Stocks of merchandise on hand in the department stores declined more than seasonally during June, and, at retail valuation, were 11.6 per cent lower at the end T of the month than at the end of June, 1937; apparel store stocks were 10.4 per cent lower. A t this time last year stocks were being maintained at considerably higher levels than in the preceding year. Collections of accounts outstanding continued to be slower than a year ago, both in the department and apparel stores. Percentage change from a year a g o Net sales Locality June New York and Brooklyn............. Jan. to June Per cent of accounts outstanding: Ma:7 31 collec ted in June Stock on hand end of month 1 93 7 1 93 8 50.5 47.4 58.6 37.2 45.2 41.9 39.4 49.9 42.5 52.9 40.1 43.6 38.8 35.2 9 .0 1 5 .1 1 .9 1 2 .4 1 0 .4 1 3 .6 1 2 .5 1 4 .6 1 4 .0 1 4 .0 6 .3 1 6 .3 1 9 .5 — 7 .6 — 1 1 .1 — 2 .3 — 6 .8 — 9 .6 — 8 .2 — 7 .7 — 6 .1 — 1 2 .1 — 8 .2 — 2 .9 — 9 .7 — 1 0 .2 — 12.7 — 6.2 — 4.1 — 3.5 — 13.0 — 12.5 — 5.0 All department stores....... — 9.4 — 7.8 — 11.6 48.3 46.7 Apparel stores................... — 13.8 — 11.8 — 10.4 45.2 42.1 Syracuse ....................................... Northern New Jersey................... Northern New York State. . . . Southern New York State....... Central New York State.......... Hudson River Valley District. . Westchester and Stamford. . . . Niagara Falls............................. — — — — — — — — — — — — — Department Store Sales and Stocks, Second Federal Reserve District (1923-25 average = 100) 1937 1938 June April May June Sales, unadjusted........................................... Sales, seasonally adjusted............................. 94 97 88 89 81 84 85 89 Stocks, unadjusted........................................ Stocks, seasonally adjusted.......................... 85 89 83 81 84 82 75 79 FEDERAL RESERVE BANK OF NEW YORK MONTHLY REVIEW, AUGUST 1, 1938 Business Conditions in the United States (Summarized by the Board of Governors of the Federal Reserve System) I NDUSTRIAL activity showed little change in June and increased in the first three weeks of July, although there is usually a considerable decline at this season. Prices of most staple commodities advanced sharply in the latter part of June and early July and there were substantial increases in prices of stocks and lower grade bonds. P r o d u c t io n Index N u m ber o f Production o f M anu factures and M inerals Combined, A d ju ste d for Seasonal V ariation ( 1 9 2 3 - 2 5 average = 1 00 per cen t) Volume of industrial production, as measured by the Board's seasonally adjusted index, was at 77 per cent of the 1923-1925 average in June as com pared with 76 in May and an average of 79 in the first quarter of the year. Available data indicate that in July the index will show a considerable rise. In June activity in the textile industry increased, reflecting chiefly a further rise at woolen mills. Output at cotton and silk mills, which usually declines at this season, showed little change. Shoe production declined, follow ing a considerable increase earlier in the year. Automobile output decreased further in June; sales of new cars continued in excess of production, however, and stocks were further reduced. Steel pro duction declined seasonally in June, and lumber production showed little change, although some increase is usual. Output of plate glass rose sharply from an exceptionally low level. Coal production remained in small volume in June, while output of crude petroleum, which had been sharply reduced in May, declined somewhat further. In the first three weeks of July activity at steel mills increased, although there is usually a decline in that period, and in the third week of the month ingot production was estimated at 36 per cent of capacity as compared with an average rate of 28 per cent in June. Crude petroleum output also rose sharply, reflecting chiefly a return to production on a six day week basis in Texas. Automobile production declined seasonally. Value of construction contracts awarded, as reported by the F. W. Dodge Corporation, showed a decline in June, following a considerable increase in May. Changes in both months reflected chiefly fluctuations in awards for publicly financed construction. Awards for private residential building were maintained in June at about the same daily rate as in May, although there is usually some decline at this season, and were in slightly larger volume than a year ago. Other private construction work remained at recent low levels. E m ploym ent Indexes o f D aily A v e ra g e V a lu e o f D epartm en t Store Sa les, A d ju ste d for Seasonal V ariation and U n ad ju sted ( 1 9 2 3 - 2 5 average = 1 0 0 per cen t) PER CENT Factory employment and payrolls decreased further from the middle of May to the middle of June. Employment in the automobile, steel, machinery, and clothing industries continued to decline, while at woolen mills there was an increase and in most other manufacturing lines changes were small. In trade employment was reduced, while in other nonmanufacturing industries changes in the number employed were largely seasonal. A g r ic u l t u r e A total wheat crop of 967,000,000 bushels was indicated by July 1 condi tions, according to the Department of Agriculture. A crop of this size would be considerably larger than average and a Government program was announced for loans at close to current market prices. Cotton acreage on July 1 was estimated at 26,900,000 acres as compared with 34,500,000 acres last year when, with exceptionally high yield per acre, a record crop was harvested. Produc tion estimates for most other major crops were slightly under the large harvests of last season. D is t r ib u t io n W h o le sa le Price Index o f U n ited S ta tes B ureau o f Labor S tatistics ( 1 9 2 6 = 1 0 0 per cen t) Distribution of commodities to consumers was maintained in June at about the May level, although a decline is usual at this season. Sales at department and variety stores showed little change and mail order sales increased. In the first half of July department store sales decreased less than seasonally. Freight car loadings showed little change from May to June and were slightly above the low level of April. C o m m o d it y P r ic e s BILLIONS OF DOLLARS Prices of industrial materials, particularly rubber, hides, nonferrous metals, and steel scrap, showed advances from the middle of June to the third week of July, and there were also increases in prices of livestock and products. Wheat prices declined, following a rise early in June. Prices of iron and steel were reduced and there were also declines in some other industrial products. B a n k Cr e d it Excess Reserves of Member Banks (Latest figures are for July 20) Excess reserves of member banks increased substantially in June and the first half of July, rising to above $3,000,000,000, as compared with $1,730,000,000 just prior to the reduction in reserve requirements the middle of April. The largest gain in excess reserves occurred at city banks through the retirement of Treasury bills and the continued growth of bankers9 balances. Total loans and investments of reporting member banks in 101 leading cities, which had increased sharply in the first week of June, declined during the remainder of June, reflecting largely redemption of Treasury bills held by New York City banks and a decrease in loans to security brokers and dealers. During the first three weeks of July total loans and investments at reporting banks showed little net change. M on ey R ates Rates on Treasury bills and notes were slightly firmer in July but continued at exceedingly low levels. Yields on Treasury bonds showed little change.
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