The full text on this page is automatically extracted from the file linked above and may contain errors and inconsistencies.
MONTHLY REVIEW o f C r e d it a n d S e c o n d Federal Reserve Bank, New York B u s in e s s F e d e r a l R e s e r v e C o n d itio n s D is t r ic t January 1,1940 spring, failure o f tourist money to return to this country in the usual volume, and some foreign demands fo r Substantial withdrawals of currency from the Reserve United States currency within this country— all com Banks, by member banks, to meet customers’ require bined with a continuation of the upward trend, appar ments for the holiday trade, and payments out of the ently attributable to the use o f currency in place of market into the Reserve Banks fo r a new issue o f checks, that has been noted in recent years. Treasury bonds, caused a further reduction in member" In general, however, the effects on bank reserves of bank reserves during the first half of December, despite the large demand fo r currency in recent months, have a continued large inflow of gold from abroad. The re continued to be more than offset by the heavy flow o f duction was chiefly in New Y ork City with smaller gold to this country. D uring the last quarter of 1939 declines in other parts of the country. The amount of the increase in the United States gold stock has averaged excess reserves held by the banks remained so large, about $230,000,000 a month, an amount substantially in however, that the reduction had no visible effects on the excess o f the current rate o f gold production throughout money market situation. A round the middle of the month the world, despite war-time restrictions imposed in excess reserves in New Y ork City were about $2,450,belligerent countries on movements of capital fo r private 000,000, as compared with nearly $3,000,000,000 at the accounts, which had been responsible fo r a large part end of October, and for the country as a whole amounted of the gold flow to the United States before the war to $4,850,000,000, or $680,000,000 below the peak of began. Some o f the gold shipments in the last quarter $5,530,000,000 reached on October 25. of 1939 apparently were to cover commitments made here A moderate upturn in excess reserves occurred outside by foreign countries before the beginning o f the war, New York, in the week ended December 20, and a sub some covered payments fo r the continued excess o f our stantial increase in New Y ork in the follow ing week. merchandise exports over imports, and some reflected A n acceleration of the increase is expected in January transfers o f funds to the United States by neutral as a result of the seasonal decline in the amount of countries. As a consequence o f this continued heavy gold currency in circulation, net Government disbursements, movement to the United States, it appears that, disregardand further inflows of gold. M IL L IO N S As the accom panying chart shows, net withdrawals of currency from the Federal Reserve Bank of New Y ork during the past year have been far greater than in other recent years. On December 27, the amount of currency outstanding through this bank was approxi mately $255,000,000 larger than on the corresponding date a year previous. The comparable increase during 1938 was only $75,000,000, and in 1937, when business activity declined sharply in the closing months o f the year, there was a small net reduction. F or the country as a whole, the increase in the volume o f currency out standing during 1939, while not proportionately as large as at New Y ork, has also been much greater than in pre ceding years. The net increase in 1939 was about $750,000,000, as compared with an increase of $340,000,000 in 1938 and little net change in 1937. The unusually large demand fo r currency during the past year has reflected larger payroll requirements, incident to rapidly expanding industrial production in the latter part o f the year, shipments o f United States currency to foreign countries, especially in the period preceding and C h a n g e s in V o l u m e o f C u r r e n c y O u t s t a n d i n g t h r o u g h F e d e r a l R e s e r v e B a n k o f N e w Y o r k ( W e e k l y d a t a f o r e a c h y e a r c u m u la t e d follow ing the German occupation of Czecho-Slovakia last f r o m l a s t W e d n e s d a y o f p r e c e d in g y e a r ) M o n e y M a r k e t in D e c e m b e r MONTHLY REVIEW, JANUARY 1, 1940 2 ing more or less tem porary influences such as payments for new securities sold by the Treasury and by Govern ment agencies, the underlying trend of member bank excess reserves is still upward. A pparently reflecting this situation with respect to member bank reserves (as well as the character of the war in E u rop e), and also continued accumulations of funds for investment in institutions such as insurance companies and savings banks, prices of high grade securities have advanced further during the past month, despite the tem porary decrease in excess reserves, and security yields have declined accordingly. In the first half of the month prices of high grade securities showed little net change as the markets were inactive, apparently awaiting the outcome of Treasury financing operations, but in the latter half o f the month a fairly strong rise occurred. Yields on long term Treasury bonds reached the lowest average levels since August 23. In this period sales of Government securities from the Federal Reserve open market account were resumed, and the account showed a net reduction of about $23,000,000 in the two weeks ended December 27. Prices of the highest grade corporation bonds also were firm during December and yields declined to the lowest levels since the third week of August, and yields on high grade municipal securities reached new low levels. Short term money rates were virtually unchanged. M oney Rates in New York Dec. 31, 1938 N ov. 30, 1939 Dec. 28, 1939 Stock Exchange call loans....................... Stock Exchange 90 day loans................. Prime commercial paper 4-6 months. . . Bills— 90 day unindorsed......................... Average yield on Treasury notes (3-5 years)........................................................ Average yield on Treasury bonds (not callable within 1 2 y ea rs)...................... Average rate on latest Treasury bill sale 91 day issue............................................ Federal Reserve Bank of New York discount ra te........................................... Federal Reserve Bank of New York buying rate for 90 day indorsed b ills. 1 1 *1 Vs 1 v?-Ys *lV x Mr Vs % % % 0.69 0.60 0 . 