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MONTHLY REVIEW
of Credit and Business Conditions
S econd

F e d e ra l

F ed era l E eserv e B an k , N ew Y o r k

M o n e y M a r k e t in F e b r u a r y

The development in the m onetary situation whicn
attracted the most attention during February was the
announcement by the Secretary of the Treasury, on
February 14, of a change in the procedure to be followed
by the Treasury with respect to purchases of gold. The
formal statement was as follows:
“ On December 22, 1936, the Secretary o f the Treasury stated
that, after conferring with the Board o f Governors o f the Federal
Reserve System, he proposed to take appropriate action with
respect to net additional acquisitions or releases o f gold by the
Treasury Department whenever it was deemed advisable and in
the public interest to do so.
“ In pursuance o f that policy, the Secretary o f the Treasury,
after conferring with the Board o f Governors o f the Federal
Reserve System, today announces that gold acquired by the
mints and assay offices after January 1, 1938, will be included
in the inactive gold account only to the extent that such acqui­
sitions in any one quarter exceed $100,000,000. No change is
being made in the procedure whereby any gold released by the
mints and assay offices is taken from the inactive gold account. ’ 1

Since December 24, 1936, when the “ inactive gold
account’’ was created, it had been the practice of the
Treasury to carry in that account gold purchased from
either domestic or foreign sources, except for such gold
as was purchased and held by the Stabilization F un d:
and, in general, to borrow from the market, through
sales of Treasury securities, the funds required to pay
for gold placed in the inactive account. The net effect
of this practice was to insulate the total volume of bank
reserves against changes due to Treasury purchases of
gold. W hile the funds received by banks for imported
or domestic gold sold to the Treasury added to bank
reserves, payments to the Treasury for Government
securities, which it sold to finance its gold purchases,
reduced bank reserves by roughly the same amount.
Excess reserves of banks, in fact, tended to decline as a
result of gold purchases by the Treasury, under this
procedure, as these transactions frequently involved
increases in bank deposits, and consequent increases in
reserve requirements, but produced no increase in bank
reserves.
The adoption of the so-called gold “ sterilization’? p ro ­
gram followed an inflow from abroad of nearly $4,000,000,000 of gold in less than three years, and an accom­
panying increase in the total volume of member bank
reserves to a level nearly three times that which prevailed
in 1928 and 1929. The program had the effect of prevent­
ing further unnecessary expansion of bank reserves and
also of setting aside a supply of gold which could be




R e s e rv e

D is tr ic t

M arch 1, 1938

drawn upon, in case of a reversal of the gold flow, with­
out disturbing the banking position.
As the accompanying diagram shows, there was a
roughly parallel increase in the monetary gold stock of
this country and in member bank reserves between Jan u ­
ary, 1934, and December, 1936, although during the
spring and early summer of 1936 there were rather
wide fluctuations in bank reserves, caused mainly by
large changes in Government deposits in the Eeserve
Banks. D uring 1937, however, the parallel movement
ceased, and bank reserves remained practically un­
changed. D uring the first nine months of the year, in­
coming gold, instead of adding to bank reserves, caused
a rapid increase in the inactive gold account, which is
included in the item of “ Treasury cash” , shown in the
weekly statement of factors affecting member bank
reserves.
Since the program was adopted, a little over a year
ago, there have been radical changes in the business
situation, in the banking situation, and in the flow of
capital between this and other countries which had been
chiefly responsible for recent large increases in our
gold stock. In the early p art of 1937 excess reserves
of member banks were greatly reduced by increases in
the percentage of reserves which the banks were required
to m aintain against their deposits. Banks in New York
City, in addition, were subjected to heavy withdrawals
of funds by banks in other parts of the country, and by
August some of the New York City banks found it neces­
sary to borrow funds, tem porarily, to m aintain their
reserves at the required levels. This situation resulted in

Changes in the Monetary Gold Stock of the United States, in Member
Bank Reserves, and in Treasury Cash (Including the inactive
gold account) since January, 1934

18

MONTHLY REVIEW, MARCH 1, 1938

a slight tendency toward firmness in the New York money
market, which appeared again early in September, just
at the time when seasonal demands for funds were in­
creasing and when signs of a downturn in business activ­
ity were developing. A t the request of the Board of
Governors of the Federal Reserve System, $300,000,000
of gold was released from the inactive gold account
on September 13, and the proceeds added to Govern­
ment deposits in the Reserve Banks, which soon afterw ard
were paid out by the Treasury and added to member bank
reserves, thus giving further assurance of an easy money
market during the autumn.
In the latter part of September and early October there
was a renewed increase in the inactive gold account, as
the gold inflow from abroad continued for a short time,
but in the last quarter of the year a heavy outflow of short
term foreign capital developed, which, although offset
to some extent by payments due on the merchandise export
balance of this country, resulted in some loss of gold.
The sales of gold to European countries, however, were
largely balanced by receipts from other sources, especially
from Japan, only a small amount of gold being released
from the inactive gold account.
Since the beginning of 1938 there has been a renewed
rise in bank reserves, due chiefly to the return flow of
currency to the banks following the holiday season, but
also due, to some small extent, to payments for gold,
largely of domestic origin, which was not added to the
inactive gold account, but was purchased by the Stabili­
zation Fund. Following the Secretary’s statement on
February 14, it was indicated that this gold, amounting
to about $31,561,000, was being sold to the Treasury and
corresponding deposits were being made in the gold cer­
tificate account of the Federal Reserve Banks.
In addition to this transaction there were other smaller
ones, which together had the effect of making the new
policy retroactive to the beginning of the year. These
transactions included the release from the inactive ac­
count and sale to the Stabilization F und of approximately
$9,093,000 of gold, an amount equivalent to the gold sold
to foreign accounts by the F und between December 31
and February 14; the release from the inactive account
of about $567,000 of gold acquired from miscellaneous
sources during the same period; and the utilization of
approximately $12,492,000 of gold in the general fund
of the Treasury to reimburse the Treasury working bal­
ance in the Reserve Banks for redemptions of a corre­
sponding amount of gold certificates, National bank notes,
and Federal Reserve notes during that period, the gold
having been previously set aside for that purpose.
The net effect of these various transactions, and other
minor transactions, was to increase Treasury balances in
the Reserve Banks on February 15 by about $22,000,000,
which, when disbursed in the following week, increased
member bank reserves by a corresponding amount. In
accordance with the new policy, payments for gold p u r­
chased subsequently (largely from domestic sources) have
also had the effect of adding gradually to the volume of
bank reserves. Under this policy such purchases must
aggregate $100,000,000, in any quarter, before the gold
sterilization procedure will again be utilized, and as any
substantial sales to foreign accounts will presumably come
out of the inactive gold account, the eventual net effect




