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MONTHLY REVIEW o f C r e d i t a S e c o n d n d B u s i n e s s F e d e r a l F ed era l R eserve B a n k, N ew Y o rk M o n e y M a r k e t in J a n u a r y There was renewed accumulation of funds in member banks in New Y o rk C ity and elsewhere during January, due to the combined effect of the seasonal retirement of currency from circulation, a reduction in Treasury deposits in Federal Reserve Banks caused by an excess of Government expenditures over receipts, and a further moderate inflow of gold from abroad. Excess reserves of member banks rose to new high levels during the latter part of January in N ew Y o rk City, and also in the country as a whole, as the accompanying diagram indicates. In New Y o rk C ity the amount of excess reserves on January 25 was above $2,100,000,000, and for the entire country the amount was $3,600,000,000. The January increase in member bank reserves, how ever, was somewhat smaller than was anticipated, for two principal reasons. F irst, the return flow of currency to the Reserve Banks after Christmas was less than usual, apparently reflecting a continued upw ard trend in the volume of currency outstanding. Second, net disburse ments of funds from the Treasury account with Federal Reserve Banks proceeded at a less rapid rate than had been expected. Treasury receipts, which helped to reduce net disbursements, included the proceeds of a sale of $55,000,000 of Federal National M ortgage Association notes early in January, and the proceeds of unusually large sales of United States savings bonds during the month. D a ily Treasury statements indicate that sales of U nited States savings bonds in January were con siderably in excess o f $100,000,000. R e s e r v e C o n d i t i o n s D is t r ic t F e b r u a r y 1, 1 9 3 9 in the early part of January was fo r Treasury bills m aturing beyond A p r il 1, the date on which bank deposits are assessed fo r taxation in the State of Illinois. P revi ously the special demand had been largely from institu tions that wished to obtain short term Government securities for year-end statement purposes. In view of the situation in the Treasury bill market, it became difficult toward the end of December for the Federal Reserve Banks to acquire new Treasury bills or other short term Govenment securities in the market to replace maturities of Treasury bills in the System Open Market A ccount. Treasury bills were not available in volume at or below par near the end of December, and it became necessary to replace m aturing bills, to a con siderable extent, with Treasury notes. In view of this situation, the follow ing statement was issued on Decem ber 30. The Federal Open Market Committee announced, following a meeting today, that weekly statements of the total holdings in the Federal Reserve System’s Open Market Account may at times show some fluctuation depending upon conditions in the market affecting the Committee’s ability to replace maturing Treasury bills held in its portfolio. The volume of Treasury bills available on the market has declined materially during the year and, owing to the large and increasing demand, such bills are already selling either on a no yield basis or at a premium above a no yield basis. It has, therefore, become difficult and in some weeks impossible for the System to find sufficient bills on the market to replace those that mature. Short term notes are also selling on a no yield basis and longer term notes have at times been difficult to obtain. In A t the end of the month it appeared probable that disbursements of funds from Treasury deposits in the Reserve Banks would continue to be retarded during F ebruary, partly by quarterly receipts of social security taxes, and partly by receipts from the sale of the $100,000,000 issue of United States H ou sin g A u th ority notes on February 1. The huge volume of idle funds available fo r em ploy ment continued to constitute an underlying influence toward the maintenance of very low money rates, and in addition the Treasury bill market continued during the early part of January to be affected by special demands for Treasury bills. A s in the latter part of December, sales of Treasury bills during the first two weeks of January were either at par, that is at no interest yield to the buyers, or at prices above par. The special demand Excess Reserves o f New Y ork Central Reserve City Member Banks and of A ll Member Banks in the United States 10 M ONTHLY REVIEW, FEBRUARY 1, 1939 these circumstances, it may be necessary from time to time to permit bills held in the portfolio to mature without replace ment, not because of any change in Federal Eeserve policy but solely because of the technical situation in the market. Because no change in Federal Reserve policy is contemplated at this time, maturing bills will be replaced to the extent that market conditions warrant. A fte r the year end it developed, however, that some institutions were disposed to release holdings of Treasury bills that mature prior to A p r il 1, and offerings of Treasury bills to the Reserve Banks increased moderately in the early part of January, notwithstanding a con tinued active demand fo r bills m aturing after A p r il 1. A somewhat larger supply of Treasury notes also became available later in the month. Consequently, it was pos sible to replace all of the maturies from the Federal Open M arket A ccount during January without undue disturbance to the short term Government security market. A fte r the special demands for Treasury bills m aturing early in A p r il had been largely supplied, the prices bid for subsequent issues of bills declined somewhat, so that there was some small interest yield to the purchasers o f such bills. M o n e y R ates A side from the situation in the Treasury bill market, the general tendency in money rates was toward even lower levels than in December. The prevailing rate on prime open market commercial paper, fo r instance, which was quoted at % per cent at the end of December, declined slightly further during January to % - % per cent. Y ields on Treasury notes and bonds and on the highest grade corporation bonds also declined somewhat until the latter part of the month, when the movement was reversed fo r a time, accompanying a general decline in security prices, which was attributed largely to increased apprehension concerning developments abroad. Money Rates in New York Jan. 31, 1938 Dec. 31, 1938 Jan. 30, 1939 Stock Exchange call loans.......................... Stock Exchange 90 day loans................... Prime commercial paper— 4-6 m onth. . . Bills— 90 day unindorsed............................ Customers’ rates on commercial loans (Average rate of leading banks at middle of m onth )................................. Average yield on Treasury notes (3-5 years)............................................................. Average yield on Treasury bonds (more than 12 years to maturity or call date) Average rate on latest Treasury bill sale 91 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 *1 H *1 H H % 1 % 1 *1M tt~ % % 1 .6 3 1 .6 3 1 .6 7 1 .1 3 0 .6 9 0 .6 5 2 .6 5 2 .4 8 2 .4 7 0 .1 0 0 0 .0 1 1 1 tt banks to finance the purchase or carrying of securities by their customers, and a small net reduction in com mercial and industrial loans. The principal reduction, however, was in holdings of direct obligations of the Government, apparently due largely to the special demands for Treasury bills from other districts which made it impracticable for the New Y o rk City banks to replace their maturities. H oldings of other securities, chiefly the State and m unicipal issues, showed a moderate increase in January. W eek ly reporting member banks in 100 other principal cities throughout the country also showed some reduc tion in their total loans and investments in January. There was a larger reduction in the volume of com mercial, industrial, and agricultural loans than in New Y ork City, and a small reduction in loans on securities, chiefly to brokers and dealers, which together more than offset a moderate increase in holdings o f Government securities. Dem and deposits in the weekly reporting member banks in New Y o rk City and elsewhere increased in January, follow ing the declines in the latter part of December, and fo r all reporting banks were on January 25 close to their previous peak. Interbank deposits also, reflecting the accumulation o f idle funds in banks throughout the country, rose in January to approxi mately the highest levels ever reached. G o v e r n m e n t S e c u r it ie s Prices of Government securities advanced further during the first three weeks of January, under the im petus of an active investment demand which included substantial bond purchases by insurance companies and savings banks. D u rin g this period a number of Govern ment security issues reached new highs since issuance. Reflecting this price advance, the average yield on Treasury bonds of more than 12 year term to call date or m aturity receded 0.04 per cent to 2.44 per cent, which is slightly below the previous low reached in February, 1937, and the average yield on Treasury notes of 3 to 5 year m aturity dropped 0.08 per cent to 0.61 per cent, also a new low— slightly under the level reached last June.' 1 tt tt * Nominal M e m b e r B a n k C r e d it W eek ly reports from the principal New Y o rk City banks showed a gradual decline in the total volume of loans and investments during the four weeks ended Janu ary 25. Loans to security brokers and dealers, which had risen in December, increased somewhat further over the year end, apparently as a result of tem porary with drawals of free credit balances from brokerage houses, but receded moderately during the first h alf of January. There was also some further decline in the loans of these 1933 1934 1935 1936 1937 1938 1939 Average Yields on Treasury Bonds and Treasury Notes (Scale inverted to indicate movement of prices) 11 FEDERAL RESERVE B AN K OF NEW YO R K Between the 21st and 26th of January, however, the price tendency in the Government security market was re versed, in keeping with the declines which occurred in other security prices during the period, referred to later in this Review. Follow ing the rise of about y 2 point earlier in the month, the average price of Treasury bonds over 12 year term was reduced about % of a point in this period. The average yield on these issues conse quently rose to 2.49 per cent, and reflecting price declines also in Treasury notes the average yield on 3 to 5 year maturities rose to 0.66 per cent. In the closing days of the month, the Government security market turned strong again, and both Treasury bonds and notes recovered a substantial part of the losses of the preceding week. The prices at which the new 91 day Treasury bill issues were sold during the first three weeks of January were subject to an extraordinary influence arising out of the demand for these issues, which mature in A p ril, for use in avoiding the Illinois tax on bank deposits levied as of A p r il 1. The issues dated January 4 and 11 were sold at prices of par or above, and the issue of January 18 was sold at a price only fractionally under par. The issue of January 25, which matures A p r il 26, however, was sold at an average price sufficiently below par to provide a yield of 0.007 per cent. This issue, although not subject to the same special demand as the three previous issues of Treasury bills, went at a very low rate, indicating the continuance of large investment demand for short term investments on the part of banks and large corporations. The total volume of Treasury bills now outstanding is only $1,300,000,000, as compared with $1,950,000,000 a year ago and a peak amount of $2,650,000,000 in A u gu st, 1937. The four weekly issues of Treasury bills during January, each in the approxi mate amount of $100,000,000, replaced similar maturities. On January 25, the Treasury, on behalf of the U nited States H ousing A iithority, offered fo r subscription at par and accrued interest, $100,000,000 of 1 % per cent 5 year notes of the A u th ority, dated February 1. This issue, which is fu lly guaranteed by the U nited States, was heavily oversubscribed. C o m m e r c ia l P a p e r a n d B il l s D u rin g January average grade prime commercial paper of 4 to 6 month m aturity was sold in the open market at y 2 per cent in sufficient quantities to reduce the prevailing rate fo r this class of paper to a range of % - % per cent. This compares with a % per cent rate which