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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.
