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MONTHLY REVIEW
o f

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S e c o n d

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u s i n e s s

F e d e r a l

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R e s e r v e

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D is t r ic t

F ed era l E eserve B a n k, N ew Y o rk

J a n u a r y 1 , 19 3 9

Money Market in December

greater demand fo r currency during the autum n and the
period of holiday trade this year than in 1937, when a
rapid decline in business activity was under w a y ; the
demand this year was more closely parallel to that of
1936, when business was expanding rapidly. F o r a few
weeks early in the autumn, the increase in currency out­
standing was actually greater this year than in 1936,
reflecting an unusual foreign demand fo r U nited States
currency that developed in connection with the European
war scare in A u gu st and September, in addition to the
demands incident to increasing business activity. The
actual amount o f currency outstanding this year has been
considerably greater than in 1936, notwithstanding a
lower level o f business activity, reflecting the upw ard
trend in the use o f currency which has now persisted fo r
several years.
In Treasury transactions also, a reversal o f the tax
period effect on member bank reserves is to be expected
in coming weeks. The excess o f Government expenditures
over current receipts w ill undoubtedly result in rapid
disbursement of funds that were transferred from
member banks to Treasury deposits in Federal Reserve
Banks during the third week o f December, and in a con­
sequent expansion o f bank reserves. Gold imports and
the domestic production o f gold m ay also be expected to
contribute further additions to member bank reserves.
Altogether, the present prospect is that the amount of
member bank reserve balances m ay show an increase in
the neighborhood of $900,000,000 during the five weeks

A n extraordinary development in the money market,
during the past month, was the sale on December 23 of
$100 ,000 ,00 0 of three month Treasury bills at no interest
cost to the Government, at a time when excess reserves
o f all member banks had ju st been reduced $500,000,000
by Treasury tax period operations and Christmas cur­
rency demands.

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M
ILLIONS
OF DOLLARS

<

There are special factors in the demand for Treasury
bills at this time which were the immediate cause o f this
situation, but the underlying factor is the persistent
strong demand for prim e short term obligations arising
out o f the huge volume o f idle fu n ds held by banks and
other institutions. A s recent developments have indi­
cated, the present reserve position of the banks is such
that large fluctuations in the amount o f excess reserves
can occur with no visible effect on money market condi­
tions. E ven after the $500,000,000 reduction in excess
reserves referred to above, the amount remaining in all
member banks was still close to $3,000,000,000, about one
h alf o f which was in N ew Y o rk C ity banks and the re­
mainder scattered throughout the country. E arlier in the
month the total o f excess reserves had risen close to
$3,500,000,000, a new high.
The tem porary reduction in aggregate excess reserves
of member banks, which took place during the third week
o f December, reflected the combined effect o f fourth
quarter income tax collections, cash paym ents fo r the
new Government securities issued on December 15, and
currency withdrawals from the banks fo r use in con­
nection with the holiday trade. These influences were
p artly offset by interest paym ents on the Government
debt and general Government disbursements, a continued
rise in the gold stock, and other minor factors. A ll o f the
factors that produced the reduction in excess reserves
are tem porary in their effects, and a rapid reversal in the
movement o f excess reserves is to be expected during
coming weeks.
The amount o f currency outstanding, fo r example,
declines rapidly after Christmas, and the resulting return
flow o f currency to the Reserve Banks w ill probably
contribute 350 to 400 m illion dollars to the volume o f
member bank reserves b y the end o f January. The
accom panying diagram compares movements in the vol­
ume o f currency outstanding in 1938, 1937, and 1936.
A s this diagram indicates, there was a considerably

5500
JAN

FEB

MAR

APR

MAY

JUN

JUL

AUG

SEP

OCT

NOV

Volume of United States Money in Circulation During 1938,
Compared with 1937 and 1936

DEC

2

M ONTHLY REVIEW, JANUARY 1, 1939

ending January 25, and that excess reserves w ill rise to
higher levels than ever before.

M

oney

R ates

E ve n aside from the unusual situation in the Treasury
bill market, previously commented upon, an extremely
easy situation persisted in the New Y o rk money market
during December. This condition was reflected in a
decline in the average yield on 3 to 5 year Treasury notes
to new low levels, after adjustm ent is made fo r the effect
o f the new issues on December 15. Y ields during Decem­
ber on long term Treasury bonds also were at approxi­
m ately the lowest levels ever attained during the period
o f large Federal indebtedness since the W o r ld W a r , and
yields on the best grade industrial and public u tility
bonds reached new levels.
M oney Rates in New York

Dec. 31, 1937 Nov. 30, 1938 Dec. 29, 1938
Stock Exchange call loans..........................
Stock Exchange 90 day loans...................
Prime commercial paper— 4 to 6 months
Bills— 90 day unindorsed..........................
Customers’ rates on commercial loans
(Average rate of leading banks at
middle of m onth ).................................
Average yield on Treasury notes (3-5
years).............................................................
Average yield on Treasury bonds (more
than 12 years to maturity or call date)
Average rate on latest Treasury bill sale
91 day issue.................................................
Federal Reserve Bank of New York re­
discount rate...............................................
Federal Reserve Bank of New York
buying rate for 90 day indorsed bills. .

*1 H

1

1
*1M

* ix

%

%

%

1

1

A
h

1 .6 3

1 .6 3

1 .6 3

1.2 3

0 .6 7

tO. 65

x 2 .6 8

x 2 .51

x $2 .48

0 .1 0

0 .0 2

1

1

*0
1

X

H

* Nominal
f Change of + 0 .1 0 from previous yields through dropping 134 per cent Treasury
notes maturing December 15, 1941, or within three years, and including the new 1 A
per cent Treasury notes maturing December 15, 1943.
t Change of + 0 .0 2 in average yield on six Treasury bonds due or callable after 12
years resulting from inclusion of the new 2 % per cent Treasury bonds of 1960-65.
x Substituted for series due or callable after 8 years previously used.
A Issue sold at par.