had been quoted since November, and with a 1 per cent rate in January, 1938. The commercial paper market generally remained quiet, owing to the small quantity of new paper currently acquired by dealers for resale. The investment demand fo r high grade names meanwhile continued very active. The amount of paper outstanding through commercial paper houses at the end of December was $186,900,000, a decline of 9 per cent from the November figure, induced by seasonal influences. D u rin g the year 1938 the reduction amounted to 33 per cent, which indicates the extent to which the market supply of paper has been diminished. The small volume of acceptances available to dealers continued to restrict the activity of the bill market dur ing January, and no change occurred in quoted rates. The amount of bankers acceptances outstanding, which had shown a seasonal increase of $15,000,000 during the preceding three months, declined $3,000,000 in December, chiefly because of reductions in outstandings of domestic warehouse bills and in bills based on goods stored in or shipped between foreign countries. The December volume of outstanding bills was $73,000,000 less than a year previous, reflecting principally declines in import, export, and domestic warehouse bills. (Millions of dollars) Type of acceptance Domestic shipment........................................ Domestic warehouse credit....................... Dollar exchange.............................................. Based on goods stored in or shipped be tween foreign countries.......................... Dec. 31, 1937 N ov. 30, 1938 Dec, 31, 1938 117 87 8 70 2 95 59 10 49 3 95 60 12 45 3 59 57 55 343 273 270 S e c u r ity M a r k e t s Reflecting renewed apprehension over the European political situation and the development of irregular tendencies in domestic business activity, the general aver age of stock prices underwent a further net reduction during January from the November highs reached im m ediately after Election D a y. R ailroad stocks in the closing days of December and first few days of January advanced slightly above their November highs, but in dustrial stocks failed to reach the Novem ber highs, and in the subsequent part of January through the 26th irregular declines occurred in these two classes o f stocks. F o r this period, industrial shares showed a net decline of about 14 per cent, reaching a level some 17 per cent below the November high and only 2 per cent above the lowest closing quotation reached in September at the time of the European crisis over the Czechoslovakian situation. R ailroad shares on January 26 were 20 per cent below the early January high, but remained approxi m ately 18 per cent above the September low. In the closing days of January there were sizable recoveries from the m o n th ’s lows, but both classes of stocks ended the month lower than at the end of December. Public u tility stocks showed little net change during January, and closed the m onth w ithin 7 per cent of the November high. Turnover of stocks on the N ew Y o rk Stock E x change was generally light, but on the day of largest price decline, January 23, increased to 1,870,000 shares. In the corporation bond market, further advances in prices of high grade and second grade issues occurred during the first three weeks of January, but later in the month bonds, like stocks, were subject to price de clines. M o o d y ’s Investors Service average of Baa bonds rose in the first three weeks of January by i y 2 points and reached the highest level since September, 1 9 3 7 ; the larg est advances occurred in public u tility issues, but indus trial and railroad issues also advanced considerably. The succeeding net declines were the largest in railroad issues averaging about 2 y 2 points, and the general aver age dropped about 1 y 2 points, but remained higher than in most o f December. W ith respect to high grade cor poration bonds, M o o d y ’s average of A a a bonds advanced 12 M ONTHLY REVIEW, FEBRUARY 1, 1939 more than 1 point in the first part of January to a new high level, but subsequently receded about 1 point, accom panying unsettlement of prices in other classes of securities. Later in the month about one-half of this de cline was recovered. N e w F in a n c in g New corporate security issues in January totaled only about $18,000,000, of which some $4,000,000 was for new capital. O f this total, which is the smallest for any month since January, 1935, about three-fourths was placed privately. The small amount of security flota tions appears to have been due to an indisposition of potential borrowers to seek additional fu n ds at this time rather than to any unwillingness of investors to buy high grade offerings. New security issues by domestic corporations in 1938 totaled about $2,140,000,000, as against $2,435,000,000 in 1937, and $4,580,000,000 in 1936. The decline of about $300,000,000 in 1938 from 1937 was due to a drop in the amount of issues to provide new capital. A lm ost all of the difference between 1938 and 1936, however, was due to the much larger amount of refu n d ing issues floated in 1936. Corporate issues for new capital in 1938 amounted to about $825,000,000. O f this total about $225,000,000 was composed of issues of oil and natural gas companies, about $185,000,000 of steel company financing, including $ 30,000,000 of bonds by a railroad subsidiary of United States Steel Corporation, about $145,000,000 of electric and gas utility company issues, and about $30,000,000 of telephone issues; most of the remainder of the issues was of various m anufacturing companies. Railroad companies issued $16,000,000 of equipment trust certifi cates, the only form of railroad securities for new capital purposes which were floated in 1938. The decline in railroad borrowing accounted for two thirds of the decrease in all new capital issues from 1937 to 1938. A lm ost all the corporate securities floated in 1938 were bonds, notes, or debentures. Some preferred stock — including three issues of five to fifteen million dollars— was sold, but only a very small amount of common stock was floated. A bo u t $650 ,000 ,00 0 o f issues was placed YEAR QUARTER QUARTER 1937 1938 Monthly Average Volume of Domestic Corporate Security Issues for Refunding and for New Capital (In