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MONTHLY REVIEW
o f

C

r e

d

i t

a

S e c o n d

F ed era l E eserve B a n k , N ew Y o rk

n

d

B

u s i n e s s

F e d e r a l

o

n

d

i t i o

n

s

D is t r ic t

_______________________________ _________________________ D e c e m b e r i , 1 9 3 8

Money Market in November
The outstanding feature o f the money market, during
the past month, has been the continued flow o f funds
from London to New Y o rk , the resulting weakness in
sterling exchange, and the accom panying movement o f
gold to the United States. A lthough the immediate threat
o f war in Europe was averted near the end of September,
lack o f confidence in the stability of the European
political situation is reported to have been a continuing
cause of capital movements to the U nited States. The
burden of meeting this demand fo r dollars has fallen
largely upon the London market, as London has been
for some time the largest depository abroad fo r foreign
funds.
A nother factor in the downward course o f sterling,
which has now proceeded irregularly since F ebruary,
1938, has been the large excess o f merchandise exports
over imports of the United States. The sudden emergence
about a year ago of a large export surplus in this coun­
t r y ’s foreign trade, chiefly as a result o f the rapid decline
in business activity and the accom panying curtailment
o f merchandise imports, had as its counterpart, from a
world standpoint, substantial adverse changes in the
balance o f paym ents o f Great B ritain and o f the large
group o f E m pire and other raw material producing
countries which maintain their international reserves in
the form o f sterling balances. This group o f countries
covered the deficits in their international accounts largely
by drawing upon their balances in London. The result­
ing demand fo r dollar exchange was at first offset to a
considerable extent by the liquidation o f accumulated
foreign balances in N ew Y o rk , a process which was
assisted by rumors o f im pending further devaluation of
the dollar, which fo r a time were widely circulated
abroad. D u rin g the third quarter o f 1938 the commercial
demand fo r dollars became a more active factor in the
exchange market and contributed substantially to the
pressure against sterling exchange.
I n November, however, this factor is thought to have
been less im portant than the capital movement, as it is
believed that a substantial part of the requirements fo r
dollars to pay fo r exports from this country during the
fa ll season were covered by anticipatory purchases o f
dollars in A u g u st and September, at the time when the
E uropean situation appeared to be most critical. M ore­
over, there are indications o f some abatement o f the
commercial demand fo r dollars as a result of an increase




R e s e r v e

C

in this cou n try’s merchandise imports, accompanying
the upturn in business activity here, while the raw mate­
rial producing countries have made considerable progress
in adjusting their imports to the reduced value o f their
exports.
The persistent weakness in sterling exchange in recent
months appears to have led to speculative operations
against sterling that have augmented the movement of
capital from London. In periods of weakness in sterling
during the latter part o f November, some o f the other
E uropean exchanges, notably the D utch, Swiss, and
B elgian currencies, have been fa irly strong, and even the
French franc, which earlier in the year had shown the
most acute weakness, has shown a considerable degree
o f stability against the pound.
The movement o f fu n ds to this country from London
has been accompanied by a practically continuous flow
o f gold from London to New Y o rk . L argely as a result
o f these shipments, the U nited States gold stock has
risen to successively higher levels, the increase in N ovem ­
ber being approxim ately $245,000,000, follow ing an
increase o f $929 ,000 ,00 0 in September and October. A s
the accom panying diagram shows, this cou n try’s gold
stock, in a period o f less than five years— since the end
o f January, 1934, when the gold stock was revalued at
$35 an ounce— has more than doubled, rising from about
7 billion dollars to well over 14 billion. D u rin g the same
period, member bank reserves have trebled, increasing

90

MONTHLY REVIEW. DECEMBER 1, 1938

from less than $3,000,000,000 to over $8,800,000,000. The
increase in bank reserves has been somewhat less in abso­
lute amount than the increase in the gold stock, largely
because o f the rising trend of currency circulation in
this country. A t times the volume of member bank
reserves has been affected also by other factors, such as
large changes in Treasury balances with the Federal
Reserve Banks, silver purchases, the gold sterilization
policy from December, 1936 to September, 1937, and the
desterilization of gold by the Treasury in September,
1937, and again in 1938. B u t in general, the rise in bank
reserves has been roughly parallel to, and has had its
origin chiefly in, the increase in the gold stock.
Excess reserves, despite the increase of nearly 75 per
cent in the percentages of reserves which member banks
are required to maintain against their deposits, have now
risen above the previous peak which was reached in
December, 1935. This movement m ay be interrupted
during the next month by the holiday currency demand,
and, in the event o f an issue o f Government securities on
December 15 to raise new money for the Treasury, by
cash paym ents fo r such securities, but these influences are
tem porary factors and w ill not perm anently offset
further gold inflows.
A considerable part o f the recent increase in excess
reserves has been concentrated in New Y o rk C ity, p artly
because most of the incoming foreign funds have been
deposited in New Y o rk , p artly because o f commercial
transfer of funds to New Y o rk , and p artly because
banks in other parts o f the country have continued
to follow the practice o f transferring substantial
amounts of their surplus fu n ds to their balances
with the large N ew Y o r k C ity banks.
A t the same
time that excess reserves of New Y o rk C ity banks have
been rising to new high levels, the balances which they
hold fo r out-of-tow n banks have risen close to the previous
maxim um , which was reached in the autumn of 1936.
The inflow o f foreign fu n ds and the rise in the gold
stock have been accompanied also by an increase in the
adjusted demand deposits of the weekly reporting New
Y o rk C ity banks to new high levels. In other principal
cities also, such deposits rose at the end of October above
their previous maxim um , but subsequently declined some­
what, apparently reflecting in part an increase in the
amount of currency in circulation, and in part transfers
of deposits to New Y ork.
M e m b e r B a n k C r e d it

Total loans and investments o f all weekly reporting
member banks, after reaching at the end o f October the
largest volume since last December, receded somewhat
during November. The principal factor in the decline
was a reduction of $176 ,000 ,00 0 in the investments of
the New Y o rk C ity banks, including a decline of
$38,000,000 in Government securities, and a reduction of
$136,000,000 in other securities due to repaym ents of
tem porary State and m unicipal borrowings. There were
also further small declines in commercial loans, which
apparently reflected seasonal repaym ents o f temporary
business borrowing. Banks in other principal cities
showed little change in their loans and investments in
November.




