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MONTHLY REVIEW of Credit and Business Conditions S econd F e d e ra l R e s e rv e D is tr ic t Federal Eeserve Bank, New York M o n e y M a r k e t in O c t o b e r The downturn in prices of stocks and lower grade bonds, which started around the middle of August and continued through September, gained momentum in the early part of October and the subsequent drastic decline was not checked until October 19. This decline, together with the preceding recession from March to June, consti tutes the most severe decline since the recovery in security prices started in the summer of 1932 and in its latter stages was one of the sharpest declines of record. At the lowest levels reached in October, average prices of the various groups of stocks were 40 to 50 per cent or more below the highest levels reached early in the year. In many cases prices of the lower grade bonds showed de clines of nearly the same magnitude. The behavior of the m arket for these securities has had an adverse effect upon the continued financing of the capital needs of business. New security issues by corpo rations to provide new capital for expansion or improve ment of plants and equipment, or to provide additional working capital, had been taking the form increasingly of stocks or convertible bonds, and the drastic decline in prices of outstanding securities of those types made it impracticable to continue flotations of such securities and distribution of issues previously announced was impeded. In fact, the issue of all types of new securities was for a time practically at a standstill. Accompanying the decline in stock prices, there has been a continued shrinkage in the volume of loans made by New York City and other banks to finance the p u r chase or carrying of securities. Between the latter part of August and October 27, loans to security brokers and dealers by New York City banks declined about $360,000,000, and there was a decline in such loans by weekly reporting member banks in other principal cities of about $25,000,000 up to October 20. In addition there have been smaller declines in bank loans to individual customers to finance security trading. While the recent reduction in brokers loans has been quite moderate in amount as compared with the shrinkage in such loans during earlier periods of drastic declines in security prices, it represents a decline of nearly 35 per cent, and has been sufficient to carry the volume of loans outstand ing near the end of October down to the lowest level since the autum n of 1935. On October 27 the Board of Governors announced amendments of its Regulation T and issued supplements to its Regulations T and U, which, among other changes, November 1, 1937 increased the maximum loan value of registered securities for loans made to finance the purchase or carrying of such securities from 45 per cent to 60 per cent, effective November 1, and at the same time required a m argin of 50 per cent against “ short’’ sales. B rokers’ borrowing capacity was enlarged by an increase, from 60 to 75 per cent, in the maximum loan value of customers ’ securities which they pledge as collateral for loans from banks. The accompanying diagram shows changes in the amount of funds borrowed by members of the New York Stock Exchange for the past 16 years, with estimated figures for the end of October (and also for the years 1923 to 1925), based on reports from New York City mem ber banks on the amount of their loans to security brok ers and dealers. As this diagram indicates, the volume of borrowing by members of the New York Stock E x change showed no such expansion during the rapid rise in stock prices from the spring of 1935 to the spring of 1937 as in previous periods of rapidly rising security prices. The advance in prices appears to have resulted to a large extent from cash buying, so that the amount of credit liquidation that has accompanied the recent fall in stock prices has been correspondingly limited. Commercial loans of weekly reporting member banks in New York City and elsewhere showed some further increase during the first half of October, but were re- ol I 1 1 9 2 2 * 2 3 '2 4 I I __ ____ L______ I ___ ___ ___J ___ 1 _ J ------ ------ L— 25 ’2 6 ’2 7 ’2 8 ’2 9 ’3 0 ’31 ’3 2 ’ 3 3 ’3 4 ’3 5 B o r r o w in g s in N e w Y o r k C it y b y M e m b e r s o f N e w E x c h a n g e ( F ig u r e s fo r e n d o f O c to b e r a n d 1 9 2 3 -2 5 e s tim a t e d ) Y o rk fo r ’3 6 '3 7 Sto ck MONTHLY REVIEW, NOVEMBER 1, 1937 82 duced in the latter part of the month, partly through the use of the proceeds of recent security issues to pay off bank loans. Government security holdings of the prin cipal New York City banks, after declining about $1,250,000,000 between July 1, 1936 and the third week of Sep tember, 1937, have