47f 2.48 ** 1 2.38 2 .3 0 0.015 0.007 1 1 Vi ^Nominal. **Is 3ue sold at par. tChange of +0.07 in average yield due to inclusion of the new issue of 1 per cent Treasury notes maturing September 15, 1944, and dropping of the 1 % per cent Treasury note issue maturing December 15, 1942, because it matures within three years. 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 New Y ork City rose somewhat further to new high levels in the four weeks ended December 20, largely because o f a substantial increase in loans to security brokers and dealers, which apparently was related chiefly to Government financing operations in December. H oldings o f direct obligations of the Govern ment showed little net change, despite purchases, of the new Treasury bonds issued on December 8, as a moderate increase in holdings of Treasury bonds was largely offset by a reduction in Treasury bill holdings. In the third week of December acquisitions of the new issue of Treasury bills were substantially less than the amount of maturing bills held by the New Y ork banks, as higher bids fo r a substantial part of the new issues were received from other banking institutions and industrial corpora* lions, which apparently wished to acquire the bills for year-end statement purposes. H oldings o f Government guaranteed securities showed a further small increase. Commercial and industrial loans were reduced slightly, apparently reflecting a belated seasonal decline. In other reporting cities throughout the country there was also a fairly substantial increase in total loans and investments, which again was due in part to an increase in loans to security dealers. In these banks there was some further increase in commercial and industrial loans, contrary to the usual seasonal tendency, and hold ings of Government and other securities also increased moderately. Investments in Treasury bonds increased more than $100,000,000, largely as a result of purchases of the new issue of December 8, but in these banks holdings of Treasury notes were reduced by more than $50,000,000 during the fou r weeks ended December 20, and holdings of Treasury bills and Government guaran teed obligations also showed some net decline. Demand deposits declined somewhat in the New Y ork City banks during the fou r week period, but increased further in the 100 other principal cities that are covered by the reports, to reach new high levels. G overnment S e c u r it ie s Allotments on public subscriptions to the new issue of 2 per cent Treasury bonds o f 1948-50, which was offered November 28 and dated December 8, amounted to $521,347,000, including $21,693,000 which was allotted to subscribers for amounts o f $5,000 or less, who specified that delivery be made in registered bonds 60 days after the issue d a te ; in addition, $50,000,000 o f the new bonds were sold to Treasury investment accounts. Follow ing the completion o f this “ new m oney’ ’ financing, the Treasury on December 12 announced a refunding opera tion involving the issuance o f 2 % per cent Treasury bonds of 1951-53 and 1 per cent Treasury notes matur ing September 15, 1944, in exchange for Treasury notes maturing March 15, 1940. O f the approxim ately $1,378,000,000 o f March, 1940, notes outstanding, $1,018,000,000 were exchanged on December 22 fo r the new bonds and $283,000,000 were exchanged for the new notes, leaving about $77,000,000 to be redeemed next March. In addition the Treasury announced that $73,000,000 o f the new bonds had been sold to Govern ment investment accounts. D uring the early days o f December prices o f Treasury bonds eased somewhat, owing to a slackening o f invest ment demand, presumably reflecting investors’ reaction to the Russian invasion o f Finland. B y the 6th o f the month, however, prices began to firm and this advance was accelerated for a week after the terms o f the Treas u r y ’s refunding program were announced on December 12. Subsequently, price movements became somewhat more irregular, but a small net advance occurred, and the average price o f long term Treasury bonds toward the end o f December showed a net advance o f about 1 y 8 points from the quotations prevailing at the end of November and reached the highest level since August 23, before the outbreak o f war. As com pared with the June high level o f Treasury bond prices, quotations at the end o f December were only 2 points lower, whereas, at the bottom o f the market in September, prices were some 91/4 points lower. A t the end o f December the average yield on Treasury bonds not callable within FEDERAL RESERVE BANK OF NEW YORK 12 years was within % per cent of the low point o f last June. Treasury note prices also advanced during December, as is indicated by a net decline of 0.20 per cent in the average yield on 3 to 5 year issues. The usual weekly Treasury bill financing was consum mated in December. Four weekly issues of $100,000,000 o f 91 day bills, to replace similar maturities, were sold at average rates which ranged from 0.019 per cent down to 0.007 per cent. C o m m e r c ia l P aper and (Millions of dollars) Type of acceptance T otal..................................................... N ov. 30, 1938 Oct. 31, 1939 Nov. 30, 1939 95 59 85 40 10 49 3 11 11 35 18 40 15 57 32 24 273 221 223 96 37 S e c u r it y M a r k e t s D uring December there was a continuance in the stock market of the inactive trading and narrow price move ments of the two preceding months. On only five days of the past month was the volume of trading as much as one million shares, and the maximum range in the general average of the stock prices was only about 2 per cent. As the month closed, industrial and public utility stocks were slightly higher than at the end of November, while railroad shares were virtually unchanged. The accom panying diagram indicates the general level o f stock prices, and also o f corporate bond prices, at the end o f the year, in comparison with the quotations prevailing during the previous three years. P R IC E B il l s A range o f % to % per cent continued to be the pre vailing level of rates fo r average grade prime fou r to six month commercial paper during December, although the larger portion o f dealers’ sales was made at % per cent. Bank investment demand fo r mercantile and in dustrial paper remained active, but largely unfilled, owing to the small quantities of new paper acquired by dealers for sale in the open market. The amount o f com mercial paper outstanding through dealers reporting to the Reserve Bank, at $214,000,000, was approxim ately $9,000,000 larger on November 30 than a month earlier. This increase of about 4 per cent occurred at a time when outstandings usually decline. The November total was approxim ately 4 per cent higher than that o f a year previous. Trading