M e m b e r B a n k C r e d it

Total loans and investments of weekly reporting mem­
ber banks in 101 principal cities increased $436,000,000
in the fou r weeks ended December 21, and on that date
were the largest since October, 1937. The principal
factors in the increase were a rise o f approxim ately
$200,000,000 in Government security holdings, reflecting
purchases o f the new Treasury issues on December 15,
and an increase o f nearly $150,000,000 in loans to security
brokers and dealers, an im portant factor in which
was the financing of dealers’ operations in Gov­
ernment
securities.
There
were
small
increases
also in holdings of Government guaranteed securities,
and in other securities such as State and municipal
issues, but commercial, industrial, and agricultural loans
as a group showed a further small reduction, apparently
seasonal in character. Practically all of the increase in
Government security holdings occurred at reporting mem­
ber banks in cities other than New Y o rk , while a large
part o f the increase in loans to security brokers and
dealers, and in holdings o f Government guaranteed and
other securities, occurred in N ew Y o rk City.




Deposits in the reporting member banks rose to new
high levels in the first h a lf o f December, but declined in
the third week o f the month, reflecting income tax p a y ­
ments by depositors and seasonal currency withdrawals.
Deposits held b y the large N ew Y o rk C ity banks fo r cor­
respondent banks declined nearly $200,000,000 in the
week ended December 21.

G o v e r n m e n t S e c u r it ie s

Follow ing the T rea su ry ’s offering of new securities
announced on December 5, $403,000,000 of 2 % per cent
Treasury bonds of 1960-65 and $329 ,000 ,00 0 of 1 Ys
per cent Treasury notes m aturing in 1943 were issued
on December 15 against cash subscriptions.
In addi­
tion, $188 ,000 ,00 0 of the 2 % per cent bonds and
$39,000,000 of the notes, together with $702,000,000
of 2 per cent Treasury bonds of 1947, were issued in
exchange fo r Treasury notes m aturing M arch 15, 1939.
These exchanges totaled $929,000,000, indicating that
all except $13,000,000 of the notes due in M arch, 1939,
which had been outstanding
in the
amount of
$942,000,000, were tendered fo r exchange.
The Government security market, in which prices had
shown some tendency to decline during November,
partly as a result of a disposition on the part of a
number of holders of Government securities to await the
announcement o f the terms of the December 15 financ­
ing operations, turned active and strong in December.
Intermediate and long term Treasury bonds participated
in the rise, as well as Treasury notes, yields on which
receded to new low levels. In the case of long term
Treasury bonds (not due or callable before 12 years)
the rise in prices reduced the average yield to a level
close to the record low reached in February, 1937. Tow ard
the close of the month, the new 2 % per cent bonds of
1960-65 were quoted at 1 0 2 % , and, indicative of
the strong situation in intermediate Treasury bonds,
the new 2 per cent bonds o f 1947 were quoted at
102 3 /1 6 . The new Treasury notes of 1943 were quoted
at 101 1 4 -1 6 /3 2 .
Likewise, the prices bid fo r the Treasury bill issues
floated by the Treasury during December advanced in
successive weeks, and for most of the issue dated
December 28 the bids accepted were at par, resulting
in no yield on a Treasury bill issue fo r the first time
since the inception of this type of financing in this
country. Unusual demands for the new bills, including
their use to avoid taxes on bank deposits in several
States, fo r year-end bank statement purposes, and for
investment of corporation funds, caused the volume
o f bids for the weekly issues to rise considerably in
recent weeks, and fo r the December 28 issue of
$100,000,000 they amounted to $507,000,000, with one
exception the largest volume of bids ever received for
a Treasury bill issue.
The $100,000,000 of new bills
issued each week in December replaced sim ilar weekly
maturities.
C o m m e r c ia l P a p e r

and

B il l s

The ruling rate in the open market fo r average grade
prim e 4 to 6 month commercial paper continued to be

FEDERAL RESERVE BAN K OF N EW YO R K

% per cent during December. E xceptionally choice paper
continued to be sold at % per cent below the ruling rate,
and good but less widely known names moved at % per
cent.
Trading in commercial paper again was rather
inactive, owing to the inability of dealers to secure larger
quantities o f new paper. In view o f the approaching
inventory taking and year-end statement period, bor­
rowers, as usual, showed no disposition to increase their
indebtedness at this time. In Novem ber the amount of
paper outstanding through reporting commercial paper
houses showed a seasonal decline o f $7,000,000 to
$206,000,000, as compared with $311,000,000 a year
previous.
In the bill market no change occurred during Decem­
ber in the extremely quiet conditions that have existed
for some time. Offerings remained very light and demand
active; rates were unchanged. Owing to small increases
in several classes of bills, the largest o f which was a
$2,000,000 rise in export bills, the total volume o f bills
outstanding
rose
$3,000,000
during
November
to
$273,000,000. Since A u gu st, when the outstanding vol­
ume reached its record low, to the end o f November,
there was a seasonal rise of $15,000,000.
(Millions of dollars)
Type of acceptance
Im port................................................................
Export................................................................
Domestic shipment.......................................
Domestic warehouse credit........................
Dollar exchange..............................................
Based on goods stored in or shipped be­
tween foreign countries..........................
T otal..........................................................

