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MONTHLY REVIEW ofCredit andBusinessConditions S e c o n d F e d e r a l Federal E eserve B ank, N ew Y o rk M o n e y M a r k e t in M a y Considerable interest was manifest in the money market during May as to the progress of the Treasury’s program for the sale of defense savings obligations. In terest in the subject has at least two aspects: first, the sales of such securities will be a measure of the absorp tion of savings out of current incomes and previously accumulated idle funds, which might otherwise be used, at least in part, for the purchase of consumers’ goods requiring materials and labor for their production that are needed for the defense program; and, second, sales of securities of the savings bond type will give an indica tion as to the amount of borrowing which will remain to be accomplished by sales of the usual types of “ mar ket” securities. The figures that have been released by the Treasury show that completed sales of defense savings obligations from May 1 through May 24 amounted to $350,700,000, including sales of Series E, F, and G Savings Bonds as well as Defense Postal Savings Stamps. As com pared with this total for the United States, sales in the Second Federal Eeserve District totaled $106,000,000, not including Defense Postal Savings Stamp sales nor sales of Series E bonds through the post offices. It is expected that reports for the final week of May will show a further substantial volume of sales, as it is believed that in the latter part of May increased amounts of trust funds were invested in the Series G bonds. These latter purchases represented, in part, switches out of other securities which were deferred until late in the month because, by the terms of the Savings Bonds, pur chases made any time within a month earn interest from the first of that month. Sales of Savings Bonds in immediately ensuing months are not expected to equal the May volume, since it is likely that a part of the May sales represented invest ments of accumulated idle funds that cannot be repeated in the near future, and since some subscribers may have purchased in the first month their full quota for this year. On the other hand, investments of current savings in Savings Bonds may tend to increase in coming months. Arrangements for the investment in defense savings obli gations of a portion of current income, as it is earned, probably have been concluded by only a limited number of the potential total of such purchasers, and substantial additions to the class of savers putting funds regularly R e s e r v e D is tr ic t June 1 ,1 9 4 1 into these obligations may occur in the future, partly through the medium of payroll deduction plans such as have been made available to the employees of some con cerns. In any event, it is difficult to appraise the manner in which these factors will operate over the next few months, and it is therefore difficult to estimate the total amount of funds which may flow into the Treasury through sales of defense savings obligations over the next fiscal year. Meanwhile, during May, Treasury expenditures for National defense purposes continued to increase. As is indicated in the accompanying diagram, payments by the Treasury on this account probably exceeded $800,000,000 for the month, judging from Treasury daily statement data for the first 29 days. In line with indications by the Secretary of the Treasury, last March, that the next public offering of ‘ ‘ market ’ ’ issues of Government securi ties would be in May, the Treasury on May 22 made an offering of $600,000,000 of 2 % per cent Treasury bonds of 1956-58 for cash, and in conjunction therewith of fered bonds of the same issue, and also % per cent Treasury notes due March 15, 1943, in exchange for Treasury bonds maturing August 1, 1941, outstanding in the amount of $834,000,000. The cash offering was heavily oversubscribed, allotments being only 8 per cent of subscriptions, and the greater part of the Treasury U n ited S tates T re a su ry E xp en d itu res fo r N a tion a l D e fe n se P u rp o se s (M a y , 1941, estim ate based on D a ily S ta tem en t o f th e T re a s u ry fig u re fo r first 2 9 d a ys o f the m o n th ) 42 MONTHLY REVIEW, JUNE 1, 1941 bonds due August 1, 1941, were exchanged for the new bonds rather than the notes. The outstanding success of this financing indicated that the market for Government securities had not been appreciably affected by the substantial reduction in member bank excess reserves during recent months. In the first two weeks of May, the excess reserves of the New York City banks declined $165,000,000 further to $2,350,000,000 on May 14, and at this figure were nearly $1,200,000,000 below the year’s high which was reached in January. During the period since January, the excess held by all member banks showed a decline of the same extent, so that banks outside New York City had no net change in their aggregate excess reserve position. The decline in excess reserves in New York since January is to be attributed primarily to a net loss of about three quarters of a billion dollars of reserve funds through Treasury transactions, representing the excess of sales of new Treasury securities and tax collec tions over Treasury disbursements in this District. Next in importance were an outflow of commercial and finan cial funds from New York to other parts of the country, including payments for Government securities sold in New York by holders outside New York, and a further increase in the amount of currency outstanding through New York banks. These losses of reserve funds were offset only in part by gains resulting, directly or indi rectly, from gold imports, which have declined to much smaller quantities than in 1940. For the two weeks after May 14, excess reserves, both in New York and for the country as a whole, showed a sizable net increase, reflecting chiefly heavy disburse ments by the Treasury including those for redemption of maturing Home Owners’ Loan Corporation bonds, a sizable part of which were held and redeemed in New York. In the week ending June 4, however, excess re serves are expected to show a large decline, owing to pay ments on June 2 on account of subscriptions to the new Treasury bond issue. M em ber B an k C r e d it A further increase of $370,000,000 occurred in the total loans and investments of the weekly reporting member banks in 101 cities during the five weeks ended May 28. A t $27,915,000,000, the total reached a new high, approximately $5,475,000,000 