activity in the bill market during December continued to be of small proportions. Bankers’ bills were outstanding at the end of November in slightly larger amount than a month earlier, reflecting further increases in the volume of import bills and domestic warehouse credit bills. The increase of $18,000,000 dur ing October and November raised the volume o f import bills outstanding to the highest level since February, 1938. A decrease of $50,000,000 from November, 1938 in the total volume of outstanding bills has been due chiefly to reductions in export bills and in those based on goods stored in or shipped between foreign countries. Im port.......................................................... E xport.......................................................... Domestic shipment.................................... Domestic warehouse credit...................... Dollar exchange......................................... Based on goods stored in or shipped between foreign countries.................... o Movements of Stock and Bond Prices (Standard Statistics Company index of 90 stocks and M oody's Investors Service average prices of corporate bonds) Medium and lower grade corporation bonds, like stocks, showed small mixed price changes in December. Medium grade public utility bonds advanced about % o f a point on the average to reach a new high level, and industrial issues also were firmer although they remained slightly below recent highs. Railroad bonds rose about point but were quoted at prices about 5 % points below their March highs, according to M ood y ’s Investors Service average price o f Baa railroad bonds. In the high grade corporation bond market, further recoveries in prices occurred during December. The average advance o f 1 % points fo r the month was less than that o f the previous month, but it carried average prices of these bonds to the highest level since August 14 and to about % o f a point o f the July high. Thus, most o f the 10 point drop in high grade corporate bond prices which occurred between J uly and late September, has now been recovered. Prices o f high grade municipal bonds reached new highs fo r recent years, ju dging by the decline in the average yield on representative high grade municipals com puted by the Standard Statistics Company. N e w F in a n c in g A ccom panying the continued strength in high grade corporate and m unicipal bond prices in December, the market for new security issues exhibited a substantial increase in activity, and on the last fu ll business day o f the month there was publicly offered the largest piece o f railroad bond financing since June, 1936— the $60,000,000 o f Louisville and Nashville Railroad refunding bonds. The December volume o f corporate and municipal financ ing, $330,000,000, was approxim ately 75 per cent larger than that o f the preceding month and larger than that o f any month since the start o f the war in Europe. The amount representing new capital, however, still remained small. The m ajor corporate offerings, in almost every case, were quickly absorbed by investors, quotations gen erally going to a premium over the offering price. Private sales o f only three small corporate issues were reported during the month. The follow ing were the principal cor porate securities offered during December. 4 MONTHLY REVIEW, JANUARY 1, 1940 $60,000,000 48.000.000 45.000.000 10,900,000 8,000,000 7.500.000 6.750.000 Louisville and Nashville Railroad refunding col lateral trust bonds, of which $30,000,000 were ten year 3 ^ rs priced at 101 to yield about 3.40 per cent, and $30,000,000 were twenty year 4 Js priced at 100^ to yield about 3.95 per cent Public Service Company of Indiana refunding securities, of which $38,000,000 were first mort gage 4 per cent bonds of 1969 priced at 102, to yield about 3.90 per cent, and $10,000,000 were debenture 3 % ' s of 1940-49 priced to yield 0.65 to 4.20 per cent Northern In dian a Public Service Company first mortgage refunding 3 % per cent bonds of 1969 priced at par Pennsylvania W ater and Power Company refund in g mortgage and collateral trust 3% per cent bonds of 1964 priced at 104, to yield about 3.00 per cent W est V irg in ia Pulp and Paper Company first mort gage 3 per cent bonds of 1954 priced at 99, to yield about 3.08 per cent, for refunding National Supply Company first mortgage 3 % per cent bonds of 1954 priced at 101, to yield about 3.65 per cent— $5,600,000 for refunding Southwestern L ig h t and Power Company first mort gage 3 % per cent bonds of 1969 priced at 102, to yield about 3.60 per cent, for refunding O f the m onth’s total financing, municipal obligations accounted fo r $90,000,000. A m ong the larger bond awards of this type were $10,500,000 State of New Jersey, unemployment relief 1*4 Per cent bonds of 1942-49 (re deemable at par at the option o f the State after December 15, 1942), awarded at 100.521 and reoffered to yield 0.40 to 1.30 per cent; and $10,000,000 Commonwealth of Pennsylvania Turnpike Revenue 3 % per cent bonds o f 1968 (redeemable on and after August 1, 1947 at prices from 104 to p a r ), priced at 99% to yield about 3.80 per cent. Tem porary financing, other than the $14,500,000 Federal Intermediate Credit Bank 0.75 per cent consoli dated debentures awarded toward the end of the month, totaled $60,000,000. Some slowing up in new registra tions was evident during the past month, owing in part, perhaps, to the desire on the part of some companies to defer filing until financial statements covering the full calendar y e a r’s operations are available. Prelim inary figures indicate that fo r the entire year 1939 domestic corporate security issues averaged about $176,000,000 a month, o f which an average o f only $30,000,000 was fo r new capital purposes. This compares R E F U N D IN G N E W C A P IT A L M onthly Average Volume o f Dom estic Corporate Security Issues Refunding and for New Capital (In millions o f dollars) with an average o f $178,000,000 a month during 1938, o f which $73,000,000 was fo r new capital. As is shown in the accom panying chart, the monthly average rate o f cor porate financing in the last quarter o f 1939 was about 20 per cent below the level o f the previous two quarters. The monthly average rate o f corporate flotations fo r new capital during the last quarter was at the lowest level since the first quarter o f 1935. F o r e ig n E x c h a n g e s In a quiet market, New Y ork rates fo r several leading foreign exchanges registered some advance during December. The rate for the pound sterling, which had declined to as low as $3.87% on November 30, accom panying the outbreak of Soviet-Finnish hostilities, moved irregularly higher