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MONTHLY REVIEW o f C r e d it a n d B u s in e s s C o n d it io n s Second F e d e ra l R e se rv e ________________ Federal Reserve Bank, New York M o n e y M a r k e t in D e c e m b e r In the money market, the month of December was characterized on the one hand by a sharp, though tem porary, reduction in excess reserves of the member banks, and on the other by further expansion in member bank credit. Meanwhile, a further net decline occurred in yields on United States Government and municipal secur ities, attributable at least in part to the issuance of a fully taxable Treasury note issue and to further indications that efforts will be made in the near future to eliLjua^ tax exemptions from future issues of long term United States Government securities, as both developments tended to increase investment interest in outstanding United States Government and m unicipal issues. Excess reserves of all member banks were reduced by a net amount of $490,000,000 from $6,930,000,000 on November 27 to $6,440,000,000 on December 24, owing to two principal factors—an increase of $282,000,000 in Treasury deposits in the Reserve Banks and a further increase of $352,000,000 in the amount of currency out standing. Absorption of reserve funds from these causes considerably exceeded an increase in the gold stock amounting to $175,000,000, which, although the principal factor of gain to member bank reserves during the four week period, represented the smallest rise in the gold stock in many months. The increase in Treasury balances at the Reserve Banks was due largely to payments to the Treasury for the $531,000,000 Treasury note issue of the National Defense series, about three fourths of which was paid for in cash on December 18, and one fourth by credits to the W ar Loan Deposit accounts on the books of subscribing banks. The increase of $352,000,000 in the amount of currency outstanding between November 27 and December 24 was considerably in excess of the usual seasonal rise at this time of year, continuing the tendency for currency circulation to rise to progressively higher levels. Ordinarily, a substantial amount of cur rency returns to the Reserve Banks after Christmas, and the resultant additions to member bank reserves, supple mented by Treasury disbursements and increases in the gold stock, should cause a renewed accumulation of excess reserves in the member banks in January. The accompanying diagram indicates the changes which have occurred during each of the past four years D is tric t January 1 , 1941 in the amount of currency outstanding through the Federal Reserve Bank of New York, cumulated from the last W ednesday of the preceding year. As the diagram shows, the increase during 1940 was even larger than in 1939, and on December 24 approximately $325,000,000 more currency was outstanding through this bank than on the last weekly reporting date in 1939. This net outflow of currency followed an out flow of more than $250,000,000 during 1939. A number of factors are believed to have been responsible for the continued " ‘°e in currency circulation, although 11 ° relative importance of these factors, such as bank service charges, low level of interest rates on savings accounts, foreign demands for United States currency manifested both in this country and abroad, and the level of busi ness activity, is not known. It is of some significance, however, that in the latter part of 1937, when business activity was undergoing a sharp reduction, the amount of currency called into use showed only a slight sea sonal rise in the closing months of the year. In 1940, with business activity rising sharply, a substantial in crease in currency circulation was to be expected from this factor, quite aside from other influences. millions OF DOLLARS + 350 + 300 + 250 +200 + <50 + 100 + 50 0 - 50 - too - 150 JA N FEB MAR APR MAY JUN J U L AUG SEP OCT NOV DEC Changes in Volume of Currency Outstanding through Federal Reserve Bank of New York (Weekly data for each year cumulated from last Wednesday of preceding year) 2 MONTHLY REVIEW, JANUARY 1, 1941 R is e i n M e m b e r B a n k C r e d it Owing in part to loan expansion and in part to p u r chases of securities, total loans and investments of the weekly reporting banks in 101 cities increased $700,000,000 further during the four weeks ended De cember 24, to reach a new high level, approximately $1,200,000,000 above the 1929 peak. W ith respect to loans, those classified as commercial, industrial, and agricultural increased $105,000,000 further at a time when there is usually some seasonal reduction; this expansion was fairly widespread throughout the country. Loans to brokers and dealers in securities, although still at very low levels, rose by a net amount of $78,000,000, of which nearly two thirds occurred at New York City banks, the increase apparently being only partly ac counted for by borrowings by dealers in Government securities in connection with December Treasury financing. The investment holdings of the reporting banks showed an increase of $476,000,000 which was about twice the rise in their loans. To a considerable extent the increase in investment holdings reflected acquisition of United States Treasury notes, holdings of which rose $276,000,000 dur ing the four weeks ended December 24; $234,000,000 of this increase occurred in the week ended December 18, presumably indicating that a substantial part of the $531,000,000 new issue of National Defense notes was taken by the reporting banks for their own account. The United States bond holdings of the reporting banks also showed an increase of $61,000,000 during the four weeks ended December 24, which was entirely accounted for by increases in holdings of such obligations by New York City banks. Holdings of Government guaranteed securities and of miscellaneous securities by New York City banks likewise increased during this period, and holdings of miscellaneous securities by banks in 100 other cities also tended to rise. A djusted demand deposits of the