M

oney

R ates

Accom panying the further accumulation of excess re­
serves in member banks, a condition of great ease
persisted in the short term money market. The prevailing
rate on prime commercial paper declined slightly further
during the month, and yields on Treasury bills dropped
below the low level reached at the end of October. Y ield s
on longer term securities, however, advanced slightly,
apparently reflecting the combined effect o f continued
uncertainty concerning the European situation and the
expectation o f further such issues o f Government securi­
ties in December to finance the excess o f Government
disbursements over current receipts.
M oney Rates in New York
N ov. 30, 1937 Oct, 31, 1938 N ov. 29, 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 m o n th ).................................
Average yield on Treasury notes (3 -5
years). . ........................................................
Average yield on Treasury bonds (more
than 8 years to maturity or call d a te ).
Average rate on latest Treasury bill sale
91 day issue.................................................
107 day issue...............................................
Federal Reserve Bank of New York re­
discount rate...............................................
Federal Reserve Bank of New York
buying rate for 90 day indorsed bills. .

1

1

*1X

*1K

1
1

Vs
Ke

V s -H
Ke

%
1 .6 3

1 .6 3

1 .6 3

1 .3 0

0 .6 9

0 .6 8

2 .5 7

2 .2 7

2 .3 2

0 .0 3

0 .0 2

1

1

6 !l2
1

3^

H

* Nominal.

G o v e r n m e n t S e c u r it ie s

Turnover in the Government security market was
unusually small during November. A lth ou gh the port­
folios of some institutional investors were readjusted in
preparation fo r the T rea su ry ’s m id-Decem ber financing
operations, there was a general disposition on the part
of most holders of Government securities to await the
announcement o f December 15 offerings. Treasury bond
prices receded moderately from the high level which had
prevailed during the second h alf o f October, and an
average o f quotations fo r Treasury bonds o f more than
eight year term to call date or m aturity showed a decline
of about % of a point, offsetting about one third of the
advance recorded between September 27 and the middle
of October.
A ccom panying the gradual downward movement in
Treasury bond quotations, the prices o f the longer
maturities o f Treasury notes also eased slightly during
the first h alf o f Novem ber, with the result that the
average yields o f Treasury notes m aturing in three to
five years rose from 0.69 per cent at the end of October
to 0.73 per cent. In the latter part o f the month, however,
the prices o f notes fu lly recovered and the yields receded
to an average of 0.68 per cent.
The Novem ber weekly offerings o f Treasury bills were
marketed at rates ranging between 0.021 and 0.027 per
cent. The five $100 ,000 ,00 0 issues floated in November
replaced equivalent maturities.
C o m m e r c ia l P a p e r

and

B il ls

D u rin g Novem ber sales of commercial paper at % per
cent increased and this rate became established as the
ruling quotation fo r average grade prim e 4 to 6 month

FEDERAL RESERVE B AN K OF N EW YO R K

material. A range of % - % per cent had prevailed since
September. The highest grade paper, when available,
was sold at % per cent, and while there continued to be
transactions at % per cent, this rate applied prim arily
to paper o f the smaller, less well known concerns. The
volume of business done in the commercial paper market
remained lim ited by the small quantity o f new paper
currently acquired by dealers fo r resale, owing in part
to seasonal influences. A total of $213 ,100 ,00 0 o f paper
was outstanding through commercial paper houses re­
porting to this bank at the end of October, as against
$212,300,000
in
September,
and
$323 ,400 ,00 0
in
October, 1937.
The bill market remained extremely quiet, as in a
number o f months past. The continued active demand
fo r bankers acceptances remained largely unfilled, as
olferings in the market were very small. Seasonal influ­
ences resulted in a further increase o f $9,000,000 in the
amount o f bankers acceptances outstanding at the end
o f October. The largest component was a rise, fo r the
third successive month, of $5,000,000 in im port bills.
Domestic warehouse credits also increased an additional
$3,000,000. Compared with a year ago, however, the
volume of bills outstanding at the end of October showed
a decline of $76,000,000, due to decreases of $33,000,000
in im port bills, $25,000,000 in export bills, and
$16,000,000 in domestic warehouse credits.
(Millions of dollars)
Type of acceptance
Im port...............................................................
Export................................................................
Domestic shipment.......................................
Domestic warehouse credit.......................
Dollar exchange..............................................
Based on goods stored in or shipped be­
tween foreign countries..........................
T otal.....................................................

Oct. 30, 1937 Sept. 30,1 9 3 8 Oct. 31, 1938
127
82
8
66
1

89
57
9
47
2

94
57
10
50
3

62

57

56

346

261

270

Foreign Exchanges
Sterling exchange was under heavy adverse pressure
in foreign exchange markets during Novem ber, and
quotations fo r the pound depreciated sharply from
$ 4 .7 5 % on October 31 to $4.62 1 1 /1 6 on Novem ber 26
before recovering to $ 4 .6 8 % on the 30th. The level of
$4.62 1 1 /1 6 was the lowest rate, with the exception of
the brief period in the morning of September 28 when
sterling reached $4.61, since October, 1933. The price
of gold in London at the fixing was bid up during the
same period from 146s % d on October 31 to a new
all-tim e high record at 150s on November 26.
D u rin g the first third of the month, the pound moved
narrow ly around the level of $4.76 which had been m ain­
tained since shortly after the middle of October. The
outbreak of a German campaign against the Jews in
retaliation for the assassination of an official in the
German embassy in Paris tended to accentuate a feeling
o f pessimism regarding the general European political
outlook, and the pound became subject to heavy selling
pressure. This pressure carried the pound to a level o f
$4.70 which was held for a brief period, but quotations
began to fa ll with comparative rapidity after November
21, owing to increasing discouragement over the E u ro ­
pean political prospect, which was then disturbed by