since shown little change. The expan sion in commercial loans has partly counterbalanced the reduction in Government security holdings during the past year, and in recent weeks the principal cause of shrinkage in bank credit has been the decline in brokers loans. Weekly reports from member banks in the Second D istrict outside New York City, have shown practically no net change in the volume of loans and investments or in the volume of deposits since the beginning of this year, and it appears that in other parts of the country also there has been practically no shrinkage in the vol ume of bank credit and deposits outside a few of the larger cities. Except in the New York City banks, brok ers loans are no longer an im portant element in the earning assets of the banks, so that the possibility of shrinkage in bank credit from the liquidation of such loans during a period of falling security prices is much less than in earlier years. M e m b e r B a n k R e ser v es and M o n e y R a tes Money m arket conditions have remained easy through out the past month, reflecting the more comfortable re serve position of the New York City banks, following the release of $300,000,000 from the inactive gold account and the disbursement of the proceeds by the Treasury in the second half of September. Excess reserves of the large New York City banks, which in the early part of August and again in the early p art of September had declined to such small proportions that some banks found it necessary to borrow reserves from others tem porarily, rose well above $400,000,000 by the end of September. D uring the early part of October there was a seasonal demand for currency and the usual outflow of funds to other districts, which apparently is related largely to interest and dividend disbursements by large corporations, but the volume of excess reserves in New York did not fall below $250,000,000, and in the latter part of the month a return flow of funds from other districts again raised the volume above $400,000,000. For all member banks excess reserves have fluctu ated between slightly under $1,000,000,000 and close to $1,100,000,000 throughout the month. Reflecting the ample supply of funds and the absence of new Treasury borrowing through bills, yields on Treasury bills declined slightly further during October and other short term money rates remained at the previ ous low levels. Yields on 1 to 5 year Treasury notes also declined slightly, and yields on long term Government and high grade corporation bonds showed little change. G o v e r n m e n t S e c u r it ie s Between the end of September and October 18 United States Treasury bonds were steady to firm, and for this period as a whole a net advance of nearly *4 point oc curred in average prices. On October 19 when the selling wave in stocks and lower grade bonds reached its cul mination, there was an accompanying decline in Treasury bond prices averaging more than y2 p o in t Money Rates in New York Oct. 31, 1936 Sept. 30,1937 Oct. 30,1937 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 years)....................................................... Average yield on Treasury bonds (more than 8 years to maturity or call date) Average rate on latest Treasury bill sale 273 day issue.................................. 140 dav issue.......................................... Federal Reserve Bank of New York re discount rate........................................... Federal Reserve Bank of New York buying rate for 90 day indorsed bills. . 1 *1 H % 3/16 1 *1M l 7/16 1 *l H l 7/16 1.67 1.58 1.67 f l .1 3 f l .4 5 t l-3 7 J2.42 *2.65 J2.63 0 .12 0.38 iy 2 1 0 .26 X 1 x. * Nominal t Substituted for series 1 to 5 years previously used. % Substituted for series due or callable after 5 years previously used. but a partial recovery occurred before the end of the day, and more than half of the loss was regained in the following two days. A further moderate advance oc curred later in the month, so that by the end of October Treasury bond prices were back to the October 18 quota tions and consequently were somewhat higher than at the end of September. The average yield on Treasury bonds due or callable after 8 years was 2.63 per cent on October 30, as compared with 2.65 per cent at the end of Septem ber. Movements of Treasury notes during October were generally sim ilar to those in Treasury bonds and prices showed net gains for the month as a whole; the average yield on 3 to 5 year Treasury notes was 1.37 per cent at the end of October, as against 1.45 per cent at the close of September. D uring the first three weeks of October the Treasury continued to issue $50,000,000 of 273 day Treasury bills each week to replace similar m aturities, but in the last week of the month substituted an issue of $50,000,000 of bills m aturing March 16, 