N ov. 30, 1937 Oct. 31, 1938 Nov. 30, 1938
122
84
9
71
1 •

94
57
10
50
3

95
59
10
49
3

61

56

57

348

270

273

S e c u r ity M a r k e t s
Stock prices in general fluctuated irregularly within
a narrow range during December, but closed the month
at slightly higher levels than at the end of November.
The turnover of stocks was generally rather light, averag­
ing only about 1,200,000 shares per day. The rising price
movement and greater activity of aircraft issues were ex­
ceptions to the relative steadiness and inactivity of the
stock market in general.
In the period from shortly
after Election D a y to the latter part o f December, air­
craft issues showed a net price advance of about 9
per cent, while the general average of stock prices, owing
to the receding tendency which developed between No­
vember 14 and November 28, closed December approxi­
mately 5 per cent below the November 9 high.
Second grade corporation bonds which had declined
in the second h alf of Novem ber along with stock prices
continued to ease in the first 12 days of D ecem ber; there­
after there was some recovery, but all classes of bonds
of this grade closed the month slightly below their
November highs. H ig h grade corporation bonds were
firm throughout D ecem ber; A a a industrial and public
utility bond averages reached new high levels.
N e w F in a n c in g
Corporate security flotations in December totaled about
$250,000,000, or more than $100,000,000 in excess of the
revised total fo r Novem ber, but below the total fo r




3

October. The increase in total issues over the November
figure was due entirely to a rise in the amount of financing
fo r refunding purposes. The m on th ’s corporate issues
fo r new capital purposes aggregated about $45,000,000,
which was about the same as in the two preceding months.
M ost o f the offerings during the month were quickly sold,
although two large issues apparently were not com­
pletely distributed. Issues in excess of $10,000,000 were
as fo llo w s:
$38,000,000 Central Illinois Public Service Com pany
first m ortgage 3 % ’s o f 1968, at 1 0 0 % ,
and
10.000.000 debenture 3 % ’s and 4 ’s o f 1939-48 to yield
1.50-4.00 per cent
35.000.000 Cities Service Gas Com pany first mortgage
3 * 4 ’s and 3 % ’s of 1940-54, placed
privately
30.000.000 Chesapeake and Ohio R ailw ay Com pany
refunding and improvem ent mortgage
3 y 2 ’s o f 1963 at 10 11/2
25.000.000 Commonwealth E dison Com pany conver­
tible debenture 3 % ’s o f 1958, offered
to stockholders at par
21,071,600 Continental Oil Com pany convertible de­
benture 2 % ’s o f 1948, offered to stock­
holders at par
16.000.000 Railw ay E xpress A gen cy serial % - 2 y 2 per
cent notes of 1939-48 at 100
10,168,000 Consumers Power Com pany first mortgage
3 % ’s of 1966 at 1 0 4 %
M unicipal bond awards during the month amounted to
about $130,000,000. The only flotations in excess of
$5,000,000 were a new issue of $15,250,000 C ity of Los
A ngeles D epartm ent o f W a ter and Power bonds of
1939-1978 which were reoffered to yield from 0.50 to 3.70
per cent, and a refunding issue of $13,556,000 M etro­
politan W a te r D istrict o f Southern California bonds of
1946-1986, acquired by the offering syndicate from the
Reconstruction Finance Corporation and offered at prices
to yield from 2.50 to 3.55 per cent, depending upon
m aturity. The Federal National M ortgage Association
made its second public offering of securities— $50,000,000
of 1 % per cent 5 year notes, which was heavily oversub­
scribed. A n offering o f 5 year notes in M ay bore 2 per
cent interest.
A t the end o f December there were no large corporate
issues in process of registration with the Securities and
E xchange Commission.
F o r e ig n E x c h a n g e s
D u rin g the month of December, outstanding develop­
ments in the foreign exchange market were the con­
tinued large repatriation of capital to France, a halt
to the decline of the pound sterling, a brief period of
weakness in the belga, and the imposition of exchange
and trade restrictions in N ew Zealand.
The repatriation of French capital, which had begun
after the announcement o f the Government Decrees in
m id-November, and which reached a peak on November
30 when the general strike called by the General C onfed­

4

M ON THLY REVIEW , JANUARY 1, 1939

eration of Labor failed, continued into December in
considerable volume and resulted in the acquisition by
the French exchange authorities of substantial amounts
of gold and foreign exchange.
Italian agitation for
French possessions interrupted the return flow of capi­
tal to P aris only slightly. The success in the Chamber
of Deputies o f the D aladier foreign policy and of the
R eynaud 1939 budget were favorably interpreted by the
foreign exchange market and added im petus to the re­
patriation movement.
I t was estimated by Finance
M inister R eynaud on December 8 that the gain o f gold
and foreign exchange by the French Stabilization Fu n d
from Novem ber 1 to that date had been the equivalent
o f 6,000,000,000 francs. Fu rth er gains during the rest
of the month raised the total fa r above this figure. In
New Y o r k the fran c advanced from $0.0262 1 3 /1 6 to
$ 0 .0 2 6 3 % , and the London cross rate showed a gain
from 178 5 /1 6 francs per pound on Novem ber 30 to
176 1 3 /1 6 , or the best quotation since M ay 4.
The pound sterling moved w ithin a range between
$4.70 on December 5 and $ 4 .6 5 % on December 30,
compared with $ 4 .6 8 % on November 30. This leveling
off, which follow ed the sharp decline of more than
13 cents between November 7 and November 26, was
due in large part to short covering which in turn was
influenced by greater than seasonal tightness in the
London money market. Difficulties experienced by bear
speculators in extending their short commitments in the
forw ard market were indicated by weakness in forw ard
quotations fo r the pound, which recovered on Decem ­
ber 29, however, after year-end positions had been ad­
justed. The discount on sterling fo r three months ’
delivery reached the equivalent of more than 2 % per
cent per annum, compared w ith 1 % per cent on
Novem ber 30, while discounts fo r one month sterling
reached the equivalent o f 3 % per cent per annum,
compared w ith 1 % per cent on Novem ber 30. The
increased cost of renewing the large short position
in the forw ard market resulted in a substantial liquida­
tion of short positions in sterling. The continued strong
commercial demand fo r dollars and the intervention of
B ritish exchange authorities kept rate movements within
a narrow range, despite the seasonal movement of funds
to London fo r the year end.
The belga was subjected to a speculative attack dur­
ing December because o f political difficulties experienced
by the Spaak Government over the unem ploym ent relief
features o f the 1939 budget and the B elgian Govern­
m e n t’s recognition of the Spanish N ationalist Govern­
ment.
The belga declined from $0.1690 on November
30 to a level below $0.1684, the point at which gold ship­
ments to New Y o rk become profitable, on December 2,
but recovered to $ 0 .1 6 8 7 % on December 12, and re­
m ained above the gold point fo r the rest of the month.
The resignation o f Finance M inister Gerard and the
addition o f two new ministers to his cabinet enabled
Prem ier Spaak to gain a vote of confidence.
The convertibility of the N ew Zealand pound into the
pound sterling was suspended by the Reserve B ank of
New Zealand on December 6 at the same time that a
system of export and im port licenses was instituted
fo r N ew Zealand foreign trade. A high level of m er­
chandise im ports and a flight of capital, which had de­