of all gold transactions will be to gradually increase the
volume of member bank reserves, and thus to exert an in­
fluence toward the maintenance of easy money conditions.
E x ce ss R eserves and M on ey R a te s

Member banks in general continued during February
to be well supplied with reserves, the total volume of
excess reserves for all member banks averaging around
$1,400,000,000. In New York City member banks con­
tinued to hold about $500,000,000 of excess reserves.
W ith so large a volume of bank reserves in excess of
immediate requirements, money conditions remained very
easy. Yields on Government securities declined some­
what further during the month, and other open market
money rates remained at the previous low levels.
Money Rates in New York
Feb. 27, 1937 Jan. 31, 1938 Feb. 28, 1938
Stock Exchange call loans.......................
Stock Exchange 90 day loans.................
Prime commercial paper— 4 to 6 months
Bills— 90 day unindorsed.........................
Customers’ rates on commercial loans
(Average rate of leading banks at
middle of month)..............................
Average yield on Treasury notes (3-5

1
*1H
%
TS

1

1
*IK

1

1

A

*

Average yield on Treasury bonds (more
than 8 years to maturity or call date)
Average rate on latest Treasury bill sale
273 day issue..........................................
91 day issue..........................................
Federal Reserve Bank of New York re­
discount rate..........................................
Federal Reserve Bank of New York
buying rate for 90 day indorsed bills .

1.71

1.63

1.63

1.28

1.13

1.04

2.31

2.46

2 .4 3

o !io

0.09

1

1

0.39
1H
y2

V2

X

* Nominal

M em b er B a n k C r e d it

The total volume of loans and investments of weekly
reporting member banks declined $108,000,000 during
the four weeks ended February 23. Loans to security
brokers and dealers showed a further reduction of $75,000,000 during that period. Commercial loans exhibited
greater stability following the substantial decline be­
tween the middle of October and the end of January,
but showed a small net decline, and holdings of open
market commercial paper and acceptances declined mod­
erately. The expansion in Government security holdings
of the reporting New York City banks appeared to have
halted, tem porarily at least, but holdings of other securi­
ties continued to increase, apparently owing in large p art
to purchases of State and municipal securities.
G o v e r n m e n t S e c u r itie s

The Government security m arket was firm during most
of February, although it was not quite so strong as in the
first half of January. Government bond prices declined
slightly in the first week of February, but advanced in the
following week, and then were irregular until the closing
days of the month when a fairly strong advance occurred
which carried average prices up to the highest point
reached at m id-January, and average yields went down
to a new low point since early in March, 1937. The
average yield of 2.42 per cent on bonds of more than 8
years m aturity on February 26 compares with a low
point for recent years of 2.22 per cent in December, 1936,
and a high point reached in the weak bond m arket of last
A pril of 2.78 per cent. Prices of Treasury notes, after a
small recession early in February, also were strong dur-

19

FEDERAL RESERVE BANK OF NEW YORK

in bills outstanding amounted to $61,000,000, of which
$35,000,000 represented a decline in im port bills.
(Millions of dollars)
Type of acceptance
Import..........................................................
Domestic shipment....................................
Domestic warehouse credit.....................
Dollar exchange..........................................
Based on goods stored in or shipped be­
tween foreign countries........................

Jan. 30, 1937 Dec. 31, 1937 Jan. 31, 1938
141
83
16
68
2

117
87
8
70
2

106
82
8
67
3

Yields on United States Government Bonds Due or Callable in More
Than 8 Years, and on High Grade Corporation Bonds (Moody’ s
Investors Service data for corporation bonds)

ing most of the month, and on February 26 the average
yield on 3 to 5 year notes declined to a new low point
since December, 1936, at 1.03 per cent.
W hile the Government security m arket has, on the
whole, tended to be strong during much of the time since
the beginning of the year, the volume of transactions
ordinarily has not been very large, and comparatively
small net purchases or sales were quickly reflected in price
movements. A fter the early part of January, transac­
tions for the System Open M arket account, designed to
m aintain a proper m aturity distribution in the account,
tended to have a stabilizing influence. These transac­
tions involved sales of some of the longer term Govern­
ment bonds from the account and their replacement with
securities of shorter average m aturity.
Treasury financing in the m arket during February
was limited to four weekly issues of $50,000,000 of three
months Treasury bills in replacement of m aturities, but
on February 25 the Treasury announced the first of a
new series of Treasury bills to m ature during the June
tax period which will tem porarily increase the weekly
offering of bills to $100,000,000; the first issue in this
series will be on March 2. Average rates on Treasury
bills sold during February were slightly below those pre­
vailing near the end of January.
B il l s

and

C o m m e r c ia l P a p e r

The acceptance m arket has remained very quiet dur­
ing the past month, as the principal accepting banks
have continued to be well supplied with excess reserves
and, therefore, have had no occasion to sell bills in the
m arket to obtain additional funds. M arket rates re­
mained at the levels that have prevailed for several
months.
Reports from accepting banks on the volume of bills
outstanding at the end of January showed a further
decline, which apparently was only partly seasonal in
character. The reduction in total volume was $17,000,000,
of which $11,000,000 was in im port bills, which in the
past have usually shown January reductions only in
years of declining business activity. Export bills also
showed a moderate reduction, and there was a small
decline in bills drawn to finance domestic warehouse
credits. Compared with the year previous the reduction