during the first half o f the past month to reach $3.951/4 on December 14. Subsequently it held relatively steady, closing the month at $3.951/4. The discount on three month deliveries narrowed slightly during the month. F ar Eastern and especially European holders continued to liquidate their sterling balances, but these offerings apparently were readily taken up by American importers and others owing debts expressed in terms o f British exchange. Meanwhile, the English authorities are reported to have under contem plation plans to tighten exchange restrictions fo r the purpose o f prevent ing unauthorized transfers of sterling assets from British to nonresident accounts, and thereby reducing the amount of sterling available fo r sale by nonresidents in outside “ fr e e ” markets. A ccordin g to an agreement between the British and French Governments, announced on December 12, the franc will be linked to the pound at the rate o f 176% until six months after the signing of a peace treaty. The French franc in New Y ork continued to move about parallel to the pound rate throughout the month, quota tions advancing from the November 30 low o f $0.0220 to a high o f $0.0224% on December 18 and ending the month at $0.0223%, for a net gain o f 3 % points. In the forw ard market, discounts on three month francs, which were nominally quoted at the equivalent o f about 16% per cent per annum at the end o f November, nar rowed to about 9% per cent in the latter part of December. Am ong the neutral European currencies, the Dutch guilder, which had been maintained around $0.5309 for about two months, firmed to as high as $0.5325 on Decem ber 18. This gain was subsequently canceled, follow ing reports that an internal bond issue o f 300,000,000 guild ers had been incom pletely subscribed by the public, but toward the end o f the month Dutch exchange again firmed to $0.5320%. The rate fo r Belgian exchange showed a net improvement o f 19 points fo r the month, closing at $0.1670, while the Swiss franc continued to move within relatively narrow limits. Trading in the non-European exchanges was featured by an abrupt depreciation of the Mexican peso, which began on December 11, follow ing the suspension by the Bank of Mexico o f its supporting operations. The peso, which since the latter part of September had held near $0.2050, was quoted at about $0.1695 near the end of December, indicating a depreciation o f 17 per cent since FEDERAL RESERVE BANK OF NEW YORK December 9. The Mexican authorities, who on December 15 declared the existence of a “ condition of em ergency’ ’ in foreign exchange, have attributed the present situa tion to the deterioration of Mexican export trade. The Cuban peso, on the other hand, improved somewhat dur ing the month, particularly follow ing the signature o f a trade agreement providing for the restoration o f the preferential duty on Cuban sugar imported to this country. The discount on Cuban exchange closed the month at about 11% per cent, as against 12% per cent at the end of November. The Canadian dollar also showed a stronger tendency, and its discount against the United States dollar narrowed from 13% to 11% per cent. Some demand fo r silver in this market appeared to have developed in the latter part of December and the New Y ork market price fo r foreign silver rose to as high as 37 cents on December 20, or considerably above the United States Treasury D epartm ent’s buying price of 35 cents an ounce, fo r the first time since the British and Indian authorities subjected importation of the metal to a licensing control toward the end of October. The Indian Government is reported to have relaxed its re strictions somewhat in order to ease the recent specula tive rise in the Bombay price, which accompanied in creased hoarding demand. G o ld M o v e m e n ts Imports of gold into the United States during Decem ber were considerably larger than in November and, in fact, appear to have been in the largest volume since last A pril. However, the amount of gold held under earmark for foreign account at the Federal Eeserve Bank o f New Y ork increased about $205,000,000 during the past month follow ing a reduction of approxim ately $340,000,000 in the preceding fou r months. A s is shown in the accom panying chart, the amount o f gold held under earmark, after declining from the peak of $1,300,000,000 reached last July to about $960,000,000 at the end of November, rose during December to about $1,165,000,000. D uring December, the gold stock of the United States increased about $285,000,000, reaching a new high of approximately $17,640,000,000. F or the year 1939, the gold stock rose about $3,130,000,000, as compared with a gain of $1,750,000,000 in 1938. 1934 1935 1936 1 93 7 1938 1939 Gold Held Under Earmark for Foreign Account at Federal Reserve Banks 5 As reported by the Department of Commerce, gold im ports into the United States during the three weeks ended December 20, totaled $361,000,000, of which $286,000,000 came to this country from Canada, $21,400,000 from Holland, $9,400,000 from Sweden, $7,200,000 from England, $6,300,000 from South A frica, $5,900,000 from Japan, $5,600,000 from Italy, $4,000,000 from Norway, $3,400,000 from Switzerland, $2,900,000 from India, $2,100,000 from Colombia, and $900,000 from H ong Kong. C e n tr a l B a n k R a t e C h a n g e s The discount rate of the State Bank o f Sweden was advanced from 2 % to 3 per cent on December 15. The lower rate had been in force since December 1, 1933. B u ild in g The daily rate at which construction contracts were awarded in New Y ork and Northern New Jersey in creased 52 per cent between October and November. Although each of the m ajor construction categories regis tered an advance in November, the most pronounced gains were in large contracts placed for public purpose building and public utility projects, which included con tracts fo r a central courts building in New Y ork City and a unit of a steam generating plant in up-State New York. Awards for residential work showed an increase of 4 per cent and contracts fo r commercial and factory building were 28 per cent higher than in October. A s compared with November, 1938, total contract awards in this area were 48 per cent greater; the largest gains were in the types of construction that showed the principal increases over October, but commercial and industrial contracts were more than 50 per cent larger than a year ago, and residential building contracts were about 10 per cent larger. D uring November the average daily rate o f construc tion contract awards in the 37 States included in the F. W . Dodge Corporation survey was the highest since December, 1938, and at a