above the level pre vailing before the outbreak of the war. Commercial, industrial, and agricultural loans rose $165,000,000 fur ther during the recent five week period, and the total of such loans was $1,675,000,000 higher than in August, 1939. The reporting banks’ holdings of United States Government direct obligations rose $165,000,000 during the five weeks, reflecting increases in the Treasury bill, note, and bond holdings of the New York City banks and an increase in bond holdings by banks in 100 other cities, partly offset by declines in bill and note holdings outside New York. Total direct Government security holdings on May 28 were $2,410,000,000 higher for all re porting banks than in August, 1939. Holdings of Govern ment guaranteed securities declined $80,000,000 in the five week period, owing to the redemption of Home Owners’ Loan Corporation bonds, and holdings of other securities decreased $110,000,000, also owing to maturities. As com pared with August, 1939, holdings of Government guar anteed securities by reporting banks are now approxi mately $735^000,000 higher and holdings of other securities are $310,000,000 higher. Adjusted demand deposits of the weekly reporting banks showed a net increase of $550,000,000 during the five week period, to reach a new high level on May 28, approximately $6,200,000,000 above the August, 1939, figure. M oney Rates in New York M ay 31, 1940 Apr. 30, 1941 M ay 31, 1941 Stock Exchange call loans. .................... Stock Exchange 90 day loans............... Prime commercial paper 4-6 m onths. . Bills— 90 day unindorsed.................... Average yield on Treasury notes (3-5 Average yield on Treasury bonds (not callable within 1 2 years) f ................... Average rate on latest Treasury bill sale, 91 day issue................................. Federal Reserve Bank of New York discount rate.................... .................... Federal Reserve Bank of New Y ork buying rate for 90 day indorsed bills *Nominal. 1 1 *IK *1 H 1 *1 M t t -V s tt~ 5 A t t - 5 A % % 0 .8 5 0.49 0.41 2 .48 2 .0 0 2 .0 0 0.067 0.097 0.069 1 1 1 H H tt t “ Tax exempt” issues only. G o v e r n m e n t S e c u r it ie s For the month of May as a whole, there was little net change in long term Government bond prices. Dur ing the first half of the month, trading was light and prices fluctuated over a comparatively narrow range. Following the disclosure on May 15 of the general nature of the Treasury’s immediate financing plans, quotations for the longest term tax exempt Treasury bonds de clined on the average about y 2 point, over a period of several days, to reach the lowest level since the middle of April. Prices of intermediate term bonds, including prices of the two taxable issues, also drifted lower. Sub sequent to the Treasury’s cash and refunding offer, and especially after the allotment basis for the cash offering was announced, prices of both long and intermediate term bonds advanced. The average price of long term tax exempt Treasury bonds moved to within about % of a point of the all-time peak of last December. On May 31, the new 2 y2 per cent taxable bond issue due March 15, 1958 was quoted at about 103 on a “ whenissued” basis. Prices of Treasury notes, particularly tax exempt is sues, strengthened markedly during May with resultant declines in yield. The average yield on 3 to 5 year tax exempt Treasury notes was reduced by 0.08 per cent to 0.41 per cent. Yields on the taxable % per cent Na tional Defense note issues of 1944 and 1945 declined 0.03 per cent and 0.01 per cent, respectively, to 0.67 per cent for the 1944 issue and 0.74 per cent on the 1945 issue. Accepted bids for the taxable Treasury bills dated May 7 were tendered on an interest basis averaging 0.096 per cent per annum. The remaining three weekly issues were awarded at prices equivalent to an interest rate of about 0.07 per cent. Each of the four issues was in the amount of $100,000,000 and each replaced similar maturities. FEDERAL RESERVE BANK OF NEW YORK Toward the end of the month, the Treasury Depart ment disclosed plans for making available to certain of its depositaries and financial agents a special issue of United States Government bonds, the income from which will offset, at least in part, the expense incurred by such institutions because of the greater use of private banking facilities by the Government in connection with the de fense program. The bonds, designated 2 per cent de positary bonds, will be issued only to banks which carry deposits of the Federal Government. They will have a maturity of twelve years from the date payment for them is received, and, though not transferable, may be redeemed at any time on thirty days’ notice; they will be issued only in registered form and only for use as collateral to secure deposits of Federal funds. The Treasury Department was reported to have estimated that the total issue probably would not exceed $125,000,000. Business Profits Reported net profits of the 441 industrial and mer cantile corporations summarized in the accompanying table showed a gain of 16 per cent for the first quarter of this year, as compared with the first three months of 1940 (profits figures for which period have been revised by some companies to reallocate last year’s Federal taxes) and showed an increase of 10 per cent over 1937. In fact, it would appear that reported profits of these leading corporations for the first quarter of this year were the highest first quarter profits since 1929, despite recent increases in wage rates, material costs, and Fed eral taxes. During the first quarter of this year, indus trial production averaged about 20 per cent higher than in the first quarter of either 1940 or 1937. Since the second quarter of 1940, net profits reported by corporations have been somewhat distorted by varying procedures followed by individual companies in provid ing for current and prospective Federal taxation. For the first quarter of 1940, some companies have issued revised profits data making allowance for reallocation of Federal tax liability, and in all such cases, the revised profits figures have been lower than those shown by the initial reports. Similarly, any retroactive enactment of increased taxes this year will undoubtedly necessitate future downward revision of this year’s first quarter profits of a large number of companies. Large gains over a year ago in first quarter net profits were reported by companies in the steel, coal mining, machine tool, building materials (including heating and plumbing