77

59

60

387

343

326

The volume of commercial paper coming into the
m arket during the past month was reported to have been
somewhat smaller than in J anuary, although of moderate
amount. The investment demand continued active and
rates remained at the previous low levels, the prevailing
rate for 4 to 6 month paper continuing at 1 per cent,
while choice paper of 3 month or less m aturity continued
to be sold readily at % per cent. The volume of paper
outstanding at the end of January showed an increase of
$20,000,000 over the December 31 volume, apparently
reflecting the usual tendency to resume borrowing early
in the year, following a reduction in indebtedness at the
end of December. The m argin of increase over a year
previous continued to narrow, however, and at the end of
January amounted to approximately 23 per cent, as com­
pared with an increase of 68 per cent at the end of last
September.
S e c u rity M a r k e ts

A fter declining in the first few days of February to
the lowest level so far this year, stock prices showed a
generally upw ard tendency during most of the month.
Average prices on February 3 were within 2 per cent of
the lowest prices reached last autumn, but by the close
of February 23 there had been an average rise of about
15 per cent which canceled a considerable part of the
decline during the latter p art of January and early
February. The periods of greatest strength were between
February 3 and 8 and between the 18th and 23d. D uring
the intervening period prices fluctuated irregularly in
a very dull m arket. On several days during that period
total sales on the New York Stock Exchange were in the
neighborhood of four to five hundred thousand shares.
On only two days during the month—February 3 when
the market was weakest, and on February 23 when one
of the strongest advances occurred—did sales exceed one
million shares.
A t the low point on February 3, average prices of rail­
road stocks fell to the lowest level since April, 1933, and
public utility stocks reached a new low point since May,
1935; industrial shares, however, remained moderately
above the lowest levels reached last autum n. D uring
the subsequent recovery industrial and railroad stocks
showed the largest proportionate advances, but there was
a moderate recovery also in public utility stocks.
Prices of medium and lowT grade bonds were weak
er
at the beginning of the month, in harmony with stocks,
but advanced moderately during most of the remainder
of the month. A t the close of February, the average
price of a representative group of Baa bonds was about

20

MONTHLY REVIEW, MARCH 1, 1938

2 points higher than on February 3 and the average
yield had declined from 6.44 per cent to 6.23 per cent.
Prices of such securities, however, remained far below
the levels of a year previous when the average yield
was around 4.60 per cent.
The highest grade corporation bonds also rose some­
what during the early p art of February, but after
February 10 remained practically unchanged for the
remainder of the month. The average yield on Aaa bonds
in the latter p art of February was 3.22 per cent as com­
pared with a maximum of 3.48 per cent during the bond
m arket slump last spring and a low point of 3.07 per cent
in January, 1937. In general, the best grade industrial
and public utility bonds are now close to the highest
levels of recent years, while high grade railroad bonds
remain substantially below the prices reached early
last year.
F o r e ig n E x c h a n g e s

The month of February saw renewed weakness of the
dollar against the m ajority of the principal European
currencies, which continued even after the political crisis
in Europe occasioned by the A ustrian concession to Ger­
man demands and the resignation of Foreign Secretary
Eden from the B ritish Cabinet in the last week of the
month. The pound sterling, the guilder, and the Swiss
franc reached their highest levels since the Tripartite
Declaration of September 1936 in the middle of the
month, and held net gains over the month as a whole,
while only the French franc showed particular weakness
as a result of political developments on the Continent.
The selling of dollar balances by foreigners continued
in February at a higher rate than in January, as renewed
fears were felt in Europe that the additional work relief
appropriation asked for by the President and the modi­
fication of the American gold sterilization policy might
eventually lead to further dollar devaluation. From
$5.01% at the end of Janu ary the pound sterling rose
to a high of $5.03% on February 16, before President
Roosevelt’s denial in his press conference of February
18 of his A dm inistration’s intentions either to inflate or
devalue the dollar induced a tem porary reversal of the
movement. Over the same period the guilder appreciated
from $0.5591 to $0.5616, and the Swiss franc from
$0.2319% to $0.2330%, while the French franc remained
relatively unchanged near $0.0329. The President’s
declaration and Mr. E den’s resignation brought about a
decline in sterling to a low of $5.00% during the course of
trading on February 21, but after the House of Commons
approved the English official stand on Anglo-Italian con­
versations on that day, the fall in the pound came to a
halt and sterling recovered to $5,017/16 at the day’s
close, and advanced to $5.02 at the month end. The Swiss
franc and the guilder similarly declined from the Febru­
ary 16 highs to $0.2324 and $0.5593%, respectively, at
the end of trading on February 21, and closed the month
slightly higher.
The French franc was m aintained close to 152% francs
per pound during the first three weeks in February,
resulting in New York quotations ranging between
$0.0327% and $0.0331%. Fresh weakness occurred in
the currency during the last week of the month, when
pressure against the franc became evident. This pressure