91

DOLLARS

agitation fo r the further partition o f Eastern Czecho­
slovakia. The pace of the decline gave rise to further
circulation o f rumors of an agreement between British
and A m erican authorities fo r a lower sterling rate,
despite the previous refutation o f similar rumors upon
the publication of the A n glo-A m erican trade agreement
on November 17.
The French franc moved closely in sym pathy with the
pound in the N ew Y o rk market, closing at $ 0 .0 2 6 1 1 /1 6
on Novem ber 29, compared with $0.0266 1 /1 6 on October
31. B efore the middle o f the month, however, the resigna­
tion of Finance M inister Marchandeau was followed by
the appointm ent o f P aul R eynaud to the post and by
the prom ulgation o f 44 decrees embracing his recovery
program fo r France, issued under the provisory powers
accorded the D aladier government by the French P arlia­
ment on October 5. The announcement o f this program ,
which included new taxation to balance the ordinary
budget, a revaluation of the gold stock of the B ank o f
France on the basis o f 27.5 m illigram s of gold to the
franc, or about 170 francs per pound, and the suspension
o f the 40-hour week fo r a period o f three years, was
made on the evening o f Novem ber 12 and was followed,
when exchange markets opened on Novem ber 14, by a
brief period o f covering short positions in the franc.
The size o f this covering movement was approxim ately
indicated by Finance M inister R ey n au d ’s statement to
the Financial Committee of the Chamber of Deputies on
Novem ber 23 that the French Stabilization F u n d had
acquired 1,500,000,000 francs of gold since Novem ber 1.
The refusal o f Socialist groups in the Parliam ent to
support the program , and the outbreak o f widespread
strikes against the suspension of the 40-hour week slowed
down the covering movement, but the strong measures
undertaken by the French Government to suppress strikes
were favorably interpreted by those groups in France
which hold capital abroad, with the result that in the
last few days o f the month the flow of funds to France
was resumed on a considerable scale.
A m o n g the other E uropean currencies, the belga
remained firm against the dollar at a level o f $ 0 .1 6 9 1 %
and appreciated against sterling from 28.16 to 27.54
belgas per pound. The guilder and the Swiss franc

92

MONTHLY REVIEW, DECEMBER 1, 1938

declined in sym pathy with the pound from $0.5444 and
$ 0 .2 2 7 0 % , respectively, on October 31, to $0.5405 and
$0.2260 on Novem ber 14, before breaking loose from the
pound and firming in New Y o r k back to $0.5442 and
$0.2273 on November 29. In terms of the pound sterling
these currencies remained relatively steady at 8.75
guilders per pound and 20.95 Swiss francs per pound,
respectively, until Novem ber 14, after which they appre­
ciated to 8.56 and 20.49.
W ith respect to other currencies, Canadian exchange
failed to respond to the weakness in sterling, and its
quotations fluctuated only slightly from the discount o f
% per cent with which it had opened the month. The
A rgentine official selling rate fo r sterling was changed on
November 8 fo r the first time since December 10, 1936,
from 16 pesos to the pound sterling to 17, and the regula­
tion requiring prior permits fo r importers buying official
exchange was extended, as of December 1, to those im ­
porters who had been buying their exchange in the free
market. The official buying rate was le ft unchanged
at 15 pesos to the pound, equivalent to about $0,311 in
this market, compared to $0,274 at the new selling rate.
Free pesos weakened on the change from $0.2515 to
$0.2400, and later eased from this level to $0.2260. Other
rate changes in L a tin A m erica were nominal or unim ­
portant. In the F a r Eastern area, yen quotations fluc­
tuated closely with the pound sterling, and the Shanghai
dollar quotations continued nominal around $0.16.

Gold Movement
D u rin g Novem ber, gold imports affecting the U nited
States gold stock included receipts at New Y o rk totaling
$84,600,000, o f which $73,800,000 came from E n gland,
$6,600,000 from Canada, $3,500,000 from India, and
$700,000 from H o lla n d ; also receipts on the W e s t Coast
o f $14,400,000, o f which $ 5 ,900,000 came from Japan,
$5,600,000 from A u stralia, and $2,900,000 from China.
In addition, there was a gain to the gold stock through
the release o f $11,900,000 from foreign earmarked hold­
ings. A s a result o f these reported transactions plus
other acquisitions by the Treasury concerning which
no details were reported, the U nited States gold stock
was increased b y approxim ately $245,000,000 during
November.

Central Bank Rate Changes
Effective Novem ber 25 the discount rate of the Bank
o f France was reduced to 2 % per cent from 3 per cent, a
level to which it had been raised on Septem ber 28, 1938.
Simultaneously, the rate fo r 30 day advances on specified
Government securities was lowered from 3 to 2 % per
cent, and the rate fo r 3 month advances on other eligible
collateral was brought down from 4 to 3 % per cent.

Security Markets
Chiefly reflecting sharp advances on the day preceding
and that follow ing Election D a y , the available averages
o f stock prices rose further early in Novem ber to a new
high level since the early autum n o f 1937.
Stock
Exchange turnover on W edn esday, Novem ber 9, at
3,100,000 shares, represented the largest single d a y ’s
trading in over a year, and on that day the Standard




Statistics C om pan y’s ninety stock index reached a figure
25 per cent above its late September low, and 62 per cent
above the extreme low o f last M arch. M arket turnover
remained heavy in the two subsequent trading sessions,
and prices held close to their peak levels. Shortly before
the middle o f the month, however, the upw ard movement
o f stock prices was reversed, and the declining tendency
during the remainder o f the month carried the Standard
Statistics index to a point about 10 per cent below its
early Novem ber peak, thereby canceling h a lf o f the
advance since late September. R ailroad stocks, which had
advanced especially rapidly during the previous period
o f rising prices, subsequently showed a somewhat larger
decline than industrial shares. M arket turnover was small
during the latter part o f November, exceeding 1,000,000
shares on only two days.
Averages which reflect the price movements o f both
high grade and m edium grade corporation bonds ad­
vanced during the early part o f Novem ber, and, despite
a somewhat easier tendency in the second h alf o f the
month, showed small net gains fo r the month as a whole.
W it h the exception o f rather marked declines in
A u strian , Czechoslovakian, Polish, and B razilian issues,
most foreign dollar bonds showed relatively small price
changes in November.

