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MONTHLY REVIEW o f C r e d it a n d S e c o n d B u s in e s s F e d e r a l R e s e r v e C o n d itio n s D is t r ic t February 1,1940 Federal Reserve Bank, New York M o n e y M a r k e t in J a n u a r y The volume o f excess reserves held by member banks rose rapidly in January and before the end o f the month reached new high levels in New Y ork City banks and also in all member banks. Excess reserves o f the New Y ork City banks on January 24 were $3,160,000,000, and the total for all member banks was $5,590,000,000, or $60,000,000 above the high point reached on October 25, 1939. F or the country as a whole, the largest single factor in the expansion o f bank reserves was the seasonal retire ment of currency from circulation. In the five weeks ended January 24, the net amount o f currency returned to all Federal Reserve Banks was $314,000,000. This figure, however, is less than half the amount o f currency paid out by the Reserve Banks between the summer low point on July 26, 1939, and the seasonal peak on Decem ber 20, thus indicating a continuation o f the strong upward trend in currency circulation, which has been due in part to foreign demands fo r our currency, but more largely to increased use o f currency in the United States. A second factor of considerable importance in increas ing member bank reserves was the continued inflow of gold from abroad. W hile a large part o f the current gold movement is fo r foreign official accounts, so that pay ments fo r the gold by the Treasury do not go directly into member bank reserves, the proceeds on the whole have apparently been disbursed rapidly, as foreign deposits in the Reserve Banks have shown little net change. In the fou r weeks ended January 24, the increase in United States gold stock amounted to $259,000,000, and the gold flow was continuing in substantial volume toward the close o f the month. The third principal factor was an excess o f Govern ment disbursements over receipts. In the fo u r week period the total o f cash in the Treasury and Treasury deposits in Federal Reserve Banks was reduced by $175,000,000, the disbursements tending to increase member bank holdings of reserve funds by a like amount. W hile in New Y ork City, as well as in other parts o f the country, the seasonal return flow o f currency was a factor in the increase in bank reserves, larger elements in the case o f the New Y ork City banks were the disburse ment o f the proceeds o f incom ing gold, a substantial inflow o f funds from other parts o f the country, and redemptions o f maturing Treasury bills. The New Y ork market bid successfully fo r only a small part of the new Treasury bills issued in January, as most o f them were taken by Chicago institutions which had placed very high bids in order to obtain tax exempt securities maturing shortly after A p ril 1, the date on which a tax on bank deposits in the Chicago area is assessed. In addi tion, the Treasury bill issues on January 17 and on Janu ary 24 were $50,000,000 less than the amount m aturing in each case. A s a result o f these two factors, the net amount o f maturing bills redeemed by the Treasury in New Y ork over the amount o f new bills sold here was about $240,000,000 in the fou r weeks ended J anuary 24. M o n ey R a te s The unusual demands fo r Treasury bills and the reduced supply resulted in the sale o f new issues in January at prices so high that the new bills brought no interest yield to most o f the purchasers. In fact, bids fo r a substantial part o f the new issues were slightly above par, despite the fact that these securities carry no interest coupons, so that such bidders actually paid the Treasury fo r the privilege of holding the bills fo r three months. The market fo r the highest grade securities o f all maturities was strong at the beginning o f January, and yields declined further. Yields on high grade corporation and municipal bonds reached new low levels, and yields on Treasury notes and bonds declined to the lowest levels since last summer. Thereafter the market for such BILLIONS FDOLLARS --------- ---------------- ----------------- ---------------- ----------------- -------- -------- ----------------6O.0.------ Excess Reserves of New York Central Reserve City Member Banks and of All Member Banks in the United States 10 MONTHLY REVIEW, FEBRUARY 1, 1940 securities was subject to conflicting forces— on the one hand there was the pressure of the increasing volume of idle money in the banks, tending to lift prices and depress yields still further, and on the other hand there were reports from Europe which were interpreted as fore shadowing an intensification of the war which might have greater effects on this country than have been experienced thus far, and which, therefore, tended to depress security prices and raise yields somewhat. Security prices, consequently, fluctuated irregularly during the latter part of the month, and in general yields on high grade bonds showed a small net rise. M oney Rates in New York Jan. 31, 1939 Stock Exchange call loans......... Stock Exchange 90 day loans . . Prime commercial paper 4-6 m onths........................................ Bills— 90 day iinindorsed........... Average yield on Treasury notes (3-5 yea rs)................................ Average yield on Treasury bonds (not callable within 1 2 years). Average rate on latest Treasury bill sale, 91 day issue.............. Federal Reserve Bank of New Y ork discount rate.................. Federal Reserve Bank of New Y ork buying rate for 90 day indorsed bills............................. Dec. 30, 1939 Jan. 30, 1940 1 1 1 *1H *1H *1H x -y 8 A 7 'A rV s H -H A 7 0 .62 0 .4 6 0 .5 0 2 .4 5 2 .3 0 2 .3 4 0.007 0.007 0 .004 1 1 1 X X *Nominal M e m b e r B a n k C r e d it Total loans and investments o f weekly reporting New Y ork City member banks declined substantially between December 20 and January 3, but subsequently turned u p ward again. The decline in the two weeks before Janu ary 3, which amounted to $453,000,000, reflected chiefly reductions o f $198,000,000 in the holdings of Treasury bills and $128,000,000 in loans to security brokers and dealers supplemented by smaller reductions in holdings of other Government securities and in commercial and industrial loans. A n exchange of Treasury notes maturing in March, 1940, fo r Treasury bonds affected the composition of Government security portfolios, but aside from this factor it appears that the New Y ork City banks were sellers of Government bonds on balance in this period when the market was especially strong. In the follow ing three weeks Treasury bill hold ings decreased $40,000,000 further, as the New Y ork City banks were outbid by Chicago banks fo r the new issues, but Treasury bond holdings were increased $152,000,000, largely in the week ended January 17, when the market was weakened by selling from other quarters, apparently induced by news from Europe. Commercial and industrial loans and loans to security brokers and dealers, however, showed some further reduction. Total loans and investments of reporting member banks in 100 other principal cities throughout the coun try increased $112,000,000 further in the five weeks ended January 24, owing entirely to the heavy purchases of Treasury bills by the Chicago banks, whose holdings increased $294,000,000. Commercial and industrial loans showed a seasonal decline of $59,000,000, loans to security brokers and dealers declined $43,000,000, and there were small reductions in other types o f earning assets. Total holdings o f Treasury bonds and notes by these banks rose $72,000,000 in the week ended December 27, but declined $85,000,000 in the follow ing fou r weeks. Demand deposits of the reporting banks declined sub stantially over the year end in New Y ork and elsewhere, but in the follow ing three weeks rose to new high levels in New Y ork City and increased considerably in other cities also. G o v e r n m e n t S e c u r it ie s The Government security market continued firm dur ing the first ten days o f January. In this period the average price o f Treasury bonds not callable within 12 years rose an additional *4 point, reflecting both smalllot buying and several sizable orders, and also some operations involving switches o f holdings b y investors. In the succeeding week, however, the average price o f long term Treasury bonds eased about % o f a point, as some selling pressure from various sections o f the country appeared in the market, owing to interpreta tions placed on news o f foreign developments. A ccom panying this selling there soon developed fairly heavy buying by New Y ork City banks, and prices o f long term Governm ent’s subsequently recovered nearly % point. In the closing days o f the month, however, prices tended to ease again, and the average price o f long term issues at the end o f the month was about % o f a point lower than at the end o f December. Treasury note prices also advanced further early in January, but subsequently declined somewhat, and at the close o f January the average yield on 3 to 5 year maturities was 0.50 per cent, as compared with 0.46 per cent at the end o f December. The weekly sales o f Treasury bills during January were subject to special demands connected with the future use of these bills (which mature in A p ril) to obtain ex emption from taxes on bank deposits, particularly in the Chicago Federal Keserve District. F o r the issue dated January 3, to which tenders aggregated $580,000,000, a larger amount than fo r any previous issue, and also fo r the issue dated January 10, the accepted bids were all at slight prem ium s; for the issue o f January 17 the accepted bids were at prices at or slightly above par, and fo r the January 24 issue the accepted bids ranged from prices slightly above to slightly below par, the average price being only slightly below par. The issue dated January 31 was sold at an average rate o f 0.004 per cent, as com pared with 0.007 per cent on the last issue o f December. Another factor operating to reduce the yields on Treasury bills was a decline in the amount outstanding as a result o f the m aturity during the month o f the three issues which had been sold three months previously in the increased amount o f $150,000,000, in replacement o f which the Treasury sold $100,000,000 issues during the past month. In the aggre gate, January bill maturities totaled $650,000,000, and new issues $500,000,000. C o m m e r c ia l P a p e r a n d B il l s Average grade prime fo u r to six month commercial paper continued to be sold principally within a range o f % -% per cent during January. The amount sold at % per cent, however, has diminished further, while the amount sold at % per cent has increased, and FEDERAL RESERVE BANK OF NEW YORK occasional sales have been reported at % per cent, when paper o f unusually choice grade and short maturity became available to dealers. As is usual in January, the supply of commercial and mercantile notes acquired by dealers increased somewhat, but the rapid move ment o f paper from dealers’ to investors’ portfolios continued, as the bank investment demand remained active. The amount o f paper outstanding through com mercial paper houses at the end of December totaled $209,900,000, as compared with $214,400,000 at the end o f November, and $186,900,000 in December, 1938. The decline from November to December was less than the usual seasonal decrease, and the indicated increase of 12 per cent over the level of the previous year is the largest to appear since January, 1938. No change occurred during January in the quiet conditions that have prevailed in the bill market fo r some time past, and dealers’ quoted rates were steady. A t the end o f December, the value o f bills outstanding totaled $233,000,000, an increase o f about $10,000,000 over November, the largest portion of which occurred in the im port classification, which reached the largest total in nearly two years. In addition, domestic ware house credit bills expanded to the highest total in a year. The prim ary influences in the $37,000,000 decline in outstandings from the level o f a year previous have been reductions in bills based on goods stored in or shipped between foreign countries, and in export bills. (Millions of ^dollars) Type of acceptance Dec. 31, 1938 N ov. 30, 1939 Dec. 30, 1939 Im port...................................................................... E xp ort...................................................................... Domestic shipm ent............................................... Domestic warehouse credit.................................. Dollar exchange..................................................... Based on goods stored in or shipped between foreign countries................................................ 