was attributed to anticipations of further franc deprecia­
tion which had their origin in the 12,000,000,000 franc
five-year armament program imposed on the French
Treasury, in addition to its already heavy budget expen­
ditures, and in the possibility that any reorientation of
French foreign policy required by the developments in
England and on the Continent would necessitate a re­
alignment in the French Cabinet. The French stabiliza­
tion fund apparently gave ground under the pressure of
franc sales, allowing the rate to ease to 154% francs per
pound in London and to $0.0325% in New York.
In Latin America, February brought renewed weak­
ness to several currencies. The outstanding development
was the further depreciation of the Argentine free peso,
which had weakened abruptly to $0.2770 at the end of
January from its previously m aintained rate of $0.2940,
apparently owing in considerable p art to foreign with­
drawals of previously acquired peso balances. "While
official Argentine peso buying and selling rates remained
unchanged at 15 and 16 pesos to the pound sterling,
respectively, the free peso declined to $0.2625 near the
end of February. The Colombian and U ruguayan cur­
rencies fell similarly during the month, the form er from
$0.5650 per peso to $0.5465, and the latter in the free
market from about $0.52 to $0.46. Quotations for the
Brazilian milreis in New York continued to be nominal
within a range of $0.0580 to $0.0585, as the Banco do
Brasil m aintained strict control of all exchange trans­
actions, buying dollar exchange at a rate equivalent to
$0.0578 while selling it at $0.0568.
N e w F in a n c in g

Bond financing by three utility companies made the
total of corporate issues during February $89,300,000,
somewhat more than in January, but about a quarter of
the Commercial and Financial Chronicle’s total for
February, 1937. Only a small p art of the total, however,
was for new investment purposes. The New England
Telephone and Telegraph Company is reported to have
sold $20,000,000 of 3% per cent first mortgage 30 year
bonds at par to seven life insurance companies, chiefly
to pay off loans from the American Telephone and Tele­
graph Company. On February 2, $57,000,000 of A ppa­
lachian Electric Power Company first mortgage 4 per
cent 25 year bonds were offered publicly at 98%, along
with $10,000,000 of 4% per cent 10 year debentures, at
100%. The mortgage bonds were oversubscribed on the
day of offering and since then have sold at a premium in
the market. The underw riters announced that the deben­
tures also were fully subscribed on the day following.
The proceeds of these two issues were mainly for refund­
ing. The Long Island Lighting Company sold $2,300,000
of first mortgage 4 ’s of 1960 to insurance companies at
par. D uring the latter p art of the month no corporate
issues were announced.
Prelim inary data on m unicipal bond awards during
February indicate a total of about $55,000,000, slightly
more than last month or in February, 1937. The largest
issue was $33,688,000 of Mississippi highway fund bonds,
over half of which was for refunding. In addition to the
bond issues, tem porary financing was negotiated totaling
about $130,000,000, consisting of $33,000,000 of Federal
Interm ediate Credit Bank short term debentures, of

21

FEDERAL RESERVE BANK OF NEW YORK

which $27,000,000 was for refunding, and over
$95,000,000 of m unicipal borrowing for less than one
year.
G o ld M o v e m e n t

In connection with the T reasury’s announcement on
February 14 of a modification of the gold sterilization
program, the monetary gold stock of the United States
was increased on February 15 by $24,000,000, represent­
ing the net acquisition of gold since December 31, from
both foreign and domestic sources, which had not previ­
ously been added to the gold stock. The inactive gold
account (which forms p art of the m onetary gold stock)
was reduced to $1,213,600,000 on February 15 by the
release from the account of $9,700,000, most of which
was sold to the Stabilization F und to offset sales to
foreign accounts by the F und since the first of the year,
and was further reduced by $13,000,000 on February 26
to offset sales to foreign accounts subsequent to F ebru­
ary 15.
Prelim inary figures of imports during February show
receipts of $1,100,000 from A ustralia and $275,000 from
India. As a result of the above transactions and receipts
of $7,000,000 from foreign and domestic sources since
February 15, there was a net increase of approximately
$18,000,000 in the m onetary gold stock during February.
E m p lo y m e n t a n d P a y r o lls

In January the total num ber of workers engaged in
nonagricultural pursuits in the United States decreased
by 1,300,000 persons according to an estimate of the
Bureau of Labor Statistics. The reduction since October
has amounted to 2,800,000 workers and of this decline
the Bureau estimates that about 800,000 may be attrib­
uted to normal seasonal slackening in activity. W ith
the single exception of the leather and leather products
group, where employment rose owing to greater activity
in shoe plants, all of the m ajor m anufacturing and non­
m anufacturing industries reported curtailm ent of em­
ployment in January and in most cases the reductions
were of more than the usual seasonal proportions.
Declines from December to January amounting to 7
per cent in factory employment and 12 per cent in
payrolls were the largest recorded for any sim ilar period
since 1921. The greater reductions in payrolls than in
working forces reflected more extensive part-tim e employ­
ment. As in the preceding month, the heaviest decreases
in working forces occurred in the durable goods indus­
tries, such as the automobile industry, the steel mills,
railroad equipment building and repair shops, the elec­
trical apparatus industry, foundries and machine shops,
and numerous others. Factory employment in January
was 14 y2 per cent below a year ago and payrolls were
22 per cent lower.
The accompanying diagram shows two measures of
employment in m anufacturing industries, one based upon
actual number of workers employed and the other upon
total employee-hours worked. A third line shows an
index of average hours worked. In earlier issues of this
Review attention has been called to the fact th at in
periods of depression part-tim e schedules, adopted at
least in p art to spread the available employment, tend
to increase the disparity between these two measures of




1929

1930

1931

1932

1933

1934

1935

1936

1937

1938

Number of Factory Workers Employed, Average Hours Worked, and
Aggregate Number of Hours Worked (Index numbers based on
U. S. Bureau of Labor Statistics and National Industrial
Conference Board data; 1929 average = 1 0 0 per cent)

employment. This tendency has been apparent in the
period from August through January when the number
of workers employed declined 19 per cent, while total
employee-hours were reduced 32 per cent. The form er
index for January was at the lowest level since January,
1935, and the index of employee-hours was at a new
low point since September, 1934.
In New York State, employment and payrolls in re­
porting factories also continued to decrease more than
seasonally in January. Since July this bank’s adjusted
index of employment has declined 12 per cent and the
payroll index 18 per cent. Compared with January, 1937
the curtailm ent of working forces in New York factories
has amounted to 10 per cent and payrolls have been
reduced 12 per cent. W orking forces were reduced in
all of the m ajor industrial groups, the largest losses
occurring in the textile, metals and machinery, and build­
ing m aterial industries.
B u ild in g