pleted the sterling reserves of the Reserve B ank and
of the trading banks, were indicated as the proximate
causes of the restriction.
M arkets for other currencies recorded no significant
developments, with the exception of a slight weakness in
Canadian exchange during the month, attributed in the
exchange market to year-end dividend disbursements by
Canadian companies to A m erican stockholders. F rom
a discount of 2 1 /3 2 per cent on November 30 the
Canadian dollar weakened to a discount of 1 1 / 1 6 per
cent on December 14, and again on December 27, closing
the month at a discount of 1 per cent.

Gold Movement
D u rin g December, currently reported gold imports
affecting the U nited States gold stock included receipts at
New Y o rk totaling $90,600,000, of which $66,900,000
came from E n gland, $21,600,000 fro m H ollan d, and
$2,100,000 from India. On the W e st Coast receipts totaled
$21,300,000, o f which $14,600,000 came from Japan,
$4,800,000 from A u stralia, and $1,900,000 from China.
In addition, there was a gain to the gold stock through
the release o f $12,600,000 from earmarked gold held for
foreign account in this country. A s a result o f these
reported transactions and other unreported acquisitions
by the Treasury, the U nited States gold stock was in ­
creased during December by approxim ately $200 ,000 ,00 0,
which compares with a gain o f $247 ,000 ,00 0 in Novem ber,
$305,000,000 in October, and $624 ,000 ,00 0 in September.
F o r the year 1938, the gold stock of the U nited States
rose approxim ately $1,750,000,000, as compared with a
gain of $1,502,000,000 in 1937.

Central Bank Rate Changes
On Novem ber 19 the Reserve B ank o f N ew Zealand
announced an increase in its discount rate from 2 per
cent to 4 per cent. I t is understood that the change was
made effective Novem ber 22. The previous rate had been
in force since June 29, 1936.

Production and Trade in 1938
F o r the first year since 1932, the volume o f pro­
duction and trade in the year 1938 aggregated less than
in the previous year. D u rin g the first five months of
the past year production and trade volumes were re­
duced, in continuation of the sharp downward move­
ment which occurred in the last fou r months o f 1937,
and the sizable recovery in the subsequent part of 1938
failed by a substantial m argin to raise the total fo r the
j ear to the 1937 total.
A ccording to a prelim inary estimate, the volume of
production and trade in 1938 totaled about 15 per cent
less than in 1937. This prelim inary estimate is based
upon data for the production of m anufactures and m in­
erals, agricultural production, building construction,
and railroad car loadings of merchandise and miscel­
laneous freight. In all cases actual figures fo r at least
the first 11 months of 1938 were used, with estimates
for the remaining portion of the year. In the past, the
prelim inary figures fo r these series have been fou n d
to give a reasonably close approxim ation of the move­
ment of this b a n k ’s broader annual index o f production

FEDERAL RESERVE B AN K OF N EW YO R K

5

P RC N
E ET

120
100

80
AU
rt
O

40
20
1*9 ’2 0
9

’21 ’ 2 2

’23 ’24 ’25 ’26 *27 ’28 ’29 ’30 ’3 ’32 ’33 ’34 ’35 ’36 ’37 ’3!
1

Index of General Production and Trade in the United States
(1923-25 average = 100 per cent)

and trade which is based upon data fo r more than
200 business series. This series, with the 1938 pre­
lim inary figure added, is shown in the accom panying
diagram fo r the period since 1919.
I t would appear
from this diagram that the decline in 1938 reduced
the total volume of production and trade to an average
level which was about the same as in 1935, and some­
where near the m id-point between the 1929 peak and
the 1932 low point.
Unlike activity in other principal lines, the volume
of construction fo r which contracts were awarded in
1938 showed an increase of about 7 per cent fo r the
year, reflecting largely increases in public works con­
struction but also some rise in residential building.
The 1938 volume o f construction was more than double
the 1933 low level but remained not greatly over one
half o f the 1928 peak amount. The volume of agricul­
tural production in 1938 declined only about 3 % per
cent from the output of the peak year 1937, and was
14 per cent higher than in 1935 when agricultural pro­
duction reached its low fo r recent years. The largest
decline in production volumes in 1938 occurred in the
output of m anufactured goods.
The 1938 aggregate
output o f manufactures, while dropping below the 1935
figure, remained substantially larger than in 1932. P ro­
duction of minerals and metals was curtailed 14 per
cent in 1938 from the 1937 level which had equaled
the 1929 volume.
In comparison with the 1932-1933
lows, mineral and metal production, next to building
construction, showed the largest percentage of net
recovery.
Indicative of the prim ary distribution of
goods in 1938, railroad car loadings o f merchandise
and miscellaneous freight were reduced 17 per cent
from the 1937 volume.
C o m m o d i t y P r ic e s
Prices of the principal wholesale commodities gen­
erally continued to show only minor changes during
December.
Some decline in the average level in the
first part of the month was follow ed by a firmer ten­
dency in the latter part of the month, and M o o d y ’s
Investors Service index of 15 raw products ended D e­
cember slightly above the level prevailing at the end
of November.