level 24 per cent above that of October. The gain over the previous month reflected ex pansion in all the m ajor construction categories, the largest of which occurred in the heavy engineering classi fication owing to the inclusion in the November figures of $35,000,000 for a Tennessee V alley A uthority project. Contracts for public purpose buildings increased 26 per cent over the relatively small volume in October ; com mercial and industrial contracts were 9 per cent larger, and residential building awards increased 7 per cent. The total volume of contracts was about the same as in November, 1938, as increases o f 57 per cent in commer cial and industrial awards, 22 per cent in residential building, 21 per cent in public utilities, and 15 per cent in public works were approxim ately offset by a 60 per cent reduction in contracts for public buildings. F or the first three weeks o f December the daily rate of construction contract awards in 37 States was 19 per cent higher than in November and the same percentage above the corresponding period o f 1938, owing to the inclusion in the public works classification o f $117,000,000 for a Tennessee V alley A uthority project. Residential build ing awards registered a 14 per cent gain over the first three weeks o f December, 1938, but contracts for other types o f building were reduced about 50 per cent. MONTHLY REVIEW, JANUARY 1, 1940 6 The follow ing table shows percentage changes fo r the first eleven months of 1939 from the corresponding period of 1938 in construction contracts awarded in New Y ork and Northern New Jersey, in other areas, and in the 37 States covered by the F. W . Dodge Corporation survey. The total value of contracts awarded in New Y ork and Northern New Jersey was approximately the same in 1939 as in 1938, owing principally to a large decline in contracts for public utility projects which about offset a substantial gain in residential building. In other areas, however, total construction contracts showed an 18 per cent increase over the first eleven months of 1938; all the principal types of construction except public purpose building contributed in some measure to the advance. The increase of 57 per cent in contracts for public utility projects in other areas was in contrast to a decrease of 58 per cent in this class of awards in New Y ork and Northern New Jersey. Contracts for commercial and industrial building also showed considerable expansion during 1939 in other areas, while in the New Y ork area the volume was somewhat smaller than in 1938. Furthermore, the gain in residential building was larger in other areas than in the New Y ork area. On the other hand, contracts for public purpose buildings showed a 22 per cent decline in other areas, compared with a slight increase in Ne^ Y ork and Northern New Jersey. Percentage Change ^ C on stru ction Contracts First eleven months of 1939 compared with same period of 1938 N. Y . and Northern N.J. Building Residential............................................... Commercial and industrial.................. Public purpose*...................................... All b u ild in g ................................... +25 — 8 + 4 +13 Engineering Public works........................................... Public utilities........................................ All engineering............................... All construction............................. Other areas 37 States +44 + 30 + 39 — 22 + 19 — 17 + 18 + 6 — 58 — 24 + 6 + 57 + 15 + 6 + 7 + 6 0 + 18 + 14 Daily Car Loadings of Merchandise and Miscellaneous Freight, Adjusted for Seasonal Variation (Four week moving average) the increase over November appears to have been of about the usual seasonal magnitude. Business activity continued to rise in November, although at a somewhat slower pace than in either of the two preceding months. There was a further sub stantial gain in the production o f durable goods, while production of nondurable goods in general was main tained at the level reached in October. The movement of freight over the railways, reflecting prim ary distri(Adjusted for seasonal variations, for estimated long term trend, and where necessary for price changes.) +22 •Includes educational, hospital, public, religious and memorial, and social and recreational building. P r o d u c tio n a n d T r a d e A fter allowing for usual seasonal variations, it ap pears that business activity in general increased some what further in December. Steel mill operations slackened somewhat as the month progressed, though the decline was less pronounced than in most other years. Autom obile production showed a marked in crease in December, owing principally to the resump tion of operations at the plants of a m ajor producer which had been shut down on account of a labor controversy during most of October and November. A ccordin g to trade reports, cotton textile mills continued to maintain a high rate of activity in December, although mill sales o f cotton goods fell short of current production except for a brief period around the middle of the month. Usually railroad car loadings of merchandise and mis cellaneous freight show a large decline in Decem ber; this year, however, the reduction appears to have been less marked than usual, and on a seasonally adjusted basis the movement of this type of freight continued the sharp advance which began in September, as the accom panying diagram indicates. E lectric powder production was at the peak of the year, as is usual in Decem ber; Average 1 93 9 1 93 8 Nov. Sept. Oct. Nov. 84 74 71 80 85 91r 63 96 108 111 93 95 94 97 70 91 88 98 60 1 10 126 101 97 89 115 79 1 48 98 90 69 p 64 111 120 106 p 97 92 126 64 87 95p 92 p 99 p 67 115 123p 113p 100 95 94 80 98 86 102 88 105p 92p Industrial Production Passenger cars................................................ M otor trucks.................................................. Bituminous coal............................................ Crude petroleum ........................................... E l e c t r i c p o w e r .......................................................... Cotton consum ption.................................... W ool consum ption........................................ Meat packing................................................ T obacco products.......................................... Employment Employment, manufacturing, U . S.......... Employee hours, manufacturing, U . S .. . Construction Residential building contracts................... Nonresidential building and engineering 42 52 44 49 79 59 47 68 79 76 74r 73 85 93 88 80 87 98 86 81 90 95 80p 87 79 98 93 90 64 88 82 104 100 105 82 87 80 106 95 101 104 93 85 109p 97 97 Velocity of Deposits* V elocity of demand deposits, outside New York City (1919-25 a ve ra g e = 1 0 0 ). . . . V elocity of demand deposits, New York City (1919-25 a v e ra g e = 1 0 0 )................. 