During January the daily rate of construction con­
tract awards in the 37 States covered by the F. W. Dodge
Corporation was little changed from the December level.
Largely as a result of the placing of contracts for two
large projects in the New York and N orthern New Jersey
district, there was an increase of 64 per cent in the heavy
engineering classification, but there was a 33 per cent re­
duction in awards for buildings. Compared with a year
ago total building and engineering contracts were 23 per
cent low er; a decline of nearly 50 per cent in residential,
factory, and other building contracts was only partially
offset by a gain of 44 per cent in heavy engineering work.
The accompanying diagram indicates the declining
tendency which has marked residential building in recent
months. A fter three years of comparative inactivity
there was a definite rise in contract awards for residential
building in 1935 and 1936. The subsequent decline,
mainly in the second half of 1937, has approximately
canceled that part of the recovery which occurred in 1936.
January construction figures for the New York and
Northern New Jersey area were augmented by two un­
usually large contract awards—for a water supply pro-

22

MONTHLY REVIEW, MARCH 1, 1938
M IL L IO N S
OF D O L L A R S

Daily Average Value of Residential Building Contracts Awarded in
37 States, Adjusted for Seasonal Variation
(F . W . Dodge Corporation data)

ject for New York City and a sewage treatm ent plant at
Buffalo. Commercial and industrial contracts were also
larger than in December, but awards for all other m ajor
types of building were considerably lower. Compared
with a year before, total contracts were 32 per cent higher,
but the gain was accounted for by heavy engineering pro­
jects just mentioned and lower volumes were reported
for each of the other principal classifications. Residen­
tial building in this district in January was 64 per cent
below that of a year ago.
D uring the first three weeks of February, construction
contracts awarded in the 37 States declined 29 per cent
from the January level. A considerable reduction in
heavy engineering construction more than offset a sea­
sonal advance in residential building, while nonresiden­
tial building showed no change although a gain is cus­
tom ary at this time of year. Compared with the corre­
sponding period of 1937, total contracts were 34 per cent
lower, as a result of heavy declines of 45 per cent in
engineering awards, 37 per cent in residential building,
and 20 per cent in nonresidential building.

silk prices increased rather substantially during Febru­
ary, the spot quotation rising 10 cents to $1.67% a pound,
or 15 cents above the level at the first of the year. The
average price of hogs advanced 66 cents to $9.09 a hun­
dredweight during the month, and the average price of
steers moved 67 cents higher to $8.42 a hundredweight,
thus canceling about 40 per cent of the previous m onth’s
loss.
W heat prices tended somewhat higher during the
early p art of the month, reflecting largely reports of
insufficient subsoil moisture and a recurrence of dust
storms in the Southwestern winter wheat area. How­
ever, following reports of a break in the drought, prices
declined on subsequent days and the cash quotation for
the Number 1 grade of N orthern wheat at Minneapolis
closed February at $1.13% a bushel, compared with
$1.17% at the end of January. Losses for the month
were shown also in the prices of wool and hides.
A downward tendency was apparent in the prices of a
number of im portant metals during the past month.
Scrap steel at Chicago declined 75 cents to $12.25 a ton,
and at Pittsburgh the price receded 25 cents to $14.00
a ton. Lead was reduced 40 points to 4% cents a pound
and zinc % cent to 4% cents. The price of tin, on the
other hand, rose 1% cents to 42% cents a pound.
The table below indicates some of the m ajor fluctua­
tions during the past two years in the spot quotations of
a number of actively traded commodities and their posi­
tion at the end of February. A t the low point of the
decline which began after March, 1937 and continued
through December, all of the products listed had lost
most or all of the advances that had occurred in 1936 and
early 1937, and some of the farm products, reflecting
larger production in 1937, had fallen below the 1936 lows.
It will be seen that all the products, with the exception
of steers and zinc, participated in the upw ard movement
occurring during December and early January. Only
three of these commodities, cotton, hogs, and raw silk,
have since surpassed their January highs. All the other
items included in the table closed February below the
highest levels of January.
1937

C o m m o d it y P r ic e s

Influenced by a variety of factors, including crop con­
trol legislation and changes in weather conditions, prices
of actively traded commodities moved irregularly during
February, and the general level, as measured by Moody’s
index of 15 commodities, closed the month little changed
from the end of January.
Pronounced gains were shown during the month in
cotton prices, connected to some extent with the enact­
ment of the new A gricultural Adjustm ent Act. Spot
cotton rose to 9.37 cents a pound on February 23, and al­
though it receded somewhat subsequently to 9.27 cents
at the end of the month, it showed a net gain of 75 points
for the month. Similar movements occurred in cotton
futures. A t the end of February the spot quotation for
cotton was nearly 1 % cents, or about 19 per cent, above
the November, 1937 low.
Owing at least in part to an increase in the demand
for raw silk and evidence of larger consumption, raw




Spot Quotations for
Farm Products
Wheat, No. 1 Northern, Minneapolis
(dollars a bu.).....................................
Corn, No. 3 yellow, Chicago (dollars a

1936
Low

1 .0 9 %

.58
Cotton, middling, N. Y . (cents a lb.) 11.20
Hogs, average price, Chicago (dollars
a hundredweight).............................. 9.24
Steers, average price, Chicago (dollars
a hundredweight).............................. 7.58
Metals
Scrap steel, No. 1 heavy melting,
Pittsburgh (dollars a ton).................
Copper, domestic electrolytic, Conn.
Valley (cents a lb.)...........................
Lead, New York (cents a lb .).............
Zinc, prime Western, E. St. Louis
(cents a lb .)........................................
Tin, Straits, N. Y . (cents a l b. ) . . . .