W h ea t prices, which had held relatively steady in
November, were stim ulated to some extent by the an­
nouncement early in December of the purchase by
B ritish millers of 20,000,000 bushels of wheat held by
the Federal Surplus Commodities Corporation.
Un­
favorable growing conditions in the domestic winter
wheat belt, together with reports of severe weather
over the E uropean winter wheat areas, provided fu r ­
ther strength to wheat prices during the month. A s a
result, the spot quotation fo r the Num ber 2 grade of
red winter wheat rose 6 % cents during December to
8 4 % cents a bushel. The Government winter wheat
estimate, released toward the end of the month, placed
next season’s crop at 485,000,000 bushels, a figure about
200,000,000 bushels less than last season’s winter wheat
harvest. Cash corn at Chicago rose 4 % cents during
the past m onth to 53 cents a bushel. This advance,
which occurred chiefly in the second week of December,
reflected to a large extent indications of increased ex­
port demand, together with the accumulation in the
Government loan stock o f large quantities withdrawn
from the market. The price of crude rubber advanced
^4 cent to 1 6 % cents a pound, and gains fo r the month
also occurred in the prices of steers and raw silk.
The spot quotation fo r raw sugar declined rather
substantially on December 6, follow ing the announce­
ment of the sugar marketing quota fo r 1939, which was
considered by the trade as in excess of probable needs
of the domestic sugar market.
A lth ou gh some slight
recovery was shown subsequently, raw sugar ended
December at 2.88 cents a pound, as compared with 3
cents a m onth earlier.
Sizable decreases occurred in
wool prices during the past month, and there were mod­
erate net declines in cotton prices. The price of hides
at Chicago declined 1 % cents further to 1 1 % cents
a pound during the first two weeks of December, but
there was an advance later in the month to 1 2 % cents,
only % cent below the price at the end of November.
W ith respect to the principal metal prices, lead
showed a fu rth er decline of 15 points during the month,
closing at 4.85 cents a pound. A lth ou gh domestic cop­
per futures and the export price fo r copper rose im ­
mediately after the announcement on December 7 of
new restrictions on foreign copper production by the
foreign copper cartel, the spot quotation fo r domestic
copper continued at 11^4 cents a pound throughout the
month.
Prices of zinc and tin also held steady.
A
decline o f 50 cents brought scrap steel at Chicago to
$13.75 a ton, while the quotation at P ittsburgh con­
tinued at $15.75 a ton.
B u ild in g
Evidence o f the usual seasonal slackening in the rate
of building and engineering contract awards appears in
the figures fo r Novem ber compiled by the F . W . Dodge
Corporation. On a daily average basis, contracts awarded
in 37 States declined 8 per cent from the average for
October when construction awards were at the highest
level since M arch, 1931. Com pared with Novem ber, 1937,
however, total contracts were 52 per cent higher and all
of the m ajor categories, with the exception of commercial
and industrial building, showed substantial increases.

M ONTHLY REVIEW , JANUARY 1, 1939

6

F o r the first eleven months of 1938 total construction
contracts were slightly ahead of the corresponding period
of 1937 as the follow ing table indicates.
Percentage Change in Average Daily Contracts
N .Y . and Northern N .J.

37 States
N ov., 1938
compared
with Oct.,
1938

Jan.-Nov., N ov., 1938
1938 com­ compared
pared with with Oct.,
Jan.-Nov.,
1938
1937

Jan.-N ov.,
1938 com­
pared with
Jan.-N ov.,
1937

Building
— 8
— 31
+ 7
— 6

+ 4
— 45
+28
— 5

— 39
— 61
— 39
— 42

+19
— 18
+10
+ 8

Public works.....................................
Public utilities.................................
All engineering............................

— 17
+ 1
— 14

+36
0
+25

— 40
— 56
— 43

+ 5
+40
+19

All construction..........................

— 8

+

— 42

+12

Residential........................................
Commercial and industrial.........
Public purpose*...............................
All building...................................

Engineering

4

* Includes educational, hospital, public, religious and memorial, and social and
recreational building.

In the N ew Y o rk and Northern N ew Jersey area the
decline in total contracts from October to November was
considerably more pronounced than in the 37 States, and
on a daily average basis amounted to 42 per cent. A ll of
the m ajor construction classifications registered sizable
reductions in November.
Com pared with November,
1937, however, total contracts were 22 per cent higher.
B uildin g and engineering contracts awarded during the
first eleven months of 1938 exceeded total contracts in
the same period of 1937 by 12 per cent.
The accom panying diagram shows a comparison be­
tween the estimated physical volume of residential build­
ing in the Second Federal Reserve D istrict and in all
other districts from 1923 to date. The volume of resi­
dential building was greatly reduced from the peak period
of the 1 9 2 0 ’s to an extremely low level which extended
through the years 1932-34. D u rin g the 1935-36 recovery
there was less improvem ent in residential building in this
D istrict than elsewhere. This divergence, in the main,
continued in the subsequent 1937 recession, but during
1938 the recovery in residential building was more pro-