millions of dollars) privately with insurance companies and banks in 1938, a considerable increase over the 1937 volume of new issues placed in this manner. A ccording to the Commercial and Financial Chronicle, bond awards in 1938 by States, local governments, and U nited States possessions amounted to about $1,100,000,000, as against $910,000,000 in 1937. M unici pal issues for new capital in 1938 seem to have been less than maturities and sinking and pension fu n d purchases of outstanding issues, so that the amount of such securi ties outstanding probably declined somewhat during the year. F o r e ig n E x c h a n g e s D u rin g the early part of January, the principal European currencies strengthened against the dollar, as the British authorities took steps to bolster the forces defending the pound sterling. A fte r the middle of the month, however, increasing tension in Europe, occasioned by such developments as the dismissal of D r. Schacht from the Reichsbank on January 20 and the capture of Barcelona by the Insurgent Spanish arm y on January 26, gave the exchange market a weaker and a nervous undertone, although rates were held steady except in the case of the guilder. Sterling showed a net gain of 3 % cents fo r the month after going from $4.64 on December 31, 1938, to $ 4 .6 2 % on January 3 when trading reopened in this market after the holidays. On January 5 the B ank of E n glan d re quested that the London market refrain from transac tions in forw ard gold and from facilitating advances against gold and further that banks in the London market scrutinize foreign exchange operations with a view to elim inating undesirable transactions. The B an k of E n gland also asked for the cooperation of the authorities in certain foreign markets in lim iting speculation against sterling by w ay of gold operations. On January 6, the Bank of E n gland transferred £200,000,000 in gold, valued at the statutory rate (£ 350,000,000 at current prices), to the Exchange Equalisation A ccount. The effect of these measures, which showed a determination on the part of the B ritish authorities to maintain the pound, was to bring about a rally in sterling under the impact of short covering, which carried quotations from $ 4 .6 2 y 2 on January 3 to $ 4 .6 8 % on January 7. Coincident with this rise, the price o f gold in London fell from 150s 5d on January 4, an all time record, to 148s 9 % d . A reaction to $4.67 and a renewed firming to $ 4 .6 8 % on January 18 occurred before the dismissal of D r. Schacht caused the rate to ease again to $ 4 .6 7 % where it was held steady within a very narrow range for several days before clos ing the month at $4.67 1 3 /1 6 . Quotations on forw ard sterling improved during the month from a discount equivalent to 2 % per cent per annum for three month contracts on January 4 to 1 % per cent at the month end. It was reported that intervention in the forw ard market by British exchange authorities was an im portant factor in narrowing the discount. In sym pathy with sterling, the French franc weakened in New Y o rk at the opening of the year to $ 0 .0 2 6 1 1 5 /1 6 , recovered to $0.0264 1 /1 6 on January 7, and remained firm within a range of one point fo r the remainder of the FEDERAL RESERVE B AN K OF N EW YO R K month, despite the heightening of Franco-Italian tension as the Insurgent army advanced on Barcelona. In London, the franc was at its highest level in terms of sterling on January 3, when the quotation was 176.62 francs per p o u n d ; it subsequently weakened to 177.43 on January 13, but closed the m onth at 177. Considerable weakness developed in the guilder during the month, partly as a result of the disturbed E uropean political situation and partly because of the transfer abroad of the proceeds of loans floated in the A m sterdam market. F rom a high of $0.5441 in the New Y o rk market on January 7 the guilder fe ll to a low of $0.5363 near the month end before recovering to $0.5402, while in London it depreciated from 8.51 guilders per pound on January 3 to 8.72 on January 28, and 8.69 at the end of the month. The Swiss franc declined from $0.2260 on January 3 to $0.2257 near the month end, but recovered to $ 0 .2 2 5 9 % on January 3 0 ; it eased against the pound sterling over the month from 20.48 francs to the pound to 2 0 .7 1 % . G o ld M o v e m e n t Gold continued to flow into the U nited States during J anuary, but the total increase in this co u n try ’s gold stock for the month, amounting to approxim ately $175,000,000, while substantial, showed a further decline in the rate of gold acquisitions from the peak level of last September. The inflow of gold, which began the month in sizable amounts, diminished fo r about ten days ending around the middle of the month, follow ing the development of a firmer tendency in the pound sterling, but increased again in the second h alf of the month after the pound and the D utch guilder had weakened somewhat. F o r the month of January, the rise in the gold stock was due to currently reported imports of $97,200,000, to gains through transactions in foreign earmarked accounts of about $10,500,000, and to gains through other transactions aggregating $65,000,000. The larger part of the imports, totaling $75,300,000, was received at New Y o rk — $45,000,000 from E n gland, $19,800,000 from H olland, $10,300,000 from Canada, and $200,000 from Mexico. On the W e st Coast, a total o f $21,900,000 was received, consisting o f $16,500,000 from Japan, $4,100,000 from A ustralia, and $1,300,000 from China. C e n tr a l B a n k R a t e C h a n g e s The discount rate of the Bank of France, as well as its rate for 30 day loans on specified Government securities, was lowered from 2 % to 2 per cent effective January 4, 1939. Simultaneously the rate fo r 90 day advances was reduced from 3 % to 3 per cent. The last previous change in this b a n k ’s rates was made on November 25, 1938. Effective January 1, the rediscount rate of the Bank of Latvia, applicable to banks, was reduced from 5 to 4 % per cent and the rate for other borrowers was lowered from 5 % to 5 per cent. The higher rates had been in force since November 1, 1936. Production and Trade Ju dgin g from prelim inary inform ation, after allow ance for seasonal changes, the general