13.25
9%
4 .52 %
4 .75
40.35

1938

MarchApril,
High

Nov.Dee.,
Low

Jan.,
High

End of
Feb.

1 .6 9 %

1 .0 4 %

1 .2 5 %

1.13%

1 .3 8 %
15.25

.52
7.79

.61 %
8.72

.56 %
9 .27

10.40

7.58

8.56

9.09

12.46

9.38

9 .00

8.42

23.75

13.25

14.25

14.00

17
7 .7 7 %
7.50
67.00

10-11
4.75
5.00
40.75

10K -11
4 .90
5.00
43.00

10
4 .50
4.75
4 2 .1 2 %

Miscellaneous
Silk, raw, double extra, N. Y . (dollars
a lb .) ..................................................... 1 .4 4 % 2.07 % 1 .5 2 % 1 .6 1 % 1 .6 7 %
Rubber, crude, plantation, N. Y.
(cents a lb .)..................................... 13.56% 2 7 .1 2 % 14.12% 15.37% 1 4.87%

FEDERAL RESERVE BANK OF NEW YORK

23

P r o d u c tio n a n d T r a d e

Judging from prelim inary information, there appears
to have been no very substantial further decline in the
general level of production and trade during February.
Steel ingot output, which averaged 29 per cent of
capacity in January, apparently was slightly higher in
February, though the gain was smaller than usual. Steel
mill activity has leveled out following a recovery of about
10 points in the operating ratio from the low point at the
end of December. An increase in the volume of sales
of cotton textiles was reported in the latter p art of
February, accompanying the enactment of the new farm
bill and higher prices for cotton, and mill activity appears
to have increased slightly during the month. Automobile
plants maintained output somewhat below the January
rate. Railway loadings of merchandise and miscellaneous
freight were little changed during the first three weeks
of February, but loadings of bulk commodities were
reduced eontraseasonally. Bituminous coal production
declined about as usual, while electric power generation
decreased slightly more than in most other years. D epart­
ment store sales in this district fell off somewhat between
January and February after seasonal adjustm ent.
(Adjusted for seasonal variations, for year to year growth,
and where necessary for price changes)
1937

1938

Jan.

Nov.

Dec.

Jan.

Machine tool orders*...................................

107
97
97r
107r
87
94
94
114
124
143r
87
93
75
200

52
92
79
106
83
94
90
79
45
82
84
94
62
121

38
83
61
113
79 p
95
87 v
73
46
85p
87
95
63
128

38
77 v
47
78
64p
96??
86p
71
43p
90p
89
87
50
115

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

100
92r

95
81

90
73

86p
69 p

Industrial Production
Passenger cars...............................................
Motor trucks.................................................
Crude petroleum...........................................
Electric power...............................................
Cotton consumption....................................
Wool consumption........................................
Meat packing................................................
Tobacco products.........................................

Construction
Residential building contracts...................
Nonresidential building and engineering
Primary Distribution
Car loadings, merchandise and misc. r . ..
Car loadings, other r ....................................

Distribution to Consumer
Department store sales, U. S.....................
Department store sales, 2nd District. . . .
Chain grocery sales......................................
Other chain store sales................................
Mail order house sales.................................
New passenger car registrations...............
Money Payments
Bank debits, outside New York C ity .. . .
Bank debits, New York City.....................
Velocity of demand deposits, outside New
York C ity**...............................................
Velocity of demand deposits, New York
C ity**.........................................................
General price level#.....................................
Cost of living#...............................................
Composite index of wagest........................

51

28

19

21

76

54

63

65

89
84
69
92

81
78
88
85

77
78
94
86

74
72
93 v
64 p

95
89
99
98
100
117

86 r
80r
98
93
91r
80

84r
82r
98
95r
94r
62

86
81
100p
93 p
87p
63 p

68
42

63
40

64
43

58p
35 p

72

72

69

65

50

44

50

42

161
148
102

156
152
112

155
151
111

155p
150p
111 p

p Preliminary.
r Revised.
* Not adjusted for price changes.
** 1919-1925 average=100 per cent. # 1913 average=100; not adjusted for trend,
t 1926 average=100; not adjusted for trend.




New Passenger Automobile Registrations in the United States (Data
for Wisconsin omitted since July, 1937, because unavailable)

D uring January, there was some evidence of a slacken­
ing in the decline in production and trade which began
in the fall. Following sharp decreases in four successive
months, steel ingot production rose seasonally in Jan u ­
ary and cotton consumption by textile mills also in­
creased, although somewhat less than the average for the
time of year. Mill consumption of silk and shoe produc­
tion increased more than is usual, but the rate of auto­
mobile assemblies dropped 31 per cent from December to
January, to about half the rate of January, 1937; output
of nonferrous metals and bituminous coal declined; and
there was a contraseasonal reduction in the m anufacture
of tobacco products. Following a slight upturn in
December, machine tool orders resumed the declining
tendency in evidence since September.
The seasonally adjusted indexes of railway freight car
loadings and of the volume of check transactions through­
out the country were lower in January than in the pre­
ceding month, and mail order house sales declined some­
what more than usual. On the other hand, departm ent
store sales and registrations of new passenger cars com­
pared favorably with December after seasonal adjust­
ment.
The daily average rate of registrations of new passenger
cars since July, 1935 is shown in the accompanying dia­
gram. From July through October of 1937, registrations
declined as in 1935 and 1936, but remained above each of
those years. Following the showing of new models, how­
ever, registrations failed to pick up as in the two pre­
ceding seasons, and in December were only a little over
half those of a year previous and substantially lower
than in December, 1935. A decrease roughly correspond­
ing to those of the two preceding years was indicated by
prelim inary data for January.
F o r e ig n T r a d e