1923 ’2 4 ’2 5 ’26 ’27 ’2 8 ’2 9 ’3 0 ’31 ’3 2 ’ 3 3 ’3 4 ’3 5 ’3 6

’3 7

’3 8

Estimated Volume of Residential Building in Second Federal Reserve
District and in All Other Districts from which Reports are Col­
lected by F. W. Dodge Corporation, Adjusted for Seasoned
Variation and Price Changes (1923-25 average = 100
per cent; data are three month moving averages)




nounced in this D istrict than in other sections o f the
country taken as a whole. B y November, residential
building in this D istrict was about 15 per cent above the
1937 high point, while in all other districts residential
building approxim ately recovered the loss sustained in its
decline in 1937.
The daily rate at which construction contracts were
awarded in 37 States during the first three weeks of
December was about the same as the Novem ber average.
Owing to the approach o f the December 31 dead line for
the placing o f Public W o rk s A dm inistration contracts,
heavy engineering awards showed a large contraseasonal
advance, which approxim ately offset seasonal declines
in residential and nonresidential building contracts.
Compared with the first three weeks o f December, 1937,
total contracts were 56 per cent h ig h e r; heavy engineer­
ing work registered an advance o f 106 per c e n t; residen­
tial building was 84 per cent higher, and nonresidential
building increased 8 per cent.
P r o d u c tio n a n d T r a d e -N o v e m b e r a n d D e c e m b e r
Seasonal influences played their usual large part in
determining the course of business volumes in December.
A fte r m aking allowance fo r these influences, it appears
that the change in the general level of production and
trade during December was smaller than in preceding
months.
Steel production, which toward the end o f Novem ber
had developed a declining tendency, was reduced sharply
in the latter part of December by shutdowns fo r holidays
and inventory taking, and it is estimated that a somewhat
greater than seasonal decline occurred fo r the month as a
whole. In the first three weeks o f the month daily aver­
age bituminous coal output was also smaller than in
November, but textile m ill operations appear to have been
maintained better than usual, and automobile assemblies
exceeded the Novem ber rate. Electric power production,
which reaches its seasonal peak in December, rose more
than usual in the first three weeks of the month, and in
the same period railw ay freight traffic declined less than
in most other years, with the result that the seasonally
adjusted index of car loadings of merchandise and m is­
cellaneous freight, shown in the accom panying diagram ,
continued the recovery which was in progress throughout
the second h alf o f 1938.
Retail trade, which like electric power production
reaches its highest level of the year in December, gained
sharply over Novem ber, and early indications fo r this
D istrict were that the advance in department store sales
was larger than usual.
D u rin g Novem ber there was a further substantial gain
in business volumes, especially pronounced, as in October,
in the durable goods industries. The daily rate o f steel
output increased 18 per cent over October and reached
the highest point since September, 1937. Production of
other metals, including pig iron, copper, lead, and zinc,
also advanced considerably, and bituminous coal m ining
gained over the level of October. Production of 1939
automobile models reached the relatively high level of
approxim ately 85,000 units weekly, and total assemblies
were the largest in any month since A u gu st, 1937.
Textile mills, particularly woolen mills, also increased
their operations, while shoe production declined less

FEDERAL RESERVE B AN K OF N EW YO R K
PE C T
R EN

in November. Departm ent store sales advanced more than
usual, and grocery chain store sales were higher, while
m ail order house sales showed some seasonal decline, and
sales o f chain stores other than grocery failed to advance
as much as in most recent years. R ailw ay freight traffic
declined less than in most other years.
E m p l o y m e n t a n d P a y r o lls

Railroad Car Loadings of Merchandise and Miscellaneous Freight,
Adjusted for Seasonal Variation (Trend of past years — 100 per
cent; weekly figures are four week moving averages)

than in most other years. Generation of electric power
rose more than usual.
The volume of retail trade, on the whole, also expanded
(Adjusted for seasonal variations, for estimated long term trend,
and where necessary for price changes)
1938

1937
N ov.

Industrial Production
Passenger cars....................................................
Bituminous coal.................................................
Crude petroleum...............................................
Electric power....................................................
Cotton consumption........................................
M eat packing.....................................................
Tobacco products r ..........................................
Machine tool orders * .....................................

Sept.

Oct.

Nov.

52
92
' 79
106
81
94
90
62
79
45
82
84
92
121

63
65
49
40
76
84
89
54
90
90
101
90
90
111

71
82
81
42
74
85
89 p
63
91
89
lO lp
90
86
108

85
92 p
84
82
79 p
86p
90p
67
96
118p
104p
91
95
103

95
80

82
71

83
73

85 p
7 5p

27

42

44

42

54

65

83

79

80r
79 r
88
85

75
70
78
76

77
75
78
69

79
76
75
74

86r
81r
98
93
91r
81r

83
80
104
92
90
43

81
75
107
95
88
69

87
79
lllp
93
90
76p

72

61

62

65

44

38

40

36

156

154

155

154p

152

148

148

147p

111

109

109

109p

Employment
Employment, manufacturing, U. S ...........
Employee hours, manufacturing, U. S . . .

Construction
Residential building contracts r . . . . . . . .
Nonresidential building and engineering
contracts r........................................................

Primary Distribution
Car loadings, merchandise and misc.........
Car loadings, other..........................................
E xports.................................................................
Im ports.................................................................

Distribution to Consumer
Department store sales, U. S .......................
Department store sales, 2nd District. . . .
Chain grocery sales..........................................
Other chain store sales...................................
Mail order house sales.....................................
New passenger car registrations.................

Velocity o f Deposits^
Velocity of demand deposits, outside New
York C ity (1919-25 average = 100 per
cent)...................................................................
Velocity of demand deposits, New York
City (1919-25 average — 100 per ce n t).
General price level f (1913 average = 100
per cen t)...........................................................
Cost of livingf (1913 average = 100 per
cent)...................................................................
Composite index of wagesf (1926 average
= 100 per cen t).............................................

p
r

Preliminary.
* Not adjusted for price changes.
Revised.
t Not adjusted for trend.




