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o f C r e d it a n d B u s in e s s C o n d it io n s

F e d e ra l

R e se rv e

Fdbmaru 1, 1941

Federal Reserve Bank, Neiv York

M o n e y M a r k e t in J a n u a r y
A substantial increase in excess reserves of member
banks has occurred since Christmas, as anticipated, but
the rise has been less than in the corresponding period
of several recent years. In the closing week of 1940,
there was a rise of $180,000,000 in excess reserves, and in
the week ended January 8 a further increase of $220,000,000 occurred, but in the week ended January 15 the rise
amounted to only $60,000,000 and the excess at $6,900,000,000 remained below the peak of $6,940,000,000 which
was reached last October. In the subsequent two weeks
ended January 29, there was an aggregate decline of
$100,000,000. The slowing up of the rise and subsequent
decline in excess reserves after the first week of January
is to be attributed to a rather sharp advance in the re­
serve requirements of the member banks which accom­
panied a growth in adjusted demand deposits to new high
levels, and to three principal circumstances affecting
reserve balances, namely, a falling off in the rate of addi­
tions to the gold stock, a comparatively small return
flow of currency to the Reserve Banks after Christmas,
and Treasury withdrawals of funds from depositary
banks, which fully offset Treasury disbursements after
January 8.
W ith respect to additions to the gold stock, the weekly
amounts added during Janu ary averaged only about
$30,000,000, as compared with nearly $50,000,000 in De­
cember, and larger amounts in the preceding months of
1940. F or the month of January, it appears th at the
increase in the gold stock was about $120,000,000, the
smallest amount for any month since August, 1938.
On December 31, 1940, a special report to the Congress was
made by the Board of Governors of the Federal Reserve System,
the Presidents of the twelve Federal Reserve Banks, and the
members of the Federal Advisory Council representing the
twelve Federal Reserve Districts, which draws attention to the
need of proper preparedness in the monetary organization at a
time when the country is engaged in a great defense program
that requires the coordinated effort of the entire nation. This
report marks the first time since the creation of the Federal
Reserve System that a report to the Congress has been made
jointly by the Board of Governors, the Reserve Banks, and the
Advisory Council. The text of the special report is contained
in a circular of this bank, copies of which have been distributed
to all banking institutions in the Second Federal Reserve Dis­
trict; additional copies will be furnished, upon request, to
anyone interested.

D is tric t

Net return of currency to the Reserve Banks aggre­
gated $276,000,000 in the four weeks ended January 22,
practically all of which was received in the three weeks
immediately after Christmas, and in the week ended
J anuary 29 currency circulation rose slightly. The afore­
mentioned return flow is considered light for this time
of year. The accompanying diagram shows the extent
of the outflow from the July low to the Christmas peak,
and the subsequent return flow through January, in the
recent period and in the corresponding periods of the
previous three years, in relation to the seasonal move­
ment which involves a complete return by the end of
January of all of the currency paid out between July
and Christmas. As the chart indicates, not only was the
outflow between July and Christmas of 1940 larger than
in the previous two years, but the subsequent reduction
in the amount of currency outstanding has been less,
both relatively and actually, than in the preceding two
years. In all of these years there has been a general
tendency toward an increase in the level of currency
outstanding, and the lowest amounts outstanding near
the end of January of each year were m aterially above
the amounts outstanding in the preceding July. This
year the net increase amounted to $687,000,000; in
the 1939-40 period the net increase was $363,000,000;
and in 1938-39, $207,000,000. By contrast, in the 1937-38
period, when business activity was undergoing a sharp

in Amount
of and
the July
Low to
the Past Four Years, and Estimated Seasonal Movements



recession, the rise was less than the seasonal expecta­
tion and the decline after Christmas exceeded the previ­
ous rise, with the result that a net decline of $130,000,000
in currency outstanding occurred. While related to the
rising volume of business activity, with concurrent ex­
pansion of payrolls and retail trade, the rise in currency
outstanding has also reflected increased demands for
currency for other reasons. The relative importance of
the various influences, such as foreign hoarding, low
level of interest rates on savings accounts, and service
charges on checking accounts, which may be responsible
for the additional demand for currency, is not known
at the present time.
The third factor operating to restrain the rise of mem­
ber bank reserve balances during much of Janu ary de­
veloped from the fact that the current high rate of
Treasury expenditures reduced Treasury working bal­
ances in the Eeserve Banks to only $220,000,000 by Jan u ­
ary 8, and necessitated substantial withdrawals of funds
by the Treasury from “ special” depositaries. Between
January 9 and January 24 a total of $364,000,000 was so
withdrawn from special depositaries, tem porarily lodged
in Treasury balances in the Eeserve Banks, and subse­
quently largely disbursed; on January 29, Treasury
balances in the Eeserve Banks amounted to $258,000,000.
The large withdrawals from special depositaries (of
proceeds of previous Treasury issues paid for by credit
on the books of the subscribing banks to “ W ar Loan
Deposit’’ accounts) reduced the amount left in such
depositaries to $305,000,000 on January 24, and in view
of the comparatively small amount of this balance and of
Treasury deposits in the Eeserve Banks, relative to the
current rate of Government expenditure, the Treasury
on January 23 made an offering of $600,000,000 of % per
cent National Defense Series Treasury notes due Septem­
ber 15, 1944. Cash payments for these notes on January
31, 1941 increased Treasury deposits in the Eeserve
Banks substantially and reduced member bank reserve
balances correspondingly so that the prospect is that a
substantial reduction in excess reserves will be shown
in the Eeserve Banks’ statement for February 5. De­
posits in special depositaries also rose moderately on
January 31, as some bank subscribers elected to pay
for the new securities with credits to the Treasury in
their banks, rather than by immediate charges to their
reserve balances.
M ember B ank Credit
Total loans and investments of the weekly reporting
member banks in 101 cities increased somewhat further
during the four weeks ended Janu ary 22, thereby reach­
ing a new high level; and adjusted demand deposits of
these banks also increased considerably to reach a new
high figure. Total loans and investments on January
22 were $2,500,000,000 larger than a year ago, and ad­
justed demand deposits were $3,700,000,000 larger.
F or the four week period ended January 22, loans
classified as commercial, industrial, and agricultural rose
$44,000,000 further, at a time when, seasonally, some de­
cline m ight be expected, and the total of such loans stands
$739,000,000 above that of a year ago. Loans to brokers
and dealers in securities dropped $80,000,000, thereby

