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MONTHLY R E V IE W Of Credit and Business Conditions In By th e Federal th e S e c o n d Reserve F e d e r a l Agent, R e se rv e Federal D is tr ic t R e se rv e Bank, N ew York New York, December 81st, 1920. C red it C on d itio n s I N December the fall in the prices of the great raw materials which had proceeded so fast in the two pre ceding months showed a tendency to slow down. The index maintained by this bank of the prices of twelve such basic commodities, namely, cotton, hides, hogs, rubber, copper, sugar, wheat, corn, iron, lead, petroleum and lumber, shows the following monthly decreases, expressed in percentages, since the peak in the middle of May: May (after 17th) 1 per cent. “ June................. 2 July.................. 3 * August............. 4 * September............. 6 per cent. October......... *. .. 14 “ November............. 13 a December (to 27th) 5 * The first six commodities above mentioned are now at or near their pre-war prices. The fall has been so abrupt that industries which convert these materials into the kinds of goods consumers buy, have had little op portunity for readjustment, and consequently the decline in retail and even in wholesale prices of manufactured goods has reflected only in part the decline in raw material prices. But the 223^ Per cent, reduction in wages which textile mills in the east have generally inaugurated, and which is spreading gradually to other industries, is an indication that we have entered the usual second phase of post-war readjustment. In this phase, which is slower than the first, retail prices are gradually lowered by means of better organization and labor-saving machinery, by greater productivity of the wage earners and by wage reductions corresponding roughly, but not always syn chronizing, with reductions in actual living costs. With these decreased commodity values it would be natural to expect that the volume of credit required to produce, carry and distribute them would decrease also. A fall in security values is reflected almost immediately in the volume of loans on securities. But a fall in com modity prices such as we have experienced as a part of the present world-wide industrial readjustment, is not so easily or promptly reflected in credit. It is so much more complex and it involves so many interests and industries, so much congestion of commodities and shifting of credit, and so much exercise of human judgment as to the policies to be pursued, that its reflection in credit, though eventually the reflection does occur, is neces sarily slower. It is most important in such a period that there should be sufficient elasticity of credit to enable the various interests and industries to mature and carry out their plans without the fear that the necessary credit facilities may be lacking. Looking back, it appears that during the early months of falling prices, referred to above, the volume of credit remained practically stationary, and that during the later months, when the fall was most acute, the volume of credit actually increased. Thus, in a year which, from the point of view of credit, has been marked by the measurable recovery by the Federal Reserve Bank of the control of credit through discount rates which in part had been relinquished to facilitate war financing, it seems clear that the recovery of credit control has not been at the expense of credit elasticity. The higher rates established indicated the desirability that inflation should proceed no further but they have at no time prevented the granting, continuing, or even increasing of credit where conditions justified such action. F ederal R eserve B a n k E arn in gs On December 31 this bank pays to the United States Treasury about $39,000,000, representing its earnings for the year, after paying operating expenses, dividends of 6 per cent, to the stockholding banks and making addi tions of about $11,000,000 to its surplus as provided by the Federal Reserve Act. These earnings are a direct measure of the credit expansion or inflation which our war financing necessi tated. They are also a direct measure of the utility of the Federal Reserve Bank in providing such credit as business conditions necessitated. The Federal Reserve Bank is a semi-public institution organized and operated not for the purpose of making profits, but to stabilize credit and keep it elastic, and to issue such circulating notes as the business of the community requires. Its surplus earnings, which are derived from the creditmaking and note-issuing power granted to it by the Government, accordingly revert to the Government. The reason why the Federal Reserve Bank shows such large earnings is because the Government does not tax it, but in lieu of taxes takes the major part of its earnings. A governmental grant of note issuing power to any institution or set of institutions, especially when such notes are of an emergency nature, is quite usually accom panied by a heavy tax. 2 M O N TH LY R E VIEW Under the Aldrich-Vreeland Act, which prior to the Federal Reserve system provided emergency currency, the Government taxed the banks upon notes issued under the terms of the act at rates running from 5 per cent, up to 10 per cent. Under the Federal Reserve Act the member banks, which borrow from the Federal Reserve Banks mainly to obtain currency, in effect pay a similar tax in the shape of the rate of discount charged upon their borrowings. This rate, or tax, does not go directly to the Government, but goes to its note issuing agency, the Federal Reserve Bank, which after paying expenses and 6 per cent, dividends turns over to the Government in the shape of surplus earnings the discount it has re ceived. But if the Government were to adopt the policy of directly taxing the Federal Reserve Banks upon the amount of their notes in circulation, less the 40 per cent, gold cover, and were now to impose such a tax upon the Federal Reserve Bank of New York at the same rate as its discount rate, 7 per cent., the tax would amount to about $36,000,000, or about the amount of its earnings. In this case the Federal Reserve Bank would show prac tically no earnings above its expenses, dividends, and statutory additions to surplus. Federal Reserve Bank earnings when transferred to the Government may be used by it only to place additional gold behind the greenbacks or to retire Government bonds. In this way, the earnings go directly toward correcting the inflation which called the earnings into existence. Presumably, as inflation subsides, the volume of Federal Reserve notes required for hand to hand currency will gradually lessen and both the discounts and the earnings of Federal Reserve Banks will lessen correspondingly. M o vem en t o f Funds The last three months, like the three months im mediately preceding, has been a period of heavy move ments of funds between New York and other parts of the country. Owing in part to Government operations, such as the redemption of certificates of indebtedness and the collection of taxes, and in part to commercial and agri cultural demands upon New York banks, these transfers have mounted to extraordinary figures. Their movement from one part of the country to another has been effected through the machinery of the Federal Reserve system, which has made it possible to meet special demands developing in one part of the country from the supplies built up in other sections, thus maintaining the equilibrium of the credit structure, and assuring at all times an ade quate supply of funds to meet the needs of borrowers at steady rates. The following summary of these movements, which were very similar to the movements culminating with the September 15 tax payments, is much like the form in which the latter were described in the September issue of the R e v i e w , and will enable those who follow the course of Federal Reserve operations to understand future developments around tax collection dates. 