level o f production 13 PER C E N T Steel Mill Activity (Ingot output expressed as percentages of capacity) and trade appears to have declined somewhat in January. Steel m ill activity, as shown in the accom panying dia gram, was m aintained during the month at slightly over 50 per cent of capacity. The indicated rate corresponds closely with the average for December, whereas in most other years a rather pronounced increase has occurred. Between the middle of Ju ly and the middle of November steel m ill activity had nearly trebled, but a downturn occurred in the last few weeks of the year, reflecting in part year-end inventory taking and holiday shutdowns. Cotton textile m ill activity was reported to have been little changed in January, but as in the case of steel production, an increase usually occurs at this time of the year. Autom obile assemblies were well maintained, but in the first three weeks of the month bituminous coal production, railway freight traffic, and retail trade in this D istrict were lower after seasonal adjustm ents. There appears to have been a slight further advance in the general level of production and trade during Decem ber, follow ing the rapid rise which occurred between June and November. A lth ou gh declines of more than usual seasonal magnitude occurred in steel production, wool consumption, and meat packing operations, generation of electric power showed a greater increase than in most other years, and reductions in cotton consumption, shoe production, and copper output were less marked than is usually the case at this time of the year. Autom obile assemblies and the m anufacture of tobacco products were well maintained, and orders fo r machine tools expanded. Departm ent store sales in the U nited States showed about the usual sharp advance during D ecem ber; in this D istrict the increase was larger than usual. Sales by mail order houses and chain stores increased more than in most other years, and less than the usual decline was shown in the movement of freight over the railroads. The follow ing diagram shows the daily average rate of registrations of new passenger cars since July, 1935. F rom Ju ly through September of 1938, registra tions were well below the levels of the corresponding months of the three preceding years, but in October registrations increased, reflecting improved conditions of demand and early completion of model change-overs, MONTHLY REVIEW , FEBRUARY 1, 1939 14 B u ild in g and there were further gains in November and December. This record is in sharp contrast with that of 1937, when registrations failed to increase after the introduction of new models. Owing to the placement of a large amount of contracts for Public W o rk s A dm inistration projects prior to the December 31 dead-line, total construction contracts awarded in December in the 37 States covered by the F . W . Dodge Corporation reached the highest level for any month since June, 1930. The average daily rate of contracts awarded in December exceeded the November average by 14 per cent. A lth ou gh residential work declined about as in most other years, heavy engineering awards, which include Public W o rk s A dm inistration contracts, registered a large contraseasonal advance, and other nonresidential contracts showed a small gain con trary to the usual movement. Com pared with December, 1937, total contracts were 86 per cent higher, the largest increases occurring in the heavy engineering and resi dential classifications. F o r the calendar year 1938 total contracts were 10 per cent larger than in 1937. A lth ou gh commercial and industrial awards were considerably lower than in the preceding year, all of the other m ajor categories registered advances, as the follow ing table indicates. Percentage Change in Average Daily Contracts (Adjusted for seasonal variations, for estimated long term trend, and where necessary for price changes) 37 States 1938 1937 Dec. Oct. N ov. Dec. 38 81r 61 113 81 r 95 87 63 73 50 r 85 87 93 128 71 82 82 42 74 85 89 63 91 89 102 90 86 108 85 92 84 82 80 85 90 p 67 96 110 113p 91 95 103 80 95 p 83 87 79 p 86 p 92 p 71 104 104p 125p 87 95 127 Industrial Production Steel........................................................................ Copper................................................................... Passenger cars r................................................... Bituminous coal................................................. Crude petroleum............................................... Electric power..................................................... Cem ent.................................................................. Cotton consumption........................................ W ool consumption............................................ Shoes...................................................................... Meat packing...................................................... Tobacco products.............................................. Machine tool orders*....................................... Employment Employment, manufacturing, U. S.r. . . . Employee hours, manufacturing, U. S. . . 96 73 89 73 91 74 93p 76 p Construction Residential building contracts r ................... Nonresidential building and engineering contracts r ....................................................... 19 44 42 40 62 83 79 112 76r 77 r 94 86 77 75 78 69 79 76 75 74 81 79 80 73 84r 82 98 95r 94r 62 81 75 107 95 88 66 87 79 111 93 90 81 87 p 81 p 114 p 100 p 95 p 80 p 69 62 65 66 50 40 36 44 155 155 154 154p 151 148 147 148 112 109 110 IlOp Primary Distribution Car loadings, merchandise and misc......... Car loadings, other........................................... Distribution to Consumer Department store sales, U. S ....................... Department store sales, 2nd District. . . . Other chain store sales................................... Mail order house sales..................................... New passenger car registrations r ............... Velocity of Deposits t Velocity of demand deposits, outside New York City (1919-25 average = 100 per cent)................................................................... Velocity of demand deposits, New York City (1919-25 average = 100 per cent).. Prices and Wages~\ General price level (1913 average = 100 Cost of living (1913 average = 100 per Composite index of wages (1926 average= 100 per cent)................................................... p Preliminary. * N ot adjusted for price changes, r Revised. t N ot adjusted for trend. N .Y . and Northern N.J. Dec., 1938 1938 D ec., 1938 compared compared compared with with N ov., with N ov., 1937 1938 1938 1938 compared with 1937 Building — 15 — 24 +14 — 3 + 9 —45 +35 0 — — + — 21 25 22 7 +20 — 19 +15 +10 Public works..................................... Public utilities................................. All engineering............................ +43 +99 +55 +44 +10 +34 + 153 + 1 ,1 8 7 + 287 +11 +55 +28 All construction.......................... +14 + 10 + +16 Residential........................................ Commercial and industrial......... Public purpose*.............................. All building................................... Engineering 40 * Includes educational, hospital, public, religious and memorial, and social and recreational building. In the N ew Y o rk and Northern N ew Jersey area the daily rate of contract awards in December was 40 per cent above the November average. The greater increase in this D istrict than in the 37 States m ay be explained partly by the fact that the decline in contract awards in November had been considerably more pronounced here than elsewhere. The placing of Public W ork s A dm inistration contracts caused a sharp increase in heavy engineering contracts in December, and awards for build ings designed fo r various public purposes were also higher than in November. Residential and commercial and industrial building, however, declined further. Com pared with December, 1937, total contracts were 81 per cent higher, and, with the exception of commercial and industrial building, all of the m ajor classifications registered sizable advances. B uilding and engineering contracts for the year 1938 were 16 per cent above the total for 1937. Follow ing the exceptionally large volume of contracts placed during the latter part of December, associated with the December 31 dead-line for Public W orks A dm inistration projects, total contract awards in the 37 States declined sharply during the first three weeks FEDERAL RESERVE B AN K OF N EW YO R K of January. The daily rate at which contracts were awarded in this period was one-third below the average for D ecem ber; all of the m ajor construction classifications shared in the decline, but the decline in residential build ing contracts was, if anything, slightly less than is usual for the time of year. Compared with the first three weeks of January, 1938, however, total contracts were 13 per cent h ig h er; residential and nonresidential building con tracts, which had been at a low ebb a year ago, showed sizable increases, but heavy engineering awards were considerably lower. E m p lo y m e n t a n d P a y r o lls A ccording to estimates prepared by the U nited States Departm ent of Labor, there was a further rise in December of 200,000 in the em ployment of persons in pursuits other than agriculture, bringing the total gain since Ju ly to almost 1,200,000 workers. The leading feature of the month was a gain of 440,000 in retail trade, reported as the largest December increase in any one of the last ten years. There was also a rise of approxim ately 50,000 in em ployment of factory workers, but these gains were offset in substantial part by declines in the number of persons em ployed in various other nonagricultural lines. The rise in factory employment represents an increase for the month of about one-half of 1 per cent. A fte r adjustm ent for the decline which is usual at this time of year, the index of U nited States factory em ployment rose about 1 % per cent to the highest level since December, 1937. From June to December, the adjusted index rose about 11 per cent and recovered approxim ately one-third of the preceding decline from the peak in 1937. In December, as in immediately preceding months, the number of workers in factories m anufacturing durable goods increased more rapidly than at nondurable goods plants. Factory payrolls increased 3 per cent between November and December, whereas usually there is little change. New Y o rk State factory employment, after seasonal adjustm ent, increased about 2 per cent in December. Gains in the various industrial classifications were gener ally small but widely distributed. H av in g fallen less PER C E N T 15 from the high point of 1937 than factory employment in the country as a whole, New Y o rk State factory em ploy ment in December was 9 per cent below the peak reached in 1937, as against 1 6 % per cent for the United States. A s shown in the accompanying chart, New Y o rk State factory employment in December was at approxim ately the same level as in the corresponding month of 1937, and at a level about m idway between the 1937 high and the 1938 low. Payrolls increased 4 per cent, or more thaia usual between November and December, to a level 2 per cent higher than in December, 1937. • C o m m o d i t y P r ic e s Prices of most of the actively traded commodities continued to move within a narrow range during Janu ary, and M o o d y ’s Investors Service index of 15 raw products at the end of the m onth stood close to the level prevailing a month earlier. This index has shown only minor fluctuations fo r several months, m oving within a range of only about 4 % per cent since early last A u gu st. The current index is about 10 per cent above the 4 % year low established the first of last June. One of the wider movements during January occurred in the price of raw silk, which advanced 9 cents further to $ 1 .9 2 % a pound, the highest level since Ju ly, 1 9 3 7 ; near the end o f the month the price declined to $ 1 .9 0 % . Silk prices were stimulated by the raising of the maximum and minim um prices by the Japanese raw silk stabiliza tion committee, and by a report that the 1938 Japanese cocoon crop was about 1 2 % per cent smaller than in 1937. The upward tendency shown in wheat prices in December continued during the early part of January, reflecting chiefly continued reports of unfavorable weather con ditions in the domestic wheat belt, together with an absence of offerings of the new Argentine crop. Prices moved irregularly