canceling the advance which occiirred in December; most
of the December advance and subsequent decline oc­
curred in New York City. Eeporting bank holdings of
direct United States Government securities rose $149,000,000 further, as the result of increases of $50,000,000
in Treasury note holdings and of $105,000,000 in United
States Government bond holdings, while Treasury bill
holdings showed a net decline of only $6,000,000, despite
a tem porary sharp decline in holdings of such obligations
at the year end. The increases in note and bond holdings
were entirely at New York City banks; aggregate note
holdings of banks in 100 other cities declined moder­
ately and their bond holdings were unchanged. Treasury
bill holdings of the New York City banks dropped
$111,000,000, but the bill holdings of the Chicago report­
ing banks rose $132,000,000, owing to accumulation of
A pril m aturities for use by owners of large bank deposits
on A pril 1 in that D istrict to avoid taxes on bank de­
posits. Holdings of Government guaranteed and other
securities by the reporting banks showed no material
changes during the four weeks under review.
G overnment S ecurities
Yields on United States Treasury bonds advanced
somewhat in January from the record low levels reached
in December, but were still lower than at any time
prior to the early part of November. A decline of more
than % point in the price of these issues in the last two
trading sessions of December was accentuated in subse­
quent sessions early in the new year. D uring this period
the President’s “ Arsenal of Democracy” radio talk on
December 29, and his budget message on January 8, indi­
cated the large amount of Treasury financing necessary
for the National defense effort, and the Federal Eeserve
System ’s special report to the Congress on the need of
proper preparedness in the country’s monetary organiza­
tion was issued. By January 8 the average price of long
term Treasury bonds had declined about 2 points. These
announcements and other statements relative to the fi­
nancing of the prospective deficits served to accentuate
a tendency on the part of investors to withhold purchase
orders, pending further clarification of the financial prob­
lems which face the country as a result of the National
defense effort, and it was the lack of buying, rather than
any m aterial selling of Government securities, which ap­
pears to have been the immediate cause of the decline in
Government security prices. A fter a short intervening
period of firmer prices, the decline was resumed on Jan u ­
ary 14, carrying the longer term bonds by the 30th to
a level 2 % points below the December high. The inter­
mediate term Treasury bonds paralleled the movements
of the longer m aturities.
Treasury note prices moved lower from the beginning
of January to the 8th, when the average yield on 3 to
5 year Treasury notes reached the highest level since
October 15, 1940. Subsequently, the average yield de­
clined somewhat but in the closing days of the month
advanced to reach the same level as on January 8. The
yield on the % per cent Defense notes m aturing Decem­
ber 15, 1945, issued last December, showed a net advance
of 0.13 per cent to 0.80 per cent between the end of De­
cember and January 30. The second issue of % per cent



syndicates and removal of price restrictions for the less
high grade corporate offerings, quotations for these se­
curities declined moderately in the free market.
The m onth's m ajor flotations follow.




Average Price of Long Term Treasury Bonds (Four issues
not callable before 1955)

National Defense notes, m aturing September, 1944, was
quoted near the end of the month at about par. Sub­
scriptions to the January issue of National Defense
notes were heavy, but not so large as for the December
issue, and allotments were made on a basis of 23 per
cent of subscriptions.
Treasury bill financing during January consisted of
five weekly issues in the National Defense Series, each
in the amount of approximately $100,000,000 and each a
replacement of similar m aturities. Prices at which these
issues were sold were subject to an extraordinary influ­
ence because of the demand for Treasury bills by banks
in Illinois, which levies a tax on bank deposits held on
A pril 1. The issues dated January 2, 8, and 15 were
awarded at prices above par, and the issues dated January
22 and 29 were awarded at prices above par and at par.
Tenders for the January 2 issue of Treasury bills totaled
$648,200,000, a new record.
M oney Hates in N ew Y o rk
Jan. 31, 1940 Dec. 31, 1940 Jan. 30, 1941
Stock Exchange call lo a n s .....................
Stock Exchange 90 day lo a n s ...............
P rim e commercial paper 4-6 m o n th s . .
B ills — 90 day unindorsed........................
Average y ie ld on Treasury notes (3-5
y e a rs )......................................................
Average yie ld on Treasury bonds (not
callable w ith in 12 ye a rs )....................
Average rate on la te st Treasury b ill
sale, 91 day issue..................................
Federal Reserve B a n k of N ew Y o rk
discount r a te .........................................
Federal Reserve B a n k of N ew Y o rk
b u yin g rate fo r 90 day indorsed b ills
* N om inal.


A -5




A -5
















J N egative yield .