supplies), industrial machinery and accessor ies, and aircraft manufacturing industries. On the other hand, a lower level of net profits was shown by the petroleum, retail trade, textile, automobile, drug and cosmetic, and cigar company groups. The gain in profits over 1937 was concentrated in companies producing dur able goods; 215 companies of this type recorded an aggregate gain of 24 per cent while 190 companies pro ducing nondurable goods or providing services showed a decline of 8 per cent in profits, and mining company 43 profits were slightly lower in the aggregate, despite better earnings by the coal and copper groups. With respect to the impact of higher taxation on earn ings during the first quarter of this year, it is interest ing to note that for a group of 75 companies that reported complete profit and loss data, gross sales in the aggre gate gained 30 per cent in the first three months of 1941 as compared with the corresponding period of a year ago. The cost of goods sold, including State and local taxes, rose 25 per cent between the two periods and net profit, before payment of Federal income taxes, increased 59 per cent. Amounts reserved for Federal taxes this year accounted for 46 per cent of net profit before Fed eral taxes, as against 21 per cent a year ago, and re stricted the rise in net profit after all charges for these companies to 8 per cent. During the first quarter of 1941, Class I railroads as a group reported net income (after payment of all charges but before dividends) amounting to $69,000,000. This compares with a deficit of $12,000,000 a year ago and a profit of $15,000,000 in 1937, and is the best showing for any first quarter since 1929. Net operating income (before payment of fixed charges and income taxes) of telephone companies increased 13 per cent over 1940 and was the highest first quarter operating income on record. Net income of other public utilities increased slightly over the corresponding quarter of last year, and reached the highest level since the fourth quarter of 1931. (N et profits in millions of dollars) First quarter Corporation group Advertising, printing and publishing. Aircraft manufacturing......................... Automobile parts and accessories (excl. tires)......................... ................ Building supplies.................................... Containers (metal and glass)............... Drugs and cosmetics (incl. soap)........ Electrical equipment............................. Food and food products: Confectionery...................................... Other food products.......................... Heating and plum bing.......................... Industrial m ach in ery............................ Machine tools.......................................... Mining: C oal....................................................... Gold and silver................................... Other m ining....................................... Motion pictures...................................... Office equipm ent.................................... Paper and paper products................... Petroleum................................................. Railroad equipment.............................. No. of cos. 1937 1938 1939 6 3 .8 7 14 6 0.5 2 .3 3 .0 4 .0 41 23 27 4 11 22 8 8 8 13 6 37 6 10 5 10 11 6 6 16 30 14 14 32 1.6 2 0 .6 11 .2 3 9.9 1.7 17.2 2 6.4 2 .7 8 3.3 3 .3 11.7 7 8.9 21.9 8 .5 4 1.5 2 5.3 12.9 40.0 12 .6 4 .8 27.1 1.0 9 .8 11.7 0 .8 8 .2 1 .1 1 .2 15.4 13.9 16.6 23.3 16.2 27.1 4 .5 4 .5 7 .8 7 .9 4 .3 5 .3 13.9 13.0 2 . 2 - 0 .9 - 0 .4 16.0 4 .4 4 .4 1 .3 0 .5 0 .8 4 .1 8 .3 5 .5 14.4 0 .7 4 .7 8 .7 3 .9 7 .2 4 .5 15.6 1.2 13.1 7 .6 17.3 5 .2 4 .8 4 .3 40.5 14.1 5 .7 - 1 .2 1.4 1 .6 6 .8 2 .2 0 .6 0 .1 15.0 4 .1 13.9 2 .7 3 .6 4 .5 3 2.4 10.9 6 .4 4 5.8 5 .5 0 .9 1 .4 246.4 401.2 •105.7 -4 2 .8 -1 1 .9 6 9 .0 6 2.5 8 2.3 7 0.9 8 3.2 6 .0 5 .3 13.0 3.1 3 .5 2 .2 5 .2 5 30 0 .6 2 .1 Total, 30 groups................................. 441 423.9 138.2 Class I railroads, net incom e............... Telephone companies, net operating 137 15.4 97 60.3 71.9 6 8 .6 11 .0 6 .2 15.9 2 .3 15.9 2 .4 - 0 .2 11 - Deficit 2 .1 4 .0 6 4.0 1.0 18.0 Tobacco (cigars)..................................... Miscellaneous.................................... 68 1941 - 2 .7 29.7 0 .4 1 .4 - 5 .5 - 0 .8 0 .5 - 2 .3 Other public utilities, net incom e. . . . 1940 5 0.0 63.2 4 .8 12 .0 3 .2 4 .2 1.9 12.9 2 .4 5 .2 10.4 56.6 7 3 .0 2 .9 15.4 4 .6 14.9 3 .6 4 .4 4 .3 27.4 14.0 5 .5 8 8 .6 4 .8 0 .9 2 .1 466.1 44 MONTHLY REVIEW, JUNE 1, 1941 N ew F in an cing The flotation during May of several new security issues of substantial size served to raise the month’s aggregate of new financing to $325,000,000, a total almost one-third above the relatively low level of the previous month. Most of this increase was due to a greater volume of corporate financing, which amounted to $229,000,000 and included $50,000,000 of funds to be used for new capital purposes. On May 7, the Securities and Exchange Commission’s new regulation requiring competitive bid ding for public utility flotations became effective. As yet, no new public utility issues have been marketed under the new rule. Details of the major new security issues included in the totals for May are as follows: C orporate $95,800,000 50,000,000 21.300.000 Union Electric Company of Missouri securities, consisting of $80,000,000 first mortgage collateral trust 3% per cent bonds of 1971, priced at 107% to yield 3.00 per cent, and $15,800,000 (150,000 shares) of $4.50 preferred stock, priced at $105.50 a share; fo r refunding purposes The Firestone Tire and Rubber Company 3 per cent debentures of 1961, priced at 99 to yield 3.07 per cent; chiefly fo r refunding purposes Louisville Gas and Electric Company 5 per cent cumulative preferred stock, consisting of 780,792 shares priced at $27.25 a share and subject to an exchange offer to stockholders; for refunding purposes M 51.200.000 u n ic ip a l City of Detroit, Michigan 21/4-3% per cent serial bonds, maturing from 1943 to 1963; awarded at a net interest cost of 2.6399 per cent and reof fered to yield 0.60 to 2.65 per cent; fo r refund ing purposes. In addition to the above, $62,200,000 of American Vis cose Corporation preferred and common stock was of fered to the public on May 26; however, the sale of these securities merely constituted the final step in the transfer to United States investors of a formerly British owned direct investment in this country and therefore was not considered to represent new financing on the part of the