Exports of merchandise from the United States during
January were valued at $289,000,000, or 30 per cent more
than a year previous, while imports, amounting to $171,000,000, were nearly 30 per cent smaller than in the
corresponding month of 1937. Both exports and imports
declined m aterially from the December levels, but the
decrease in exports appears to have been largely seasonal,
while the reduction in imports was greater than the usual

24

MONTHLY REVIEW, MARCH 1, 1938

January movement. The excess of exports over imports
of $1.18,000,000 was the largest for any month since
October, 1929. Recent data indicate an increased foreign
demand for American grain, and a well sustained demand
for American cotton and for some industrial products,
notably machinery.
Data for the calendar year 1937 indicate a rather
general increase over 1936 in the foreign trade of this
country, although the percentages of increase in value
for the leading commodities varied widely, as the accom­
panying table shows. The principal individual com­
modity exports tended to show larger increases on the
whole than the leading imports, due especially to the
notable expansion of exports in the last six months of the
year. The movements of m ajor imports during 1937
reflected a combination of active demand for foreign raw
materials in the first half of the year, and a reduced need
for these products in the latter half of the year, accom­
panying the domestic industrial recession.

in quantity than in the year previous. Likewise, imports
of tin and new sprint paper and woodpulp showed sub­
stantial gains in value over 1936, due both to quantity
and price increases. Receipts of raw silk and coffee, on
the other hand, were larger in value, although smaller in
quantity than in 1936. Sugar imports showed a moderate
increase in value, despite a decline in the average price
of sugar.
D ep a rtm en t S tore T ra d e

Total sales of the reporting departm ent stores in this
district during the first three weeks of February were
4.6 per cent below the corresponding period of a year ago;
sales continued at about the same rate as in January
instead of showing the usual seasonal increase.
In January, total sales of the reporting departm ent
stores in this district were 3.5 per cent lower than in Ja n ­
uary, 1937, a somewhat larger decline than in December.
Stocks of merchandise in departm ent stores, at retail
valuation, were 4.1 per cent lower at the end of January,
1938, than at the end of January, 1937, but were still
somewhat above the level that prevailed for some time
before the rapid increase started in the latter half of
1936. Collections of accounts outstanding wrere slightly
lower in January, 1938, than in January, 1937.

Value
calendar year
1937
(In millions
of dollars)
Exports
Wheat (incl. flour)..................................
Iron and steel mill products.................
Copper, incl. ore and manufactures. .
Industrial machinery.............................
Automobiles, incl. trucks and passen­
ger cars..................................................
Crude petroleum.....................................
Electrical machinery..............................
Cotton, unmanufactured.......................
Tobacco, unmanufactured....................
Imports
Wool and mohair....................................
Rubber, crude..........................................
Tin (bars, blocks, pigs).........................
Newsprint paper and wood pulp.........
Coffee.........................................................
Cane sugar...............................................
Silk, raw....................................................

Percentage
change
calendar year 1937
compared with 1936

61
300
94
241

+ 2 1 6 .5
+ 1 6 8 .1
+ 84.5
+ 51.7

235
96
113
369
135

+ 48.9
+ 45 .8
+ 23.3
+
2.1
— 2 .0

Percentage
change
January, 1938
compared with
January, 1937

96
248
104
221
151
166
107

+
+
+
+
+
+
+

Net
sales

81.0
55.9
38.2
2 3.0
12.4
5 .3
4 .1

Exports in 1937 of wheat and wheat flour, which had
shrunk in recent years to negligible proportions, in­
creased to more than three times the 1936 value, as a
result of a larger crop last year in the United States and
smaller production elsewhere. Shipments of iron and
steel mill products and copper showed exceptionally large
increases in value over the previous year, which may have
been partially accounted for by the extensive armament
programs of a number of foreign countries. Exports of
crude petroleum and of such m anufactured products as
industrial and electrical machinery and automobiles also
showed notable gains over 1936. F or the year as a whole,
foreign demands for cotton from this country were not
m aterially larger than in the preceding year; increases
in purchases by Great B ritain and other European coun­
tries slightly more than offset a large decrease in Japan­
ese takings during the latter half of the year. Exports of
unm anufactured tobacco from the United States in 1937
were somewhat smaller in value than in 1936, due to the
lower average price of American tobacco.
Among the m ajor imports, receipts of wool and mohair
during the year 1937 showed the largest relative gain
over 1936, although heavy declines occurred in the latter
half of the year in quantity as well as value. Receipts
of crude rubber, our largest single im port in value in
1937, were greater in value and also considerably greater




Per cent of
accounts
outstanding
December 31
collected in
January

Stock
on hand
end of
month

1937

1938

Elsewhere .........................................................
Northern New York State.........................
Southern New York State..........................
Central New York State.............................
Hudson River Valley District...................
Capital District.............................................
Westchester & Stamford.............................
Niagara Falls.................................................

— 3 .6
— 10.9
+ 2 .7
— 0 .5
— 5 .6
— 1.5
+ 1.7
— 1.9
— 4 .0
— 7 .9
+ 1.0
— 1.3
+ 9 .5
+ 2 3 .1

—
+
+
—
—
—
+

4 .8
3 .5
1.7
1.1
7 .3
3 .4
3 .0

55.1
47.9
62.9
40.3
43.4
42.6
36.7

53.8
41.4
69.8
38.7
43.3
3 8.2
35.0

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

— 3 .5

— 4.1

50.9

49.9

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

— 5.7

— 3 .5

50.2

49.5

Locality
Buffalo .............................................................
Rochester............................................................
Syracuse ............................................................
Northern New Jersey......................................