N ew F in a n c in g
D uring January new security issues by corporations,
States, and municipalities totaled $340,000,000, or well
above the volume of the corresponding month in any
year since 1937. Corporate flotations amounted to
$260,000,000, of which $65,000,000 represented funds to
be used for new capital purposes.
Except in the case of one new issue, retail distribution
of the better grade corporate obligations was satisfac­
tory; on the other hand, upon the dissolution of the

$50,000,000 Illinois Bell Telephone Company 2 % per cent first
mortgage bonds o f 1981, priced at 103% to yield
2.61 per cent; $5,200,000 lor new capital purposes
35.000.000 Phillips Petroleum Company securities consisting of
$20,000,000 1 % per cent convertible debentures of
1951, priced at 100 (subject to prior offering to
stockholders) and $15,000,000 0.25 to 1.90 per cent
serial notes maturing 1941-51, priced at 100;
$2,700,000 for new capital purposes
28.000.000 Jones and Laughlin Steel Corporation 3 % per cent
first mortgage bonds o f 1961, priced at 100; for
25.000.000 Shell Union Oil Corporation securities consisting of
$15,000,000 2%, per cent debentures o f 1961,
priced at 97% to yield 2.92 per cent, and $10,000,000 0.375 to 2.50 per cent serial notes maturing
1942-53, priced at 100; for refunding

The largest m unicipal award was that of $6,900,000
Oklahoma City, Oklahoma, 2 and 3 per cent water works
bonds m aturing 1944-61, which were reoffered to yield
0.80 to 2.15 per cent. Short term State and municipal
awards, not included in the $340,000,000 total, accounted
for an additional $210,000,000. Included in this classifi­
cation were about $100,000,000 of tem porary loan notes
of local housing authorities, which m ature in from two
and one half to twelve months and were awarded at
interest rates ranging from 0.33 to 0.44 per cent; also,
$35,000,000 New York City 0.25 per cent revenue bills
due in May, 1941, and $33,000,000 Federal Interm ediate
Credit Bank 0.75 per cent debentures due in nine and
twelve months, which were offered on bases of 0.25 per
cent and 0.30 per cent, respectively.
Reports indicate that the following new security issues
will be offered to the public or to company stockholders
in the near fu tu re : approximately $100,000,000 Republic
Steel Corporation securities, $26,500,000 of first m ort­
gage bonds and 132,000 shares of preferred stock of the
Wisconsin Public Service Corporation, and approxi­
mately $15,000,000 of Philip Morris and Company, Ltd.,
Inc., cumulative preferred stock. I t is reported that
equipment tru st certificate issues totaling at least $15,000,000 are under consideration by various railroads.
S e c u rity M a rk e ts
The range of stock prices was somewhat wider in Jan u ­
ary than in December, but the volume of stock trading
on the New York Stock Exchange was smaller. As meas­
ured by the Standard Statistics 90 stock price average,
quotations of common stocks moved up about 3% per cent
between January 2 and 10—a period marked by the
P resident’s annual message to Congress, the announce­
ment of the budget estimates, and the introduction of the
“ aid-to-Britain” bill. The price average on January
10 was still 5 per cent below the peak of the JuneNovember recovery of last year. In subsequent trading
sessions to January 31 common stock prices lost their
earlier gains and dipped to the lowest point since August
20, 1940. A t the January 31 level, the average price



had lost more than half of the gain made in the JuneNovember recovery in 1940.
The movements of railway issues featured the bond
m arket early in January, a period when medium and
lower grade rail bonds were actively traded at advancing
prices. A fter a period of hesitation the price average
of Moody’s Baa rail bonds recorded further gains to
successive new highs between January 22 and 28. The
strength of these rail bonds was the main factor account­
ing for the continued irregular rise to new highs in the
general price average for Baa domestic corporation bonds.
The latter eased slightly at the close of the month.
A new record was also attained by the price average
for high grade rail bonds on Janu ary 18 and again on
five later days in the month. However, despite the
firmness of its rail component, Moody’s composite price
average for Aaa domestic corporation bonds showed an
irregular, declining tendency during most of January.
Prim e municipal bond prices, as measured by the Stand­
ard Statistics index, hovered about two per cent below
the record high set on December 11. The daily average
volume of bonds traded on the New York Stock Exchange
was moderately larger than in December. On January
9 and again the next day bonds traded totaled more than
$19,000,000 to reach the highest daily volumes since
September, 1939.
Continuing a development in particular evidence dur­
ing December, sales in the “ outside m arket” of large
blocks of stocks listed on the New York Stock Exchange
increased in number and importance in January. P er­
mission for these transactions, which were usually con­
summated after the close of the exchange m arket, has
been granted by the Stock Exchange on the ground that
the size of the offerings precluded handling them through
ordinary channels. A number of the sales were reported
to represent distribution of British security holdings.
G o ld M o v e m e n ts
Aside from one large shipment from South Africa, gold
im ports into the United States during January were in
reduced volume. The gold stock of the United States
increased about $120,000,000 during the month, the small­
est increase since August, 1938. Gold held under earmark
for foreign account at the Federal Eeserve Banks rose
about $55,000,000 during January and reached a new
high figure of approximately $1,860,000,000 at the end
of the month.
In the four weeks ended January 22, the Departm ent
of Commerce reported the receipt of $127,300,000 of
gold in the following principal amounts: $93,300,000
from Canada, $12,100,000 from Japan, $10,300,000 from
Australia, $3,000,000 from the Philippines, $1,700,000
from Sweden, $1,000,000 from Mexico, $900,000 from
Hong Kong, and $600,000 from Switzerland.
F o re ig n E x c h a n g e s
Following an unusual degree of stability during recent
months, sizable fluctuations occurred in several foreign
exchange rates during January. These movements re­
sulted prim arily from efforts to withdraw foreign funds
from this country, stimulated by recurring rumors that