corporation. Short term financing, not included in the $325,000,000 total above, amounted to $175,000,000, most of which was accounted for by $75,000,000 State of New York tax anticipation 0.20 per cent notes, maturing in November, 1941, $41,800,000 temporary loan notes of thirteen local housing authorities, and $36,000,000 Fed eral Intermediate Credit Bank consolidated debentures. Security M a rk e ts The security markets continued relatively inactive dur ing May and price movements held within narrow limits. On the New York Stock Exchange, trading in stocks declined to as low as 220,000 shares for a full day, the smallest daily volume since last August. Standard’s index of closing prices of 90 stocks moved within a range of only 3 per cent during May and was at practically the same level at the end of the month as at the begin ning. There was a small net gain in industrial share prices accompanied by minor declines in the railroad and utility groups. The utility stock price average computed by Standard reached the lowest level in six years. Prices of domestic corporation bonds also tended to fluctuate within narrow ranges in May. Accompanying the display of some strength among the medium grade industrial and railroad bonds early in the month, the Moody’s Investors Service average of Baa bonds ad vanced to a new record high. As a result of a subse quent decline in prices of railroad obligations, however, the Baa price average showed little change for the month as a whole. Prime corporate bonds, those rated Aaa by Moody’s Investors Service, moved slightly lower during May, while high grade municipal bond prices advanced steadily and towards the close of the month were at their highest levels so far in 1941. G o ld M o v e m e n ts Imports of gold into the United States during May were in considerably reduced volume. The increase of about $70,000,000 in the gold stock was the smallest since July, 1938. Gold held under earmark for foreign account at the Federal Reserve Banks rose about $5,000,000 during the month to approximately $1,920,000,000. In the four weeks ended May 21, the Department of Commerce reported the receipt of $38,500,000 of gold in the following principal amounts: $19,300,000 from Canada, $4,200,000 from Australia, $3,500,000 from South Africa, $2,800,000 from Colombia, $2,600,000 from the Philippines, $1,500,000 from Hong Kong, $1,000,000 from Chile, and $600,000 from Mexico. Foreign E xch anges In showing a generally firm tendency, Latin American currencies provided the only significant development in the past month’s foreign exchange trading in the New York market. The Cuban peso, which had shown a steady recovery from the early April reaction, received considerable stimulus from the announcement on May 6 of a $25,000,000 Export-Import Bank credit to the Cuban Government to be used for agricultural develop ment and diversification and for public works. On May 7 the discount on the Cuban peso vis-a-vis the dollar, at 2 % per cent, was the narrowest in several years. A p proximately this level was maintained through the end of the month. The Argentine peso was also in some de mand in the thin free market during the first half of May, apparently reflecting a movement of foreign funds from this country induced by renewed rumors of a possible extension of the “ blocking99 regulations in this country. By May 12 the free rate for Argentine exchange had reached $0.2380 and held near this level during the subsequent days of May to show a gain of 30 points for the month. The uncontrolled rate for the Uruguayan peso rose to $0.4212^ during the month, ex tending to about 6 per cent the appreciation since midApril. Among the currencies of the belligerent countries, the New York quotation for the registered reichsmark con tinued to decline through May 13, when it was $0.1170, FEDERAL RESERVE BANK OF NEW YORK or 3 cents below the level prevailing in early March. Subsequently, however, the rate showed a marked recov ery, rising about 3 % cents in the space of one week to $0.1550, a new high for the war period. It should be noted, however, that the market here for this exchange remained extremely thin and, therefore, unduly sensi tive to relatively small changes in supply and demand. At the end of the month the registered mark was quoted at $0.1450. On May 27 the official rate for the Italian lira was raised from $0.0505 to $0.05261/4, thereby rees tablishing the rate prevailing prior to August 31, 1939, when a gradual decline to the $0.0505 level began. While this change is interesting, particularly in view of the fact that the lira has thus returned to its theoretical par value, its significance would not appear to be great. Trading in unofficial sterling was restricted further dur ing the past month by the British action in adding a group of 12 Latin American countries, mostly in the Caribbean area and including Cuba, Venezuela, Mexico, and Panama (except the Canal Zone), to the list of those countries holding “ special accounts” in sterling under the British exchange regulations. The procedure to be followed for these countries will be the same as that now in effect for other countries with “ special accounts,” except that the area will be treated as a unit and trans fers between sterling accounts within the group will be freely permitted. In the unofficial market in New York, the pound sterling held steady around $4.03%, the same as the official London buying rate for dollars. Central B a n k R a te C hange On May 29 the Swedish Riksbank lowered its dis count rate from 3 % to 3 per cent, the higher rate having been in effect since May 17, 1940. P roduction and T ra d e Preliminary data for May indicate a renewed rise in the general level of business activity following a temporary decline in April resulting from strikes in the bituminous coal and automobile industries. From about 94% per cent of capacity at the end of April steel mill operations recovered to practically full capacity by the middle of May. Orders for steel re quired directly or indirectly in defense work continued in large volume during May, but some decline was reported in the demand for steel for nondefense pur poses. Bituminous coal production recovered sharply following the reopening of the mines at the end of April and by the middle of May output was running about 30 per cent ahead of a year ago. Railroad loadings of coal and coke likewise increased rapidly, and, as ship ments of other classes of freight continued heavy, total car loadings moved up to a point somewhat above last