reporting banks rose to new high levels in December. Domestic inter bank deposits in New York City banks stood at $3,800,000,000 on December 24, an increase of $400,000,000 during the past year. G overnment S ecurities Government bond price fluctuations were indecisive in the first five trading sessions of December but, sub sequently, prices moved higher both in anticipation of, and after, the T reasury’s announcement on December 10 that the T reasury’s midmonth financing would be confined to a cash offering of $500,000,000 of taxable notes. The notes, dated December 18, carrying a % per cent coupon, and m aturing in five years, comprised the first issue of National Defense securities other than bills under the authorization of the (first) Revenue Act of 1940, and they were also the first Treasury notes that have been issued which are subject to all Federal income, estate, and gift taxes. The new Defense notes, heavily oversubscribed on December 11, were allotted on the basis of 13 per cent of individual subscriptions but not less than $100 on any one subscription. Total subscrip tions allotted amounted to $530,838,700, of which about half was allotted in the Second Federal Reserve District. A fter establishing a new record high on December 10, the average price of long term Treasury bonds declined % of a point by December 20, but subsequently showed a net recovery of about % point. The medium term Treasury issues acted in much the same way. Treasury note prices moved up slightly from the beginning of December to the 9th, the average yield on 3 to 5 year Treasury notes declining from 0.35 per cent to 0.31 per cent (a new low). Through most of the remainder of the month prices held at a somewhat lower level. Treasury bill financing during December consisted of four weekly issues in the National Defense Series, each in the amount of approximately $100,000,000 and each a replacement of similar m aturities. The accepted bids for the issue dated December 4 were awarded at 0.002 per cent and those for the December 11 issue at 0.001 per cent. Except for $30,000 tendered at slightly above par, the bids accepted for the December 18 issue were tendered at p ar; those for the December 26 issue were at prices slightly above par and at par. M oney Rates in N ew Y o rk Dec. 30, 1939 N o v. 30, 1940 Dec. 30, 1940 Stock Exchange ca ll lo a n s ...................... Stock Exchange 90 day lo a n s ................ P rim e com m ercial paper 4-6 m o n th s . . B ills — 90 day u nindorsed........................ Average y ie ld on Treasury notes (3-5 Average yie ld on Treasury bonds (not callable w ith in 12 ye ars)................. Average rate on latest Treasury b ill sale, 90 day issue.................................. Federal Reserve B a n k o f N ew Y o rk discount r a te .......................................... Federal Reserve B a n k of N ew Y o rk b u yin g rate fo r 90 d ay indorsed b ills 1 1 *1H M-*A % 1 *1H tt-Vs We *1H y2- % 0 .4 6 0 .3 5 0 .36# 2.30 2 .0 4 1.98 0.007 0 .004 1 1 H t 1 H H * N om in al. X N egative yield . # Change of + 0 .0 3 per cent fro m previous yields due to drop p ing fro m the average the 1 Y% per cent Treasury note issue of December 15, 1943, w hich matures w ith in three years. C ommercial P aper and B ills During December the limited supply of paper remained the prim ary influence restricting transactions in the com mercial paper market. Rates previously in effect were m aintained. The amount of paper outstanding through reporting commercial paper houses at the end of Novem ber was $231,800,000, or approximately $20,000,000 less than a month earlier—a decline sufficient to cancel the increases of the preceding three months. A year ago outstandings aggregated $214,400,000. The bill m arket continued during December in the same dorm ant condition that has prevailed for some time past, and quoted rates held steady. The total amount of bankers acceptances outstanding at the end of No vember was approximately $196,700,000, a further FEDERAL RESERVE BANK OF NEW YORK 3 monthly increase of $10,000,000. This increase was ac counted for by moderate rises in outstandings of im port bills and domestic warehouse credits. As compared with November, 1939, bills outstanding were down $26,000,000, principally because of a decline in export bills. N ew F in a n c in g D uring December a total of $560,000,000 of corporate and municipal new security issues was publicly offered or privately sold; more than two thirds of the total financ ing was concentrated in the first half of the month. This was the largest total for any month since June, 1939, with the exception of October, 1940. Corporate financing, YEAR QUARTER QUARTER 1939 1940 which amounted to $380,000,000, exceeded that of any Monthly Average Volume of Domestic Corporate Security Issues month during the last three and one-half years with the for Refunding and for New Capital (In millions of exception again of October, 1940. However, the amount dollars; fourth quarter 1940 data preliminary) representing new capital, $55,000,000, was below the aver age of recent months. bonds. A substantial amount of other new security flota The principal corporate and municipal new security tions is reported to be under consideration by various issues marketed during December were as follows: companies, but few of the issues have yet progressed to the point of registration with the Securities and Corporate Exchange Commission. $101,800,000 Appalachian Electric Power Company securities consisting o f $70,000,000 o f 3 % per cent first As indicated in the accompanying chart, the monthly mortgage bonds o f 1970, priced at 107 to yield average of corporate new security issues during the final 2.90 per cent; and 300,000 shares ($31,800,000) quarter of 1940 was the largest for any quarter in more o f 4:Y2 per cent preferred stock priced at 106; for than two years. For the calendar year as a whole, cor refunding purposes porate financing averaged $225,000,000 a month, which 70.000.000 National Dairy Products Corporation securities consisting o f $55,000,000 3 % per cent term de with the exception of 1936 was the highest level reached bentures of 1960, priced at 104% to yield 2.93 since 1930. Corporate flotations representing new capital per cent; and $15,000,000 0.375-2.10 per cent averaged $60,000,000 a month in 1940 or almost double the serial debentures maturing 1941-50, priced at average for 1939. The portion of corporate financing par; $2,600,000 o f the above for new capital arranged through the private placement of securities purposes 53.000.000 Boston Edison Company 2 % per cent first mort represented about one third of the grand total, approxi gage bonds o f 1970, priced at 105 to yield 2.51 mately the same proportion that prevailed in 1938 and per cent; for refunding purposes 1939. 