the assets of additional foreign countries might soon be
“ blocked” through an extension of the present system
of United States Treasury regulation, now limited to
the accounts of the invaded European countries.
The repatriation of Swiss funds, which had been in
evidence with little interruption since the defeat of
France last June, continued throughout the past month.
The New York rate for the Swiss franc, after having
held at about $0.2321 since the latter part of October,
advanced abruptly on January 24, when reports were
first received that the Swiss authorities were restricting
their accumulation of dollars arising from the inflow
of capital. Although the Swiss National Bank continued
to absorb dollar offerings from sellers domiciled in Switz­
erland together with dollars representing the paym ent
for Swiss exports and other commercial payments to
Switzerland, it appears to have suspended the purchase
of dollars from sellers having no obligations to meet in
Switzerland and seeking only to avoid a possible “ block­
in g ” of their funds in the United States. Pending a
clarification of the prelim inary reports of the new Swiss
measure, the rate in the New York m arket for Swiss
exchange for commercial purposes rose to as high as
$0.2330 on January 25, but then receded somewhat to
end the month at $0.2326, although this rate was believed
not to apply to offerings by non-Swiss holders seeking to
move funds from the United States to Switzerland for
noncommercial purposes. In addition, a separate and
much higher rate was quoted in the latter p art of the
month for transactions for which the Swiss authorities
were reportedly unwilling to supply Swiss francs against
dollars. This latter rate reached a high of about $0.2370,
bid, on January 28 but eased late in the month.
Swedish exchange also was affected by the flow of
foreign private capital from this country during Jan u ­
ary. Despite this movement of funds, however, the
New York rate for the Swedish krona remained at about
$0.2385 until the latter part of the month, when it tem­
porarily advanced to as high as $0.2390. Some Euro­
pean capital also was reported to have moved to Argen­
tina. The free rate for the Argentine peso, which had
been quoted around $0.2360 during the greater p art of
the month, rose to $0.2375 on January 22 and subse­
quently remained at that level.
The discount on the Canadian dollar in the free New
York market widened substantially during the month
from 14 to 17^4 per cent. This weakness, which resulted
from relatively small offerings, again illustrated the
thinness of the unofficial m arket for Canadian exchange.
The Cuban peso, on the other hand, improved somewhat
over the month, its discount in terms of the dollar nar­
rowing from about 8% to 7% per cent. W ith the excep­
tion of a tem porary decline in the rate for the National
Chinese (Shanghai) dollar in the middle of the month,
no significant changes occurred in the other principal
C e n tra l B a n k R a te C h a n g e
On December 1,1940, the discount rate of the National
Bank of Bulgaria was lowered from 5% to 5 per cent,
the higher rate having been in effect since September
16, 1940.

F o r e ig n T r a d e

Exports of merchandise, at a value of $322,000,000 in
December, showed a slight decline from the previous
month, and were 12 per cent below the comparatively
high level of a year earlier. This was the first year-toyear decrease that has occurred in exports since May,
1939. On the other hand, imports, amounting to $253,000,000, exceeded the November figure by 13 per cent,
and were larger than in any December since 1929.
For the calendar year 1940, exports aggregated
$4,022,000,000 and general im ports $2,625,000,000. The
excess of exports of $1,396,000,000 for 1940, which com­
pares with $859,000,000 in the preceding year, was the
largest since 1921. The sharp rise that occurred in total
exports during 1940 was entirely due to a large increase
in exports of nonagricultural origin—in considerable
measure a result of heavy purchases on the part of the
British Em pire (and France early in the year) of war
materials from the United States. Nonagricultural ex­
ports, at a value of $3,418,000,000 in the past year,
approximated those of 1929 and otherwise were the
largest since 1920. On the other hand, agricultural
exports were further reduced from the low level reached
in 1939 to only $517,000,000 in 1940, which was prob­
ably the smallest total in at least fifty years.
Among the individual exports, shipments of aircraft
increased to $312,000,000 in 1940 from a value of $118,000,000 in the preceding year. Exports of semimanufac­
tures of iron and steel amounted to $371,000,000, or
$202,000,000 more than in 1939, and metal-working ma­
chinery showed a gain of $138,000,000 to $256,000,000
last year. Exceptionally large percentage increases over
1939 were shown in exports of firearms and explosives.
On the other hand, despite expanded European takings
of American cotton early in 1940, cotton exports for the
entire year were down to $214,000,000 from a value of
$243,000,000 in 1939. Tobacco exports were only a little
over half the 1939 value, and large reductions were
recorded in shipments abroad of numerous food prod­
ucts, as well as in exports of petroleum and passenger
automobiles. W ith respect to imports, unusually large
increases occurred during 1940 in purchases of such
strategic foreign m aterials as rubber, tin, nickel, and
ferro-manganese. M aterial gains were also shown in im­
ports of wool, undressed furs, and burlap.
B u ild in g
The daily rate of construction contract awards in New
York and N orthern New Jersey, which had held at a
fairly constant level during the nine preceding months,
rose 38 per cent in December over the previous month.
Owing in part to the inclusion of a $7,500,000 contract
for an airplane factory in up-State New York, the daily
rate of nonresidential building awards in this district
considerably more than doubled between November and
December. Heavy engineering construction awards were
one-fifth higher than in November, while contracts for
residential building were about unchanged.
F or the full year 1940, construction contract awards
in New York and Northern New Jersey were 13 per cent
below the total of 1939. The effects of the defense pro­