E m ploym ent in nonagricultural pursuits increased
slightly further during Novem ber, according to the report
o f the Secretary o f Labor, extending the gain in working
forces since June to about 1,000,000 persons. There is
usually a decline between October and November. A net
gain in em ployment in m anufacturing industries, accom­
panied by increases in working forces at retail and whole­
sale trade establishments, exceeded personnel reductions,
largely o f a seasonal character, in construction and other
nonm anufacturing industries.
A further advance o f 1 per cent in factory employment
and a fractional gain in factory payrolls during Novem ­
ber were contrary to the usual movement at this time of
year, and brought the number o f workers and total wage
disbursements to the highest levels since December, 1937.
A s in the previous month, increasing activity in durable
goods industries accounted fo r the gain in factory em­
ploym ent, automobile plants and steel mills showing the
most substantial reemployment. On the other hand,
seasonal curtailment o f working forces in canning, m en ’s
and w om en’s clothing, and shoe plants was reflected in a
slight reduction in em ployment in the nondurable goods
classification. Com pared with Novem ber, 1937, total
factory em ployment was 1 0 % per cent lower and payrolls
9 *4 per cent less.
Conform ing with usual seasonal tendencies, factory
em ployment in N ew Y o rk State declined about 1 per
cent from October to November, and factory payrolls
were reduced approxim ately 3 per cent. Fu rth er seasonal
declines occurred in the number o f workers at clothing
and m illinery, and canning and preserving factories,
while metal and m achinery plants continued to increase
their working forces. Observance o f Election D a y and
A rm istice D a y holidays at m any factories during the
reporting period in Novem ber tended to lower payrolls
somewhat more than em ployment.
Com pared with
November, 1937, em ployment was 5^2 per cent lower and
payrolls were 5 per cent less, but these figures represent
the most favorable year-to-year comparisons thus far
in 1938.
F o r e ig n T r a d e
D u rin g November this co u n try ’s foreign merchandise
trade showed declines o f about the usual seasonal propor­
tions, thereby reversing the upward tendency o f the pre­
vious three months. E xports, valued at $252,000,000,
were 20 per cent smaller than a year previous, and im ­
ports of $176,000,000 showed approxim ately the same
percentage decline. The $76,000,000 excess o f exports
was smaller than that o f October, but it increased the
export balance fo r the first eleven months o f 1938 to
$1,036,000,000, a larger amount than fo r any calendar
year since 1928.
E v e ry m ajor group o f exports and imports in N ovem ­
ber continued to contribute in some degree to the decline

8

M ONTHLY REVIEW, JANUARY 1, 1939
PERCENT

in aggregate value from a year p reviou s; and all imports
except crude foodstuffs were smaller in value than in
the previous month. A m o n g the exports, the largest
relative declines from Novem ber, 1937 occurred in ship­
ments o f sem imanufactures and crude materials, both of
which showed a reduction in value of 30 per cent. In
these categories, reduced shipments of such commodities
as raw cotton, unm anufactured tobacco, and semimanu­
factured products o f lumber, petroleum, and iron and
steel were the principal factors responsible for the de­
creases. E xports of wheat, among the crude foodstuffs,
were less than h alf as great in value as a year previously,
when the amount was comparatively large, although they
showed a substantial increase over the previous month.
Shipm ents o f passenger automobiles and motor trucks
continued to be smaller than a year previous, but were
larger than in October.
A m on g the imports, declines in value from November,
1937 ranged from 24 per cent in the case o f semimanu­
factures to a fraction o f 1 per cent in the case of crude
foodstuffs. Receipts o f the partly finished products of
copper and tin were less than h alf the value of a year
ago, and substantial declines occurred in the value of
im ports o f woodpulp, fertilizers, and inedible oils.
A m o n g the crude materials, increased receipts of unm anu­
factured wool and raw silk were more than offset by
decreases in the value o f imports o f other textile fibers,
crude rubber, and petroleum. Larger imports o f coffee
nearly counterbalanced decreases in receipts o f other
types o f crude foodstuffs. A decline in sugar imports
accounted chiefly for the decrease in the value of imports
o f m anufactured foodstuffs. Im ports o f nearly all leading
m anufactured products were smaller in value than a
year ago.

Sales and Stocks of Reporting Department Stores in Second Federal
Reserve District, Adjusted for Seasonal Variation (1923-25
average r : 100 per cent)

A p r il, when the comparison was affected by the late
date of Easter. Sales of the leading apparel stores in
this D istrict were about 4 per cent lower than in
November, 1937, the most favorable year-to-year com­
parison since October, 1937.
Stocks o f merchandise on hand in the departm ent
stores, at retail valuation, were about 9 % per cent
lower at the end of November, 1938 than at the end
of November, 1937, and apparel store stocks were ap­
proxim ately 1 0 % per cent lower. Collections continued
slower in 1938 than in 1937 in the department stores,
but were somewhat better in the apparel stores.

Percentage
change
November, 1938
compared with
November, 1937

D e p a r tm e n t S to re T r a d e
F o r the fou r weeks ended Saturday, December 24,
the dollar volume o f department store sales in this D is­
trict was about 1 per cent above the sales of the cor­
responding four week period of 1937. This period of
1938 included one more shopping day than the cor­
responding fou r week period of 1937, but nevertheless,
after adjustm ent to an average daily basis, it appears
that sales showed somewhat more than the usual sea­
sonal advance during December, when retail business
always reaches the highest level of the year.
A s is
indicated in the accom panying diagram, which includes
an estimate of sales fo r the whole month of December
based on the fou r weeks ended December 24, there
has been a moderate net recovery in department store
sales in this D istrict from the low point o f last M ay.
D epartm ent store stocks o f merchandise appear to have
declined slightly further during this period, follow ing
a more substantial reduction in the latter part of 1937.
Total department store sales fo r the year 1938, based
on final figures fo r 11 months and the estimate for the
fu ll month of December, were about 7 per cent smaller
in dollar volume than in 1937, as compared w ith an
increase of 3.7 per cent between 1936 and 1937.
November sales of the reporting department stores
in this D istrict were 5 per cent lower than in November,
1937, the smallest year-to-year reduction since last




Locality
New York and B rooklyn....................................
Buffalo........................................................................
Rochester...................................................................
Syracuse....................................................................
Northern New Jersey..........................................
Bridgeport.................................................................
Northern New York State............................
Southern New York S ta te.............................
Central New York S ta te................................
Hudson River Valley D istrict.....................
Westchester and Stam ford............................
Niagara F alls......................................................