50.000.000 Detroit Edison Company 3 per cent general and refunding bonds o f 1970, priced at 107*4 to yield 2.65 per cent; for refunding purposes. M unicipal $55,000,000 City o f New York 2 % per cent serial 1941-70, priced to yield 0.30-2.85 per new capital purposes 27,750,000 Port o f New York Authority 3 per cent 1975, priced at 102% to yield 2.875 per refunding purposes 25.000.000 New York State 1V2 per cent serial bonds 1941-80, priced to yield 0.15-1.56 per new capital purposes. bonds o f cent; for bonds of cent; for maturing cent; for Short term State and m unicipal awards not included in the $560,000,000 total accounted for an additional $105,000,000. Included in this classification were $45,000,000 New York City 0.25 per cent revenue bills m atur ing in March and April, 1941, and $25,000,000 Common wealth of Pennsylvania 1% per cent tax notes m aturing in April, 1941. The latter were reoffered to yield 0.15 per cent. Public announcements made during December indicate the following forthcoming issues: $35,000,000 Phillips Petroleum Company debentures and notes, $12,570,000 Union Pacific Railroad Company equipment trust certifi cates, and $11,500,000 Southern Counties Gas Company S e c u rity M a rk e ts Stock prices, which had been declining in the latter part of November, continued to ease early in December. Slightly firmer quotations prevailed between December 6 and 13, however, owing in p art perhaps to news of Greek and B ritish m ilitary successes. Subsequently, prices again weakened and at the month ’s low on Decem ber 23 the average price of common stocks included in Standard Statistics 90 stock index showed a cancellation of 42 per cent of the June-November rise and was 19 per cent below the y ear’s high reached on January 3, 1940. As the month neared its close a stronger tone was in evidence. In contrast to the experience in November, public utility stocks were steadier in December than in dustrial or railway issues. The volume of stock trading picked up somewhat after the first week of December but did not approach the early November level. Prices of high and medium grade bonds reached new highs during December. The price average of the prime corporate bonds constituting the Aaa list of Moody's Investors Service advanced about % point between November 30 and December 12 to another record level, but, subsequently, this gain was lost. The average price 4 MONTHLY REVIEW, JANUARY 1, 1941 of Moody’s Baa (medium grade) corporate bonds moved up % of a point between December 2 and 17, again estab lishing a new high, which, in turn, was slightly exceeded on the 30th, after an intervening period of somewhat low er quotations. High grade m unicipal bonds, as measured by the Standard Statistics price index, moved irregularly after setting another record high on December 11. As in November, the possibility that tax exemption features of m unicipal bonds might be eliminated from future issues apparently had a bearing on the strong showing of the municipals early in December. G o ld M o v e m e n ts Im ports of gold into the United States during Decem ber were considerably smaller than in other recent months, and the increase of about $195,000,000 in the gold stock of the United States was the smallest for any month since October, 1939. The amount of gold held under earmark for foreign account at the Federal Reserve Banks was reduced about $5,000,000 during December to a total of approximately $1,810,000,000. For the year 1940, the rise in the gold stock was far greater than in any previous year, amounting to about $4,350,000,000, as compared with the previous record of $3,130,000,000 in 1939. Earm arked gold holdings for foreign account rose $650,000,000 during the past year. In the five weeks ended December 25, the Departm ent of Commerce reported the receipt of $200,800,000 of gold in the following principal amounts: $142,300,000 from Canada, $15,000,000 from Australia, $13,000,000 from Argentina, $9,100,000 from B ritish India, $4,200,000 from Japan, $4,100,000 from the Philippines, $3,200,000 from South Africa, $2,800,000 from Colombia, $1,500,000 from Portugal, and $1,100,000 from Chile. F o re ig n E x c h a n g e s D uring the month of December trading in the New York foreign exchange m arket continued inactive and exchange rate fluctuations were insignificant. The low volume of turnover in the exchange m arket is, of course, the result not only of the various legal obstructions to capital movements, both here and abroad, but also of the greatly increased tendency for exports and imports to be invoiced in term s of dollars instead of foreign currencies. The Canadian m onetary authorities have issued sev eral additional regulations, at least one of which should have the effect of restricting further the demand for the Canadian dollar in the free market. The regulations have been revised to prevent the use by nonresidents of “ free m arket” Canadian dollars in paym ent for various busi ness services rendered in Canada, although certain small services are exempt from this order. In the New York market, the unofficial discount on Canadian dollars widened from 13 per cent at the beginning of the month to 14% per cent on December 10, but narrowed again to close the month at 13% per cent. Some movement occurred in the rate for the Shanghai dollar during