Classification
Toys and sporting goods...........................
Musical instruments and radio...............
Linens and handkerchiefs.........................
Women’s ready-to-wear accessories........
Men’s furnishings........................................
Women’s and Misses’ ready-to-wear.. . .
Silverware and jewelry..............................
Men’s and Boys’ wear...............................
Toilet articles and drugs...........................
Home furnishings........................................
Woolen goods..............................................
Silks and velvets.........................................
Books and stationery.................................
Luggage and other leather goods............
Miscellaneous..............................................

Net sales
percentage change
January, 1938
compared with
January, 1937

Stock on hand
percentage change
January 31, 1938
compared with
January 31, 1937

+ 4 2 .3
+ 5 .2
+ 4 .5
+ 2 .8
+ 0 .4
0
— 3 .2
— 3 .9
— 4 .3
— 7 .4
— 7 .5
— 9 .0
— 9 .0
— 10.4
— 12.7
— 13.7
— 13.8
— 17.3
— 4 .3

— 6 .8
— 14.5
— 3.1
+ 4 .8
— 15.2
— 4 .3
— 3 .0
— 4 .1
+ 5 .8
+ 6 .4
— 10.2
+ 2 .5
— 9 .4
— 8 .7
— 6 .1
— 13.4
— 2 .9
— 6 .4
— 3 .5

FED ER AL RESERVE

BANK

OF N E W

YORK

MONTHLY REVIEW, MARCH 1, 1938
B u sin ess C o n d it io n s in th e U n it e d S ta tes
(Summarized by the Board o f Governors o f the Federal Reserve System)

T

HE decline in business activity, which had been rapid during the last
quarter o f 1937, continued in January but at a slower rate.
P r o d u c t io n

100

80

60

1934

1935

1937

1936

1936

Index Number of Production of Manufactures
and Minerals Combined, Adjusted for Seasonal
Variation (1 9 2 3 -2 5 a v e ra g e s 100 per cent)

Index Numbers of Factory Employment and
Payrolls, W ithout Adjustment for Seasonal
Variation (1 9 23 -2 5 average— 100 per cent)

Volume o f industrial production, as measured by the Board's seasonally
adjusted index, was at 81 per cent o f the 1923-1925 average in January as
compared with 84 per cent in December. Output o f durable goods continued
to decline, reflecting chiefly considerable decreases in production o f automo­
biles and plate glass and a further decline in output o f lumber. Steel ingot
production increased somewhat, the output for January averaging 30 per cent
o f capacity. In the first three weeks o f February, activity at steel mills showed
little change at about 31 per cent o f capacity, while production of automobiles
was at a lower rate than in January.
In the textile industries, activity at silk and rayon mills in January
showed a sharp rise from the low levels reached in December. At cotton mills,
however, there was less than the usual seasonal increase and output o f woolen
products continued in small volume. Shoe production, which also had been at
a low rate in December, increased considerably in January, and activity at
meat packing establishments rose somewhat further. Output o f tobacco prod­
ucts remained at a high level, while sugar meltings declined. A t mines,
bituminous coal production was considerably smaller than in December, and
there was also a reduction in output o f nonferrous metals. Petroleum produc­
tion continued at the high level o f other recent months.
Value o f construction contracts awarded in January was smaller than in
December and somewhat below the level maintained during the last four
months o f 1937, according to figures o f the F. W. Dodge Corporation. Con­
tracts awarded for public projects increased somewhat further, while awards
for private work continued to decline, reflecting a further decrease in resi­
dential building and a sharp reduction in awards for factory construction.
In the first half o f February awards for private projects were at about the
same rate as in January, while those for public work showed a sharp decline.
E m p l o y m e n t

Factory employment and payrolls declined substantially further between
the middle o f December and the middle o f January. In the durable goods
industries, decreases in employment were general and were particularly large
at factories producing automobiles, steel, and machinery. Employment in
nondurable goods industries showed a somewhat smaller decline than in pre­
vious months. There was some increase in the number employed at shoe
factories and little change in the food industries as a group, but in other
nondurable goods industries employment continued to decrease. Employment
on the railroads, in mining, and in the construction industry also declined.
D is t r ib u t io n

Department stores sales showed a seasonal decrease from December to
January, while sales at variety stores and mail order sales declined by more
than the usual seasonal amount.
Freight car loadings continued to decline in January, reflecting principally
a reduction in shipments o f coal.
Wholesale Price Index of United States Bureau
of Labor Statistics (1926 = 100 per cent)

T O !L sa*S

GOVT. OBLIGA XIONS
D ET& URNED
I C GAA TE
R

1

cc(MMERCIAL
OTHI :r s e c u r it ie s

—

' ----- *

B a n k

LOANS 1■o
BROKERS & DEALERS
- '

- N

C r e d it

.

Member Banks in 101 Leading Cities (Latest
figures are for February 16)




P r ic e s

During the first three weeks o f February excess reserves o f member banks
were little changed from the level o f $1,400,000,000 reached at the end of
January following the post-holiday return o f currency from circulation.
During January there were substantial reductions in commercial loans
and brokers loans and moderate increases in investments at reporting member
banks in 101 leading cities. In the first three weeks of February loans and
investments o f these banks showed little change.

LO/

------------------------ 1

C o m m o d it y

Prices o f steel scrap and nonferrous metals declined from the middle o f
January to the third week o f February, following some advance in December
and the early part o f January. There were further decreases in some other
basic commodities, while prices o f cotton and silk advanced. Livestock products
continued downward and a number o f finished industrial products declined
further. Prices o f pig iron and most finished steel products have been reaffirmed
for second quarter delivery.

M o n e y

R a t e s

Rates on Treasury bills and yields on Treasury notes and bonds continued
in February at the low levels reached in the latter part o f January.