gram upon construction have not been so marked in this
district as in some other parts of the country, although
awards for m anufacturing building in 1940 were almost
double the volume of 1939. Heavy engineering awards
were off 22 per cent, a larger decline than that for the
37 E astern States as a whole, and residential building,
which showed an increase for the 37 States, was down 11
per cent.
The daily rate of construction contract awards in 37
States as reported by the F. W. Dodge Corporation rose
10 per cent further between November and December to
another new high since June, 1930. The increase in De­
cember appears to have been due to the inclusion of a
large number of defense contracts which had been
awarded previously but had not been counted in the
monthly totals until December, owing to the lack of de­
tailed inform ation; for the same reason, on the other
hand, some contracts known to have been let during De­
cember were not included in the m onth’s figures. Awards
classified as for defense purposes in December were about
50 per cent larger than in November, and accounted for
approximately one third of all construction contracts
entering into the m onth’s reported total. Non-defense
awards rose 7 per cent over November.
The National defense program has considerably af­
fected not only the total contract award figures but also,
as might be expected, the character of construction
work being initiated. Changes in the character of new
construction projects are not always apparent in figures
by types of construction. For example, an increase in
awards for Army cantonments in December largely offset
a decline of one fifth in private residential projects, both
kinds of work being classified as residential building.
The gain for December in contracts of the heavy engi­
neering type reflected a large volume of contracts for
Government owned projects, presum ably for National
defense purposes. The rise in nonresidential building
awards was closely related to a particularly sharp in­
crease in projects classified as “ miscellaneous nonresi­
dential building” . This subgroup, form erly of little
importance, apparently has been receiving a considerable
share of National defense awards.
While total contract awards for New York and North­
ern New Jersey declined in 1940 from the level of 1939,
the total for the 37 States was 13 per cent higher and the
largest for any year since 1930. The increase in awards
during the year ju st closed was due to the effects of the
defense program, which began to make itself felt during
the second half of the year and in that six month period
accounted for one quarter of all construction. D uring
the first half of 1940 awards were 5 per cent below the
corresponding period in the previous y e a r; in the second
half, however, awards were 29 per cent above the same
months of 1939.
The expansion in factory building—a considerable
p art of which represented defense projects under Govern­
ment ownership or sponsorship—was an outstanding
feature of 1940. The increase over 1939, which amounted
to 153 per cent, carried the total for awards of this type
up to the 1925-1929 average. This classification and mis­
cellaneous nonresidential building were the only groups
to reach that level during 1940. Residential building, the



largest m ajor group, rose 20 per cent in 1940, and was
the highest for any year since 1929. Heavy engineering
projects, however, declined 11 per cent during the year
ju st ended, reflecting a decrease in public construction of
this type.
D uring the first three weeks of January, 1941, the daily
rate of construction contract awards in the 37 States
was 36 per cent below the reported figures for December
although 42 per cent above the level of the correspond­
ing weeks in 1940. All m ajor classifications shared in the
month-to-month decline and all were substantially above
the levels prevailing in the first three weeks of January
of last year.
P ro d u c tio n a n d T ra d e
Industrial conditions in January were similar to those
which characterized the closing months of 1940. An
unrem itting pressure for expansion of output was felt
by producers of certain key defense materials, mainly
though not exclusively “ producers’ durable” goods.
Steel mill operations were stepped up closer to calculated
capacity, accompanying efforts to rehabilitate facilities
which had been retired from use. However, despite the
record breaking proportions of J anuary steel production,
trade reports indicate that a further increase in order
backlogs took place during the month as consumers, by
forw ard buying, sought to insure adequate supplies in
future months. On January 27 the American Iron and
Steel Institute announced that their calculations showed
a steel producing capacity (as of December 31, 1940) for
the United States of 84,148,000 net tons, an increase of
2,534,000 tons over the figure for December 31, 1939,
and about 17,000,000 tons in excess of production last
year. Judging from employment statistics, which are
shown for some industries in the chart accompanying
the “ Employment and Payrolls” article in this Review,
striking increases in productive capacity must be occur­
ring in many defense industries—especially in lines
where National defense requirements are much larger in
relationship to formerly available capacity than in the
case of steel.