95 60 96 37 10 2 12 11 10 40 15 44 16 55 24 22 T o ta l................................................................ 270 223 233 45 3 39 The recovery in high grade corporate bonds which occurred in the last three months o f 1939 carried through the first ten days o f January, with a consequence that the average price o f Aaa bonds computed by M o o d y ’s Investors Service reached a new high level, exceeding by about % point the high o f last July. Follow ing the attainment o f this new high some net decline occurred in top grade industrial and utility issues, and although high grade railroad issues continued to advance, the average price o f the several types o f Aaa bonds at the close o f January was about % point below the peak reached earlier in the month. Prim e municipal bonds likewise rose to new highs during the first ten days o f January, but subsequently eased somewhat, according to the Standard Statistics Company yield average. N e w F in a n c in g D uring J anuary there was some increase in the amount o f corporate financing to raise new capital, and some of this increase represented equity capital. In the case of almost every public flotation, the securities were sold rather quickly by the offering syndicates, and invest ment demand caused the issues to go to small premiums over the offering prices. The total o f about $30,000,000 of new capital raised through corporate bonds, notes, and stocks offered to the public or sold privately, was the largest fo r any month since last July, and the amount of stock issues, at $12,000,000, exceeded that of any month since last A pril. Common stock flotations of two aircraft companies accounted fo r the bulk of these stock issues. In addition to the new capital issues, corporate refunding offerings totaled $135,000,000. A m ong the m ajor cor porate issues of the month were the follow in g: $67,300,000 m S e c u r it y M a r k e t s Stock prices tended to be firmer during the first week o f January, but declined about 5 per cent during the second week o f the month. Subsequently, the general average o f prices fluctuated irregularly at levels slightly above the midmonth low point. Both industrial and railroad stocks showed some net decline fo r the month, while public utility shares remained virtually unchanged. Trading volume on the New Y ork Stock Exchange re mained at a very low figure fo r January, and daily turnover reached as much as one million shares in only two trading sessions. The general level o f share prices at the end o f January was at least one-fourth lower than in the first part o f 1937 when the level o f produ c tion and trade was no higher than at the present time. Prices o f medium grade railroad bonds advanced about 1 % points in the first week o f January, follow ing an advance o f more than 1 point in the last week o f December, and industrial and public utility bonds o f the Baa grade also firmed somewhat. Subsequently the movement was reversed, but both railroad and utility Baa bonds ended the month somewhat higher than at the end o f December. 11 20.400.000 18.600.000 15.000.000 11.000.000 11.000.000 6.000.000 3.000.000 American Gas and Electric Company refunding securi ties, of which $8,000,000 were ten year 2 % ’ a priced at 102^ to yield about 2.47 per cent; $10,000,000 were twenty year 3 y 2 ’ a priced at 103*4 to yield about 3.26 per cent; $12,000,000 were thirty year 3% ’s priced at 1 0 3 y2 to yield about 3.56 per cent; also 355,600 shares of 4% per cent cumulative pre ferred stock offered first to holders of the out standing 6 per cent preferred stock, and then to the public at 105 Chicago, Rock Island and Pacific Railway 2 y2 per cent equipment trust certificates of 1940-47 awarded at 100.815 (average interest cost of 2.29 per cent), for refunding— privately sold Consumers Power Company first mortgage 3 % per cent bonds of 1969 priced at 105^ to yield about 2.97 per cent, for refunding Consolidated Telegraph and Electrical Subway Com pany debenture 3 % ’s of 1960 sold privately at 102.22 to yield about 3.10 per cent, to repay inter company loans Pennsylvania Water and Power Company refunding mortgage and collateral trust S ^ ’s of 1970 priced at 105 to yield about 3.00 per cent Libby, McNeill and Libby first mortgage sinking fund 4 per cent bonds of 1955 priced at 100, chiefly for refunding Lockheed Aircraft Corporation common stock priced at $28.50 per share, for new capital purposes Vultee Aircraft, Inc., common stock priced at $10 per share, for new capital purposes The supply o f new m unicipal securities which came on the market during the month was somewhat less than usual. This situation helped the issuing authorities to 12 MONTHLY REVIEW, FEBRUARY 1, 1940 obtain high prices fo r their security flotations, and also was probably a factor in causing prices o f outstanding municipal issues to reach new highs around the 10th o f the month. It was announced on January 24 that two banking houses had purchased from the R econ struction Finance Corporation (at a price o f 103), and placed privately, $20,050,000 o f Philadelphia Gas R ev enue Trust 3 per cent certificates due from 1940 to 1957. The certificates represent one half o f the unma tured portion o f a total issue of $41,000,000, which was divided equally between the Reconstruction Finance Corporation and Philadelphia bankers last July. Am ong the other m unicipal bond offerings were $5,500,000 Los Angeles, California, water works refunding revenue 2 % per cent and 3% per cent bonds of 1943-59, which were awarded at par and reoffered to yield 1.25 to 3.00 p er cent. Tem porary financing, totaling $145,000,000, included $35,000,000 New Y ork City 0.25 per cent three month revenue bills, $34,500,000 local housing authorities ’ 0.45 per cent six