fall’s peak. Seasonally adjusted figures for electric power production indicate a recovery in the first three weeks of May from a decline in April. Automobile production in May ran at the highest rate in four years, and consumer demand continued excep tionally large. During the first half of May the cotton gray goods market was active, but following the an 45 nouncement on May 19 that price ceilings would be set on combed yarns by the Office of Price Administration and Civilian Supply, the volume of sales fell off sharply. Nevertheless, cotton mill activity was reported to have been maintained at a high level. This bank’s monthly index of production and trade for April declined one point from the level of February and March to 103 per cent of estimated long term trend. In April, 1940, when the general level of business activity was at the low ebb of the war period, the index was 87. While operations in many lines of business were maintained at or above March levels during April, work stoppages resulting from labor disputes led to the decline in the index. Production of bituminous coal during April was re duced to one eighth of the rate of March, reflecting the shutdown of most mines for virtually the entire month. As a result, railway freight traffic was reduced, and industries such as coke, pig iron, and steel, which are particularly dependent upon coal, were increasingly affected by the strike as the month progressed. With these exceptions, defense industries generally expanded operations further during April. Judging from esti mates of man-hours of employment, operations in air craft plants ran about two and one-half times the level of April, 1940, shipyards expanded operations to double the rate of a year before, and there were large increases over April, 1940 in activity at plants producing machin ery, electrical apparatus, chemicals, and railway equip ment. Construction work, judging from data on the production of construction materials and on contract awards, remained well above the level of a year ago, production of agricultural implements recovered sharply, and cotton and woolen textile mills continued to run at exceptionally high levels. A two weeks’ suspension of operations by a major producer curtailed automobile output during April, but retail sales, totaling 557,000 units for passenger cars and trucks combined, were at a record high and new car stocks were cut substantially. As indicated in the ac companying chart comparing retail sales of new pasTHOUSANDS OF CARS f ■■■ 5 0 0J 400 I PRODUCTION FOR • DOMES Tlic m a r k e t I T 300 200 w .. .. 100I 1 1 1937 l RE’TAIL SALES ---- 1-----1---- 1-----1___1___ 1___1___ — 1___ 1___1___ __ i___i___ i___ 1938 1939 1940 1941 U nited S ta tes P ro d u ctio n o f P a ss e n g e r A u to m o b ile s fo r D om estic M a rk et and R eta il Sales o f P a ss e n g e r Cars (P ro d u c tio n d ata are D ep a rtm en t o f C om m erce fig u re s, and retail sales a re figu res o f A u to m o b ile M a n u fa ctu re rs A s s o cia tio n ) MONTHLY REVIEW, JUNE 1, 1941 46 senger ears with production for the domestic market, dealers’ stocks of passenger cars, which had been built up to a high level during the winter, were reduced to the extent of approximately 50,000 units in March and 120,000 during April. Production of consumers’ goods in general ran 10 or 15 per cent higher in April than in the corresponding month of 1940. Retail trade on the whole appears to have shown a year-to-year increase of approximately similar magnitude. (Adjusted for seasonal variations and estimated long term trend; series reported in dollars are also adjusted for price changes) 1940 Apr. year, and in April this year. Even so, the daily rate of sales increased more than usual from March to April, taking account of the date of Easter and other seasonal factors. For the first four months of the year average daily sales were 11 per cent higher this year than in 1940 and about 3 ^ per cent greater than in 1937. Retail stocks of merchandise on hand in the depart ment stores at the end of April were 9 per cent higher than a year ago, but remained low relative to the cur rent rate of sales. Percentage changes from a year ago 1941 Feb. Mar. Apr. 87 104 104p 103p Production of: Producers’ durable good s................... Producers’ nondurable goods................. 75 92r 115 108 115p 112 p 117p 107p Consumers’ durable g ood s..................... Consumers’ nondurable goods............... 72 r 94 89 10 0 88p 10 2 p 10 2 p New York City (includes Brooklyn). Northern New Jersey.......................... Primary distribution.................................... Distribution to consumer........................... 82 92r 97 108 98p 103p 95p 104 p Westchester and Fairfield Counties.. In d ex o f Production and Trade ....................... 90p Industrial Production Steel................................................................. Autom obiles................................................... Bituminous coal............................................ Crude petroleum .......................................... Electric p ow er............................................... Cotton consum ption.................................... W ool consumption....................................... Shoes............................................................... Meat packing................................................ T obacco products......................................... 71 85 10 1 94 96 98 78 r 90 !• 119 115 99 117r 106 86 12 0 116 90 19p 84 p 107p 146 177p 119p 108 96 97 85 109 136 189 H 5p 108 99 92 86 107 106 107 107 109p IlOp 45 64 47 51 56 68 94 76 80 84 10 0 99 99 80 104 70 90 98 84 10 1 107 132 159 116 10 2 r 10 1 M anufacturing Em ploym ent Man-hours of em ploym ent......................... Construction Residential building contracts................... Nonresidential building and engineering contracts..................................................... Stock on hand end of month Net sales Departm ent stores A pr. 1941 Lower Hudson River V a lley.............. Poughkeepsie.................................... Upper Hudson River V a lle y ............. Central New Y ork S tate.................... Mohawk River V alley..................... Northern New Y ork State................. Southern New Y ork S ta te ................. Bingham ton...................................... Jan. through Apr. 1941 +18 +25 +25 +36 +43 +25 +25 +25 +19 +30 +35 +29 Apr. 1941 + 8 + 12 + 12 + 9 + 8 + 8 +18 + 11 +13 +22 + 11 0 — +13 +17 + 3 + 12 +22 — +28 +13 +17 +20 + 12 — — +30 +30 +37 +23 +27 +19 +37 +16 +22 + 10 +21 + 4 +18 + 12 + 9 + 6 All department stores..................... +21 + 11 + 9 Apparel stores....................................... +20 + 7 + 5 Western New Y ork S tate................... Niagara Falls................. ................... +20 + 1 — + 8 Prim a ry Distribution R y. freight car loadings, mdse, and m isc.. R y. freight car loadings, other.................. E xports........................................................... Im ports........................................................... 