the past month. Following the announce ment that $100,000,000 was to be made available to the Chinese authorities by United States Government agen cies, the quotation for the Chinese currency appreciated somewhat to 6 cents in the early p art of December. Sub sequently, however, a weaker tendency developed, ap parently in anticipation of the early establishment of a new central bank in the area controlled by the Nanking Government. The prospect of the substitution of a new currency for National Chinese dollars now circulating in this area may have stimulated a speculative demand for foreign exchange in the Shanghai market* The Chinese dollar was quoted as low as 5% cents on Decem ber 23. By the end of the month, however, the rate had recovered slightly. The discount on the Cuban peso tem porarily widened somewhat on December 10, but showed no net change for the month as a whole. A tem porary reaction also oc curred in the Swiss franc in mid-December, when the rate declined to $0.2318, but a recovery to around $0.2321 occurred shortly afterw ard. F o re ig n T ra d e Exports of merchandise from the United States, at a value of $328,000,000 during November, showed a de crease of about 5 per cent from the previous month, though exceeding the figure of a year earlier by 12 per cent. On the other hand, imports, valued at $223,000,000, were 8 per cent larger than in October but 5 per cent less than in November, 1939. The resulting excess of exports of $105,000,000 in the past November was nearly double that of a year previous but was smaller than the export balance in most months of 1940. The decline between October and November in the value of exports was due in part to decreases of a sea sonal nature in exports of agricultural products, and in part to reductions in shipments abroad of a num ber of nonagricultural products. Cotton exports were valued at approximately $3,000,000 less than in October and were equal to only about one-fourth the November, 1939, figure. Shipments abroad of aircraft—largely to Great B ritain—declined to $26,738,000 in November from $31,389,000 in the previous month, but were four times as large as in November, 1939. There was also a sizable drop between October and November in exports of iron and steel semimanufactures. On the other hand, exports of automobiles (both passenger cars and motor truck s), gasoline, metal-working machinery, and firearms exceeded those of October, and the m ajority of these exports showed exceptionally large gains over November, 1939. Among the imports, the principal factors in the increase between October and November were considerably larger receipts of silk, ferro-manganese, furs, new sprint paper, coffee, and hides and skins. Im ports of copper, burlap, fruits and nuts, and tobacco, however, were somewhat smaller than in the previous month. Compared with November, 1939, large dollar gains were recorded in receipts of such commodities as rubber, silk, tin, sugar, wool, and copper, while considerable reductions were shown in im ports of woodpulp, coffee, diamonds, and expressed vegetable oils. FEDERAL RESERVE BANK OF NEW YORK For the first eleven months of 1940, total exports amounted to $3,703,000,000 and imports to $2,372,000,000. The Departm ent of Commerce estimates that exports and imports for the entire year of 1940 will aggregate $4,000,000,000 and $2,600,000,000, respectively. On the basis of these estimates, exports for 1940 would exceed those for any calendar year since 1929; imports, with the exception of 1937, would be the largest since 1930. Exports from this country to Canada during the first ten months of 1940 amounted to $561,000,000, repre senting 17 per cent of the aggregate value of shipments io all nations, and imports from Canada amounted to $327,000,000, which was equal to 16 per cent of the total value of imports into the United States from all countries. Exports to Canada in the ten months ex ceeded the dollar volume in the corresponding period of 1939 by $178,000,000—a 46 per cent increase; receipts of products from Canada showed a gain of $58,000,000, or 22 per cent over the first ten months of 1939. As is indicated in the accompanying table, more than one half of this country’s exports to Canada in the first ten months of 1940 consisted of finished manufactures. Large gains compared with the corresponding period of 1939 in exports of these products, as well as of semimanufac tures were no doubt due chiefly to increased demands from Canada for war materials. As in the case of ex ports, finished m anufactures were the leading economic group among imports from Canada, although the increase over the comparable period of 1939 in imports of this classification was relatively small. Im ports of semimanu factured goods, however, showed a substantial gain, owing in part to greater requirements in this country of Cana dian woodpulp and nickel. U nite d States Merchandise Trade w ith Canada (In m illions of dollars) Value, firs t 10 months of 1940 Change in value fro m corresponding period of 1939 E x p o rts * Im p o rts * * E xp o rts* Im p o rts * * Crude m a te ria ls............. Crude foodstuffs............ M a n u fa ct’d fo o d stu ffs.. Sem im anufactures......... Finished m anufactures. 