1. Deposits of the principal banks in New York City decreased $470,000,000 from October 14 to December 6, on account of Government and commercial withdrawals. 2. These withdrawals caused a steady drain of gold from the Federal Reserve Bank of New York to other Federal Reserve Banks. For the three months ended December 17, the loss of gold aggregated $337,000,000. 3. This adverse flow of funds w substantially offset by as Government transfers to New York, by the sale of certificates of indebtedness by New York banks to other Federal Reserve Banks and by rediscount operations between Federal Reserve Banks. These rediscount operations comprised the following: On September 29, other Federal Reserve Banks owed the Federal Reserve Bank of New York $19,000,000. By October 6 repayment of these loans w completed. On as October 29, the Federal Reserve Bank of New York owed other Federal Reserve Banks $48,000,000. By December 15 repayment of these loans w completed. as Between December 8 and 15 the deposits of the principal New York banks rose $407,000,000, in connection with the following transactions: 1. Certificates of indebtedness w redeemed and paid in this ere district in the amount of $344,000,000, which was $124,000,000 more than the taxes paid. 2. This excess of redemptions over taxes on December 15 necessitated as usual a loan by this bank to the Government. The amount, $74,000,000, was gradually repaid and w as extinguished on December 28. 3. The banks of the district on December 15 increased their deposits $212,000,000, when they paid for their subscriptions to the new issues of certificates by crediting that amount on their books to the account of the Government. B a n k D e p o sits and L o a n s (In Millions) Reporting Banks in New York City* Date Total Depositsf 1920 Dec. 17............................ Dec. 10............................ Dec. 3............................ Nov. 26........................... Nov. 19........................... 1919 Dec. 19........................... Oct. 10............................ *Retween December 19, throughout the country from ^Including rediscounts. 4,882 4,682 4,668 4,746 4,778 U. S. Securities and Loans Thereon§ 758 666 680 699 721 Reporting Banks in All Districts* Total Loans and Investments f Total Depositsf 5,608 5,485 5,496 5,529 5,542 14,005 13,692 13,677 13,791 13,952 U. S. Securities and Loans Thereon§ 1,845 1,713 1,733 1,773 1,799 Total Loans and Investments 1 f 16,803 16,582 16,630 16,732 16,794 5,210 1,130 14,136 2,735 16,407 5,719 5,397 6,010 (High) 1,512 15,944 3,231 13,699 1919 and December 17, 1920 New York City reporting banks increased from 71 to 72 and reporting banks 796 to 824. fIncluding Government deposits. ^Excluding United States bonds to secure circulation. FED E R A L RESERVE AG E N T A T NEW Y O R K Following this large increase in deposits: 1. The principal banks of New York City reduced their bor rowings at the Federal Reserve Bank between December 8 and 16 by $187,000,000. 2. As tax checks w collected and as the banks sold certifi ere cates of indebtedness to their customers, deposits began to decline, and in the four days ended December 20, fell off $132,000,000. 3. Simultaneously the banks began to increase their borrow ings at the Federal Reserve Bank, and in the four days ended December 20, such borrowings rose $112,000,000. With the withdrawal of deposits resulting from the latest sale of certifi cates of indebtedness, the banks are likely to seek still further accommodation at the Federal Reserve Bank. 3 the lower rate was in prime names not frequent in the market at this time. ' The attached chart showing the volume of commercial paper outstanding from July, 1918, continues the chart printed a month ago. It is based upon the figures of eleven large distributors of commercial paper who report month by month to this bank. The decline shown for October was continued in November in nearly the same degree. MILLIONS of DO LLAR S These transfers of funds had a marked effect on the weekly published reserve percentages of the Federal Reserve Bank of New York, but if each movement in or out of this district had not been susceptible of correction through a movement going in the opposite direction the fluctuations in this bank’s reserve position would have been much greater. Had no such counter-movements been set in motion the lowest reserve percentage of this bank in the last thirty days would have been 33.4, and the highest 43. G o ld M o v e m e n t Imports of gold from England and exports of gold to Japan continued in November. Of the $56,884,000 imported, $16,500,000 was the last of the gold held ear marked for the Federal Reserve system by the Bank of England. Of the rest, a little more than $30,000,000 also came from England. Slightly more than $3,000,000 came from France and about the same amount from South America. Of the $19,870,000 exported, all but about $1,000,000 went to Japan, which has now ceased im porting gold from us. After deducting from the total gold imported this year the $111,000,000 of ear marked gold, which has been figured for somewhat more than a year as a part of the country’s gold reserves, the excess of exports over imports for the current year up to December 1 amounts to about $44,000,000. C om m ercia l Paper The volume of commercial paper outstanding has con tinued to diminish somewhat in recent weeks, and dealers report the market quiet. A decline in activity is normal for this time of year, but in addition to this factor offerings of new names are lighter than usual, and seasonal paper in grain and cotton and a number of other industries is below normal. Banks this year are more than usually prone to delay purchases until new business statements are available, and paper of frequent borrowers has tended to move slowly. A tendency has developed on the part of certain buyers of commercial paper to discriminate against the paper of certain industries as a whole, rather than to judge it according to the credit standing of the individual bor rower. Dealers report, however, that no actual congestion is occurring. Country banks continue to provide the principal market, though for a brief period in the latter part of November a slightly more active demand developed in New York City and some other large cities. Eight per cent, continued the prevailing rate, and the tendency to shade toward 7 % per cent., which was reported a month ago, has been less apparent. Most of the business done at T h e B ill M a r k e t During the past thirty days, there was a somewhat diminished demand for bills from both New York City and out-of-town buyers. The out-of-town demand held up better relatively than did the demand from New York City and dealers continued to report new customers among outside buyers. There was a material reduction in the volume of bills offered to the dealers. Of bills drawn, cotton, grain, sugar, and tobacco predominated as underlying commodities. In the latter part of No vember, lower money rates for several days caused bills to move more freely in New York City, and the dealers reduced their buying and selling rates by H per cent. The reductions did not increase the offerings of new bills, and curtailed sales. In consequence of this and of firmer money conditions at the close of the month, the dealers, with one exception, returned their rates to the former level. On this level dealers are buying prime member bank bills