10 0 10 0 Department store sales (U. S .) ................. Grocery chain store sales............................ Variety chain store sales............................. Mail order house sales.................................. New passenger car sales.............................. 88 103 lOOr 96 93 92 83r 10 0 10 1 107 104r 142 105 103r 113 lOOp 106 108 113 57 57 60 57 28 24 25 24 104 114 105 116 105 117p 106 p 118p 10 1 Velocity o f D ep osits* Velocity of demand deposits, outside New York City (1919-25 a v era g e= 10 0 ) . . . . Velocity of demand deposits, New York C ity (1919-25 a vera g e= 10 0 ) ................. Cost of living (1935-39 a v era g e= 10 0 ) . . . Wage rates (1926 a v era g e= 10 0 ) .............. r Revised. Apr. Apr. Feb. Mar. Sales (average daily), unadjusted......................... Sales (average daily), seasonally a d ju s te d ......... 83 90 79 97 84 98 10 0 Stocks, unadjusted.................................................... Stocks, seasonally adjusted.................................... 81r 80r 80 85 87 89 87 86 103 r Revised Cost o f Living and W ages * * N ot adjusted for trend. D e p a r tm e n t Store T ra d e Sales of the reporting department stores in the Second Federal Reserve District during May were about 12% per cent higher than in the corresponding month of last year, but the daily rate of sales appears to have declined somewhat more than seasonally from the high April level, the changing date of Easter and other seasonal factors considered. During April, sales of the reporting department stores were 21 per cent higher than in April, 1940, owing in some part to the fact that Easter fell in March last 1941 1940 Distribution to Consumer p Preliminary. Indexes of Department Store Sales and Stocks, Second Federal Reserve District (1923-25 average=100) 86 B u ild in g The daily rate at which construction contracts were awarded in New York and Northern New Jersey during April was 22 per cent above the comparatively low level of the previous month, and was slightly higher than in April, 1940. With the exception of public and private utilities, increases over March were recorded in contract awards in each of the principal construction categories. The most striking gain occurred in the case of awards for factory buildings, which were 88 per cent higher than in March and nearly two and a half times as large as in April, 1940. Although a third greater than in March, contracts for residential building in this area were con siderably below the level of a year ago. FEDERAL RESERVE BANK OF NEW YORK THOUSANDS OF DOLLARS 47 volume of industrial building recently has exceeded all previous levels. E m p lo y m e n t and P ayrolls D aily A v e ra g e C on tra cts A w ard ed fo r Ind ustrial B u ildin g in 3 7 S ta tes (F . W . D od g e C orp ora tion d a ta ; six m on th m ov in g a vera g e s o f m on th ly, season a lly a d ju sted d a ta ) In contrast to the March to April advance in the New York and Northern New Jersey area, daily average con struction contract awards for April in the 37 States covered by the F. W . Dodge Corporation report declined about 8 per cent from March. Government contracts for defense construction included in the April figures were considerably lower than those reported in March and this decline mainly accounted for the reduction in total contract awards between the two months. As com pared with April, 1940, however, total contract awards in the 37 States were 35 per cent higher. Contracts for publicly financed projects were 63 per cent larger than a year earlier and privately financed work advanced 21 per cent. Reflecting an active demand for one and two family dwellings, including homes to be constructed under Government sponsorship for defense workers, contract awards for residential buildings in April were higher than in any month since July, 1929. Awards for this type of building were about one-fifth greater than in either the previous month or in April a year ago. During the first three weeks of May the daily rate of construction contract awards in the 37 States in creased 10 per cent from the average for April. The gain was due to increases in heavy engineering projects and nonresidential building work. Residential building was slightly lower than in April. Compared with the corresponding period of 1940 awards during the first three weeks of May were up 49 per cent; all three prin cipal construction categories showed substantial year-toyear gains, the most pronounced of which was in nonresi dential building. One of the outstanding features in the construction industry over the past year has been a steep rise in the volume of industrial building, much of it arising directly or indirectly from the National defense program. As the accompanying chart shows, industrial building was increasing slowly prior to the outbreak of the war in September, 1939, and continued a gradual upward movement until the middle of 1940. Then, with the inauguration of the National defense program, a very rapid expansion began. It appears probable that the According to the New York State Department of Labor, factory employment in New York State rose 1 % per cent between March and April and payrolls increased 3 per cent, although ordinarily both employment and payrolls tend to decline in April. These gains princi pally reflected maintenance of a high level of employ ment and payrolls in the men’s clothing industry (at a time of year when decreases ordinarily occur) and con tinued expansion in the airplane, shipbuilding, firearms, railway equipment, and other durable goods industries particularly stimulated by defense orders. All indus trial areas of the State showed considerable increases in factory employment over April, 1940, ranging from 7 y 2 per cent for the Binghamton-Endicott-Johnson City area to 42% per cent in Buffalo. As the accompanying diagram indicates, this bank’s seasonally adjusted index of New York State factory employment in April was 14 per cent