New Financing
The total o f new corporate security issues during
Novem ber was about $170 ,000 ,00 0, or h a lf o f the revised
total fo r October. Some $ 73,000,000 o f the Novem ber
financing, however, was fo r new capital, an amount
$25,500,000 greater than in October. E ighty-five per cent
o f the November total, $145,000,000, was placed privately,
m ainly with insurance companies, w ithout being under­
written or offered publicly. The fo u r largest corporate
issues during the month, all placed privately, w e re :
$40,000,000 Goodyear Tire and E ubber C om pany first
mortgage and collateral trust 3 % ’s of
1958, fo r refu n d in g ;
34.000.000 Commonwealth E dison C om pany first
mortgage 3 % ’s o f 1968, at 104, $19,900,000 fo r refu n d in g ;
30.000.000 Philadelphia E lectric Com pany 3 %
cent bonds fo r new ca p ita l;

per

15.000.000 Connecticut L igh t and Power Com pany
first and refu n din g m ortgage 3 % ’s of
1968, p artly fo r new capital.
M unicipal bond awards during the month amounted to
about $150,000,000. Large issues were sold by the Com­
monwealth o f Massachusetts, the State o f Connecticut,
and the C ity o f N ew Y o rk . Massachusetts sold $19,400,000 o f hurricane and flood damage 0.75 per cent
bonds, due 1939-1943, at a price o f 100.19 per cent of
par. A $25,000,000 Connecticut issue o f 1 % and 1 % per
cent bonds, due in 1 to 20 years, the only funded debt of
the State, was awarded at a net interest cost o f 1.5116
per cent, and was reoffered by the w inning syndicate to
yield from 0.15 to about 1.67 per cent according to
m aturity. The New Y o rk C ity flotation was divided
into two p a r ts: $25,000,000 serial bonds m aturing in
1939 to 1973, awarded as 3 ’s ; and $ 1 5 ,000,000 assessment

9
3

FEDERAL RESERVE B AN K OF N EW Y O R K

bonds m aturing in 1940 to 1944, awarded as 2 ^ 4 ’s. The
net interest cost o f the w inning bid, covering both issues,
was 2.883 per cent.

PERCENT

Two large issues o f foreign government bonds were sold
during November. One, $25,000,000 o f sinking fu n d
4 % ’s, due 1948, o f the Argentine Republic, priced at
9 5 % , was the first new capital issue fo r a foreign govern­
ment other than the Canadian Provincial or Dom inion
Governments that has been sold in this market since
1930. D u rin g recent years A rgentina has retired over
$115 ,000 ,00 0 of dollar bonds, in addition to amortization
paym ents o f about $35,000,000. The second foreign
government issue in Novem ber was the sale b y the
Dom inion o f Canada o f $40,000,000 o f 3 per cent bonds
of 1968 at 97*4, to refund notes due January 1, 1939.

Business Profits
Combined third quarter net profits, less deficits, o f
254 industrial and mercantile companies whose quarterly
earnings reports are available not only fo r that period,
but also fo r several preceding years, were 68 per cent
smaller than in the corresponding period last year— about
the same reduction as in the first h alf of 1938, despite the
substantial rise in industrial production between the
second and third quarters o f this year. E xclu din g the
automobile industry, there appears to have been a rise
in profits o f slightly more than the usual seasonal pro­
portions in the third quarter, but, reflecting the low level
o f automobile output during much of the period, the
reporting automobile companies showed a more than
seasonal reduction.
Consequently, the accom panying
diagram indicates a further decline in this ba n k ’s season­
ally adjusted index of net profits of 167 industrial and
mercantile companies. The index fo r the third quarter
o f 1938 was at approxim ately the same level as in the
third quarter o f 1934, shortly before the 2 % year rise
that terminated in 1937, got under way.
Two groups o f companies, the food and food products
companies and the motion pictures and amusements
group, had slightly larger profits in the third quarter o f
1938 than in the corresponding period in 1937, but three
groups— automobile parts and accessories, coal and coke,
and steel— sustained third quarter losses, as compared
with profits last year, and all other groups had smaller
profits than a year ago. The largest declines were reported
by the automobile, machinery and tool, and railroad
equipment groups, while the smallest declines were re­
ported by the clothing and textile, household equipment,
office equipment, and cigar company groups.
A n analysis o f the reports fo r individual companies
that are included in the table indicates that 27 per cent
o f the total operated at a loss during the third quarter
o f 1938, a smaller proportion than in either the first or
second quarters o f the year, but three times as m any as
in the third quarter o f 1937.
F o r the first nine months of this year, net profits of the
254 companies showed the same percentage decline from
last year as fo r the third quarter. The outstanding case
o f an increase in profits over last year, however, is not
shown in the table because quarterly earnings reports




Index of Profits of 167 Industrial and Mercantile Corporations,,
Adjusted for Seasonal Variation (1925-29 average—IOO per cent)

fo r the industry are available only fo r a lim ited period ;
that is the aviation industry, which fo r the first nine
months o f this year showed profits 55 per cent larger
than in the corresponding period o f last year. A s com­
pared with the first nine months o f 1934, when the
industrial production index was at approxim ately the
same level, aggregate net profits o f the 254 companies
in the corresponding period o f this year were 12 per cent
lower, chiefly because o f smaller profits in the reporting
automobile companies and larger losses in the steel com­
panies than in 1934.
Class I railroads, after showing in the first h alf o f the
year the largest deficit fo r any corresponding period on
(Net profits in millions of dollars)
Third Quarter
N o.
of
Cos.