month notes, and $29,500,000 Federal Intermediate Credit Bank 0.75 per cent three month and five month consolidated debentures. Registration statements filed with the Securities and Exchange Commission were not as numerous in January as during other recent months, a fact which is partially explainable b y the desire o f some companies to post pone registration o f securities until final year-end finan cial statements are available. Those filed included $25,000,000 Dayton Pow er and Light Company bonds, $16,000,000 first mortgage bonds and 75,000 shares o f preferred stock o f the Southwestern Gas and E lectric Company, and a statement outlining the optional terms upon which the Republic o f Panama proposes to refund approxim ately $18,000,000 o f outstanding defaulted debt held by Americans. C e n tr a l B a n k R a t e C h a n g e s Effective January 25 the discount rate o f the National Bank o f Belgium was lowered from 2 % to 2 per cent, or the third successive reduction since A pril, 1939, when the rate was 4 per cent. The 2 per cent rate has been in effect only once before (M ay 16, 1935 to M ay 9, 1938) and is the lowest ever fixed by the National Bank of Belgium since its establishment in 1850. G o ld M o v e m e n ts Im ports o f gold into the United States during January appear to have been in smaller volume than in December, but the amount o f gold held under ear mark fo r foreign account at the Federal Reserve Bank o f New Y ork decreased about $40,000,000 during the month, as compared with an increase o f $200,000,000 in December. Consequently the gold stock o f the United States increased about $290,000,000 in January, or about the same as in December, and reached a new high o f approxim ately $17,935,000,000. A s is shown in the accom panying chart, gains to the United States gold stock during the past three months have been among the largest o f the whole period since 1934, excepting only certain months marked b y crises abroad. A t the end o f January, the amount o f gold held under earmark fo r foreign account at the Federal Reserve Bank o f New Y ork was about $1,125,000,000. M onthly Change In United States Gold Stock (January, 1940 figure partly estimated) A s reported by the Department o f Commerce, gold imports into the United States during the fou r weeks ended January 24, totaled $229,200,000, o f which $68,800,000 came from Canada, $37,700,000 from Japan, $20,600,000 from the Netherlands, $19,600,000 from England, $17,600,000 from South A frica, $16,700,000 from Norway, $15,300,000 from Sweden, $8,600,000 from India, $6,100,000 from Australia, $5,000,000 from H ong Kong, $2,300,000 from Italy, and $1,200,000 from Switzerland. F o r e ig n E x c h a n g e s Trading in foreign exchanges during January was featured by continued strength in rates fo r the A llied currencies, outside the official markets, and b y rather wide and irregular fluctuations in quotations fo r Dutch and Belgian exchanges. A fte r opening the month at $3.95% , the pound-dollar rate in the New Y ork market underwent a rather sharp recession early in the month, accom panying a tem porary reaction in the Amsterdam market. Quotations went as low as $3.91% on January 5, three days p rior to the application o f the British order-in-council imposing closer official supervision over transfers o f sterling assets from resident to nonresident accounts. Subsequently, however, renewed strength developed in British exchange and toward the end o f January the rate reached $4.00, the highest level since early in November and only 2 % cents below the new official London selling rate fo r dollars, referred to below. In sym pathy with the spot rate, forw ard sterling deliveries also showed a firmer tendency; discounts on one and three month contracts narrowed from 4 9 /1 6 and 5 1 /1 6 per cent per annum, respectively, at the end o f December, to 2 % and 3% per cent at the end o f January. The past m onth’s im prove ment in the pound sterling may be associated in some part with a dim inution o f offerings as a result o f the tightening o f exchange regulations on January 8. A further contributing factor, however, was a tem porary demand fo r sterling in New Y ork in the latter part o f the month, fo r use in arbitrage transactions involving the acquisition o f French francs against sales o f sterling in neutral European markets. FEDERAL RESERVE BANK OF NEW YORK Accom panying the tightening o f the exchange control on January 8, the Bank o f E n gla n d ’s quotations fo r the dollar and fo r other m ajor currencies were altered slightly so as to narrow the “ spreads” between selling and buying rates. The new pound-dollar rates o f $4.02% and $4.03% compare with the form er rates o f $4.02 and $4.04, which had been in effect since September 14. The current London rates fo r French exchange are 176% and 176% francs to the pound. In this market, the franc continued to move approxi mately in line with sterling, although there was some independent demand fo r French exchange in the latter part o f the month. The New Y ork rate declined, along with sterling, to $0.0221% on January 5, but appreciated during the remainder o f the month to close at $0.0226% fo r a net gain o f 2 % points fo r the month as a whole. Stimulated largely by short covering, the rate fo r Dutch guilders advanced 26 points during the first half o f the month to $0.5354, the highest level since the begin ning o f the European war. A ccom panying reports that the Low Countries were taking m ilitary precautions against a possible violation o f their neutrality, how ever, the guilder subsequently declined considerably, to reach $0.5313 on January 17. D utch exchange was further depressed later in the month, coincident with the announcement on January 24 o f the Netherlands Governm ent’s plan to defray mobilization expenditures and to reimburse the Bank and the Equalization Fund for losses on sterling and gold operations, respectively, by revaluing upward the National B an k ’s gold reserve. A ccord in g to this proposal, the B an k ’s gold would be marked up sufficiently to offset 18 per cent out o f the 22 per cent depreciation which the guilder had under gone in the exchange market. A