above the highest point reached in 1929, and the index of payrolls exceeded its 1929 peak by 13 per cent. Both indexes have attained the highest levels in more than twenty years. Over the course of the past year, the payrolls index has consistently advanced at a more rapid rate than the employment index, largely as a result of longer working hours and increases in wage rates. In the twelve months ended April, 1941, payrolls rose 45 per cent, while em ployment increased 23 per cent. Factory employment in the United States as a whole increased 2 per cent during April, and payrolls rose 2 y 2 per cent. Although increases in both working forces and payrolls were general, the largest gains continued to be concentrated in lines closely allied with the defense program, such as foundries, machine shops, electrical manufacturing, and aircraft. There was a sharp recov ery in employment in the agricultural implements indus try, reflecting the settlement of labor difficulties, and a marked gain was also shown by producers of radios and PER C E N T Factory Employment and Payrolls inNewYork State, Adjusted for Seasonal Variation and to Census Data (1925-27 average=100 per cent) 48 MONTHLY REVIEW, JUNE 1, 1941 phonographs. Wage rate increases in April were reported to have affected more workers than in any month since April, 1937. Of the 5,300,000 factory work ers whose wages are included in the United States Department of Labor survey, 500,000 received pay increases averaging 8 % per cent. Among others, em ployees in the steel, cotton goods, aircraft, woolen and worsted goods, and electrical machinery industries were affected. Compared with April, 1940, factory working forces were 18% per cent larger and payrolls 37% per cent greater. According to the estimates of the Department of Labor, total nonagricultural employment in the United States rose to 37,600,000 during April, 150,000 greater than the peak month of 1929. There was an increase over March of 390,000 and over April, 1940 of 2,700,000. The largest month-to-month gains were reported in trade, manufacturing, and construction; mining employment, however, showed a decrease of over 300,000, owing to the bituminous coal strike. Military and naval personnel, which is not included in the estimate of nonagricultural employment, rose 189,000 during April to a peak of over 1,500,000. Military and naval forces a year earlier totaled 461,000. C o m m o d ity Prices Further price advances occurred in many of the un controlled wholesale commodity markets, particularly the domestic agricultural markets, during May. Despite the controls which have been placed on the prices of many industrial materials important to the defense program, the Bureau of Labor Statistics weekly whole sale price index rose 2 % per cent further from April 26 to May 24, to a point 14 per cent above the level prevailing at the outbreak of war. The index for May 24 approached the upper range prevailing in 1937, as the accompanying diagram indicates, and was otherwise the highest since 1930. The dominating influence during May in the general strength of farm prices was the final passage of legisla tion requiring the Commodity Credit Corporation to PE R C E N T make loans on the 1941 crops of cotton, corn, wheat, tobacco, and rice at 85 per cent of parity x>rices— a sub stantial increase over rates on previous years’ crops. Reflecting not only enactment of the loan legislation, but also reports of unfavorable weather in the growing areas, cotton prices rose to new highs since 1937. The price of spot cotton in 10 Southern markets averaged 12.86 cents a pound on May 31, a net gain of about a cent and a half from the end of April. Wheat prices advanced sharply up to the middle of the month, but, responding to favorable new crop prospects and freer movement of the grain at the attractive prices attained, subsequently lost a considerable part of the early gain. Spring wheat in Minneapolis, after selling as high as $1.00% a bushel, closed on May 31 at 9 4 % cents a bushel— up 2 % cents for the month. Despite sales of corn from holdings of the Commodity Credit Corpora tion, corn prices advanced 3 % cents during the month to 73% cents a bushel on May 31. Accompanying sizable purchases of hog products by the Surplus Marketing Administration, hogs rose to $9.46 a hundredweight on May 26— the highest price in about three years— and closed the month at $9.34 a hundredweight, a net ad vance of 86 cents from the end of April. Further strength was also shown in prices of lard and cotton seed oil. Following the announcement by the Maritime Com mission of the creation of a 2,000,000 ton shipping pool for making cargo space available for British and United States defense needs, trade anxiety over adequate ship ping facilities for other purposes developed and as a result prices of import commodities generally moved to appreciably higher levels. Subsequently, however, pos sibly reflecting the expectation of official controls over such commodities, these prices weakened somewhat. Rub ber prices in New York advanced to 25 cents a pound on May 12 but closed on May 31 at 22% cents a pound, the lowest level since early April. Silk prices in New York advanced 12 cents to $2.93% a pound on May 21, but half of that gain was canceled in subsequent days’ trading. Coffee prices moved gradually upwards throughout the month, and on May 28 the Inter-American Coffee Board increased quotas for importation of coffee into the United States. Sugar prices also tended higher. Excepting the slight fluctuation in tin prices, the metal markets were generally unchanged throughout May. The Office of Production Management issued an order early in the month requiring tin can and tin plate manufacturers to make a reduction of 10 per cent in the amount of tin coating used for most food containers, and also added approximately forty-five new items to the "priorities critical list.” The Office of Price A d ministration and Civilian Supply revised maximum prices for aluminum, scrap iron and steel, and requested makers of machine tools not to raise prices at this time. Reflecting heavy demands for aluminum and nickel, the Priorities Division of the Office of Production Man agement has put heavy restrictions on civilian use of these metals, and recently has also announced a further increase in the percentage of zinc production allocated to the pool for defense. FEDERAL RESERVE BANK OF NEW YORK M O NTHLY REVIEW, JUNE 1, 1941 Business Conditions in the United States (Summarized by the Board of Governors of the