1938, in replacement of the m aturity of 273 day bills. The bills m aturing in the March quarterly tax period together with further con templated issues of bills to m ature around this date will on m aturity serve to offset funds taken out of the money market by March, 1938 income tax collections. The average rates at which the 273 day bills were sold during October moved progressively lower, reaching 0.362 per cent for the issue dated October 20, the lowest rate at which this m aturity of bill had been sold since January, and the rate on the shorter term bill issue dated October 27 was 0.261 per cent. B il l s and C om m ercial P a per Activity in the bill market remained in small volume during October, owing to the limited quantity of bills becoming available to dealers for resale. No changes occurred in the rate structure of the bill market. The amount of bills outstanding at the end of Septem ber was practically unchanged from the August total, but $29,000,000 above the September, 1936 outstandings. F urther small increases in outstandings of export bills and domestic warehouse credits during September were offset by continued declines in im port acceptances and bills based on goods stored in or shipped between for eign countries. As compared with a year ago the only classification to show a m aterial decrease is bills based on goods stored in or shipped between foreign countries FEDERAL RESERVE BANK OF NEW YORK which are outstanding in the smallest volume since July, 1927. Accepting banks and bankers held $274,000,000 or approximately 80 per cent of all bills outstanding at the end of September, compared with 77 per cent at the end of August. 83 P R IC E (Millions of dollars) Type of acceptance Sept. 30, 1936 Aug. 31, 1937 Sept. 30, 1937 Import........................................................... Export.......................................................... Domestic shipment................................... Domestic warehouse credit..................... Dollar exchange.......................................... Based on goods stored in or shipped be tween foreign countries....................... 107 64 10 56 2 76 69 66 Total..................................................... 315 344 344 134 71 10 58 2 127 77 11 62 1 Open m arket commercial paper continued to be in active demand during October. Meanwhile, available supplies of new drawings were reported to have been somewhat less than in the previous month. Average grade prime 4 to 6 month commercial paper continued to be quoted at 1 per cent. Commercial paper houses reported a total of $331,000,000 of paper outstanding Baa by Moody’s Investors Service declined almost 8*4 at the end of September, compared with $329,000,000 points further between October 1 and October 19, follow ing a recession of over 4 % points during the preceding at the end of August, and $197,000,000 a year ago. month, and reached a level about 21 points below the highs of last January. Railroad bonds of this class were S e c u rity M a r k e ts especially weak. In the subsequent part of October there The large declines in prices of stocks and lower grade was a net recovery of about 3% points in the Baa bonds, corporation bonds during October represented a con leaving a net decline of about 4 y2 points for the month. tinuation, at an accelerated pace, of the recession of the The highest grade corporation bonds, those rated Aaa, previous month and a half. The decline in stock prices showed virtually until October 19 when the between the end of September and October 18, the day decline amounted noto change only y2 point, and this loss was on which prices were at their lowest closing quotations, quickly regained. amounted to 22 per cent, as compared with a decline of The stability of the m arket for high grade bonds, in about 21 per cent between August 14 and September 30. contrast the severe declines in prices of lower grade Closing prices on October 18 were 42 per cent below the bonds andwith in stock prices, is shown in the accompanying 1937 high which was reached in March, and were at levels diagram. which represented the cancellation of three-fourths of the two year advance in stock prices between March, N e w F i n a n c i n g ; 1935 and March, 1937. Eailroad stocks as a group As a result of the unsettlem ent in the security markets, declined to less than one-half of their peak prices of last March, and the declines in industrial and public utility the flotation of new issues during October was sharply stocks were only moderately less drastic. The turnover curtailed. Between October 9 and October 27 the only of stocks on the New York Exchange reached a maximum corporate security issues offered in the New York m arket of 7,300,000 shares on October 19, reflecting heavy sell were two relatively small issues of railroad