Corporation group

Advertising,

printing

1934

1937

1938

1 .4
5 4 .4

0 .5
1 .3

First nine months

1934

1937

1938

and

Automobiles.................................
Automobile parts and acces­
sories (excl. tires)..............
Building supplies........................
Chemicals and drugs.................
Clothing and textiles.................
Coal and coke.............................
Electrical equipment.................
Food and food p ro d u cts.. .
Household supplies...................
Machinery and tools................
Metals and mining (excl. coal
and coke)................................
M otion pictures and amuse-

5
9

1 .7
1 9 .0

25
19
22
5
4
10
20
9
12

3 .0
1 .0
2 6 .9
— 0 .1
0 .4
4 .6
2 6 .7
3 .9
0 .9

5 .4
9 1 .4

1 1 .2 — 2 .1
2 0 .6
1 2 .6
4 .6
4 .7
4 4 .6 2 4 .2
7 6 .3
0 .2
0 .2 — 0 .2
0 .8 — 0 .4
2 .5
2 2 .6
7 .5
1 6 .5
2 6 .1 2 7 .2
7 5 .9
4 .0
2 .8
6 .6
9 .6
1 .3
4 .7

2 .9
3 3 .4

4 7 .9 —
4 .3
3 6 .5
5 .6
131.2
6 2 .1
1.1 —
1 .2
2 .5 —
0 .7
6 9 .7
2 6 .4
7 8 .0
7 6 .8
7 .5
3 9
2 9 .5
6 .9

17

6 .8

Office equipm ent........................
Paper and paper products. . .
Petroleum.....................................
Railroad equipment.................
Steel................................................
Tobacco (cigars).........................
Miscellaneous..............................

4
5
6
22
9
14
6
31

0 .4
2 .4
0 .5
19.1
3 .2
— 2 0 .3
1 .3
4 .0

Total, 20 groups........................

254

Class I Railroads, net income

141

— 10 .7

4 2 .5

Telephone companies, net
operating in com e..................

91

4 3 .5

5 2 .5

5 0 .5

1 43.4

1 71.5

1 53.4

60

4 1 .3

5 6 .8

5 2 .2

14 9 .2

1 88.5

1 64.8

Other

public

— Deficit.

utilities,

2 2 .8

7 .0
20 0 .1

1 0 .6

2 6 .7

2 .2
2 .3
2 .4
4 .0
2 .6
8 .6
1 .5
0 .8
1 .8
5 4 .1 2 7 .9
4 2 .4
9 .7
0 .3
3 .6
6 1 .7 — 7 .1 — 8 .1
1 .2
1.1
3 .2
6 .7
6 .2
6 .9

1 05.4 3 5 1 .4 111.8

7 1 .9

3 9 1 .9 1 ,086.7

3 .4 — 3 3 .9

3 3 .5

7 .2
6 .5
1 3 .8
9 .7
5 .3
2 .7
1 35.0
8 1 .2
2 8 .9
3 .9
192.1 — 2 0 .7
2 .5
2 .3
1 9 .0
13 .0
3 4 3 .9

8 1 .4 — 176.8

net

94

M ONTHLY REVIEW, DECEMBER 1, 1938

record— a deficit o f more than $180 ,000 ,00 0— reported a
small net profit for the third quarter, amounting for the
group as a whole to slightly under 3 % m illion dollars.
In the third quarter of 1937, the net profit o f these rail­
roads was approxim ately 4 2 % million. N et operating
income o f 91 large telephone companies and net income
of 60 other public utility companies continued somewhat
below a year previous, but the declines were not as large
as in the first h a lf of the year.

M IL L IO N S
OF D O L L A R S

Building
C ontinuing the rising tendency in evidence since the
first o f the year, building and engineering contracts
awarded in the 37 States surveyed by the F . W . Dodge
Corporation were larger in October than in any month
since M arch, 1931. The gain from September to October,
in which pronounced gains in nonresidential classifica­
tions played a significant part, amounted to 19 per cent
on a daily average basis. Com pared with October, 1937,
total building and engineering awards were 77 per cent
higher. A ll o f the m ajor categories except commercial
and industrial building registered sizable advances over
a year ago, as the follow ing table indicates.
Percentage Change in Average Daily Contracts
37 States
N . Y . and Northern N . J.
October, 1938 compared with October, 1938 compared with
Sept., 1938

October, 1937

Sept., 1938

October, 1937

Monthly Contract Totals for Two Principal Classes of Nonresidential
Building Construction (F . W. Dodge Corporation data for 37 States)

awarded in 37 States during the first three weeks of
November was 18 per cent below the October average.
Declines of somewhat more than the usual seasonal
proportions occurred in each of the three m ajor classi­
fications.
Compared with the first three weeks of
November, 1937, however, total contracts were 34 per
cent higher, all three principal categories showing
advances.

Building
Residential......................
Commercial and indus­
trial ...............................
Public purpose*............
All building.. . .

Engineerings
Public works..................
Public utilities...............
All engineering.
All construction

72

+

11

+185

+ 54
+ 38
+ 27
li

0
+149
+ 73

+
+
+

70
52
27

+ 55
+171
+152

+ ;1 2
— ‘ 19
+
4

+
+
+

93
60
86

— 22
— 56
— 31

— 35
+138
— 26

+

+

77

+

+

13

19

+

12

+

81

* Includes educational, hospital, public, religious and memorial, and social
and recreational building.

The accom panying chart shows a separation of non­
residential building contracts into two classes— commer­
cial and industrial buildings, and buildings designed for
various public purposes. F rom 1933 to 1937 the two
classes o f nonresidential building accounted fo r roughly
similar volumes o f construction. H owever, during the
past twelve months public purpose building, supported
by contracts placed by the Public W o rk s Adm inistration,
has exceeded commercial and industrial building by a
substantial m argin and has been running at a higher
level than in 1937. Commercial and industrial building,
which declined sharply when business activity turned
downward last year, has experienced little recovery
during the current year and remains at a relatively
low level.
I n the N ew Y o rk and Northern New Jersey area,
average daily construction contracts were 12 per cent
higher in October than in September. Sizable increases
in residential and nonresidential awards were offset in
part by a decrease in heavy engineering construction
contracts. Compared with October, 1937, total contracts
were 81 per cent higher, and the value of residential
contracts was nearly three times as great.
The daily rate at which construction contracts were