in the Unitedpercentage
States (Federal
of estimated
adjusted asfora seasonal

The m anufacture of consumers’ durable goods during
January continued to show a certain amount of stim ula­
tion from increasing employment and payrolls, and con­
ceivably to some extent from concern over the possibility
of shortages in the supply of such products, as the Na­
tional defense effort is intensified. Automobile produc­
tion in January was the largest on record for that month,
although in this connection it should be pointed out that
during the years of peak production in the Twenties new
automobile models were introduced around the year
end and January production was retarded by change­
over problems.
The stimulation experienced by nondurable goods in­
dustries in January was again less m arked on the whole
than in the durable category, although cotton and woolen
textile mills continued to m aintain exceptionally high
rates of operation, based upon unfilled orders carried over
from 1940 together with considerable amounts of busi­
ness placed in January. Incomplete figures on depart­
ment store sales for the country as a whole would indicate
that the reduction in the level of retail trade in January
was approximately of the usual seasonal proportions.
P roduction and T rade in D ecember
Statistical data for December clearly show a continu­
ance of the upswing in the general level of business
activity. The monthly index of production and trade
computed by this bank—which represents a composite
of 83 statistical series with adjustm ents for usual sea­
sonal variation and secular trend—added three points
more to the 12 point gain of the April-November period.
A t 102 per cent of estimated long term trend the index
was at the highest level in more than a decade.
In retail trade there was the usual sharp expansion in
December. Departm ent store sales attained the largest
Christmas volume since 1929, aggregate sales of chain
store systems and of mail order houses (including sales
of their retail stores) reached the highest levels on rec­
ord, and sales of new passenger cars declined no more
than seasonally from the relatively high level of Novem­
ber. The showing of business indexes in December was
helped by the fact that industrial operations—particu­
larly those directly affected by the National defense pro­
gram—evidenced a marked resistance to the seasonal
curtailm ent which ordinarily characterizes the month.
In some instances—as in the case of steel plants, cotton
mills, and m anufacturers of electrical apparatus—oper­
ating rates increased to some extent contrary to the
experience in most other years, and in other instances—
for example, pig iron output, woolen mill activity, and
shoe m anufacturing—declines were measurably smaller
than those which would be expected on purely seasonal
grounds. Incoming business, although abated in some
lines, continued in a heavy stream in others, and despite
increasing production the year closed with very large
order backlogs in a number of industries—steel, machine
tools, aircraft, railway equipment, cotton and woolen tex­
tiles, and others closely identified with National defense.
Building construction, particularly on factory and Army
cantonment projects, was unusually active in December.
Although seasonal contraction was definitely apparent

in figures on railway loadings of bulk freight items, ship­
ments of manufactured and semimanufactured products
held up much better than in December of most other


(Adjusted for seasonal variations and estimated long term trend;
series reported in dollars are also adjusted for price changes)




N ov.



10 2 p

Production of:
Producers' durable good s.............
Producers’ nondurable goods . . .





Consumers’ durable g o o d s ..........
Consumers’ nondurable good s. . .



lO lp

79 p
103p i

Primary distribution.........................
Distribution to consum er................



92 p
lO lp

10 2 p

In d ex o f Production and Trade

Industrial Production


A utom obiles........................................
Bituminous co a l.................................
Crude petroleum ................................
Electric p ow er....................................
Cotton consum ption.........................
W ool consum ption.............................
Meat packing......................................
Tobacco products..............................
























P rim a ry Distribution

R y. freight car loadings, mdse, and m isc..
R y. freight car loadings, oth er..................
E xp orts...........................................................
Im ports...........................................................
Distribution to Consum er

Department store sales (U.S.) r ...............
Grocery chain store sales............................
Variety chain store sales............................
Mail order house sales................................
New passenger car sales..............................

92 p



Residential building contracts. . . .
Nonresidential building and engineering


95 p


M anufacturing Em ploym ent

E m ploym ent.......................................
Man-hours of em ploym ent..............




86 p

12 1p

86 p


Velocity o f D ep osits*

Velocity of demand deposits, outside New
York C ity (1919-25 average =100) . . .
Velocity of demand deposits, New York
C ity (1919-25 average = 10 0 ) .................












H op

Cost o f L iving and W ages*

Cost of living (1935-39 average = 10 0 ) . . .
Wage rates (1926 average = 10 0 ) ..............





* N ot adjusted for trend

Y ///////M * 7








d 17





P e rce n ta g e Increases b etw een A u g u st, 1939 and D ecem b er, 1940 in
E m p loy m en t in C ertain Ind ustries S tim ulated b y N ational D e­
fense and W a r O rders and in T o ta l F a cto ry E m p loy m en t
(B a se d on B ureau o f L a b o r S ta tistics u n ad ju sted in d exes)

which recently adjusted its indexes of employment and
payrolls upwards to harmonize with the results of the
1939 Census of Manufactures, factory working forces
reached the highest level on record and factory payrolls
were greater than at any time since June, 1920. In­
creased industrial activity attributable to the European
war and the National defense program has been largely
responsible for the attainment of these high levels of
employment and payrolls. The accompanying diagram
shows the net employment increases that have occurred
since the outbreak of war in some of the industries which
have been most stimulated by war and defense orders, in
comparison with the over-all increase in factory employ­
ment. In December, employment increases reported by
the industries shown accounted for approximately one
half of the gain of 120,000 in factory employment. Other
large gains during the month occurred at foundries and
machine shops, shoe factories, and men’s clothing con­
cerns, while the chief reductions in employment were
reported by canning factories and sawmills. Total fac­
tory employment was 8 per cent above the level of De­
cember, 1939, and payrolls were 16% per cent greater.

E m p lo y m e n t and P ayrolls
Working forces in New York State factories increased
V /2 per cent further between November and December,
and wage payments rose 5 per cent. This bank’s season­
ally adjusted indexes of New York State factory employ­
ment and payrolls advanced for the eighth consecutive
month, and the employment index attained the highest
point in over twenty years. The principal employment
gains occurred at shipyards and at plants manufacturing
aircraft, structural steel, machinery, electrical appara­
tus, and men’s clothing. Compared with December, 1939,
total factory employment was 12 per cent higher and pay­
rolls were 19 per cent larger.
Factory employment in the United States as a whole
during December also was IV2 per cent greater than in
November, although ordinarily working forces decline
somewhat at this time of year, and payrolls gained 5 %
per cent. According to the Bureau of Labor Statistics,

It was estimated that the number of persons employed
in nonagricultural occupations throughout the country
increased approximately 540,000 during December and
reached a total of over 37,000,000. These figures do not
include about 3,000,000 persons employed by the Civilian
Conservation Corps, the Works Projects Administration,
and the National Youth Administration, nor do they in­
clude the military and naval forces which total nearly
900,000. The greatest part of the gain in nonagricultural
employment was accounted for by increased working
forces at retail and wholesale trade establishments to
handle holiday business, but manufacturing plants and
Federal, State, and local governments also employed
more persons than in November. The number employed
in construction and transportation, and by public
utilities declined somewhat. Compared with December,
1939, there were approximately 1,500,000 more persons
engaged in nonagricultural pursuits.