equipment ing pressure during the early p art of the day when trust obligations. Awards of m unicipal and State obli prices dropped even lower than on the 18th. This volume gations also were in reduced volume. D uring the first week of the month, however, three large corporate issues of sales was the largest for any day since July, 1933. A fter the initial price declines on the 19th, there were totaling over $86,000,000, including a high grade pre substantial recoveries on that day and on the following ferred stock issue and two bond issues with fairly high two days. Thereafter, alternate declines and advances ratings, were successfully marketed, and on October 28 of rather wide proportions characterized the trading a $13,000,000 issue of high grade notes was announced through the 27th, at which time the average level of and successfully distributed. M arket conditions were share prices was some 9 per cent above the lowest closing generally unfavorable, however, to the flotation of lower quotations of the month. Following the announcement grade securities. The m onth’s total of corporate, farm by the Board of Governors late that day of an increase loan, and m unicipal issues was approximately $200,in the maximum loan value of stocks for m argin accounts, 000,000, of which some $52,000,000 was tem porary tax the general movement of stock prices during the re anticipation municipal borrowing and Federal In ter mainder of the month was upward, with the result that mediate Credit Bank short term debentures, $71,000,000 the recovery in share prices was increased to 15 per cent. refunding, and the remaining $77,000,000 for medium Fluctuations in corporate bonds, other than the high or long term new capital, of which nearly $33,000,000 est grade investment issues, corresponded to movements was to repay bank loans. The October total is the of stock prices, since both classes of securities are largely smallest for any month since February, 1935, with the subject to the same influences. The group of bonds rated exception of last August. M o v e m e n t s o f S t o c k a n d B o n d P r ic e s (S t a n d a r d S t a t is t ic s C o m p a n y i n d e x o f 9 0 s t o c k s , a n d M o o d y ’s I n v e s t o r s S e r v i c e a v e r a g e p r ic e s o f A a a a n d B a a c o rp o ra tio n b o n d s ) 84 MONTHLY REVIEW, NOVEMBER 1, 1937 The large corporate new issues referred to above were the French railways for a two year period, and was the following: favored as well by the apparent progress made toward a European nonintervention agreement up until the last Amount Issuer Kind of Security Rate Price week of the month. On October 25, however, a reaction Gen. Mtge. Bonds of 1962 3H 99 occurred, apparently as a result of a setback to the non $48,364,000 Central New York Power Corp. 20,000,000 Continental Can Co. Preferred Stock 100 4M intervention conference and of internal political develop First Mtge. Bonds of 1967 3% 9SH 18,000,000 Idaho Power Co. 13,000,000 North Boston Lighting Properties Secured Notes of 1947 100 3M ments, during which the franc fell as low as 149 francs to the pound in London, and $0.0333% in New York. A On October 5 the underw riters reoffered $46,003,300 month-end recovery brought the New York quotation up Bethlehem Steel Corporation 3% per cent convertible to $0.0337%. debentures of 1952 for public sale at 95%. During The pound sterling fluctuated within a narrow range September the original issue of $48,000,000 had been during most of the month, after starting on October 1 offered at 100 to holders of the corporation’s common at $4,95 7/16, but rose during the last week from stock, but only $1,996,700 had been subscribed. A further $4.95 1/16 to $4.96%. A decline from $4.96 on October discount in m arket quotations appeared shortly after 15 to $4.95 1/16 on October 25 was attributed in part the public reoffering and sales in the m arket were to sales of sterling for the purpose of buying American reported at around 78; subsequently quotations recovered securities, while the subsequent recovery from that level to above 85, accompanying some recovery in the stock was occasioned prim arily by sales of dollars in London market, and a gradual distribution of the issue has been for Swiss, Dutch, and Scandinavian account, and also by taking place. Japanese purchases of sterling with the proceeds of re Holders of $16,381,000 New York, Chicago, and St. newed gold sales in the United States. Louis Railroad Company first mortgage 4 per cent bonds In the London market, the price of gold, which had m aturing October 1, 1937, were offered an option of gone to a premium over the shipping parity to New York being paid in cash or of receiving a small cash premium toward the end of September for the first time since and bonds extending the m aturity of the mortgage