Production and Trade
Prelim inary evidence indicates that there was a further
gain in the general level of business activity in N ovem ­
ber. Steel m ill activity, after rising further, eased off
slightly during the latter part of the month, but appar­
ently averaged substantially higher than in October.
Since June, steel mills have more than doubled their rate
of production. Assemblies of automobiles continued to
rise during the month, and car m anufacturers are re­
ported to have revised production schedules upward,
owing to retail sales in excess o f earlier expectations.
Cotton m ill activity apparently increased further in
November, though m ill sales of cotton goods during the
latter part of the month were reported to be lower than
current output. F o r the first three weeks of Novem ber
electric power generation rose more than seasonally, and
department store sales in this D istrict also appear to have
increased by more than the usual proportions, while
the movement of freight by railway declined less than
is usual.
D u rin g October business operations continued the
recent upward movement, owing in large measure to
accelerated rates o f activity in im portant durable goods
lines. There were substantial increases in production of
steel, pig iron, copper, zinc, cement, and plate glass, and
automobile assemblies rose rapidly as volume output of
new models was attained. D u rin g October shoe produc­
tion declined less than is usual at this time o f the year,
but moderate increases in cotton and wool m ill operations
were largely of a seasonal character, and activity at meat
packing plants was little changed.
A m o n g series reflecting the rate o f distribution of
goods, shipments o f freight over the railroads and sales

FEDERAL RESERVE B AN K OF N EW YO R K

o f chain stores other than grocery increased more than is
customary during October, and grocery chain store, sales
advanced as in other years, but department store and
mail order sales rose less than usual.
(Adjusted for seasonal variations, for estimated long term trend,
and where necessary for price changes)

95

60 per cent in the value o f receipts of foreign copper
and tin. Im ports of m anufactured foodstuffs were only
7 per cent smaller than the value of a year ago, as
increased receipts o f sugar and vegetable oils nearly
offset decreases in imports o f other types o f foodstuffs.
Percentage change

1937

1938

Oct.

Aug.

Sept.

79
108
135
62
86
97
94
88
56r
86
86
92
63
143

59
58
29
47
70
88
90
95
107
109
87
91
52
103

63
65
49
40
76
84
89 p
90
90
lO lp
90
90
54
111

71
82 p
81
42
74 p
86 p
89 p
91
92 p
101 p
90
86
63
108

Dollar value
(in millions)
October, 1938

Oct.

October, 1938
compared with
October, 1937

October, 1938
compared with
September, 1938

Industrial Production
Copper...................................................................
Passenger cars.....................................................
M otor trucks.......................................................
Bituminous coal.................................................
Crude petroleum...............................................
Electric power....................................................
Cotton consumption........................................
W ool consumption............................................
Shoes......................................................................
M eat packing.....................................................
Tobacco products r ..........................................
C em ent..................................................................
Machine tool orders*.......................................

Employment
Employment, manufacturing, U. S ...........
Employee hours, manufacturing, U. S. . .

100
88

80
69

82
71

83 p
74 p

25

43

41

43

46

66

61

80

83r
86
87
79

72
66
84
79

75
70
78
76

77
75
78
69

89
82
94
99r
100
120

81
76
102
89
89
44

83
80
104
92
90
43

81p
75
107p
95
88
69 p

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

Primary Distribution
Car loadings, merchandise and misc.........
Car loadings, other..........................................
Exports..................................................................
Im ports.................................................................

Distribution to Consumer
Department store sales, U. S .......................
Department store sales, 2nd D istrict. . . .
Chain grocery sales..........................................
Other chain store sales....................................
Mail order house sales.....................................
New passenger car registrations.................

Velocity of Deposits
Velocity of demand deposits, outside
New York C ity **.........................................
Velocity of demand deposits, New York
C it y * * ...............................................................

70

59

61

62

47

36

38

40

General price level#..........................................
Cost of living#...................................................
Composite index of wagesf...........................

158
153
112

154
148
109

154
148
109

155p
148p
109p

p Preliminary

r Revised
* Not adjusted for price changes.
**1919-1925 average = 100.
# 1913 average = 100; not adjusted for trend.
fl9 2 6 average = 100; not adjusted for trend.

Foreign Trade
B oth exports and imports o f merchandise continued
to increase in value during October and were substan­
tially above the low levels reached in the midsummer
months. E xports were valued at $278,000,000, an amount
17 per cent less than in October, 1937, while imports,
valued at $178,000,000, were 21 per cent smaller than a
year previous. The excess of exports, after declining
gradually in several previous months, increased in
October, reflecting seasonal influences, but was somewhat
less than in October of last year.
M ost of the m ajor groups o f exports and imports
showed seasonal increases over September, but all p ar­
ticipated in the decline from a year ago in aggregate
values. Compared with October, 1937, decreases in value
among the exports ranged from 29 per cent in the case
o f shipments o f crude foodstuffs (notably wheat) to 2 per
cent in the case o f exports o f m anufactured foodstuffs.
A decline o f 31 per cent occurred in imports of semi­
m anufactures, due principally to decreases o f almost




Exports* Imports** Exports Imports Exports Imports
Crude materials.....................
Crude foodstuffs....................
Manufactured foodstuffs...
Semimanufactures................
Finished manufactures. . . .

7 2 .1
1 2 .5
2 0 .8
4 4 .5
12 4 .4

5 3 .7
2 1 .1
2 7 .2
3 5 .8
4 0 .6

T o ta ls ......................

2 7 4 .3

1 78.4

— 1 8 .3 — 2 5 .0 + 2 1 .0 +
— 2 9 .0 — 1 0 .5 — 1 2 .6 +
7 .2 + 2 1 .6 —
—
2 .2 —
— 2 4 .3 — 3 1 .1 + 1 0.7 - f
— 1 3.3 — 1 8 .6 + 1 0 .6 +
—

16 .7 — 2 1 .2 +

1 2 .6 +

2 .5
2 .9
4 .9
6 .5
7 .1
3 .2

* Domestic exports only
* * Imports for consumption only

D u rin g October relatively large seasonal gains over
September occurred in exports o f most crude materials,
chiefly raw cotton and unm anufactured tobacco. Ship­
ments o f passenger automobiles were valued at nearly
$ 5,000,000 more than the low figure of the previous
month, but were still about one third below a year ago.
E xports o f other m anufactured products, electrical
machinery and apparatus, printing and bookbinding
machinery, office appliances, iron and steel and tobacco
m anufactures, likewise showed substantial increases over
the previous month. O nly shipments o f crude foodstuffs
were smaller than in September. The largest gain in
imports, compared with the previous month, occurred in
receipts o f wholly and p a rtly finished manufactures,
especially newsprint paper, tin, and nickel.
F o r the first ten months of 1938, exports aggregated
$2,573,000,000
and
imports
$1,613,000,000.
The
$ 960 ,000 ,00 0 excess of exports was the largest fo r the
comparable period of any year since 1921.