t the end o f the month the guilder was quoted at $0.5309, as against $0.5328 a month earlier. The belga moved irregularly within a range o f $0.1687 and $0.1674 until January 24, when the rate firmed, accom panying a reduction from 2 % to 2 per cent in the Belgian National B ank ’s discount rate. Toward the end o f January Belgian exchange rose to $0.1697, the highest rate in about fou r months. In contrast to the movements o f the guilder and the belga, the Swiss franc continued to hold steady at about the rate which has prevailed since early last October. A m ong other exchanges, the Mexican peso declined further in terms o f the dollar at the beginning o f the month, but subsequently steadied at about $0.1672. This rate represents a depreciation o f about 18 per cent from the level existing p rior to the decline which began on December 11. The Cuban peso, on the other hand, showed some advance during the past month, its dis count against the dollar narrow ing to about 9 % per cent, the smallest since the latter part o f last October. PER C E N T Steel Mill A ctivity (In got output expressed as percentages o f capacity) month fell considerably behind shipments, indicating that current production was sustained to a large extent by the backlog o f orders accumulated during the fall o f 1939. There is some evidence, however, that steel con sumers are now using more steel than they are b u y ing. F o r example, automobile production, shown in the diagram below, has been running at a level comparable with that o f the 1937 model season, and the indicated decline from December to January was smaller than in any o f the preceding fo u r years. Ordinarily railroad car loadings o f merchandise and miscellaneous freight show little change between Decem ber and January, but figures fo r the first three weeks o f January o f this year indicate a rather pronounced decline from the high level reached in Decem ber; ship ments o f bulk freight, however, advanced seasonally. W hile cotton textile mills maintained a high rate o f activity in January, mill sales o f cotton goods were reported to have continued below current production. December data indicated a further rise in the general level o f business activity, seasonal factors considered. A lthough industrial production in general was lower THOUSANDS P r o d u c t io n a n d T r a d e The substantial rise in business activity which oc curred in the last seven months o f 1939, was follow ed by a downturn in January. Steel production, which ordinarily begins a seasonal rise in January, continued to recede from the high point reached in November, as the accom panying diagram indicates. New business booked by steel mills during the 13 Daily Average Production of Passenger Automobiles and Trucks (January, 1940 estimated) 14 MONTHLY REVIEW, FEBRUARY 1, 1940 than in November, the reduction was smaller than usual fo r the time o f year, and similarly, railroad car loadings o f merchandise and miscellaneous freight de clined less than in most other years, although the decline in shipments o f bulk freight was more pronounced than usual. Retail trade showed a greater than seasonal rise in December, owing mainly to exceptionally large ad vances in mail order house and chain store sales, while department store sales rose about as usual. Electric power production, which usually reaches the peak of the year in December, increased more than seasonally. (Adjusted for seasonal variations,"for'estimated long term trend, and where necessary for price changes) 1938 Dec. Industrial Production Steel................................................................. Passenger cars........................................ .. M otor trucks................................................. Bituminous co a l........................................... Crude petroleum.......................................... Electric p ow er............................................... Cement........................................................... Cotton consum ption................................... W ool consumption r ..................................... Shoes............................................................... Meat packing................................................ Tobacco p roducts......................................... Employment Employment, manufacturing, U. S.......... Employee hours, manufacturing, U. S . . . Construction Residential building contracts.................. Nonresidential building and engineering contracts..................................................... Primary Distribution Car loadings, merchandise and m isc....... Car loadings, other...................................... E xports........................................................... Im ports........................................................... Distribution to Consumer Department store sales, U. S .................... Department store sales, 2nd D istrict----Chain grocery sales...................................... Other chain store sales................................ Mail order house sales................................ New passenger car registrations............... 79 r 73 72 79 88 93 64 10 1 126 119 89 95 1939 Oct. N ov. Dec. 115 79 148 98 90 99 64 126 64 87 95 92 99 67 115 129 12 2 111 12 0 86 91 85 p 98 p 10 1 p 73 12 2 106 97 92 117 95 119p 116p 104 95 10 2 91r 105 94 106p 94 p 40 44 49 37 112 47 68 98 81 78 r 79 72 87 98 90 95 80 85 87 SOr 87 80 106 95 96 82r 10 1 10 0 95 65 10 0 86 81 93 85 10 2 p 95 p 98r 93 85 109 97 97 76 93 p 83p lllp 109p 109p 72 p 10 1 Velocity of Deposits* Velocity of demand deposits, outside New York C ity (1919-25 a v era g e= 10 0 ) . . . Velocity of demand deposits, New York C ity (1919-25 a v era g e= 10 0 ) ............... 66 57 62 64 44 29 30 35 Cost of Living and Wages* Cost of living (1913 average = 10 0 ) . . .. Wage rates (1926 average = 100)........... 