to March, gradually rose during the month, the demand for 1947 with a reduction in the coupon rate to 3% per cent. gold emanating both from hoarders and from European Public offering was made of approximately $5,000,000 official sources. The dollar equivalent of the London gold of the 3 % ’s of 1947, representing the proportion of price was consistently quoted at or above $34.82, and holders of the m aturing 4 ’s who elected to be paid in reached $34.86 at the month end. As a consequence, no cash. engagements of gold in London for shipment to the D uring the month a number of offerings in process United States were arranged during October. of registration with the Securities and Exchange Com The guilder and the Swiss franc were both strong mission were deferred or withdrawn, including $8,- against the dollar during October, the form er being 000,000 of St. Joseph Railway, Light, Heat, and Power quoted consistently close to $0.5529%, while the latter Company bonds and notes, $67,000,000 of Appalachian rose from its former high of $0.2297% at which it had Electric Power Company bonds and debentures, and started to $0.2306 on October 21, and to $80,000,000 of Consolidated Edison Company deben $0.2312%theat month, the month In the forw ard market, the tures, and several smaller issues. In connection with the Swiss franc moved fromend. a discount on three Consolidated Edison issue, it was announced that the month quotations to 5/16 per cent perequivalent annum on Company had discarded plans to refund $60,000,000 of 1 to a premium equivalent to % per cent per October outstanding bonds, but would later borrow $30,000,000 at the month end. The belga was weak at the firstannum of the for new capital purposes, instead of the $20,000,000 month along with the French franc, and it was reported originally scheduled. that foreign capital continued to leave Belgium when the resignation of the Van Zeeland cabinet took place F o r e ig n E x c h a n g e s October 25. Fluctuations of considerable m agnitude continued in onThe free milreis fell continuously during the French franc during October, but for the month as a OctoberBrazilian after weakening on September 28, and whole a substantial gain was made. In the first two days was quoted here at $0.0560sharply at the end of October as com of October the franc continued the depreciation of Sep pared with $0.0640 before the movement The tember, reaching $0.0328% on October 2, or the lowest reduced supply of coffee bills and weaknessbegan. in cotton level since 1926. From that quotation it recovered, at prices in foreign countries both contributed to the decline. first gradually and during the second and third weeks No developments occurred in the F ar Eastern exchanges of the month rather rap id ly ; some French capital repatri which remained pegged and fluctuated only narrowly ation in addition to short covering was indicated as con throughout the month. tributing to the movement. The strength in the franc, which raised quotations in the New York m arket to G o l d M o v e m e n t $0.0338% and perm itted the French authorities to make The net amount — about $60,000,000 — by which the substantial purchases of gold and foreign exchange, re flected the more optimistic view taken by French capital United States gold stock was augmented in October of the internal political and economic situation, partly as a showed a substantial decline from recent months. In result of the cantonal elections of October 10 and October creased demands for gold in the London market, which 17, partly because of the announcement of a loan of raised the dollar equivalent of the London gold price to a 200,000,000 Swiss francs made by a Swiss consortium to sustained premium above the shipping parity to New FEDERAL RESERVE BANK OF NEW YORK York, was an im portant factor in the reduced inflow of gold to the United States. Also Japanese shipments to the United States ceased for a while, and despite a resumption, totaled less than in the preceding month. Im ports going into the gold stock totaled $61,300,000 for October of which $20,200,000 arrived at New York from Belgium, $8,900,000 from Canada, $6,100,000 from India, and $4,300,000 from England, and on the West Coast, $19,900,000 from Japan, and $1,900,000 from A ustralia. In addition, there was a release of $6,400,000 of gold from earmark for foreign account. The differ ence between the aggregate gain in imports and releases from earmark and the rise of $60,000,000 in the gold stock indicated above is to be explained by a net loss in other transactions. The T reasury’s daily statement of October 29 showed $1,270,100,000 of “ inactive gold” held in the general fund. P r o d u c tio n The declining tendency in the general level of indus trial production, which was evident during September, extended into October