at 6% to 6H per cent, and selling them at 6 to 6X per cent., according to maturity. The recurrence of slightly easier money conditions following December 15 was again accompanied by a somewhat increased demand for bills. There was no change in the minimum buying rates of the Federal Reserve Bank, which continued to rule from 5U to 6 per cent., according to maturity, for prime endorsed bills. M O N T H L Y R E VIEW Stock M a rk e t M o n e y R a tes During the past thirty days the range of stock market money rates has been lower than in any previous cor responding period this year. The maximum rate for call loans during the period was 7 per cent. In the last week of November the renewal rate was 6 per cent., and on one day the rate on new loans fell to 5 per cent, for the first time this year. This distinct relaxation largely reflected a brief interruption of the seasonal movement of funds from this center to the interior. In December call rates held at 7 per cent, for both renewals and new loans until the redemption of certificates of indebtedness on December 15 put the banks temporarily in funds pending the handling and clearance of tax checks, a condition which has become a familiar manifestation at tax collection dates, and has been described in detail in previous issues of this R e v i e w . Closing rates at that time fell to 6 per cent., but subsequently reverted to 7 per cent. The time money rate from November 20 to December 20 was typically 734 to 7 % per cent., as compared with 7 % to Sy2 per cent, in the preceding thirty days. In Decem ber the supply of time money was somewhat more limited, but rates were not notably higher. On the whole the volume of transactions continued small. G o v e rn m e n t D e b t The gradual reduction in the public debt of the United States since August, 1919, when the high point was reached, is shown in the following table: (Figures in Millions of Dollars) Month August 31, 1919............................ January 1, 1920............................. June 30.......................................... July 31.......................................... August 31...................................... September 30................................. October 31..................................... November 30................................. December 31*.............................. ""Estimated Total Gross Debt Floating Debt (Unmatured Loan and Tax Certificates) $26,597 25,837 24,299 24,223 24,325 24,087 24,063 24,175 24,010 $3,938 3,262 2,486 2,434 2,571 2,348 2,337 2,475 2,317 Figures are given on the basis of the daily statements of the Treasury Department, with an estimate of the debt as of the end of the year. The decline from maximum to December 31, 1920, was approximately $2,590,000,000 or 9.7 per cent. The greater part of the debt reduction has been effected in the floating debt which is composed of unmatured loan and tax certificates of indebtedness. The decline in the outstanding volume of these certificates since August 31, 1919, was $1,621,000,000, a reduction of 41.2 per cent. During the calendar year 1920 the decline was $945,000,000, a redaction of 28.9 per cent. The fluctuations in the amount outstanding from month to month are caused by redemptions and new issues at intervals but the long run result is a substantial decline. On January 3, 1921, about $175,000,000 of certificates of indebtedness will mature, but the Treasury has purchased for retirement about $20,000,000 prior to maturity, and allowance for that purchase is made in the estimated figures for December 31. The remainder, about $155,000,000, will be paid at maturity, presumably out of the Treasury’s present balance. This will effect a further reduction in outstand ing certificates and a corresponding reduction in the gross public debt U n ite d States Securities On December 20 the average of Liberty bond prices was only slightly lower than on November 20, notwith standing a further sharp decline in the general bond list. The level conformed closely with that of mid-September, though in the interval Liberty bond prices had undergone a sharp rise and a corresponding reaction. In late November, under the stimulus of easier money rates, there was a temporary rally in Liberty bond prices of one to two points. This rise was followed by active selling, which was accelerated in the week prior to the income tax payment date. The prices of the 4l i per / cent, issues declined one to two points, and the First 33^s declined about three points, bringing that issue to near the lowest point reached thus far. On the whole the steadiness of the 434 per cent, issues, despite the large volume of sales, was noteworthy. Total sales of Liberty bonds and Victory notes for November were $202,000,000, approximately the same as the total for October, but as transactions in other bonds decreased slightly, there appears a slight relative increase in Liberty bond trading for that month. The new issues of certificates of indebtedness at 5 ^ per cent, for six months and 6 per cent, for twelve months, offered by the Secretary of the Treasury on December 15 in the approximate amount of $500,000,000 for the entire country, were remarkably successful, particularly in this district. The allotment made to this district in the amount of $266,907,000, was much in excess of the T quota, and the total of the allotment for the country was $589,680,500. These certificates, as in the case of previous issues, were much in demand by private investors. All issues are commonly traded in on the New York market, and the six per cent, issues continue to be sold at a slight premium, with the 5% s at par or slightly above. R on d M a r k e t Further declines in bond prices have reduced most groups approximately to the levels of last August. The movement was checked temporarily in the latter part of November by easier money conditions, but in December prices fell sharply under liquidation which reflected the weakness in stocks, and was to some extent due to the need of funds for tax payments. High grade investment securities as well as the less seasoned issues showed rela tively severe losses. New railway equipment issues held up better than most other groups, but even these declined a point or so under their highest prices. Municipal securities lost about half what they had gained since the low point in September. Following the tax payment date, the general” list recovered somewhat. \- Foreign! bonds participated in the general decline. Swiss 8s declined 2 points to 102, and other recent govern ment issues are at, or slightly below, the original offering prices. Foreign municipals reacted also, particularly the FED ER AL RESERVE AG E N T A T NEW Y O R K new issues which fell 4 to 5 points. Mexican bonds fell off sharply and Cuban bonds again touched new lowrlevels. British issues were steady. Sales on the Stock Exchange of corporate, state, foreign, and miscellaneous bonds during November totaled $121,000,000, a slight decrease as compared with October figures, when trading was the heaviest of any month this year. During December the volume of trading has again increased. N e w F inancing Corporate financing during November amounted to $177,000,000, thus returning to the comparative quiet ness of August and September, which was interrupted when funds released by the maturing Anglo-French Loan became available for reinvestment. While investors showed a more general disposition to select their purchases with discriminating care, prime offerings were in demand and sold quickly. The high income basis upon new securities in the industrial and public utility groups was maintained and municipal securities were offered on a slightly higher basis. In