Federal Eeserve System) W HOLESALE commodity prices advanced sharply in A p ril and the first half of May, w ith the exception principally of metals fo r which maximum prices had been established. Industrial production declined in A pril, owing to reduced output of coal and automobiles, but increased rapidly in the first half of May as operations in these industries were resumed. P Index o f P h y sica l V olu m e o f Ind ustrial P ro d u c tion, A d ju s te d fo r Seasonal V aria tion (1 9 3 5 1 939 a v e ra g e —: 100 per c e n t; durable m a n u fa c tures, non durable m an u fa ctu res, and m inerals e xp ressed in term s o f p oin ts in to ta l in d ex) U. S . B ureau o f L a b or S ta tistics Ind exes o f W h olesa le P rice s , B ased on 12 F o o d s tu ffs an d 16 In d ustrial M aterials (A u g u s t, 1 9 3 9 = 1 0 0 p er ce n t) r o d u c t io n In A p ril the Board’s seasonally adjusted index of industrial production declined to 139 per cent of the 1935-1939 average, a drop of 4 points from March. The decline reflected chiefly a sharp reduction in output of bituminous coal, as most mines were closed during the entire month. The mines were reopened on A p ril 30 and in the first ha lf of May coal output increased rapidly. Automobile production also declined in A p ril, owing to stoppage of work at plants of the Ford Motor Company during an industrial dispute. This was settled about the middle of the month and domestic output has since advanced to a high monthly rate of over 500,000 cars and trucks. Announcement by the Office of Production Management that output in the twelve months ending July 31 would approximate 5,290,000 units indicates that a rate close to that now prevailing should be maintained through July, although there is usually a considerable decline in this period. Steel production was curtailed somewhat in the latter half of A p ril by shortages of coal and coke and output declined from a level of 100 per cent of capacity to 94 per cent at the month end. Subsequently output increased, reaching 99 per cent by the middle of May. In most other lines activity continued to increase during A p ril and the first h a lf of May. Machinery production rose further and a ctivity in the aircra ft and shipbuilding industries continued to expand rapidly. Consump tion of nonferrous metals also advanced, and, as in March, domestic sources of copper were supplemented by large supplies from La tin America. Textile production rose further from the high rate prevailing in March. Consumption of raw cotton in A p ril amounted to 920,000 bales, a new record level, and rayon deliveries also rose to a new peak. A t wool textile mills activity was maintained near the high March rate. Continued advances were reported in the chemical, paper, and food industries. Anthracite production declined considerably in A p ril, owing to a delay by dealers in placing usual spring orders, but increased in the first h a lf of May. Output of crude petroleum showed little change from the March rate, following some increase from the reduced level of the winter months. Iron ore ship ments in A p ril amounted to about 7,000,000 tons, an exceptionally large amount fo r this time of year, and mine output of nonferrous metals continued at near capacity rates. Value of construction contract awards in A p ril declined somewhat from the high March total, owing principally to a smaller volume of defense plant contracts, according to F. W. Dodge Corporation reports. There was an increase in contracts fo r publicly financed defense housing, and awards fo r private residential building rose by about the usual seasonal amount. D is t r ib u t io n Sales of general merchandise at department and variety stores showed about the usual seasonal rise from March to A p ril, making allowance for the changing date of Easter. Retail sales of new automobiles, which had amounted to 526,000 cars and trucks in March, rose further in A p ril and sales of used cars were at peak levels. Freight car loadings declined sharply in A p ril, reflecting a reduction in shipments of coal and coke, but increased in the first half o f May when coal mines were reopened. By the middle of the month total loadings had risen to a weekly rate one-fourth higher than in the corresponding period last year and about the same as the seasonal peak reached in the autumn o f 1940. Co m m o d it y P r ic e s W e d n esd a y F igu res fo r R ep ortin g M em ber B an ks in 101 L ea d in g C ities (L a te s t figu res are fo r M a y 7 ) Prices of most basic commodities, both domestic and imported, advanced sharply further in the first ha lf of May following a short period of little change during the latter part of A p ril. Price increases were most pronounced fo r agricultural commodities reflecting in part the prospect of legislation raising Federal loan rates fo r basic farm crops. Prices of a number of semimanufactured industrial products, including petroleum products, coke, leather, textile yarns and fabrics, and building materials, also advanced. Metal prices, now fo r the most part subject to Federal control, remained at the maximum levels established earlier. B ank C r e d it Bank loans and investments have shown a marked rise since last sum mer the increase at reporting banks in 101 leading cities amounting to $4,000,000,000. In A p ril and early May holdings of investments by these banks increased considerably, mostly at New York City banks, reflecting substantial purchases of newly issued Reconstruction Finance Corporation notes. Increases in commercial loans in this period were somewhat smaller than during the preceding two months. Excess reserves of member banks were $5,700,000,000 on May 14. Since January they have declined by about $1,100,000,000, owing largely to increases in Treasury deposits w ith the Reserve Banks and in currency in circulation. The decrease has occurred entirely at New York City banks. Wednesday Figures of Estimated Excess Re serves of All Member Banks (Latest figures are for May 7) U n it e d S t a t e s G o v e r n m e n t S e c u r it y P r ic e s Prices of United States Government securities, which had risen sharply from A p ril 9 to A p ril 21, subsequently declined irregularly through May 15. On that date the 1960-65 bonds were % of a point lower than on A p ril 21 and about 1% points below the all-time peak reached on December 10, 1940. The yield on this issue is currently about 2.09 per cent, compared w ith 2.03 per cent on December 10.
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