148 148 148 147p 111 112 112 p p Preliminary. rRevised. *N ot adjusted for trend. industrial building and public works projects. Contracts for public purpose buildings showed a large decline from the high level o f December, 1938, when a heavy volume of contracts fo r this type of building was awarded to meet the dead-line for projects under the Public W orks Adm inistration program. Public utility contracts were also considerably below the high level o f a year previous and residential contracts were slightly lower. Reflecting especially gains early in the year, aggregate construction contracts for 1939 were 11 per cent larger than in 1938, and constituted the largest annual total since 1930. The leading factor in this increase was a 35 per cent gain in residential building awards, which were the largest since 1929. Contracts fo r commercial and industrial building showed an increase o f 24 per cent over 1938, and in the public works category a gain of 13 per cent occurred. On the other hand, awards fo r public purpose buildings were 27 per cent below the 1938 level, and public utility contracts were about un changed. In the New Y ork and Northern New Jersey area, the comparisons o f construction contracts fo r 1939 with those awarded in 1938 were less favorable than fo r the country as a whole. F or the year 1939, total con struction contracts were 4 per cent below the 1938 level, despite a 21 per cent increase in residential building. Commercial and industrial building contracts were slightly larger than in 1938, as a result o f advances in recent months in this type of building activity. In December, contracts in the New Y ork and Northern New Jersey area were 47 per cent below the previous month and 44 per cent lower than in December, 1938. Most o f the m ajor construction categories participated in these declines; commercial and industrial building was the only class o f construction to show an increase over a year previous. D uring the first three weeks o f January construction contracts in the 37 States were awarded at a daily rate 39 per cent below the December average, largely because of the inclusion of the aforementioned Tennessee V alley A uthority p roject in the December figures. Compared with the first three weeks of January, 1939, total con tracts declined 16 per cen t; the effect o f substantial de creases in nonresidential building and heavy engineering construction was partially offset by a moderate increase in contracts fo r residential building. B u il d i n g F o r e ig n T r a d e Owing to the inclusion in the December total o f $117,000,000 fo r a Tennessee V alley A uthority project, the average daily volume of construction contracts dur ing December in the 37 States covered by the F. W . Dodge Corporation survey was somewhat in excess of the November figure and was the largest since December, 1938. Contracts both fo r residential construction, and fo r all other types of building, including commercial, industrial, and public purpose buildings, were about one-third lower than in the preceding month, partly in accordance with the usual tendency toward curtail ment at this season of the year. Compared with the relatively large volume in December, 1938, aggregate contract awards registered some decline, despite sub stantial increases in the categories of commercial and Stimulated by some increase in foreign demands for American goods follow ing the outbreak o f war in Europe, and even before the war started, the value o f merchan dise exports from the United States in the second half of 1939 showed progressively larger increases over the corresponding months o f 1938. E xports in December amounted to $368,000,000, which represented a 37 per cent increase over December, 1938 and constituted the largest export total fo r any month since March, 1930. F o r the year 1939, however, the total value o f exports, $3,177,000,000, was only slightly more than fo r 1938, as decreases in the first half o f 1939 largely offset the substantial gains in the latter part o f the year. But with the exception o f 1937, the 1939 export total was larger than in any year since 1930. FEDERAL RESERVE BANK OF NEW YORK Throughout most o f 1939 the value o f imports into this country was materially larger than in 1938, reflecting especially industrial demands fo r such foreign raw materials as crude rubber, tin, wool, and hides and skins. Total receipts from abroad in December were valued at $247,000,000, a gain o f 44 per cent over a year previous. Imports fo r the calendar year 1939 amounted to $2,318,000,000, an increase of 18 per cent over the 1938 level. The resulting excess o f exports o f $859,000,000 in 1939 was substantially smaller than the 1938 export balance— $1,134,000,000— but was larger than in any other year since 1928. The accom panying diagram shows the monthly values o f merchandise exports from the United States during 1938 and 1939 to several countries, or groups o f coun tries, which have been the largest importers o f A m eri can goods. E xports to all the countries indicated in the diagram, excluding Germany, were 22 per cent higher in the second half o f 1939 than in the com pa rable months of 1938. E xports to France, reflecting in considerable measure accelerated orders fo r Am erican aircraft, were 70 per cent larger in the last half o f 1939 than in the corresponding months of 1938. In the same period an increase o f 31 per cent occurred in Am erican exports to Latin Am erican countries, indicating the extent to which these nations have recently drawn upon the United States fo r supplies, some o f which probably were form erly purchased from European countries. E xports to Canada were 27 per cent larger than in the last six months o f 1938, and shipments to Japan and to the United Kingdom showed small net advances fo r the period as a whole, although in several months o f 1939 the totals were below the 1938 figures. Shipments to Germany were a notable exception to the rising trend o f Am erican exports, dropping from an average o f about M IL L IO N S OF D O L L A R S M IL L IO N S OF D O L L A R S $13,000,000 a month in 1938 to around $8,000,000 in the first eight months o f 1939 and to negligible amounts since September. C o m m o d i t y P r ic e s Wholesale prices o f a number of commodities turned downward during January, and in some cases quotations reached the lowest levels since the outbreak of the war or earlier. M oody's Investors Service index of 15 raw products declined 6 per cent and thereby lost all o f its