the first two weeks of December, the market re mained comparatively quiet, though one fairly large one-year note issue of a New York public utility cor poration was sold. In the week following December 15, however, corporate securities issued totaled over $84,000,000. Chief among these were $55,000,000 debenture bonds of a large industrial corporation offered on a 7 per cent, income basis. The majority of offerings continue to run ten to twenty-five years, and carry pro vision for the payment of premiums if redeemed in advance of maturity. Between November 20 and December 20 there were no further offerings here of foreign securities payable in dollars, but an additional foreign currency bond issue was announced. It is reported that demand for securities of the latter character is much less active than it was earlier in the year. From January 1 to December 1, corporation issues have totaled $2,870,000,000, compared with $2,798,000,000 in the same period last year. It is estimated that about 30 per cent, of these were used to pay off or refund maturities. S to ck M a r k e t Following an irregular recovery from the low levels reached in the first part of November, the stock market in December developed further weakness in various groups which resulted in heavy liquidation shortly before the middle of the month and again shortly before the holidays. This weakness of the market was the more noteworthy in that it occurred when stock market money rates held consistently at the lowest levels of the year for a prolonged period. Industrial averages are now at the lowest level of the year, down about 44 per cent, from the high point reached in November, 1919. This decline approaches the heaviest in the experience of the New York market. The railroad group has declined about 14 points since November 1 to nearly the year’s lowest level reached last February, before the passage of the Transportation Act. Some of the more speculative railroad issues reached new low prices for the year. The volume of trading in November and the first part of December showed a marked increase over previous months. November sales were 22,000,000 shares, the largest since April and an increase of 57 per cent, com pared with October. The number of shares sold was, however, 27 per cent, less than the number sold in November, 1919, when the long period of rising prices on the stock market came to an end, and was succeeded by several days of very active liquidation. F oreign E xch a n g es Trading in the European exchanges was unusually dull during the greater part of the past thirty days, and at times the market was at a standstill. Rates of both sterling and francs, while fluctuating irregularly, gave occasional evidences of strength, to which the develop ment of plans for a large foreign trade finance corporation to operate under the Edge Act contributed. Operating in the other direction is the fact that some of the European banks, especially in France, have been calling in credits advanced to customers for the purchase of foreign goods. Rates on sterling exchange rose around the middle of December, the result in part of preparations for year-end settlements which broadened the demand, and in part to the suspension of offerings of sterling here for French account. A part of this advance has since been lost. Francs had a similar rise but closed the period slightly below the quotation of November 20, and lire are con siderably lower. Marks, after erratic fluctuations, are little changed from the level of thirty days ago. The high, low, and closing rates, and the decline from the highest point reached are shown in the following table. Foreign Exchange Rates, November 22 to December 24. Country England................................ France.................................. Italy..................................... Spain.................................... Argentina............................. China (Hong Kong)............. China (Shanghai)................. Japan (Yokohama).............. Germany.............................. Switzerland........................... Sweden (Stockholm)............ Holland................................ Belgium................................ Canada................................. Bar Silver in New York....... High Low Last 3.5375 .0626 .0388 .1350 .3563 .6625 .8700 .5038 .0158 .1575 .1980 3140 .0664 .882 .75 3.4275 .0580 . 0339 .1266 .3338 .5400 .7050 .4875 .0129 .1507 .1920 .3038 .0612 .840 .59^ 3.5138 .0586 .0339 .1293 . 3413 .5700 .7700 .4950 .0140 .1520 .1970 .3125 .0619 . 850 .65^8 Per cent. Depre ciation from Par 27.8 69.6 82.4 33.0 19.6 * * ’ ’ '.7 94.1 21 2 26.5 22.3 67.9 15.0 *—Silver Exchange Basis. F oreign T ra d e Export trade continues to reflect the difficulties incident to a period of price readjustment. Buyers are reluctant to undertake new commitments in the fear that prices may decline further. Commercial relations with Australasia, the Far East, South Africa and South America have been particularly affected. M O N T H L Y R E V IE W 6 Many foreign importers are seeking to avoid or postpone the loss involved in carrying through transactions negoti ated at more favorable rates of exchange, by canceling orders or requesting the renewal of drafts drawn upon them. Banks here, in a number of cases, have been requested by both foreign and domestic customers to cancel their irrevocable letters of credit, and in some cases the banks have even had to defend their refusal against legal action. This uncertainty as to collections is causing American banks to scrutinize more carefully drafts drawn against export shipments, and the purchase of drafts on some countries where exchange conditions are particularly un settled, such as Australasia and some countries of South America, has been practically suspended. Insufficiency of Australian funds in London has caused some banks which normally negotiate their Australian bills through that center now to deal directly with Australian concerns with the understanding that if remittance from Australia is impossible the exporter will refund the amount of the draft. Foreign banks doing business with South Africa which have branches in New York lately have increased the margin of deposit required against South African bills from 25 to 50 per cent. One export firm prominent in the markets just men tioned reports that orders now are about 15 to 20 per cent, of their recent volume. Exporters are advising their customers abroad to purchase as sparingly as possible until conditions become more settled, and in some cases are recalling their foreign representatives. Export demand for wheat has been keen during the past four weeks, and shipments continue to exceed those of last year. November cotton shipments were heavy, 101,309 bales more than during October, but 241,428 bales below the unusually heavy movement of November last year. These shipments are attributed largely to deliveries on old orders. The cotton market in England and France is reported quiescent, but sales to Germany recently have increased somewhat. There was also a slightly stronger demand in Japan. Foreign buying of textiles and general merchandise is still low. Export trade in iron and steel is estimated at one-fifth to one-third of the average of earlier months. German and Belgian competition is becoming more important. Novem ber copper sales abroad were the largest in some months, with France the principal buyer, but in December demand again became quiet. The Department of Commerce foreign trade summary for November showed export shipments valued at $675,000,000, a decrease of $76,000,000 compared with October. Imports, valued at $321,000,000, showed a decline of $13,000,000. Measured by