65 60 57 62 36 34 29 30 Prices and Wages* General price level (1913 average— 100). Cost o f living (1913 a verage=100).......... W age rates (1926 average— 100)............... 154 147 110 155 148 111 155p 148 lllp 155p Primary Distribution Car loadings, merchandise and misc........ Car loadings, other....................................... Distribution to Consumer Department store sales, TJ. S..................... Department store sales, 2nd D istrict. . . . Chain grocery sales...................................... Other chain store sales................................ Mail order house sales................................. New passenger car registrations................ p Preliminary. r Revised. * N ot adjusted for trend. 86p 148 FEDERAL RESERVE BANK OF NEW YORK oution, increased further, seasonal factors considered. Distribution of goods to consumers in November also was higher than in the preceding month, as is indicated by the larger than seasonal advances in sales o f depart ment and chain stores, and trade reports indicate that the retail demand fo r automobiles was active. E m p lo y m e n t a n d P a y r o lls F or the fourth consecutive month increases were reported in New Y ork State factory employment and payrolls in November. The gains, though somewhat less than one per cent in each case, came at a time of year when there are ordinarily sizable decreases in both employment and payrolls. Sharp seasonal declines in the apparel and food industries were more than offset by continued gains at metal and machinery, chemical, and textile plants. A ll subgroups except shipbuilding in the metals and machinery classification reported in creased working forces in N ovem ber; iron and steel, nonferrous metal, automobile, and airplane factories showed increases in number of employees of over 7 per cent each. Total factory employment in New Y ork State advanced 13 per cent from J uly to November, and payrolls increased 16 per cent in the same period to reach the highest point since the spring of 1930. Compared with a year ago, employment in November was 14 per cent higher and payrolls were 20 per cent greater. F or the country as a whole, the United States D epart ment of Labor reports a decrease in working forces in nonagricultural pursuits of about 100,000 persons in November, a much smaller reduction than ordinarily occurs at this time of the year. Further increases in durable goods m anufacturing, in retail trade, and in mining partially offset declines in construction and transportation. It is reported that over 1,250,000 more persons were employed in nonagricultural occupations than in November, 1938. United States factories employed 20,000 more work ers in November than in the previous month, although usually working forces decline by about 150,000 persons during this period. Payrolls also increased slightly, contrary to the usual experience in November. Most of the employment increases occurred in durable goods lines, and were particularly marked at steel plants, foundries and machine shops, and at factories producing electrical apparatus, aircraft, and railway rolling stock. The nondurable goods classification as a whole showed a decline, substantial decreases being reported in food m anufacturing, and in clothing and shoe plants. Total factory employment was 11 per cent above the level of a year ago while payrolls were 21 per cent higher. Although farm employment in the United States de clined less during November than is usual at this time o f year, the Department o f A griculture estimates that the number of farm workers on December 1 wras the smallest fo r that date in at least 14 years. C o m m o d i t y P r ic e s Follow ing two months of irregularity, prices in several com modity markets rose substantially during December, both here and abroad. M ood y ’s Investors Service index o f 15 raw products advanced 6 per cent to about the same level as that prevailing at the end of September. 7 Probably the chief factor stimulating the rise in wheat prices to the highest levels in two years has been the protracted drought in the Southwest which, according to the Government estimate, may result in a 1940 winter wheat crop of only about 400,000,000 bushels, one o f the smallest since the turn o f the century. ^ Other im por tant factors include the spread o f hostilities abroad and reports of frost damage to the Argentine crop. W heat prices at Kansas City rose IS1/^ cents to $1.08% a bushel on December 19, but declined 5 or 6 cents subsequently as snowfalls im proved crop prospects somewhat. Cash corn reached 58% cents a bushel, up 5y 2 cents from the end of November but 4 % cents below the September high point. H og prices, under the pressure of large supplies, declined further to $5.22 a hundredweight on December 15, the lowest since August, 1934, but rallied to show little change for the month as a whole. The average quota tion of cotton at ten Southern markets rose to 11.11 cents a pound on December 13, about V /2 cents above the level prevailing at the end o f November. Later in December the price reacted to 10% cents. Im portant factors in the rise were the enlarged exports induced by rapid price advances in foreign markets, active demand by domestic mills, and anticipation o f the successive reductions in the export subsidy (from 1 y2 cents to 1 /5 cent a poun d). Repossessions of 1938 cotton from the Government loan stock on a considerable scale have been reported. Little change took place in wool quotations, while silk moved up $1.14 to $4.59 a pound, approxim ately three times the lowest price in 1938, reflecting scarcity of supplies and a high rate o f consumption in Japan. H ide prices were one cent higher at 15 cents a pound as demand from tanners increased, while rubber declined to 19*4 cents a pound, a new low point since before the war, de spite continued large domestic consumption. The price o f raw sugar in New Y ork eased 13 points to 2.82 cents a pound, the lowest level since August 15, follow ing the announcement o f the new Cuban-American trade agree ment reducing the sugar duty from $1.50 to 90 cents per hundred pounds, effective December 27, and the restoration o f sugar marketing quotas, effective Janu ary 1, 1940. A n easier undertone prevailed in metal markets gen erally during December. The Iron A ge composite price o f scrap steel, continuing its decline from the high point of $22.50 on October 3, receded 91 cents during December to $17.67 a ton. The price o f zinc was reduced y2 cent to 