C o m m o d ity Prices
Although movements were mixed, the general ten­
dency in wholesale commodity markets during most of
January was toward somewhat higher price levels.
Owing especially to advances in the prices of certain
foodstuffs, the Bureau of Labor Statistics daily index
of 28 basic commodities showed a small net advance
during the month, closing at 119.8 per cent of the
August, 1939 base. As is indicated in the accompany­
ing table, there has been an increase of nearly 14 per
cent from the low level of last August in the composite
index, accompanying an advance of 17 per cent in the
average price of foodstuffs. The other major subgroups
of the index, however, have also advanced substantially
above their respective low points of August, 1940.
30, 1941
1939 =100)

Percentage change from
Dec. 31,

Lows of
Aug., 1940 Aug., 1939

Bureau of Labor Statistics daily
price index of 28 basic com ­
modities ..........................................


+ 1.1

+ 1 3 .6

+ 1 9 .8

Raw industrial com m odities.


+ 0 .3
+ 2 .1

+ 12 .2
+ 1 7 .0

+ 2 1 .4
+ 1 7 .6

Im port com m odities...............
Dom estic com m odities...........


+ 1.8
+ 0 .7

+ 1 6 .2
+ 1 3 .0

+ 2 1 .7
+ 1 8 .7

Reflecting reports of favorable weather for the grow­
ing wheat crop, combined with dulness in the flour trade,
wheat prices weakened during January. Winter wheat
in Kansas City at 79% cents a bushel on January 30
was 6 % cents lower than at the end of December.
Corn, while fluctuating irregularly, showed a slight
net decline for January as a whole. In response to
small marketings, hog quotations in Chicago advanced
sharply to $8.75 a hundredweight on January 15—
approaching the high point reached immediately after
the outbreak of war in September, 1939— and, while
losing part of that gain in subsequent days’ trading,
closed on January 30 at $8.16 a hundredweight with a
net advance of $1.27 for the month. Although steers
rose 83 cents further in the first half of January to $12.96
a hundredweight, this gain was almost canceled in a
later downward reaction.
Though holding to a restricted range, cotton quotations
moved in inverse relationship to the amount of “ free”
offerings on the market. Of the 11,931,000 bales of the
1940 cotton crop reported as ginned up to the middle of
January, about 2,850,000 bales are recorded by the
Commodity Credit Corporation as having gone into the
Government loan stock. The average spot price of cot­
ton at 10.10 cents a pound in 10 Southern markets on
January 30 was little changed from the end of Decem­
ber. Wool tops showed considerable strength, advancing
9 cents during the month to $1.27 a pound on January
30, and silk quotations in New York were firm.
Although quotations for scrap steel were reduced un­
der the influence of the National Defense Advisory Com­
mission— the Iron Age composite price dropping $1.41
to $20.42 a ton— the metal markets generally were steady
during January. The Iron Age composite price indexes

of finished steel and pig iron remained unchanged and
nonferrous metals quotations held relatively steady
throughout the month.

D e p a r tm e n t Store T ra d e
For the four weeks ended January 25, total sales of
the reporting department stores in this District increased
about 5 % per cent from the corresponding 1940 period,
and the daily rate of sales for this portion of January
appears to have declined somewhat more than usual from
the high December level.
Average daily sales showed an increase in December
over the November level of slightly more than the cus­
tomary seasonal proportions, and total sales during the
month were about 4 y 2 per cent higher than in December,
1939. Department stores in practically all localities con­
tinued to report increases in sales over the previous year,
and sales of the leading apparel stores in this District
were approximately 2 per cent higher than in December,
Total sales of the reporting department stores in this
District for the year 1940 were 5 per cent higher than
in 1939, as compared with an increase of about 2 per
cent from 1938 to 1939. Apparel store sales were ap­
proximately 1 per cent higher in 1940 than in 1939, com­
pared with an increase of 2 per cent between 1938 and
Stocks of merchandise in the department and apparel
stores, at retail valuation, were moderately higher at the
end of December, 1940 than at the end of December, 1939.
Percentage change from
a year ago
N et sales

Per cent of
Novem ber 30
collected in

on h and



to Dec.

New York and B rook lyn .............

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


6 .3

Northern New York S ta t e .. . .
Southern New Y ork State . . . .
Central New York S ta te.........
Hudson River Valley D istrict.
Capital D istrict.........................
W estchester and S ta m fo rd .. . .
Niagara F a lls..............................

+ 4 .9
+ 6 .9
+ 0 .9
+ 7 .7
+ 4 .2
+ 1 1 .4
+ 0 .3
+ 8 .9
+ 2 .8
+ 3 .3
+ 1 .2
+ 3 .2
— 17.0
— 1.4

4 1.9
4 6 .0
3 9.3
4 5.4
38 .0

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

+ 4 .6

+ 5 .0

+ 8 .7

4 1.9

4 0.6

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

+ 1.9

+ 0 .8

+ 8 .3


4 4 .7

Northern New Jersey...................

end of


4 2 .4
4 0.2
4 3.1
3 6.8
4 4 .6
3 6.7

8 .4
6 .0
11 .2

9 .8
10 .8
10 .1

Indexes of Department Store Sales and Stocks, Second Federal Reserve D istrict
(1923-25 average =100)

Sales (average daily), unadjusted
Sales (average daily), seasonally a d ju s te d ..
Stocks, unadjusted...........................................
Stocks, seasonally a d ju sted ............................

r Revised.