N et
sales
—
—
—
—
—
—
—
—
—
—
—
—
—

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

Stock
on hand
end of
month
—
—
—
—
—
—
—

Per cent of
accounts
outstanding
October 31
collected in
November

1937

1938

9 .0
1 0 .2
1 3 .7
7 .9
1 1 .3
5 5
6 .4

5 1 .2
4 3 .8
5 6 .4
4 5 .0
4 5 .8
4 1 .7
3 4 .8

5 0 .4
4 2 .7
5 6 .0
4 3 .7
4 3 .9
4 1 .0
3 5 .3

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

— 4 .9

— 9 .4

4 8 .4

4 7 .4

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

— 4 .2 '

— 1 0 .6

4 7 .6

4 8 .3

Department Store Sales and Stocks, Second Federal Reserve District
(1923-25 average ** 100)
1937
N ov.

1938
Sept.

Oct.

N ov.

Sales, unadjusted....................................................
Sales, seasonally adjusted..............................

I ll
93

94
90

98
85

106
89

Stocks, unadjusted................................................
Stocks, seasonally adjusted...............................

lO lr
85r

82
78

89
78

92
78

r Revised

FEDERAL

RESERVE

BANK

OF

NEW

YORK

M O N THLY REVIEW, JANUARY 1, 1939
B u s in e s s

C o n d it io n s

in

th e

U n ite d

S ta te s

(Summarized by the Board of Governors of the Federal Reserve System)
n p H E sharp rise in industrial production, which began early last summer,
continued in November. Preliminary reports for the first three weeks of
December indicate some slowing down in the advance. Employment also
increased in November and payrolls showed little change, although a decline
is usual at this season. Distribution of commodities to consumers increased
considerably.
P

Index Number of Production of Manufactures and
Minerals Combined, Adjusted for Seasonal
Variation (1923-25 averageznlOO per cent)

r o d u c t io n

The Board’s seasonally adjusted index of industrial production in Novem­
ber rose to 103 per cent of the 1923-1925 average from 96 per cent in October.
Output of steel continued to increase, contrary to the seasonal trend, and there
was a further sharp rise in automobile production. In the first three weeks of
December activity at steel mills declined somewhat more than seasonally, while
output of automobiles continued at the high level reached at the end of
November. Lumber production in November decreased by more than the usual
seasonal amount. In the nondurable goods industries, shoe production declined
seasonally, while output of textiles showed a considerable expansion, with
increased activity at cotton, wool, and silk mills. A t mines, bituminous coal
output increased further and production of anthracite showed less than the
usual seasonal decline. Output of petroleum showed little change.
Value of construction contracts awarded in November showed a decline
from the high level reached in October, according to F. W . Dodge figures for
37 Eastern States. Private and public projects both declined, following increases
in October. The decline in contracts for private residential building was less
than seasonal.
E

Index of Factory Employment with Adjustment
for Seasonal Variation (1923-25
averagerzzlOO per cent)
ML N
IL IO S

m p l o y m e n t

Employment increased somewhat further and payrolls showed little change
between the middle of October and the middle of November, although declines
are usual at this time of year. In manufacturing the number employed con­
tinued to rise, reflecting principally a further sharp increase at automobile
factories and substantial increases in the machinery, steel, and textile industries.
Employment declined seasonally at establishments producing clothing and
shoes j in most other industries employment increased somewhat. In lines other
than manufacturing, employment showed some increase, when allowance is made
for usual seasonal changes.
D

is t r ib u t io n

Distribution of commodities to consumers showed a considerable increase
in November. Department store sales and mail order sales, which had been
retarded in October by unseasonably warm weather, rose sharply, and sales at
variety stores also increased in November. Sales of automobiles to consumers
expanded sharply following the introduction of new models and in November
were larger than a year earlier.
Freight car loadings, which had increased considerably in previous months,
showed a slightly less than seasonal decline in November.
Value of Construction Contracts Awarded (Three
month moving averages of F. W. Dodge Cor­
poration data for 37 States, adjusted for
seasonal variation)
B L N
IL IO S

C

o m m o d it y

P

r ic e s

Prices of some industrial materials, such as nonferrous metals, hides, and
cotton goods, decreased somewhat from the middle of November to the third
week of December. Sugar prices also declined, while grains advanced somewhat.
Prices of most other agricultural and industrial commodities continued to
show little change.
B

a n k

Cr

e d it

In connection with preholiday trade, there was a sharp increase in money
in circulation and as the result of this increase in the demand for currency,
together with Treasury operations around December 15, there was a temporary
decline in member bank reserves.

Member Bank Reserves and Related Items
(Latest figures are for December 21)




Following declines during November, total loans and investments of
reporting member banks in 101 leading cities increased during the first three
weeks of December, largely reflecting operations of the Treasury. Loans to
security dealers by New York banks increased sharply, reflecting temporary
borrowing for the purpose of carrying Government securities exchangeable for
new issues on December 15. Adjusted demand deposits rose to a new high
level in the first half of December.