Employment and Payrolls
Follow ing substantial increases in A u g u st and Sep­
tember, there was a net rise of nearly 150,000 persons in
nonagricultural em ployment during October, according
to the statistics of the D epartm ent of Labor. N onm anu­
facturing fields, including m ining, retail trade, and
building, accounted fo r a considerable part of the rise
in em ployment in October.
F actory em ployment increased 1 per cent further and
payrolls were about 3 % per cent higher— somewhat more
than the usual October gains in both cases. E m ploym ent
gains were most pronounced in the durable goods in­
dustries, particularly at automobile plants where work­
ing forces were increased by 85,000 persons coincident
with the attainment of large scale production on new
models. Reflecting in part the closing of the active
canning and preserving season, em ployment in the non­
durable goods industries declined. Compared with a year
ago, total factory em ploym ent was 1 6 % per cent lower
and payrolls were 20 per cent less.
New Y o rk State factory em ployment and payrolls
showed little net change from September to October
follow ing three consecutive m onthly gains. W o rk in g

96

MONTHLY REVIEW, DECEMBER 1, 1938

forces at metal and machinery plants increased further,
the advance being especially pronounced at factories
connected with the manufacture o f automobiles and air­
planes, and em ployment in the production o f many
building materials was likewise expanded.
Seasonal
reductions in working forces, however, occurred in can­
ning and preserving plants, which had operated at high
rates in September, and also in the clothing and m illinery
industries, due to seasonal curtailment o f activity. Com­
pared with a year ago, em ploym ent was 10 per cent
lower and payrolls were 11 per cent less.

bushel fo r all farm ers in the “ commercial corn area” who
did not exceed their 1938 corn acreage allotments.
W h ea t prices, however, showed small net declines fo r the
month, despite the provision included in the trade agree­
ments term inating the 6 cents preference granted
Dom inion wheat imports into the U nited K ingdom .
Cotton prices closed Novem ber near the level prevailing
a month earlier. Liquidation o f December fu tu re con­
tracts apparently had some restraining influence on the
prices o f both wheat and cotton in the latter part of
the month.

Commodity Prices

Department Store Trade

The general average o f prices o f actively traded com­
modities continued to move within narrow lim its during
the first h alf o f Novem ber, but subsequently tendencies
to decline became apparent, in several cases as the result
of special developments affecting certain commodities.
M o o d y ’s Investors Service index o f 15 raw products
closed the month about 2 per cent below the end of
October, reaching toward the end o f the month the
lowest level since the end of June. This index, however,
remained 8 per cent above the 4 % year low reached at
the beginning of June.

D epartm ent store sales in this D istrict appear to have
increased somewhat more than seasonally during the first
three weeks of November, but were 7 per cent lower than
in the corresponding 1937 period.
Total October sales o f the reporting department stores
in this District were about 10 per cent lower than last
year, and apparel store sales were approxim ately 11 per
cent less, both larger declines than in September. Sales
of reporting department stores in all localities were lower
than last year, but in the case o f stores in B ridgeport and
the H udson River V a lley district the decreases from a
year ago were less than in September.
Stocks o f merchandise on hand in the department
stores, at retail valuation, were 11 per cent lower at the
end o f October, 1938 than at the end o f October, 1937,
and apparel store stocks were about 1 3 % per cent lower.
Collections of accounts outstanding continued slower this
year than last in the department stores, but were some­
what better in the apparel stores.

The spot quotation fo r crude rubber, which rose to
17^4 cents a pound in the early part of November, sub­
sequently declined to close the month at 1 5 % cents,
showing a net loss of %
cent from the end of
October. This decline reflected the decision o f the In ter­
national Rubber Regulation Committee to raise the
rubber export quota fo r the first quarter o f 1939 to 50 per
cent o f basic quotas, as compared with the current rate
o f 45 per cent. A ccom panying a declining tendency in
the Japanese market, the price o f raw silk in New Y o rk
receded 8 cents during November to $ 1 .7 5 % a pound.
The price of zinc was lowered 30 points to 4.75 cents a
pound on Novem ber 21,• follow ing the announcement of
the reduction in the duty on slab zinc (effective January 1)
provided fo r in the Canadian trade agreement, and sub­
sequently was reduced an additional 25 points to 4.50
cents. Quotations for both export copper and scrap copper
also declined somewhat in the second h alf o f the month.
Alth ou gh some tem porary support was provided by the
restoration of lim itations on foreign copper production
by the international copper cartel, these prices at the
end o f Novem ber were well below the domestic spot price
o f copper, which held steady at 11*4 cents a pound
throughout November. The price of tin declined 15
points to 45.85 cents a pound during November, and
lead receded 10 points to 5 cents a pound. Scrap steel
prices, on the other hand, increased during the past
month, and the quotation at Pittsburgh rose $1.00 to
$15.75 a ton, thereby more than canceling the decline
that occurred in the two previous months.
W ith respect to the im portant farm products, the most
pronounced movement occurred in corn p ric es; the cash
quotation at Chicago, which had declined 6 cents in
October, rose 6 % cents during Novem ber to 4 8 % cents a
bushel. The greater part of this increase occurred in the
first part o f the month and was associated m ainly with
the announcement o f the Government corn loan rates
fo r this y e a r ’s crop, which were placed at 57 cents a




Percentage
change
October, 1938
compared with
October, 1937

Locality
New York and B rooklyn............
Buffalo.................................................
Rochester...........................................
Syracuse.............................................
Northern New Jersey...................
Bridgeport..........................................
Elsewhere...........................................
Northern New York S t a t e .. .
Southern New York State. . .
Central New York State.........
Hudson River Valley District
Westchester and Stam ford .. .
Niagara F alls...............................