N ov.




12 0
10 1

10 2


10 0

75 r




Business Conditions in the United States
(Summarized by the Board of Governors of the Federal Reserve System)
I N D U S T R IA L activity continued at a high rate in December and the first
h a lf of January and distribution of commodities to consumers was main­
tained in large volume. There was some increase in wholesale commodity priees.

Index o f P h y sica l V olu m e o f Industrial P r o ­
d u ction , A d ju s te d fo r Seasonal V ariation
(1 9 3 5 -1 9 3 9 a v e ra g e — 100 p er ce n t)

Indexes o f V alue o f D epartm ent S tore Sales and
S tock s, A d ju s te d fo r Seasonal V ariation
(1 9 2 3 -1 9 2 5 a v e ra g e — 100 per ce n t)


r o d u c t io n

Volume of industrial production showed little change from November to
December, although usually there is a decline at this season, and consequently
the Board’s adjusted index rose further by four points to 136 per cent of the
1935-39 average. Steel ingot production was sustained at about 96 per cent of
capacity. New orders fo r steel continued large, according to trade reports, and
were equal to or slightly greater than production; consequently the volume of
unfilled orders remained at about the peak level reached in November. In the
first ha lf of January steel output increased to around 98 per cent of capacity.
A ctivity in the machinery, aircraft, and shipbuilding industries continued to
increase sharply and working forces were expanded further. In these lines and
in some others, such as wool textiles, unfilled orders are exceptionally large,
owing in the main to the defense program.
Automobile production declined somewhat more than seasonally in Decem­
ber following an unusually large volume of output in November and October.
Retail sales of new cars during the last quarter of 1940 were about one-fourth
greater than in the corresponding period last year and used car sales also were
large. In the nonferrous metals industries activity increased further in Decem
ber and output of lumber and cement showed less than the usual seasonal
Textile production, which in November had exceeded the previous record
levels reached a year ago, continued at this high rate in December, not showing
the usual seasonal decrease. A t cotton and rayon mills, activity increased
somewhat further and at wool textile mills output was sustained at peak rates.
In the shoe industry, where output had been in reduced volume during the first
ten months of the year, there was less than the usual seasonal decline in Novem­
ber and December and, on a, seasonally adjusted basis, production was close to
earlier peak levels.
A t mines bituminous coal production declined less than seasonally and
anthracite production increased. Output of crude petroleum showed a reduction
in December owing mainly to the fact that wells in Texas were closed fo r ten
days as compared with nine days in November. Output of metals continued
in large volume.
Value of construction contract awards, as reported by the F. W. Dodge
Corporation, increased contraseasonally in December, reflecting further sharp
increases in awards for defense construction and private nonresidential build
ing. Contracts fo r private residential building declined by somewhat less than
the usual seasonal amount.
D is t r ib u t io n

Distribution of commodities to consumers increased more than seasonally
in December. Department and variety store sales showed the customary sharp
expansion during the Christmas season and sales at mail order houses rose
more than is usual at this time o f year.
Freight car loadings showed a seasonal decline from November to Decem­
ber. Shipments of forest products and miscellaneous freight decreased less than
seasonally, while ore loadings, which had been unusually large in November,
declined sharply.
W h o le s a le

U nited S tates D ep artm ent o f C om m erce E sti­
m ates o f the A m ou n t o f Incom e P a y m en ts to
Ind ivid uals, A d ju s te d fo r S easonal V ariation

c o m m o d it y

B ank






p r ic e s

Basie commodity prices generally increased from the middle of December
to the middle of January, following little change during the preceding four
weeks. Currently these prices are substantially above the level prevailing last
summer. Increases in the past, month were most marked fo r foodstuffs, especi­
ally hogs, pork, lard, and cottonseed oil, but there were advances also in a
number of industrial materials, particularly pig iron, cotton, cotton goods,
paint materials, and hides. Steel scrap prices, after increasing during most
of the period, subsequently declined and lumber prices also decreased somewhat
from the sharply advanced peak reached in November.
c r e d it

Total loans and investments at reporting member banks in 101 leading
cities continued to increase substantially during the six weeks ended January
8, reflecting principally increases in holdings of United States Government
obligations at New York City banks. Commercial loans rose somewhat further
while loans to New York security brokers and dealers, which had increased in
December, subsequently declined somewhat.
Excess reserves, after declining during the first half o f December, have
since increased to about $6,900,000,000. The increase reflected reductions in
Treasury deposits with the Reserve Banks, a continued inflow of gold, and since
Christmas a seasonal return flow of currency from circulation.
U n ite d S t a t e s G o v e r n m e n t s e c u r it y p r ic e s






M on ey R ates in N ew Y ork C ity


Prices o f United States Government securities reacted somewhat after
reaching record high levels early in December. Bonds o f 1960-65 showed on
January 8 a net decline of about 2% points from the all-time peak of December
10 but subsequently fluctuated somewhat above this level. The yield on this
issue, which was 2.03 per cent at. the peak in prices, was 2.16 per cent on
January 14.