122.9 28.5 11.4 9 5.3 302.6 4 2.7 2 9.3 19.0 112.5 123.6 + 20.7 + 6 .3 + 0 .8 + 42.1 + 1 0 7 .6 + 1 1 .1 + 0 .6 — 1.0 + 3 0 .8 + 16.9 T o ta l........................ 560.7 327.1 + 1 7 7 .5 + 5 8 .4 *D om estic exports * *Im p o rts fo r consum ption B u ild in g The average daily rate at which construction contracts were awarded in 37 E astern States during November showed an increase of 8 per cent over October and reached the highest level for any month since June, ] 930, according to data of the P. W. Dodge Corporation. In comparison with November a year ago the daily rate of awards was 27 per cent higher. More than one quarter of the November total was accounted for by pro jects associated with National defense, a considerably larger proportion than in October. Well above half of the National defense construction contracts during November was concentrated in non residential building. On a daily average basis, awards 5 THOUSANDS Daily Average Contracts Awarded for Industrial Building in 37 States (F. W . Dodge Corporation data; six month moving averages of monthly seasonally adjusted data) in this category also reached the highest level since June, 1930, and were 18 per cent larger than in October and 91 per cent greater than in November, 1939. Indus trial building was the im portant factor in the rise in the nonresidential classification; public purpose building made the poorest comparisons. Augmented to some de gree by cantonment construction, residential building contracts in November attained the highest level since July, 1929, were 12 per cent larger than in October, and 31 per cent above those a year earlier. Owing to a falling off in public works awards, heavy engineering construction lagged 12 per cent behind the October volume and 25 per cent behind that of a year previous. The accompanying chart portrays the sharp rise which has occurred in industrial building. In the six months ended with November the volume of contracts awarded in this class exceeded that of any other six m onths’ period since 1929, and awards in November alone, aggregating $79,000,000, reached the largest monthly total in the sixteen years for which records are available. Industrial building was im portantly stimu lated by the National defense program during the second half of 1940; projects identified with the defense effort accounted for a little less than half of the total value of industrial building awards in the period June to Novem ber, inclusive. Contract awards for industrial building usually account for 10 per cent or less of awards of all classes; in November this percentage rose to 21. In New York and N orthern New Jersey, building contracts in November showed quite different tenden cies from those prevailing in the 37 Eastern States. Defense construction bulked somewhat larger in the total for this area in November than in October, but the daily average rate of contract awards of all classes declined 13 per cent below October and 33 per cent below November, 1939. The decline from October in this area was caused wholly by a sharp drop of 54 per cent in nonresidential building, which was down 65 per cent as compared with a year before. In this category, the industrial, public purpose, and commercial classifica tions all showed substantial reductions from October levels, while miscellaneous building rose 29 per cent. 6 MONTHLY REVIEW, JANUARY 1, 1941 Largely as a result of new defense construction, the rate of awards for heavy engineering projects was up slightly from October, but nevertheless was 28 per cent below the level prevailing in November, 1939. A 21 per cent increase in residential building over the October level was largely accounted for by defense projects. November residential building awards were in about the same daily volume as a year before. D uring the first two weeks of December, the daily rate of construction contract awards in the 37 States declined 7 per cent from the level prevailing in the month of November, but was 82 per cent above the corresponding weeks of 1939. The decline from November was attribu table prim arily to a decrease of 26 per cent in the rate of residential building awards. The daily average rate of heavy engineering awards was also off slightly. Non residential building, however, was 10 per cent above the November rate, and for the first time since January, 1939, the value of contracts awarded for nonresidential build ing was greater than awards made for residential building. C o m m o d ity P ric e s Although some rising tendencies were apparent in the principal wholesale commodity m arkets during Decem ber, prices of most basic commodities moved within rela tively narrow limits and registered only small net changes for the month as a whole. The accompanying chart shows the course, since the outbreak of the present European war, of the Bureau of Labor Statistics daily price index of 28 basic com modities. The combined index has held relatively steady for the past six weeks, following an advance of about 11 per cent from the August, 1940, low point. The cur rent level is nearly 1 8 ^ per cent above the prewar (August, 1939) average. W heat prices sagged slightly in the first half of De cember, refleeting some seasonal increase in country offer ings and reports of favorable crop weather, but tended PERCENT Daily Index of Wholesale Commodity Prices, Computed by Bureau of Labor Statistics (August, 1939=100 per cent; weekly plottings) to display strength throughout the rem ainder of the month. A Government forecast, announced on Decem ber 20, placed the 1941 winter wheat crop at 633,000,000 bushels, which would be the largest since 1938. Spring wheat in Minneapolis at 89 cents a bushel on December 30 was 2 cents higher than at the end of November. Corn in Chicago, however, showed little net change for the month. Hog quotations advanced 98 cents further to $6.96 a hundredweight, and steers at $12.58 a hundred weight on December 27 were the highest since November, 1937. Following the Government announcement of the 1941 sugar quota at the lowest initial figure since 1936, the price of sugar advanced to 2.95 cents a pound on December 11, but subsequently moved lower, with a net gain of 5 points for the month. Under the stabilizing influence of the cotton loan pro gram, cotton prices fluctuated only slightly during most of the past month, but strengthened considerably in the last few days’ trading. The Government’s estimate, pub lished on December 9, of the 1940 crop based on condi tions as of December 1, shows a downward revision to 12.686.000 bales, compared with the previous estimate of 12.847.000 bales. There was a net advance during the month of 33 points to 9.83 cents a pound in the average price for spot cotton in 10 Southern markets. Wool tops rose 4 cents further to $1.24 a pound on December 17, but subsequently lost most of that gain. Silk quotations remained steady throughout the