dollar figures, this represents a falling off of 10 per cent, in exports and 4 per cent, in imports, but allowing for price changes and seasonal variation exports have increased about 1 per cent, and imports 5 per cent, over the October figures. W o r ld C o m m o d ity Prices Available reports indicate an exceptional decline in commodity prices in foreign countries as well as in the United States during November. The percentages of decrease shown by the two British indices are closely similar to that shown by the Department of Labor index in this country. The decline in France in November was even more marked than in England and the United States, and the index number of wholesale prices in France shows a percentage decline from maximum of 22 per cent. This figure may be compared with a decline from maximum of 31 per cent, in Japan, 24 per cent, in the United States, and about 16 per cent, in England. The differences and similarities of price movements in the United States, England, France and Italy are illustrated in the diagram on this page. The Department of Labor index numbers are used to represent the course of prices in this country and the Statist index numbers for English prices. In all four countries the high point was reached at approximately the same time, in April or May of this year. In both France and Italy the decline was checked for a time and an upward movement oc curred. In France the decline has been resumed; no report for November has yet been received from Italy. In England and the United States the decline has been continuous. The table at the top of the next page gives the latest available index numbers of wholesale prices, with com parisons. D o m e stic Prices Wholesale Commodity Prices in Four Countries in Percentages of Average Prices in 1913. The decline in wholesale prices for November as registered by four different indices was the sharpest of the present recession, which has proceeded for about seven months. The United States Department of Labor index in November was approximately 24 per cent, below the FEDERAL RESERVE AGENT AT NEW YORK 7 In d ices o f W h o le sa le Prices Country Latest Quotation* Oct. Nov. Per Cent. Decline from High Per Cent. Change during Sept. High Month United States: 12 Basic Commoditiesf.......................................... Department of Labor............................................. Dun’s..................................................................... Bradstreet’s............................................................ 68.5 207. 175.1 147.9 (Dec. 24) (Nov. ) (Dec. 1) (Dec. 1) -6.1 -2.2 -4.4 -5.9 -13.3 -7.0 -4.3 -7.3 -14.0 -8.0 -6.8 -13.1 39.3 23.9 19.6 34.7 May May May Feb. British: Economist.............................................................. Statist............................................................... 244.9 (Dec. 1) 262.9 (Dec. 1) -1.3 -1.9 -6.2 -3.5 -8.1 -6.7 21.0 15.9 Mar. Apr. France.................................................................... — 4.6 460.3 (Nov. ) +4.9 -8.3 21.7 Apr. +4.6 665.1 (Nov. 1) + .7 2.1 Apr. Japan........................................................... -2.1 -2.0 221.2 (Nov. ) -1.9 31.2 Mar. Canada............................................................... 224.5 (Nov. } -1.1 -2.7 -4.2 14.7 May Sweden§..................................................... — 4.4 331. (Nov. ) - .8 -4.3 10.3 Jan. 1919 Australia^.............................................................. -2.5 -6.5 215. (Oct. ) 8.9 Aug. Calcutta!........................................ -1.0 194. (Nov. ) - .5 -5.8 11.0 Jan. Norway.................................................... 424.1 (Nov. 1) +1.6 -2.1 2.1 Sept. * All indices have been converted to a 1913 base and are monthly averages unless otherwise stated. f Computed by this bank on basis of prices at Armistice. § July 1, 1913 to June 30, 1914 = 100. f July 1914 = 100. J End of July 1914 = 100. maximum reached last May, and nearly the same as in June, 1919. Prices of all groups of commodities included in it declined, but the greatest decreases were in lumber and building materials, clothing, and fuel and lighting. Dun’s index is now at the lowest level since May 1, 1917, and Bradstreet’s at the lowest since November, 1916. This bank’s index of 12 basic commodities, which is computed each week, indicates a much less rapid rate of decline during the first three weeks of December than during November. Readjustments in iron and steel prices have gone for ward during the last thirty days, and practically all materials in these trades have been affected. Pig iron is now about 27 per cent, below the high point and Pitts burgh steel billets 33 per cent, below. The decline in lead prices since November 20 was 20 per cent. Other commodities which show declines of ten per cent, or more in the past thirty days are sugar, live hogs, hides, leather, coke and rubber. Cattle and hog prices are reported to be the lowest in four years. Bituminous coal prices con tinue downward and some cancellations of export orders are reported. Prices Since 1825 At the top of the following page is presented a diagram showing the average wholesale prices of commodities in the United States each year from 1825 to 1920 in percent ages of the average for the year 1913. A close similarity exists between the rapid advance in prices during the Civil War, when the greenbacks were issued, and during the recent war. Prices during the former period were greenback prices; gold was at a premium between 18621879, and the standard monetary unit was the paper dollar. The advance of prices at that time was not so long continued and not so great as the movement from 1915 to 1920, although in the recent rise the gold basis has been maintained, a result largely of the concentration of the gold supply in the Federal Reserve Banks. In other words, the recent rise in prices represented a de preciation of the gold dollar, while the Civil War rise re presented a depreciation of the paper dollar. The chart, which is in yearly averages, shows also the point to which wholesale prices declined in November, 1920. The apex of prices in both instances was sharp, and the decline after the Civil War was much more gradual than the rise. Though prices dropped 27 per cent, in the first six months of 1865, they rose again by half that amount in the second half of the year, and it was not until 1879 that prices were on approximately the level of 1861. Aside from the period of greenback prices the general movement from 1825 to 1896 was slightly downward. During the general downward movement natural products 8 MONTHLY REVIEW PER C N . ET Average Wholesale Commodity Prices in the United States each Year from 1825 to 1920 in Percentages of the Figures for 1913 tended to become more expensive and manufactured products in general less expensive. From 1896 the move ment upward was gradual until the outbreak of the World War brought the rapid advance. Throughout the period between 1873 and 1914 the indices of English, French and German prices closely paralleled the index for American prices. In computing the continuous commodity index two indices covering different periods were used and both have been converted to a 1913 base. From 1825 to 1860 the index used was compiled by Carl H. Juergens. He used 74 commodities, the prices of which were taken from the report of the Secretary of the Treasury for 1863. From 1860 to 1920 figures were taken from the reports of the United States Bureau o f Labor statistics. over the November 1 figures. Rents throughout the coun try were then about 60 per cent, above the 1914 level but the Conference Board’s records show that advances in New York City were much above the average. C o