December gain. A fte r rising about three cents during the first few days o f the month, wheat quotations declined about 9 cents subsequently and fell below $1.00 a bushel. More favorable weather conditions in the winter wheat area were an important factor in the decline. Cash corn, aided by export sales and light country offerings, advanced 2 cents to 5 9 % cents a bushel by the third week in January, a new high level since September, but receded subsequently to show little net change for the month as a whole. H og quotations moved irregularly lower and reached $5.19 a hundredweight, the lowest price since August, 1934, while steers showed little net change fo r the month. The average quotation o f cotton at ten Southern markets declined 60 points to 10.16 cents a pound by January 23, accom panying weakness in foreign markets and reports o f further large sales o f 1938 loan cotton. Eaw silk quotations in New Y ork declined almost continuously to $2.96 a pound, $1.63 below the ten year peak established December 26; the sharp recession here accompanied falling prices in the prim ary markets and uncertainty over the Japanese Governm ent’s plan to control domestic silk consumption. Hides declined 2 ^ cents to 12% cents a pound, and rub ber receded % cent to 18% cents a pound, the lowest levels ^ tL 0L°LN A5RS Merchandise Exports from the United States to Various Countries, 1939 Compared with 1938 (December, 1939 data preliminary) 15 16 MONTHLY REVIEW, FEBRUARY 1, 1940 since early September. Raw sugar in New Y ork, after dipping to 2.79 cents a pound, the lowest point since last March, recovered as refiners offered guarantees against price declines in refined sugar. In the absence o f substantial new buying, prices in the principal metal markets eased further during Janu ary. The prod u cers’ price o f electrolytic copper was reduced to 12 cents a pound, % cent below the quota tion which had prevailed fo r more than three months. Zinc was cut % cent to 5.50 cents a pound, and lead was reduced ^ cent to 5.25 cents a pound, the lowest levels since early September. Tin declined another 4 cents during January to 45^4 cents a pound, a new low since last February. Scrap steel receded somewhat further. E m p l o y m e n t a n d P a y r o ll s Em ploym ent at New Y ork State factories in December showed little change from the November level, although there is often some decrease at this time o f yea r; the expansion o f about 2 per cent which occurred in fa c tory payrolls was seasonal in character. This bank’s seasonally adjusted index o f New Y ork State factory employment has advanced fo r seven consecutive months, and in December was 12 per cent higher than in May, 1939. In December the average weekly wage o f em ploy ees in factories reporting to the New Y ork State D epart ment o f Labor was the highest fo r any month since the fall o f 1930. Em ploym ent was 12 per cent above the level o f December, 1938, and payrolls were 18 per cent higher. Expansion o f working forces at metal and machinery plants continued during December. The largest advance in this group occurred in the shipbuilding industry; increased employment was also reported at automobile, airplane, and railroad equipment shops. On the other hand, continued seasonal losses at canning factories more than offset gains in other sections o f the food industry, and declines also occurred in the textile and clothing groups. F or the country as a whole an increase in nonagri cultural employment o f nearly 250,000 workers was reported fo r December by the Department o f Labor, a gain due prim arily to the hiring o f 390,000 additional workers in the retail trade lines during the Christmas season. There was a small contraseasonal gain in factory employment, but construction, transportation, mining, and the service industries all employed fewer workers than in the previous month. Compared with a year ago, nonagricultural industries were estimated to be em ploying over 1,200,000 more workers in December, 1939. The slight increase in factory employment in Decem ber was contrary to the usual decline at this time o f year, and factory payrolls were 2 per cent greater than in November. Em ploym ent in the automobile industry was increased 16 per cent and payrolls 18 per cent, follow ing the resumption o f production by a m ajor p ro ducer after settlement o f a strike. Other industries which reported employment gains were foundries and machine shops, steel mills, and meat packing firm s; declines occurred in the canning, lumber, woolen, and radio industries. D e p a rtm e n t S tore T r a d e F or the three weeks ended January 20, the daily rate o f sales o f the reporting department stores in this D istrict showed about the usual decline from the Decem ber average, but total sales were about 9 % per cent higher than in the corresponding 1939 period. In December, total sales o f the reporting department stores in this D istrict were about 1 % per cent higher than in December, 1938, and after allowing fo r one less shopping day in December, 1939, the increase in average daily sales amounted to approxim ately 5 % per cent, a somewhat smaller year-to-year advance in daily average sales than in November. The daily rate o f sales during December, however, showed nearly all o f the usual seasonal advance from November, which was a relatively good month fo r retail trade. December sales o f the leading apparel stores in this D istrict were about 3 % per cent higher than in December, 1938, and on an average daily basis the increase was approxim ately 7 % per cent, as com pared with an increase o f 5 % per cent in November. Total sales o f the reporting department stores in this District during the year 1939 were 2.2 per cent higher than in 1938, as compared with a decrease o f 6.9 per cent from 1937 to 1938. A pparel store sales were 2.1 per cent higher than in 1938, as com pared with a decrease o f 9.2 per cent between 1937 and 1938. Stocks o f merchandise on hand in the department stores, at retail valuation, were practically the same at the end o f December, 1939, as at the end o f December, 1938, while apparel store stocks continued lower. Collec tions during December were at a slightly lower rate than in 1938 in the department stores, but were prac tically unchanged in the apparel stores. Percentage change from a year ago Net sales Per cent of accounts outstanding November 30 collected in December Stock on hand end of month 1938 1939 — 1.0 —0.3 + 0 .8 + 8 .7 + 1 .7 — 1.0 + 3 .8 42.6 41.8 49.6 42.4 43.5 44.6 36.0 41.9 44.9 46.0 41.6 39.8 45.6 36.4 Locality Dec. Jan. to Dec. New York and Brooklyn............. Northern New York State.. . . Southern New York State. . . . Central New York State......... Hudson River Valley District. Westchester and Stamford.. . . Niagara Falls............................ -1 .0 HK9.4 -8.3 H9.8 -3.6 -7.9 H5.8 H8.4 K7.0 1-6.7 [-5.5 1-1.9 -7.4 + 1 .1 + 5 .4 + 5 .2 + 8 .3 + 3 .4 + 6 .8 + 5 .3 —0.2 + 5 .5 + 6 .6 + 5 .4 + 4 .9 + 4 .0 All department stores.......... + 1 .3 + 2 .2 —0.1 43.0 41.8 Apparel stores....................... + 3 .7 + 2 .1 —7.7 45.3 45.0 Northern New Jersey.................. Department Store Sales and Stocks, Second Federal Reserve District (1923-25 average == 100) 1939 1938 Dec. Oct. Nov. Dec. 164r Sales, unadjusted................................................ Sales, seasonally adjusted................................. , 91r 104 91 115 97 172 95 76r 77r 88 77 93 78 76 77 Stocks, unadjusted............................................. Stocks, seasonally adjusted............................... rRevised FEDERAL RESERVE BANK OF NEW YORK MONTHLY REVIEW, FEBRUARY 1, 1940 PER C E N T Business C onditions in the U nited States 1 4 0 1----------- (Summarized by the Board of Governors of the Federal Reserve System) 130 120 NDUSTRIAL activity, after a rapid rise in recent months, declined less than seasonally in December. In the first half of January activity did not show the usual seasonal increase. Distribution of commodities to consumers was maintained in large volume. I 110 100 P r o d u c tio n m 1935 1936 1937 Index of Physical Volume o f Industrial Produc tion, Adjusted for Seasonal Variation (1923-25 average = 100 per cent) Indexes of Value o f Department Store Sales and Stocks, Adjusted for Seasonal Variation (1923-25 average = 100 per cent) Industrial output decreased in December, but by a smaller amount than is usual at this season, with the consequence that the Board’s index, which allows for usual seasonal variations, advanced further from 124 to 128 per cent of the 1923-1925 average. As in other recent months, the rise in the index continued to reflect mainly increased activity in industries producing durable goods. Automobile production rose sharply in December owing to the reopening of plants of one large producer which had been closed for almost two months. Plate glass production also increased. At steel mills activity was maintained near the high level that prevailed in October and November; fourth quarter production of steel ingots was greater than in any other three month period on record. Output of zinc and deliveries of tin continued to increase in December, and lumber production declined less than seasonally. In the nondurable goods industries, where production had been at high levels throughout the autumn, changes in output in December were largely seasonal in character. At woolen textile mills, however, there was a considerable reduction in activity, and activity at silk mills declined to a low level, reflect ing in part continued high prices of raw silk. Output of crude petroleum continued at a high rate in December, while coal production was reduced, following a large volume of output in the two preceding months. In the first half of January steel ingot production was at a somewhat lower level than in December, while automobile assemblies were maintained at about the same high rate as in the previous month. Value of construction contracts awarded, as reported by the F. W. Dodge Corporation, increased further in December, owing to the inclusion in the December figures of a large amount for a dam under construction by the Tennessee Valley Authority. Contracts for private building, both residential and nonresidential, declined seasonally. E m ploym en t According to reports from leading industrial States, factory employment decreased less than seasonally in December and payrolls showed a further advance. D is t r ib u t io n Distribution of commodities to consumers increased further in December. Sales at variety stores showed about the usual sharp rise and sales at depart ment stores and mail order houses increased more than seasonally. Freight car loadings declined by more than the usual seasonal amount from November to December, reflecting chiefly a further reduction in coal ship ments and a decrease in loadings of ore, which had been at a high level in the previous month. C o m m o d it y P r ic e s Index o f W holesale Prices Compiled by the United States Bureau o f Labor Statistics (1926 = 100 per cent) Prices of wheat, which had advanced sharply early in December and continued at the higher level during the rest of the month, declined considerably in the first half of January. Smaller decreases occurred in some other com modities, including hides, tin, and zinc. Prices of most other basic commodities, such as cotton, wool, lead, and steel scrap, showed little change. G o v e r n m e n t S e c u r it y M a r k e t Prices of United States Government securities continued to advance during December and were steady during the first two weeks of January. B a n k C r e d it Wednesday Figures for Reporting Member Banks in 101 Leading Cities (Latest figures are for January 10) Total loans and investments of reporting member banks in 101 leading cities declined in the four weeks ended January 10, following an increase during the first half of December. These changes reflected largely a temporary rise and a subsequent decline in loans to security brokers and dealers in connection with the Government’s flotation of a new issue of bonds. Total holdings of United States Government obligations at city banks showed little net change during the period. As a result chiefly of further increases in gold stock as well as the postholiday return of currency from circulation, excess reserves of member banks increased sharply in the four weeks ended January 10.
@FedFRASER