during the remainder of the month, but the cash quotation for Number 1 wheat at M inne apolis closed January at 7 8 % cents a bushel, .1% cents above the end of December, reaching in the latter part of the month the highest level since last A u gu st. Moderate increases also occurred in the prices of domes tic wool and hogs, while cotton prices showed no material change during the month. A fte r rather sizable increases in the previous month, corn prices tended somewhat lower during J a n u a ry ; the cash quotation for the N um ber 3 yellow grade at Chicago receded 2 % cents to 50 cents a bushel, thereby canceling about one-half the December advance. Some weakness developed also in crude rubber prices during January, and the spot quotation ended the month at 15 1 1 /1 6 cents a pound, 1 1 /1 6 o f a cent below a month ago. F u rth er declines occurred in the prices o f hides and raw sugar. The price of scrap steel at Chicago rose 25 cents to $14 a ton during the past month, but some decline was shown in the prices of lead and tin. Spot quotations fo r other principal metals, however, held steady. F o r e ig n T r a d e Index o f Factory Employment in New Y ork State, Adjusted for Seasonal Variation (1925-27 average — 100 per cent) In December merchandise exports from this country were valued at $269,000,000, a somewhat larger amount than in the previous month, while imports, valued at $171,000,000, were slightly smaller than in November. 16 MONTHLY REVIEW, FEBRUARY 1, 1939 Com pared with December, 1937, exports showed a decline in value of 17 per cent and imports 18 per cen t; the year-to-year reduction in the case of exports was about the same as the average decline of recent months, but the decrease in the case of imports was the smallest fo r any month in 1938. Nevertheless, the merchandise export balance remained close to $100,000,000. Large declines from a year ago occurred during December in exports of agricultural products, especially unm anufactured cotton and tobacco among the crude materials, and wheat in the category of crude foodstuffs. A ggregate exports of Am erican cotton to all destinations were less than h alf the quantity and value in December, 1937, although this co u n try ’s shipments of cotton to Japan were about three times the comparatively small volume of a year ago. E xports of nonagricultural origin as a whole showed a moderate decrease, as large declines in shipments of automobiles and iron and steel m anu factures were partly counterbalanced by increases in a number of other items including aircraft, several lumber and petroleum products, and copper. A m ajority of the leading economic groups and also of individual commodities contributed to the decrease from a year ago in the aggregate value of imports. Exceptions to the reduction in imports were larger receipts of coffee, meat products, vegetable oils, hides and skins, raw silk, unm anufactured wool, diamonds, nickel, and lumber products. Im ports of sugar and tin were only about one-third of the December, 1937, value, and receipts of crude rubber were approxim ately 50 per cent smaller in both quantity and value. F o r the calendar year 1938, exports from the U nited States amounted to $3,094,000,000 and imports to $1,961,000,000. The $1,133,000,000 excess of exports, which was the largest export balance for any year since 1921, was the combined result of comparatively well sustained exports, especially in the first h alf of the year, and a sharp contraction in im p orts; fo r the year as a whole exports declined 8 per cent from the 1937 level and imports 36 per cent. A n im portant factor in the heavy export balance in 1938 was the increase in grain shipments, due to large crops in this country in 1937 and shortages elsewhere. E xports of such food products as fru its and meats, and shipments of aircraft, gasoline, industrial machinery, and tobacco showed substantial increases over 1937. On the other hand, coincident with the industrial recession in this country, nearly all types o f imports were greatly reduced in volume and value from the preceding year. Notable decreases occurred in imports of such raw materials as wool, hides and skins, rubber, and silk, and also cocoa, furs, and tin. Calcu lations by the Departm ent of Commerce of the quantity of merchandise entering this co u n try ’s foreign trade, which allow fo r lower prices in 1938 than in 1937, indicate a volume of exports in 1938 equal to the 1937 volume, but a reduction of 29 per cent in the quantity o f imports. D e p a r tm e n t S to re T r a d e Total sales of the reporting department stores in this District during the first three weeks of January were about 12 per cent below the corresponding period of 1938, but there was one less shopping day in the 1939 period. On the basis of the three weeks’ figures, it appears that more than the usual seasonal decline from the December average has occurred. F or the month of December, total sales of the reporting department stores in this D istrict were only 1 % per cent lower than in December, 1937, but in December, 1938, there were five shopping Saturdays as compared with three in 1937. Stores in Northern New Jersey, B ridge port, W estchester and Stam ford, and the H udson River V alley D istrict reported sales somewhat higher than in December, 1937, while small reductions in sales were reported by the New Y o rk and B rooklyn, Buffalo, Rochester, Syracuse, N orthern New Y o rk State, Southern New Y o rk State, and Central New Y o rk State department stores, and sales of apparel stores were about 1 per cent lower. F o r the year 1938, total sales of the reporting depart ment stores in this D istrict were approxim ately 7 per cent lower than in 1937, as compared with an increase of 3.7 per cent from 1936 to 1937. A p p a rel store sales were 9.2 per cent lower than in 1937, follow ing little change between 1936 and 1937. Stocks of merchandise in the department stores, at retail valuation, were about 8 per cent lower at the end of December, 1938 than at the end of December, 1 9 3 7 ; the decline in December, 1938 makes the thirteenth month of decrease in the year-to-year comparison of stocks. Collections of accounts outstanding were lower in Decem ber than a year previous, both in the department and apparel stores. i ! Percentage change from a year ago Net sales Locality Dec. New York and B rooklyn................. Buffalo..................................................... — — — Syracuse.................................................. — Northern New Jersey........................ + Bridgeport.............................................. + Elsewhere............................................... — Northern New York State.......... — Southern New York S tate.......... — Central New York State .......... — Hudson River Valley D istrict. . + Westchester and Stam ford......... + Niagara F a lls................................... — 2 .1 3 .4 4 .1 3 .9 3 .0 5 .0 1 .9 7 .6 0 .6 1 .8 0 .2 1 .8 1 2 .3 Jan. to Dec. — — — — — — — — — — — — — 7 .0 9 .4 3 .9 6 .1 6 .6 6 .7 6 .9 7 .8 8 .6 8 .9 2 .6 8 .0 1 0 .8 Stock on hand end of month — — — — — + — Per cent of accounts outstanding November 30 collected in December 1937 1938 8 .5 6 .4 1 2 .4 7 .4 5 .4 0 .7 4 .4 4 3 .8 4 3 .6 8 2 .0 4 0 .6 4 4 .0 4 2 .6 3 6 .6 4 2 .5 4 1 .8 8 0 .7 4 1 .0 4 3 .5 4 4 .6 3 6 .4 All department stores.............. — 1 .5 — 6 .9 — 7 .9 4 6 .1 4 5 .3 Apparel stores.............................. — 0 .9 — 9 .2 — 6 .8 4 6 .1 4 5 .5 Department Store Sales and Stocks, Second Federal Reserve District (1923-25 average = 100) 1938 1937 Dec. Oct. N ov. Deo. Sales, unadjusted................................................... Sales, seasonally adjusted................................... 169r 94r 98 85 106 89 164 92 Stocks, unadjusted................................................ Stocks, seasonally adjusted............................... 80r 81r 89 78 92 78 74 75 r Revised FEDERAL RESERVE BANK OF NEW YORK M ONTHLY REVIEW , FEBRUARY 1, 1939 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 the Board of Governors of the Federal Eeserve System) Volume of industrial production declined seasonally in December and showed little change in the first three weeks of January, when an increase is usual. Wholesale commodity prices were steady. Employment and payrolls increased further in December, and retail sales showed more than the usual seasonal rise. P roduction duction, Adjusted for Seasonal Variation (1923-25 average = 100 per cent) PERCENT average — 100 per cent) PER CENT In December volume of industrial production declined by about the usual seasonal amount and the Board’s adjusted index was at 104 per cent of the 1923-1925 average, about the level reached in November following an excep tionally rapid advance after the middle of the year. Changes in output in most lines in December were largely seasonal. In the steel industry, however, production showed a greater than seasonal decline, and averaged 54 per cent of capacity in December as compared with 61 per cent in November. Lumber production showed little change from November to December, although usually there is a decline, and at textile mills and shoe factories activity declined less than seasonally. A t meat packing establishments there was a reduction in output. Automobile production increased somewhat further in December. In the fourth quarter of 1938 production and sales of the new model cars were in about the same volume as in 1937; dealers’ stocks of new cars increased season ally in this period but at the year end were much below the high level of a year earlier. Value of construction contract awards increased considerably from Novem ber to December, according to F. W . Dodge Corporation figures for 37 Eastern States. The increase reflected principally a further rise in contracts awarded for Public Works Administration projects, which accounted for most of the sharp increase in awards that occurred in the last half of 1938. Contracts for private residential building decreased less than seasonally in December, while other private construction showed little change and remained at a low level. E m pl o y m e n t Employment and payrolls rose further between the middle of November and the middle of December. In most manufacturing lines the number employed continued to increase, when allowance is made for the usual seasonal changes, and in the automobile and machinery industries the rise was considerable. Employment and payrolls in trade increased more than is usual in the holiday season and in the construction industry employment showed much less than the usual seasonal decline. D istribu tion Distribution of commodities increased more than seasonally in December. Sales at department stores showed the usual sharp expansion prior to Christmas and sales at variety stores and mail order sales showed a more than seasonal rise. Freight car loadings declined seasonally from November to December, reflecting largely the customary decrease at this time of year in shipments of miscellaneous freight. United States Bureau of Labor Statistics (1926 = 100 per cent) BILLIONS OF DOLLARS ALL MEMBERBANKS flflP MB JK S couts.IDE |NEW~YOFtKOTYgi 1 1 1 B jjfillP mJmi Total loans and investments of reporting member banks in 101 leading cities, which increased substantially in the first three weeks of December, declined in the following four weeks. There was some decline in loans and a reduction in holdings of United States Government obligations, reflecting in part distribution to the public of new securities purchased by banks in Decem ber. Deposits declined somewhat in the latter part of December but increased in January. M oney R ates itsll M jg fjg W ednesday Figures o f Estimated Excess Re serves for All Member Banks and for New York City Banks B a n k Credit As the result of the post-holiday return of money from circulation, together with Treasury disbursements from its balances with the Eeserve Banks, and gold imports, excess reserves of member banks increased nearly $600,000,000 in the four weeks ended January 18 to a new high level of $3,560,000,000. A large part of the increase occurred at New York City banks. and B ond Y ields Average yields on United States Government securities declined slightly in December and the first three weeks of January. For three consecutive weeks the entire new issue of 91 day Treasury bills sold on or slightly above a no-yield basis. Commercial paper rates declined slightly in January while other open market money rates continued unchanged.
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