month, but prices of hides and rubber drifted somewhat lower. The metal markets were generally firm in December. According to the composite indexes of the Iron A g e , pig iron prices were advanced 83 cents during the month to $23.44 a ton, the first change since September, 1939, and scrap steel prices rose 83 cents further to $21.83 a ton, the highest price since October, 1939. Custom smelter and export copper prices were up somewhat, but the quotation for lead in New York was lowered on December 2 from 5.65 to 5.50 cents a pound, at which level it was m aintained throughout the rem ainder of the month. P ro d u c tio n a n d T ra d e Available data for December indicate a further rise in the general level of business activity, seasonal factors considered. In retail trade there was the usual sharp expansion, and departm ent store sales apparently reached the highest Christmas level since 1929. Industrial opera tions in many cases showed marked resistance to the curtailm ent which ordinarily characterizes December, and building construction was unusually active consider ing the season of the year. Despite tem porary interruptions for necessary repairs, steel mill operations again averaged about 96 per cent of capacity (after making allowance for Christmas holi day shutdowns). In most past years there has been a substantial seasonal contraction in steel making between November and December. E arly in the month the cur rent scale of steel prices was reaffirmed for the first quarter of 1941, but incoming orders continued in heavy FEDERAL RESERVE BANK OF NEW YORK volume throughout the month and trade comments indi cated that there was a further increase in backlogs of unfilled business. A formal order priority system under Government sponsorship was reported under discussion, but no definite action instituting such a system was announced. Automobile m anufacturers maintained heavy production schedules in an effort to satisfy a strong retail demand for cars and trucks, as well as to build up dealers’ stocks. Although mill sales of cotton gray goods were comparatively light, it was reported that the mills continued at a high rate of activity on orders previously booked. Railway freight traffic was reduced less than in most other years, and electric power pro duction, at the peak of the year as is usual in December, appears to have increased more than seasonally over November. In November the upswing in business activity con tinued vigorously; this bank’s index of production and trade—to some extent aided by the failure of usual sea sonal contractions to develop in a number of lines— moved up 3 points further to 99 per cent of estimated long term trend, the highest level in more than ten years. In November, 1939, the index stood at 93. Each of the m ajor segments of the index—production, prim ary dis tribution, and distribution to consumers—contributed to the general advance in November. In production, both durable and nondurable goods industries continued to benefit from a sustained flow of National defense and w ar orders and an active demand for goods from civilian sources. Near capacity opera tions again prevailed at steel mills, machine tool plants, shipyards, and airplane factories. The daily rate of automobile production in November exceeded that of any other month since the spring of 1937, although the gain over the relatively high rate of October was not so pronounced as in some recent years. The sharp rise in operations at cotton and woolen textile mills, which began last summer, proceeded further in November, as the accompanying chart indicates, and new record levels were attained. Shoe production declined much less than is usually the case in November, and electric power pro duction moved steadily higher. Railroad freight car loadings as a whole declined con siderably less than usual in November; coal shipments, which had been curtailed in the previous month, recov ered sharply in November. Retail trade made an excep tionally favorable showing; the brisk demand for auto mobiles was unabated, and, after allowance for seasonal factors, sales of departm ent stores, mail order houses, and chain store systems expanded markedly. (Adjusted fo r seasonal varia tio n s and estim ated long te rm tre n d ; series reported in dollars are also adjusted fo r price changes) 1939 1940 N o v. Sept. Oct. N ov. 93 94 99p P roduction of: Producers’ durable goods....................... Producers’ nondurable goods................. 96 p 96 100 97 100 lO lp lO lp 107p 106p Consumers’ durable goods..................... Consumers’ nondurable goods............... 66 97 79 96 86p 98p 80 p lO lp P rim a ry d is trib u tio n .................................... D is trib u tio n to consum er............................ 89 95 87 96 87 p 97 p 92p 102p 127r 66 96r 92 98 115 122 117 100 97 114 117 96 85 101 112 133 99 101 90 121 116 79 86 103p 116 134 99 p 108 95 128 94 92p 86 p 104p 125 151 lllp 111 95 96 94 98 95 lOOp 97p 103p 102p Index of Production and Trade Industrial Production A u to m o b ile s ................................................... B itu m in o u s coal............................................ Crude p e tro le u m ........................................... E le ctric p o w e r............................................... C o tto n co nsum ption.................................... W ool consum ption........................................ M e a t p ackin g ................................................. Tobacco p ro d u c ts ......................................... Manufacturing Employment E m p lo y m e n t.................................................. M an-hours of e m plo ym e nt......................... Construction R esidential b u ild in g contra cts................... N onresidential b u ild in g and engineering c o ntra cts..................................................... 50 58 53 62 70 60 77 83 90 94 81r 85 87 95 85 76 89 87 89 77 94 95 89p 85 p 96 95 99 98 82r 92 97 95 94p 105p 99 lOOp 107 lOOp 105p 62 55 54 61 30 25 26 29 104 112 104 114 104 114 104 114p Primary Distribution R y. fre igh t car loadings, mdse, and m isc.. R y. fre igh t car loadings, o th e r.................. Distribution to Consumer D epartm ent store sales (U.S.) r ............... Grocery chain store sales............................ V a rie ty chain store sales............................. M a il order house sales................................. N ew passenger car sales.............................. 91 101 98 93 83 Velocity of Deposits* V e lo city of demand deposits, outside New Y o rk C ity (1919-25 average = 1 0 0 ) ___ V e lo city of demand deposits, New Y o rk C ity (1919-25 a v e ra g e = 10 0 )................. Cost of Living and Wages* Cost of liv in g (1935-39 average=100) . . . Wage rates (1926 a v e ra g e = 10 0 ).............. p P re lim ina ry Average Daily Mill Consumption of Cotton and Wool r Revised * N o t adjusted fo r tre n d E m p lo y m e n t a n d P a y ro lls D uring November, New York State factories increased their working forces and payrolls 1 per cent further, contrary to the usual seasonal tendencies. The largest increases in employment occurred mainly at firms in the metal and textile industrial groups. Shipyards, rail road repair shops, and plants producing structural steel, nonferrous metal products, automobiles, and airplanes hired more workers in November, as did m anufacturers of cotton and woolen textiles. Clothing and millinery firms and canning factories, on the other hand, reduced working forces seasonally. Compared with November, MONTHLY REVIEW, JANUARY 1, 1941 8 mately 1,100,000 more than in November, 1939. These totals do not include persons in the m ilitary branch of the Government, which increased 90,000 in November to more than 800,000, nor do they include Federal emer gency employment. 1929 1930 1931 1932 1933 1934 1935 1936 1937 1938 1939 1940 Factory Employment and Payrolls in New York State, Adjusted for Seasonal Variation and to Census Data (1925-27 averages 100 per cent) 1939, factory employment was 10 per cent greater, and payrolls were 15 per cent larger. All of the principal industrial districts of the State shared in these advances. As the accompanying diagram indicates, this bank’s seasonally adjusted index of New York State employ ment in November was above the 1929 peak, and at the highest point in seventeen years. The payrolls index was higher than at any other time since 1929, but was still 5 per cent below that y ear’s peak. The fact that the normal working week is much shorter today than in 1929 accounts for the lower relative level of the pay rolls index. However, as a result of increased basic wage rates, and increased actual working hours in many plants (with overtime paid for at premium rates), the increase in the payrolls index has been greater than the advance in the employment index in each of the last seven months. In the United States as a whole, working forces and wage payments in factories increased slightly further during November, whereas ordinarily both employment and payrolls decrease at this time of year. The employ ment gains occurred largely in durable goods industries; working forces in the nondurable goods group as a whole declined, though somewhat less than seasonally. Fac tories producing machine tools, aircraft, electrical ma chinery, and automobiles continued to take on more work ers, while m anufacturers of clothing, shoes, and food products reduced their forces. Compared with Novem ber, 1939, employment was 6% per cent higher and payrolls were 13 per cent larger. D uring November, approximately 40,000 more persons were estimated to have been employed in all nonagricul tural pursuits than in October, although in the preceding eleven years there was an average decline between these two months of around 400,000 persons, according to the Secretary of Labor. M anufacturing plants hired 50,000 more workers in November, and wholesale and retail trade establishments added 60,000 employees, while employ ment in the transportation and public utility fields de clined. Total employment in all nonagricultural occu pations was estimated at 36,500,000 workers, approxi D e p a rtm e n t S to re T ra d e For the four weeks ended December 28, total sales of the reporting departm ent stores in this D istrict are esti mated to have increased by about 6% per cent from the corresponding 1939 period, and the daily rate of sales for this portion of December advanced about as usual from the relatively high November level. Total November sales of the reporting departm ent stores in this D istrict were about 7 per cent higher than in November, 1939, and the daily rate of sales for November advanced considerably more than usual from the October level. Departm ent stores in nearly all locali ties reported substantial increases in sales from Novem ber, 1939, while sales of the leading apparel stores in this D istrict were practically unchanged from November, 1939. Stocks of merchandise on hand in the departm ent stores, at retail valuation, were about 5 y 2 per cent higher at the end of November, 1940, than at the end of Novem ber, 1939, while apparel store stocks were little changed. Collections of accounts outstanding continued slower in 1940 than in 1939 in the departm ent stores, but were practically unchanged in the apparel stores. Percentage change N ovem ber, 1940 compared w ith Novem ber, 1939 Per cent of accounts o utstanding October 31 collected in Novem ber Stock on hand end of m onth 1939 1940 + 4 .4 + 5.9 + 6 .0 + 1.9 + 9 .5 + 1 1 .9 + 4 .1 50.2 46.1 62.0 43 .8 42.2 40.7 3 8.2 4 9.6 4 5.4 50.6 43.7 38.4 4 3.8 39.5 N orth e rn New Y o rk S ta te ......................... Southern N ew Y o rk S ta te ......................... C en tra l N ew Y o rk S ta te ............................ Hudson R iv e r V alley D is tr ic t................... W estchester and S ta m fo rd ......................... N iagara Falls ............................................... + 6 .4 + 12.5 + 7 .1 + 1 2 .2 + 7 .4 + 18.0 + 4 .4 + 7 .5 + 6 .9 + 1 4 .8 + 2 .3 — 14.2 + 4 .3 A ll departm ent stores.............................. + 7 .1 + 5 .4 47.7 45.6 A pparel stores........................................... + 0 .2 + 0 .6 4 9.4 4 9.3 L o c a lity N et Sales New Y o rk and B r o o k ly n ................. .............. B uffalo ............................................................ Syracuse ....................................................... N orth e rn New Jersey...................................... Indexes of D ep a rtm e n t Store Sales and Stocks, Second Federal Reserve D is tr ic t (1923-25 average=100) 1939 1940 N ov. Sept. Oct. N ov. Sales (average d a ily ), una d justed ................. Sales (average d a ily ), seasonally adjusted.. 115r 96 r 108 104 108 95 120 101 Stocks, u na d ju s te d ........................................... Stocks, seasonally a d ju s te d ............................ 94r 79r 85 81 93 82 100 84 r Revised FE D E R A L RESERVE B A N K OF N E W Y O R K MONTHLY REVIEW, JANUARY 1, 1941 Business Conditions in the U nited States (Summarized by the Board o f Governors o f the Federal Reserve System) N D U STRIAL activity continued at a high rate in November and the first half o f December and distribution o f commodities increased considerably. Commodity prices generally showed little change following earlier advances. I Index of Physical Volume of Industrial Produc tion, Adjusted for Seasonal Variation (1935*1939 average=100 per cent) Value of Construction Contracts Awarded (Three month moving averages of F. W . Dodge Corporation data for 37 States, ad justed for seasonal variation) P roduction Volume o f industrial production, which usually declines at this season, showed little change from October to November, and the B oard’s seasonally adjusted index rose 3 points further to 132 per cent o f the 1935-1939 average. Reflecting work on a large volume o f orders for National defense purposes and for civilian needs, activity in the machinery and textile industries con tinued to increase sharply. A t machinery plants and at cotton textile mills activity reached new high levels and at woolen mills output was close to the previous peak reached early in 1937. Steel ingot production, which had been at about 94 per cent o f capacity in October, increased somewhat further in November and the first half o f December. Automobile production continued in unusually large volume, amount ing in November to around 500,000 cars and trucks. Retail sales o f new cars have been large this autumn and production has been maintained at high levels in order to supply this demand and to build up dealers 9 stocks. Lumber produc tion declined less than seasonally from October to November. New orders for lumber continued somewhat above the current rate o f production although below the high level o f the three preceding months when large orders were placed for cantonment construction. Lumber stocks at mills continued to decline and were smaller than at any time in recent years. Bituminous coal production increased considerably in November, following a sharp decline in the previous month, while output o f crude petroleum was maintained at about the October rate. Production o f most metals continued in large volume. Value o f total construction contract awards declined less than seasonally in November. In the 37 eastern States for which F. W. Dodge Corporation data are available total contracts showed little change; awards for public construc tion increased further and those for private work declined by somewhat less than the usual seasonal amount. In the far western States contract awards showed a decline from the unusually high level reached in October. Distribution Distribution o f commodities to consumers increased considerably in Novem ber. Sales at department stores and mail order houses rose sharply, while variety store sales increased by about the usual seasonal amount. In the first half o f December there was the customary large expansion in retail sales. Total freight car loadings showed considerably less than the usual seasonal decline in November and the early part o f December. Loadings of coal, which had been curtailed in October, increased sharply and shipments o f ore and o f mis cellaneous merchandise declined much less than is usual at this time of the year. Index of Total Loadings of Revenue Freight, Adjusted for Seasonal Variation (1923-1925 average=100 per cent; miscellaneous, coal, and all other car loadings expressed in terms of points in total index) W holesale Commodity P rices Prices o f basic commodities, which had risen substantially since August, generally showed little change from the middle o f November to the middle o f December. Prices o f a few imported commodities, particularly cocoa, burlap, and shellac, increased considerably and there were small advances in steel scrap and some other domestic commodities, while moderate declines were reported for such varied commodities as lead, grains, and lard. B ank Credit Total loans and investments at reporting member banks in 101 leading cities have increased sharply since the beginning o f October. Commercial loans continued to increase in November and the first half o f December, and holdings o f United States Government obligations at New York City banks rose sharply. Principally as a result o f the expansion o f bank loans and investments, Gov ernment expenditures, and foreign disbursements financed by additional gold imports, bank deposits increased to new high levels. At the same time there has been a considerable increase in currency in circulation partly in response to seasonal trade demands. Wednesday Figures for Reporting Member Banks in 101 Leading Cities (Latest figures are for December 11) U nited S tates Government Security P rices Prices o f United States Government securities continued to rise during the latter half o f November and the early part of December, and the 1960-65 bonds advanced to successive new high levels, with a peak of about 111% on Decem ber 10. The yield on this issue declined to a low point of 2.03 per cent on the latter date, but increased slightly toward the middle o f the month, reflecting some easing in prices.