6 cents a pound, the first decline in more than a year, and the export price o f copper moved somewhat lower. Tin displayed a declining tendency throughout the month as the International Tin Committee announced that the permissible export quotas fo r the first three months of 1940 would be 120 per cent of basic tonnage, instead of 100 per cent as originally announced. F o r e ig n T r a d e During November merchandise exports from this country were valued at $293,000,000 and imports at $235,000,000, both substantially larger than in Novem ber, 1938. Exports, however, showed a larger decline from the comparatively large volume for October than is customary at this season of the year, while imports registered a material advance over October, contrary to the usual seasonal movement between these two months. The resulting export balance of $57,000,000 in November MONTHLY REVIEW, JANUARY 1, 1940 8 was smaller than in other recent months and was also less than the November, 1938 figure, which amounted to $76,000,000. The accom panying table shows the year-to-year changes which have occurred in the principal export and import classifications, for the first eleven months of 1939 and for the period since the outbreak of the European war. F or the first eleven months of 1939, the value of all exports was slightly lower than in the same period o f 1938, as large reductions in the first half of the year somewhat more than counterbalanced gains in recent months. In the three months follow ing the beginning of the war, aggregate exports showed a 17 per cent increase over the comparable period of 1938, and the year-to-year gain in November amounted to 15 per cent. Increased foreign demand for wholly and partly finished Am erican manu factures, especially aircraft, products of aluminum, copper, iron and steel, and certain chemicals, machinery, and petroleum products, were leading factors in the expansion of aggregate exports since last September. Shipments o f unm anufactured cotton among the crude materials also showed large gains, while exports of tobacco, in the same category, were greatly reduced. Despite war activities abroad, exports of foodstuffs from this country have continued to run substantially below those of a year ago. Percentage Change in Values Different periods of 1939 compared with corresponding periods of 1938 Exports* Im ports** Sept. to Nov. (incl.) Jan. to Nov. (incl.) N ov. Sept. to Nov. (incl.1) Jan. to Nov. (incl.) Crude materials............. — 2 .6 Crude foodstuffs............ — 55.2 Manufactured foodstuffs — 0 .9 Semimanufactures......... + 5 8 .2 Finished manufactures. + 1 8 .5 + 6 .3 — 10.5 + 1 9 .5 + 4 9 .8 + 16.1 — 14.9 — 56.7 + 1 1 .4 + 1 8 .4 + 6 .4 + 4 3 .9 + 1 7 .2 — 5 .2 + 3 8 .2 + 9 .2 + 3 4 .7 + 10.6 + 1 1 .3 + 2 6 .6 — 0 .7 + 2 5 .8 + 1 1 .9 — 2 .2 + 2 3 .3 + 5 .4 + 1 4 .9 + 1 6 .5 — 0 .9 + 2 4 .9 + 1 8 .7 + 1 4 .5 N ov. T ota l........................ *Domestic exports only. D e p a r tm e n t S tore T r a d e F or the three weeks ended December 23, total sales of the reporting department stores in this District were about 5 % per cent higher than in the corresponding period of 1938, and the daily rate of sales fo r this portion of December showed about the usual seasonal advance from November, which was a relatively good month for retail trade. Total department store sales for the year 1939, based on final figures for 11 months and an estimate for the fu ll month of December, were about 2y2 per cent larger in dollar volume than in 1938, as com pared with a decrease o f about 7 per cent between 1937 and 1938. Total November sales of the reporting department stores in this D istrict were about 8y2 per cent higher than in November, 1938, the largest year-to-year increase in over two years, and sales of the leading apparel stores in this D istrict were 5y2 per cent larger. D uring Novem ber, the daily rate o f sales in the department stores ad vanced considerably more than usual from the October level. F or all reporting department stores, stocks o f merchan dise on hand, at retail valuation, were slightly higher at the end of November, 1939 than at the end o f November, 1938, the first increase in two years; New Y ork and B rooklyn department store stocks, however, remained slightly smaller than a year previous, and apparel store stocks continued lower. Collections during November were at a somewhat higher rate than in 1938, both in the department and the apparel stores. Percentage change November, 1939 compared with November, 1938 Per cent of accounts outstanding October -31 collected in Novem ber **Imports for consumption only. W ith respect to imports the aggregate value fo r the first eleven months o f 1939 showed a gain of 15 per cent over the level in the same months of 1938. In the Sep tember to November period the expansion of imports amounted to 19 per cent, and in November the value of imports was 25 per cent greater than a year previous. The greater increase for the period since last September reflected principally larger demand for foreign raw materials, such as crude rubber, raw silk, unmanu factured wool, and hides and skins, accom panying accel erated industrial activity in this country. Imports of such semimanufactured products as copper, nickel, tin, and woodpulp also registered comparatively large yearto-year gains in recent months. The rather large Novem ber increase in imports of crude foodstuffs was due chiefly to larger receipts of cocoa and coffee. The gain o f 9 per cent over a year previous in imports o f manu factured goods was due principally to larger receipts o f burlap and newsprint p ap er; fo r the September to November period, however, finished manufactured im ports were less than a year ago, as compared with a gain for the eleven months. Imports of manufactured foodstuffs, including especially sugar, edible vegetable oils, and liquors, registered a decrease of 5 per cent from November, 1938, although for the September to Novem ber period as a whole they were larger than a year previous. Stock on hand end of month 1938 1939 — 1.2 + 5 .8 + 6 .3 + 9 .0 + 4 .6 + 3 .5 + 6 .4 50.4 4 2.7 5 5.0 4 3.4 43.9 4 1.0 3 6.3 51.9 45.8 62.0 4 3.8 42.2 4 0.8 38.0 + 8 .7 + 0 .9 4 7.6 4 8.7 + 5 .5 — 2 .3 4 8.0 4 9.1 Locality Net sales New York and B rooklyn................................ Buffalo........ ........................................................ Rochester............................................................ Syracuse.............................................................. Northern New Jersey....................................... Bridgeport.......................................................... Elsewhere............................................................ Northern New York State......................... Southern New York State.......................... Hudson River Valley D istrict................... Westchester and Stam ford......................... Niagara Falls................................................. + 7 .4 + 1 1 .3 + 1 1 .7 + 1 3 .1 + 10.7 + 1 5 .6 + 1 3 .2 + 1 1 .9 + 9 .6 + 16.1 + 14.6 + 10.9 + 13.8 All department stores............................. Apparel stores............................................ Department Store Sales and Stocks, Second Federal Reserve District (1923-25 average=100) 1939 1938 Sales, unadjusted.............................................. Sales, seasonally adjusted............................... Stocks, unadjusted............................................ Stocks, seasonally adjusted............................ r Revised. N ov. Sept. Oct. N ov. 106 89 97 93 104 91r 115 97 81 78 88 77 93 78 93r 78r FEDERAL RESERVE BANK OF NEW YORK MONTHLY REVIEW, JANUARY 1, 1940 Business C onditions in the U nited States PE R C E N T 14 0 1---------- (Summarized by the Board of Governors of the Federal Reserve System) 130 OLLOWING a rapid rise after the outbreak of the European war industrial activity continued at a high level in November and the first half of December. There was a considerable increase in distribution of commodities to consumers while prices of basic commodities, which had been steady during November, rose somewhat in the first two weeks of December. F 100 P r o d u c t io n 90 70 m 1937 1934 Index o f Physical Volum e o f Industrial Production, Adjusted for Seasonal Variation (1923-25 a v e ra g e s 100 per cent) 1934 1935 1938 1936 1939 Index o f Total Loadings o f Revenue Freight, A djusted for Seasonal Variation (1923-25 a v e r a g e s 100 per cent) PE R C E N T 110— 100 The Board’s seasonally adjusted index of industrial production advanced from 121 to 124 per cent in November, reflecting sustained activity at a period of the year when a decline is usual. Production of durable goods, which had advanced rapidly for several months, showed a further expansion. Record pro duction of steel ingots continued in November and was followed by a less than seasonal decline in the first half of December. Automobile production increased in November, notwithstanding the fact that plants of one important company remained closed pending settlement of an industrial dispute. After this was settled at the end of November assemblies rose sharply. Retail sales of new automobiles were in large volume in November and at the end of the month dealers’ stocks of new cars apparently were smaller than at the corresponding time in other recent years. Lumber production declined less than seasonally in November but plate glass production, which had reached a high level in October, showed a reduction. Output of nondurable goods continued at a high level in November. At cotton and woolen mills activity increased somewhat further and was close to the record levels reached three years ago. Rayon production advanced to new high levels but at silk mills there was a sharp decline following substantial increases earlier this fall. Output of flour and sugar declined further from the levels reached in September while changes in activity at shoe factories and meat packing establishments were largely seasonal in character. Coal production in November declined somewhat from the high level reached in October. Output of crude petroleum increased further and iron ore shipments continued in exceptionally large volume until the Great Lakes’ shipping season closed in the latter part of the month. Value of construction contracts, as reported by the F. W. Dodge Corpora tion, increased in November following a sharp decline in October. In both months changes in total awards reflected principally fluctuations in the volume of contracts for public construction. Private residential awards declined some what less than seasonally in November, while awards for other private projects showed little change. Contracts for private work, both residential and non residential, were larger than a year ago, while those for public projects were below the high level of that time when contracts under the Public Works Administration program were being awarded in large volume. E m ployment S ALES/V A - - V \ Af y \ A - / A 7 ? Factory employment and payrolls continued to increase in November, reflecting chiefly further sharp advances in industries producing steel, machinery, and other durable goods. J V V j ^ D is t r ib u t io n J -s. .......-^ 5 T < O CKS 50 1934 1938 1935 Indexes o f Value o f Department Store Sales and Stocks, Adjusted for Seasonal Variation (1923-25 average= 1 0 0 per cent) In November distribution of commodities to consumers increased con siderably. The Board’s seasonally adjusted index of department store sales, which had been around 90 in the three preceding months, advanced to 94, a level about the same as at the peak in 1937 when prices of commodities sold at department stores were generally somewhat higher than at present. Freight car loadings showed less than the usual seasonal decrease from October to November and the Board’s adjusted index increased from 80 to 82, which was only slightly under the recovery peak reached in the early part of 1937. Shipments of ore and miscellaneous freight declined less than is usual in November, while loadings of coal decreased more than seasonally from the relatively high October level. C o m m o d it y P r ic e s Prices of both industrial materials and foodstuffs advanced from the latter part of November to the middle of December. Wheat and silk prices rose con siderably and there were smaller increases in cotton and hides. Prices of steel scrap and nonferrous metals, on the other hand, showed declines. A SURY BO NDS jK. r ------TRE 12 YE: ars & o \ ^ER Ns . X I | V A RESERVE B A N K i DISCOUNT RATE i | i) 3 -5 YEARS *t --------- Tnr aei inv qii i c — 1 NEW ISSUES , x fJ ■'~A-----'\ _ _____ 1934 1935 M oney Rates in New York City Governm ent S e c u r it y M a r k e t Prices of United States Treasury bonds advanced sharply during the last half of November to a level not far below the all-time high point of last June and remained steady during the first half of December. J ^ ............"TR E A S U R Y NOTES** 1 K ^ Bank C r e d it Total loans and investments at reporting member banks in 101 leading cities rose substantially during November and the first half of December, reflecting largely purchases of new United States Government securities. Com mercial loans, which had been increasing since August, continued to rise until the third week in November. Deposits increased further.
@FedFRASER