s t o f L iv in g The diagram on this page sets forth the changes in the cost of living in the United States year by year from 1914 to 1919 and month by month in 1920, as shown by a pre liminary index number computed by the National In dustrial Conference Board. The figures are in percentages of the level of prices in July, 1914. On December 1, 1920, the cost of living had declined 7 per cent, from the high point reached last July, which cuts down the increase since 1914 by about one-seventh. The decline during November was 2 per cent.; and the groups in which reductions took place during that month were food and clothing. The average cost of clothing on December 1 was down 29 per cent, from the high point reached in April and food prices were nearly 12 per cent, below their July maximum. Rents, fuel and light, and sundries which had been rising steadily showed no increase The Cost of Living in the United States in Percentages of the Cost on July 1, 1914. FEDERAL RESERVE AGENT AT NEW YORK R etail T ra d e The volume of holiday buying appears to have proved satisfactory to the department stores in this district and was greater than had been anticipated. Reports received by this bank just before the close of the Christmas shopping season indicated that the amount of sales had been about on a par with that of last year. The size of individual transactions was smaller this year but there was an in crease in the number of transactions. Stores which met the demand by repricing goods at or near replacement values had the largest trade. Customers showed a tendency to select their purchases with careful attention to value. High priced goods did not sell as readily as last year and there was a greater demand for articles of utility. There was relatively light demand for such articles as pianos and other musical instruments, jewelry and furniture and rugs. In buying men’s clothing, customers last year preferred suits re tailing at $65; this year, however, suits selling at $45 appeared to be in greatest demand. Similarly, many purchasers refused to pay $18 for a pair of shoes, and some stocks bought by merchants to retail at that price have been reduced to $12. However, cheaper grades of shoes at $6 and $7 and suits at $28 and $30 were not in great demand. Reports to this bank for November show that gross sales of department stores in this Federal Reserve district averaged 11.6 per cent, more than in the corresponding month last year. Only two stores out of 14 reporting showed a decrease. Prices of a number of articles, par ticularly textiles, have now declined to a point where the levels for each month are somewhat lower this year than for the corresponding month in 1919, and therefore equal dollar amounts of sales of such articles mean actually greater quantities of goods sold. Retail stores maintain their policy of buying only for immediate needs, and there have been no indications of a change in this attitude. Reports to this bank, published in the accompanying table, show a low percentage of outstanding orders. Merchants inform us that the amount of orders outstanding to-day is proportionately less than at any other time in their memory. C o tto n and C o tto n G oo d s Manufacturers and buyers of cotton goods have been unable to agree upon a new price basis that is mutually satisfactory, and hence business during December con 9 tinued quiet, although sales were slightly larger than for some time previously. The cotton goods market failed to reflect the declines in the price of raw cotton and at times there were rallies. Mill owners are endeavoring to dispose of stocks on hand at present prices but are unwilling to accept future orders at current levels. They hold that present prices are below the cost of production, even after discounting declines in the price of raw cotton and a wage reduction of 22 per cent. It is estimated that mills are running about 50 per cent, of maximum and the owners say they will not increase this until a demand is felt. Data issued by the Census Bureau during the month showed a cotton crop for the year of nearly 13,000,000 bales, the largest since 1914. Consumption of cotton in domestic mills has been constantly lessening. In November consumption was 17 per cent, less than in October and 32 per cent, less than in November, 1919. Consumption in November was 332,057 bales; in October 399,837 bales; in November, 1919, 491,250 bales. The active spindles in November were 2,850,000 less than in October and it is believed that a similar decrease has taken place during December. In foreign countries, especially in Japan and England, there has been a similar reduction in consumption, and the export demand for American manufactured cotton goods continues to be low. From November 20 to December 20 there was a decline of 10 per cent, in the price of New York spot cotton; quotations fell from 17.25 on November 20 to a low of 15.50 reached later in November, and again in the third week of December. The total decline from the maximum price of raw cotton reached last July has been 65 per cent. W ool and W o o le n G ood s Due to the continued reluctance of garment manu facturers and buyers for retail stores to place forward orders for spring merchandise, there has been a further decline during December in the demand for woolen and worsted piece goods, accompanied by another decline in prices. Consequently the manufacturers have reduced production still further to about 30 per cent, of maximum. Nearly half the mills are closed entirely and most of the others are running on part time. Both manufacturers of men’s and women’s apparel apparently have ample stocks of piece goods on hand with which to start the spring season and are not in the market B usiness o f D e p a r tm e n t Stores Outside New York City New York City and Brooklyn and Brooklyn Percentage of increase in net sales during November. 1920, over net sales during the same month last year............................................................................................................. Percentage of increase in net sales from July 1,1920, to November 30,1920, over net sales during same period last year......................................................................................... Percentage of increase of stocks at close of November, 1920, over stocks at close of the same month last year.................................................................................................... Percentage of decrease of stocks at close of November, 1920, over stocks at close of October, 1920................................................................................................................. Percentage of average stocks at close of each month from July 1,1920, to average monthly net sales during same period.......................................................................................... Percentage of outstanding orders at close of November, 1920, to total purchases during the calendar year, 1919.................................................................................................. Second District 7.56 18.90 11.58 2.98 22.82 10.02 5.07 3.75 4.60 4.81 6.97 5.58 464.08 430.62 452.27 6.87 4.08 5.54 10 MONTHLY REVIEW now. They have shown a disposition to accept the losses already incurred because of declines in values but hesitate to make further commitments for fear of another decline. Nearly all of the woolen manufacturers in New England and this district have reduced wages 223 ^ per cent., and union officials have indicated that they will not oppose for the time being. The largest concern in the woolen in dustry, however, has not yet reduced wages. About the only guide to existing prices