Net
sales

Stock
on hand
end of
month

- 1 0 .3
- 1 0 .7
- 8 .3

— 10 .3
— 1 2 .9
— 1 7.7

- 1 0 .7
- 7 .7
- 1 0 .7
- 1 7 .0

-12.8

Per cent of
accounts
outstanding
September 30
collected in
October

1937

1938

— 1 2 .3
— 1 1 .9
— 6 .3

4 9 .7
4 5 .6
6 1 .9
4 6 .1
4 5 .1
4 3 .9
3 6 .3

4 8 .3
4 3 .1
5 8 .4
4 4 .0
4 3 .0
4 3 .8
3 5 .7

—10.6

-10.6
- 1 3 .7
- 3 .7
-1 8 .4
-1 4 .5

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

— 1 0 .3

-11.0

4 8 .2

4 6 .5

Apparel stores.........................

- 1 0 .9

-1 3 .4

4 7 .0

4 8 .0

Department Store Sales and Stocks, Second Federal Reserve District
(1923-25 average = 100)
1937

1938

Oct.
Sales, unadjusted...................................................
Sales, seasonally adjusted...................................
Stocks, unadjusted................................................
Stocks, seasonally adjusted...............................

Aug.

Sept.

Oct.

109
95

64
86

94
90

98
85

75
79

82
78

89
78

98r
86r

FEDERAL

RESERVE

BANK

OF

NEW

YORK

M ONTHLY REVIEW , DECEMBER 1, 1938
B u s in e s s

C o n d it io n s

in

th e

U n ite d

S ta te s

(Summarized by tlie Board of Governors of the Federal Reserve System)
N D U STR IAL production continued to increase sharply in October and the
first three weeks of November, reflecting principally larger output of steel
and automobiles. Wholesale commodity prices showed little change in this period.
Volume of employment and national income increased in October.

I

P

Index Number of Production of Manufactures
and Minerals Combined, Adjusted for Seasonal
Variation (1923-25 average— 100 per cent)
P RC N
E ET

EM P LO Y M E N T /

£
/ V

™

a

\f

/

R O LLS

/ V

/

1934

1935

1936

1937

1938

Index Numbers of Factory Employment and
Payrolls, Without Adjustment for Seasonal
Variation (1923-25 average=100 per cent)

r o d u c t io n

In October the Board's seasonally adjusted index of industrial production
was at 96 per cent of the 1923-1925 average, as compared with 90 per cent in
September. Steel ingot production increased considerably, averaging 53 per
cent of capacity in October, and in the first three weeks of November there was
a further substantial advance. In the automobile industry output was increased
rapidly during October and the first three weeks of November both to stock
dealers with new model cars and to meet the increased volume of retail demand
accompanying the introduction of new models. Production, which in the first
nine months of 1938 had been at a considerably lower level, was at nearly the
same rate as in the corresponding period in other recent years. Output of plate
glass also increased sharply further in October. Cement production showed a
considerable increase, while lumber production declined slightly.
Activity at textile mills, which had risen sharply during the summer, con*
tinued at about the August and September rate, although usually there is an
increase at this time of the year. Shoe production declined somewhat further
in October, and there was a decrease in output of tobacco products, while in
most other industries manufacturing nondurable goods changes in output were
largely seasonal in character. Mineral production showed a further moderate
rise, reflecting in large part increased output of crude petroleum and nonferrous
metals. Lake shipments of iron ore also were in larger volume, although a
decrease is usual in October. Coal production increased seasonally.
Value of construction contracts awarded in 37 Eastern States increased
considerably in October, according to figures of the F. W . Dodge Corporation,
reflecting chiefly a sharp rise in awards for public projects. Contracts for
hospital, educational, and other public buildings included in the Public Works
Administration program were in large volume, and there was a further increase
in contracts awarded for slum clearance projects of the United States Housing
Authority.
E

m p l o y m e n t

Employment and payrolls increased somewhat further between the middle
of September and the middle of October. At automobile factories employment
continued to rise sharply and there were further moderate increases in most
T
other durable goods industries. The number employed at canning establish­
ments declined and in other nondurable goods industries showed little change.
Employment increased somewhat at mines, on the railroads, and in the construc­
tion industry, while in trade the rise was less than seasonal.
D

is t r ib u t io n

Sales at department and variety stores and by mail order houses showed
less than the usual seasonal increase in October, partly because consumer buying
of winter merchandise was retarded by unseasonably warm weather during most
of the month. In the first two weeks of November department store sales
increased moderately.
Freight car loadings rose considerably further in October, owing largely to
increased shipments of grains, coal, and miscellaneous freight. In the first
half of November loadings showed a seasonal decline.
Co

Wholesale Price Index of United States Bureau
of Labor Statistics (1926—100 per cent)
BL N
IL IO S
O DLAS
F OL R

1|
0---------'

m m o d it y

P

r ic e s

Wholesale commodity prices generally showed little change from the middle
of October to the third week of November. Prices of steel scrap and leather
advanced. Tin plate prices, on the other hand, were reduced, and there were
also decreases in zinc, hides, and rubber. Prices of farm products and foods
showed small fluctuations in this period.
B

a n k

Cr

e d it

Total loans and investments at reporting member banks in 101 leading
cities declined by about $150,000,000 during the first half of November following
a substantial increase during October. Tlie decline in November was almost
entirely at New York City banks and reflected the retirement of State and local
government obligations held by these banks. Adjusted demand deposits, which
reached an all-time peak of $16,000,000,000 at reporting banks in the last week
in October, also decreased somewhat in the first half of November. Member
bank reserves in the middle of November were at about the high level reached
a month earlier.
M

Wednesday Figures of Total Member Bank
Reserve Balances at Federal Reserve Banks,
with Estimates of Required and
Excess Reserves




o n e y

R

a tes

a n d

B

o nd

Y

ie l d s

The prevailing rate on open market commercial paper declined slightly in
November to % of 1 per cent, a new low level. Other short term open market
rates were unchanged. Yields on U. S. Government securities and on high grade
corporate bonds showed only small changes during November, continuing close
to the low levels reached in October.