of finished goods was furnished by an auction sale in New York of a large amount of goods that had been held in stock by the mills. These goods were sold at 50 to 75 per cent, below the high prices which ruled a year ago, and somewhat below the estimated present cost of manufacture even after taking into consideration the reductions in the price of raw wool and the decreased wages. The raw wool market remains unchanged from last month. Prices are quoted about 50 per cent, below those of a year ago, but they are nominal, inasmuch as there have not been sufficient sales on which to base accurate quota tions. Stocks of raw wool in the United States are very large and reports from Australia, England and South America indicate that stocks in those countries also ex ceed the demands. Consumption has decreased rapidly since the mills reduced operations. W ool growers and commission houses in this country still hold a large per centage of the last domestic clip. Silks The latest survey of activities in Paterson, New Jersey, where the majority of the silk mills of this district are located, shows the looms to be working at about 7 per cent, of their maximum capacity in terms of loom hours as com pared with a reported 9 per cent, last month. Factories in New Jersey outside of Paterson report operation at 38 per cent, of capacity. On Long Island, in Pennsylvania, and in New England silk centers conditions are similar to those in New Jersey outside Paterson. Further reductions in wages were fairly widespread throughout the industry, bringing the general level to a point 25 to 35 per cent, below the maximum reached last year. The standard week used as a basis for figuring wages was also lengthened in a number of large plants from 44 to 48 hours. Retailers have continued to buy sparingly although further price recessions have been made by jobbers and manufacturers. Few advance orders for spring goods have been placed, and nearly all current sales are for immediate delivery. There was little activity in the raw silk market during the month and prices are practically unchanged. Failures Preliminary reports of business failures in the United States during December indicate an increase over failures in November and a large increase over those in December, 1919. In the week ended December 2 there were 339 failures; for the week ended December 9, 326 and for the week ended December 16, 360. It is, however, usual for failures to increase toward the close of the year. In November there were 1,050 failures throughout the country, an increase of 1&7 over October figures. Lia bilities of $30,758,000 were $8,000,000 less than in October. The proportion of failures to firms in business is still siderably under the normal percentage. Failures in this Federal Reserve district increased slightly in November, and the liabilities decreased. following figures are shown from D un’s reports for district: Number of Failures 1920 1919 con only The this Liabilities 1920 1919 January..................... February.................... March........................ 103 75 139 134 102 102 $ 1,212,644 $ 3,258,200 1,062,322 2,686,546 6,213,228 4,033,008 1st quarter............. 317 338 $ 8,488,194 $ 9,977,754 May........................... June........................... 117 133 164 107 93 104 $ 2,865,153 $ 4,365,253 3,194,187 2,413,591 16,218,230 4,040,301 2nd quarter............ 414 304 $21,496,974 $11,599,741 July........................... August....................... September.................. 172 179 145 79 68 92 $11,438,511 $ 1,836,523 15,009,838 1,615,398 14,551,283 2,335,120 3rd quarter............ 496 239 $40,999,632 $ 5,787,041 October...................... November.................. 275 281 86 99 $15,462,866 $ 1,650,441 10,776,972 1,548,918 Iron and Steel Few large orders for iron and steel have been placed during the month and as a result prices continued to weaken and production became more irregular. It is now estimated that the industry as a whole is operating between 60 and 65 per cent, of its maximum. In the blast furnaces and finishing departments the decrease in operations has been greater than in other branches. The United States Steel Corporation announced its unfilled tonnage as of November 30 as 9,021,481 tons compared with 9,836,852 tons on October 31, a decrease of 8 per cent. The decrease in unfilled tonnage of the independent companies combined has probably been proportionately greater. The figures may be mislead ing, however, as some orders which have been canceled or suspended are carried on the books of all the com panies as unfilled orders. There have been no concerted reductions in hourly wages in the iron and steel industry during the month, but the earning power of the workmen has been decreased in a number of companies through a reduction in the number of working hours from twelve to eight. This amounts to a reduction in wages earned of from 27 to 42 per cent., depending upon the length of overtime formerly permitted. There have been isolated instances also of actual hourly wage reductions of from 10 to 20 per cent. B uilding Preliminary figures indicate that for the eighth con secutive month December will show a decline in the amount of new construction in this Federal Reserve dis trict as well as in the country as a whole. Decreased activity is due in part to the usual seasonal decline and in part to high prices and wages. Although prices of building 1 1 FEDERAL RESERVE AGENT AT NEW YORK materials showed a drop of 1 2 per cent, during Novem ber as compared with a decline of 8 per cent, in the Depart ment of Labor’s index number for all commodities, the cost of building is still twice as high as in 1913. There have been no important wage recessions. According to reports compiled by the F. W . Dodge Company, contracts awarded during November in 25 northeastern States amounted to $130,191,000 compared with $177,791,000 in October. However, the total value of contracts awarded in the same States during the first 11 months of the year is 5 per cent, greater than for the same period in 1919. In New York State and northern New Jersey building contracts for November amounted to $29,514,000, a de cline of about $20,000,000 from the October figure. The November figure included $10,568,000, or 36 per cent., for residential buildings; $6,039,000, or 20 per cent., for in dustrial buildings; $4,573,000, or 16 per cent., for public works and utilities; $3,573,000, or 12 per cent., for busi ness buildings, and the remaining 16 per cent, for various other kinds of work. For the first 11 months of 1920 contracts awarded in the same area amounted to $579,000,000, compared with $496,000,000 for the same period last year, an increase of 16 per cent. In addition, work for which permits have been secured during this period but no contracts let, is valued at $325,000,000. R ailroads and T ran sp ortation however, is apparently still falling off, although at this season the manufactures of the New York and New England industrial centers are ordinarily going forward in rather heavy volume. The removal by the Interstate Commerce Commission of its restrictions against the use of open top cars for other than coal shipments has permitted the clearing up of congestion of steel awaiting shipment, particularly in the Pennsylvania steel districts. One large road enter ing New York City has reported to us that an accumu lation along its lines at the close of October of nearly 76,000 tons of steel awaiting shipment had been cut to 30,000 tons by the middle of December. The move ment of steel removes the last sign of the congestion which has existed on the railroads of the country since last March. Now, for the first time this year, the rail roads are reporting an actual car surplus instead of the heavy shortages which prevailed since early last winter. E m p lo y m e n t There was an estimated decrease of 6 per cent, in the number of persons employed in industrial establishments in this district between November 20 and December 20. The number of workers is now about 20 per cent, below the maximum reached in the spring. The percentages of decrease each based upon month to month changes have been as follows: April May June July 1% The volume of the country’s railroad traffic continued to diminish throughout November. In the final week of that month car loadings were 18 per cent, below those of the corresponding week in October, although still approximately 8 per cent, more than in the same week of 1919 and 1918. For the first week in December, however, car loadings were 10 per cent, above the previous week and preliminary reports for the second week in December from railroads partly in this district indicate that traffic continues well above that of the last half of November. Normally December figures show a decline of about 3 per cent, as compared with November. Heavy shipments of coal, iron ore and grain from Lake Erie ports, where the coming of winter is putting an end to Great Lakes traffic, have been offsetting to a great extent reduced loadings of miscellaneous freight. Eastbound shipments of grain and ore were much larger than in corresponding weeks in the past two years. Grain moving out of Buffalo for export through the port of New York was in larger volume during the first two weeks of December than at other times this year. The roads carrying coal for shipment to the upper lake ports state that orders for such shipments were apparently placed later than usual this year. Consequently, this traffic was particularly heavy during November and up to the second week in December when winter weather set in. With mining of both bituminous and anthracite coal remaining at high weekly levels, the railroads in general report much heavier coal shipments than at this time last year, when the effects of the coal strike were still being felt. There has also been some increase over October and November totals in the movement of general merchandise to the port of New York for export. Westbound traffic, 2% 0 }i% Aug. 1y 2% Sept. Oct. 2% 2% Nov. Dec. 6% 6% The principal decline during December occurred in the metal and kindred industries in New York up-state cities where many plants have closed down for indefinite periods. There were also declines in the number of persons employed in furniture factories at Jamestown and Syracuse. Some further reductions are reported among the em ployees of railroads, steamship lines and trucking com panies. Reductions made by railroads in this district, where most of the men are employed to maintain equip ment and operate roads, have not been as large as in districts where equipment is manufactured. The textile and clothing trades show no great change from the last month but continue to be the trades most adversely affected. It is estimated that only 5,000 workers are employed in the men’s clothing factories in New York City whereas normally there are 65,000 workers engaged in this industry. Labor difficulties are partly responsible for this situation. In contrast, factories making women’s apparel are now estimated to be em ploying 40 per cent, of the 75,000 workers normally engaged. There has been little increase in unemployment in Paterson, N. J., where only about 10 per cent, of those usually engaged in silk mills are working to-day. Passaic, N. J., reports further unemployment in the woolen industry. Reports from a group of large department stores show that in preparation for the holiday trade, the sales forces were increased during December in about the same pro portion as in previous years. Employment managers report an abundance of applicants for positions whereas last year there was a shortage. Local managers of em ployment bureaus, conducted by the State Industrial MONTHLY REVIEW 12 Commission, report an increase in the number of appli cations and a decrease in the number of positions open throughout the State and add that workers are now showing a disposition to accept the less desirable posi tions. Inquiries made by this bank from local Chambers of Commerce, industrial bureaus, employment services and individual manufacturers in a number of cities in New York State outside the metropolitan district, pro duced estimates of employment among industrial workers summarized as follows: Vicinity Buffalo... Rochester Syracuse.. Utica....... Troy....... Albany. .. Cohoes. Total. Largest Decrease Percent. No. Em Emplyd. Emplyd. from De Nov. 15 Dec. 13 Maximum crease ployed 160,000 120,000 107,000 92,769 75,728 66,500 65.000 52,500 39,175 49,550 33,850 28,450 22.000 19,400 6,300 18,000 16,000 15,000 5,300 2,250 1,700 53,000 26,269 25,825 21,100 15,700 3,000 3,600 33.13 28.32 39.73 42.58 71.36 16.67 67.92 412,619 319,728 264,125 148,494 35.99 the first three weeks in December there has been an unusually large number of arrivals, and although the figures have not been compiled, it is indicated that December will show a net gain over any month this year. The accompanying diagram compares the excess in the number of alien immigrants entering the port of New York over those going out, with the average monthly excess for the period 1910 to 1914. September and October are the only months this year in which the net immigration has exceeded the five-year pre-war average. The November figure, which is partly estimated, falls below the five-year average, but from present indications the December figure is likely to exceed it. Italy is sending more immigrants to the United States than any other country, and Poland is second. Many of the immigrants who come here from Poland are in reality natives of Russia, but as it is impossible for them to secure passports in Russia they cross the border and obtain them from American consuls in Poland. A ma jority of the aliens arriving at present are relatives of persons now residing in the United States. Officials at the immigration station assert that high steamship rates prevent many more aliens from coming to^this country. Those idle in Rochester include 9,200 clothing factory workers and 5,000 shoe factory workers, and the remainder is made up from those formerly employed in the build ing and metal trades, and miscellaneous factory enter prises. In Syracuse 100 factories formerly employing 40,000 persons, have laid off 18,725. Auburn, Fulton, and Oneida, providing employment for 15,000 in the early spring, now employ 10,000. The depression in the knit goods trade has been re flected in Utica and Cohoes, where only about 10 per cent, of the maximum number of such workers are now em ployed. In Troy eight of the nine large collar and shirt factories were closed during December, making idle 10,000 workers, mostly women and girls. In Rome, Ilion, Little Falls, and Herkimer, where about 23,500 persons were employed last spring, 8,500 are now idle. These figures and the more general data for the State as a whole refer in the main to persons working in indus trial establishments who constitute in this State about one-third of the wage earning population. Other types of workers have been much less affected by the slackening in business activity. 49J05 49p72 A verage 1910 -to 19144ZZZ4 Im m igra tion 5Z2 There were 61,163 alien immigrants admitted through the port of New York during the month of November, a decrease of 13,502 from the October figures. During JAN. FEB. M AR APR M Y JUN. JU Y A G S P O T NOV. A L U . ET C. Net Immigration each Month in 1920 at the Portfof New York.