in certain leading industries. Steel production continued its sharp decline, and at the end of the month mill operations were estimated at about 51 per cent of capacity as compared with 90 per cent or slightly more during the spring. The decline was gen erally attributed to a low level of incoming steel orders, as steel consumers sought to reduce previously accumu lated inventories. The accompanying diagram shows this bank’s index of steel production in which adjustm ent is made for seasonal variation and the long term trend of growth. The index as estimated for October is the lowest since March, 1936, though substantially above the general levels of the five years preceding 1936. Cotton textile mill activity was also reported to have declined in October, contrary to the usual movement, and bitu minous coal output during the first three wTeeks of the month rose less than in most other years. Automobile plants were considerably more active, however, as assem blies of 1938 models gathered momentum. A more general indication of changes in productive activity is afforded by the index of the use of electricity for industrial, commercial, and other than residence p u r poses, which is shown in the diagram with the index of steel production, and is also adjusted for seasonal varia tion and the growth trend of the industry. Electricity sales for these uses, while affected at times by some other factors as well, are responsive to changes in industrial activity of a general nature. This index shows figures for September and October only moderately below the average of the first eight months of the year and slightly above a year ago. In September, steel production fell to an average of 76^2 per cent of capacity from 84 per cent in August, daily copper output was reduced 8 per cent, lead produc tion was lower, and cotton consumption failed to in crease as in most other years. Several sugar refineries were reported to have shut down tem porarily during September, owing to an excessive accumulation of inven tories, and sugar meltings were cut to less than half the August figure. On the other hand, the decline in auto- 85 P £R CENT In d e x e s o f P r o d u c t io n o f S t e e l In g o t s a n d o f S a le s o f E le c t r ic it y fo r O th e r th a n R e s id e n c e C o n s u m p t io n , A d ju ste d fo r Se a so n a l V a r ia t io n a n d L o n g T e r m G r o w t h (S te e l d a ta fo r O c to b e r a n d e le c t ric it y d a t a fo r S e p te m b e r a n d O c t o b e r e s t im a t e d fr o m w e e k ly d a t a ) mobile assemblies was of a seasonal nature; expansion took place in coal mining, in zinc smelting operations, and livestock slaughterings; and rayon production, mill consumption of silk, and tobacco m anufacturing were well maintained. Orders received for machine tools, owing to demand from abroad, were larger than in Aug ust. The seasonally adjusted index of industrial produc tion computed by the Board of Governors of the Fed eral Reserve System declined to 111 per cent of the 192325 average in September, as compared with 117 in Aug ust, and 109 in September, 1936. (Adjusted for seasonal variations and usual year to year growth) 1936 Metals Pig iron........................................................... Steel................................................................. Automobiles Passenger cars r ............................................ Motor trucks r .............................................. Fuels Bituminous coal............................................ Anthracite coal.............................................. Petroleum, crude.......................................... Petroleum products...................................... Electric power............................................... Textiles and Leather Products Cotton consumption.................................... Wool consumption........................................ Silk consumption.......................................... Rayon production........................................ Foods and Tobacco Products Meat packing................................................. Wheat flour.................................................... Sugar meltings.............................................. Tobacco products......................................... 1937 Sept. July Aug. Sept. 91 101 94 53 83 110 113 121 73 97 113 115 125 77 92 113 103 110 67 97 112 111 98 116 140 129 145 124 88 78r 85 90 94 87 64 96 94 97 86 70 100 94 99 91 p 73 p 98p 108 lOOr 84 91 lllr 113 96 64 108 116 108 106 66 95 105 102 85 p 67 95 87 p 94 77 83 94 69 88 124 95 77 80 118 93 82 83 54 93 66 73 80 119 59 77 85 169 58 73 88 165 59 96 p Miscellaneous Newsprint paper........................................... Machine tools................................................ p Preliminary r Revised 87 p 206 MONTHLY REVIEW, NOVEMBER 1, 1937 86 E m p l o y m e n t a n d P a y r o ll s The total number of employees engaged in the m anu facturing and nonm anufacturing industries reporting to the United States D epartm ent of Labor increased by 190,000 from the middle of August to the middle of Sep tember, reaching the highest point of the year, but the increase was less than usual for the time of year. The employment gain occurred almost entirely among the nonm anufacturing industries, as a result of substantial seasonal gains in the number of people employed in wholesale and retail trade and in the mining of coal. Weekly payrolls in these industries declined, however, partly because of a reduction in average hours worked and partly because the Labor Day holiday fell this year in the payroll period covered by most of the reports. Factory employment in the United States was little changed from August to September although an increase is usual at this season, as evidenced by the fact that in creases have occurred in 16 of the 18 preceding years for which data are available. Factory payrolls, which have expanded in September in most years, declined this year. The levels of both employment and payrolls con tinued to be considerably above last year, however, the number of employees being 7 per cent higher and weekly payrolls 20 per cent higher than in September, 1936. The accompanying diagram shows two measures of employment in m anufacturing industries, one an index based upon the actual number of workers employed and the other an index of employee hours worked. These two indexes have been tending to diverge during recent months, owing to a decline in the average number of hours worked which is also shown in the diagram. W hile employment as measured in terms of actual number of workers employed has continued a generally upw ard movement thus far in 1937, this rise appears to have been the result of a policy of eliminating overtime and of reductions in regular working hours. In fact, the increase in number of employees has not been sufficient to offset fully the reduction in average hours worked, and the index of employee hours has shown a tendency to decline since the spring of this year. PER CENT ________ (EMPLO'i 'M E N T ^ AVERAGi: HOURS r /k WOR KED \ V " V / 1 . ;j - i/ "*v ; ■-■J' J AA !■A -j----- v - / " ; ^* M > t / “-~ - V V 1 1 j__ _ 1 In d e x e s o f N u m b e r o f P e r s o n s E m p l o y e d in U n it e d S t a t e s F a c t o r ie s , A ve ra ge N um ber of H o u rs W o rke d , and A ggre ga te Am ount o f H o u r s W o r k e d (B a s e d o n B u r e a u o f L a b o r S t a t is t ic s a n d N a tio n a l In d u s t r ia l C o n fe re n c e B o a rd d a ta ; 1 9 2 9 a v e r a g e — IO O p e r c e n t ) B u ild in g A further slackening in building activity was indicated by a decrease of 25 per cent from August to September in total awards of building and engineering contracts in the 37 States covered by the F. W. Dodge Corporation reports. Reductions in the dollar volume of contracts occurred in each of the m ajor classifications of construc tion ; public utility work and factory building sustained the most pronounced losses, while residential contracts showed a more moderate decline from August. As com pared with a year ago, total contracts in September were 12 per cent lower, the first year to year decline to occur during 1937. Public purpose buildings were the only major group to register an increase over September, 1936. This gain is accounted for by increases in contracts for educational and church buildings, as contracts for other types of public purpose building were slightly lower than a year ago. For the first nine months of 1937, total contracts were 13 per cent larger than in the correspond ing period of 1936, and residential building showed an advance of 25 per cent. Percentage Change in Average Daily Contracts 37 States N .Y . and Northern N .J . Sept. 1937 compared with Sept. 1936 Jan.-Sept. 1937 compared with Jan.-Sept. 1936 Sept. 1937 compared with Sept. 1936 Jan.-Sept. 1937 compared with Jan.-Sept. 1936 B u ildin g Residential........................................ Commercial and factory.............. Public purpose*.............................. All building................................... — 19 — 2 +24 — 6 +25 +56 — 5 +23 — 36 — 32 +53 — 18 +22 +40 +15 +23 Engineering Public works..................................... Public utilities................................. All engineering............................ — 23 — 18 — 22 — 21 +49 — 6 — 19 — 84 — 42 — 8 +70 +19 All construction.................... — 12 +13 — 27 +22 * Includes educational, hospital, public, religious and memorial, and social and recreational building. -----N V/ J J / V / \ A J(EMP1_GYEE hIO UR5 V From the middle of August to the middle of Septem ber, employment in New York State factories advanced less than in most other years, and payrolls registered a sizable contraseasonal decrease. Consequently, this bank’s seasonally adjusted indexes of New York State factory employment and payrolls declined 3 per cent and 6 per cent, respectively, to approximately the February levels. According to the State D epartm ent of Labor indexes, factory employment in September was 10 per cent higher than a year ago and payrolls were 20 per cent larger. In the New York and Northern New Jersey area the September decline in construction contracts was much more marked than in the 37 States, and total contract awards amounted to only about one-half the August volume, all m ajor classifications contributing to the re duction. However, in August all classifications except public utilities had shown considerable advances. Com pared with a year ago, total contracts in September were 27 per cent lower, but despite the recent decline the total of all contracts for the first nine months of 1937 exceeded that for the corresponding period of last year by 22 per cent. 87 FEDERAL RESERVE BANK OF NEW YORK Data for the first three weeks of October indicate that construction contracts continued at about the same rate as in September. Compared with the corresponding period in 1936, total contracts were 7 per cent lower; residential building was down 15 per cent, and other classifications showed minor declines. PERCENT F o r e ig n T r a d e D uring September merchandise exports increased over the previous month about in accord with the usual seasonal movement, while imports declined contrary to seasonal tendency. The value of exports at $297,000,000 was 35 per cent above a year ago, and imports of $233,000,000 showed an increase of 8 per cent; exports were larger than in the corresponding month of any year since 1930, and imports larger than in any September since 1929. The September export balance of $63,000,000, together with the excess of exports of the two previous months, reduced the im port balance for this year from $147,000,000 at the end of June, to $48,000,000 at the end of September. The diverse movement of exports and imports in September is ascribed largely to increased shipments abroad of such agricultural products as raw cotton and tobacco, in contrast to decreases in receipts of foreign agricultural products, chiefly sugar, wool, corn, and vegetable oils. Increases over a year ago in cotton exports to the United Kingdom and other European countries have exceeded declines in such exports to Japan. C o m m o d it y P r ic e s A continued downward tendency in the prices of principal actively traded commodities during October was indicated by an almost uninterrupted decline, total ing 13 per cent, in Moody’s index of 15 items. The Bureau of Labor Statistics’ more comprehensive index of wholesale commodity prices declined 3 per cent through October 23, as a result of recessions of 5 per cent in the raw m aterials group, of 4 per cent in the semimanufactured group, and of 2 per cent in finished goods. Movements since 1929 in the price indexes of raw materials and finished products compiled by the Bureau of Labor Statistics, shown in the accompanying diagram, indicate that the fluctuations in raw m aterials have been characteristically wider than those in finished goods. Raw m aterial prices began a rapid advance in June, 1936, while finished goods prices rose only slightly until November when m ounting wage costs were added to further increases in raw m aterial costs. A fter March of this year raw m aterial prices turned downward while finished goods prices continued to rise, though less markedly. D uring the past month, as noted above, a moderate recession in finished goods prices has taken place along with the more pronounced reductions in raw m aterial prices. Among the agricultural commodities, wheat prices declined irregularly in October, the December future contract closing on October 30 at 96% cents a bushel as compared with $1.08% at the end of September. Owing in part to incoming supplies of the new crop, the 1929 1930 1931 1932^ 1933 1934 1935 1936 1937 W h o le s a le P r ic e s o f R a w M a t e r ia ls a n d F in is h e d P r o d u c t s ( B u r e a u o f L a b o r S t a t is t ic s in d e x e s ; 1 9 2 6 a v e r a g e = 1 0 0 p e r c e n t ) cash price for new corn receded to 56y2 cents a bushel on October 30, the lowest cash price for corn since June, 1934. A t the end of September new corn was quoted at $1.00 a bushel. Livestock prices were reduced sharply in October; the average price of hogs fell $2.80 to $9.17 a hundredweight and the price of steers receded $1.12 to $13.92 a hundredweight. Silk and wool prices also showed some net decline. Rubber prices dropped 115/ 16 cents a pound to 15 11/1Q cents. Cotton prices, following a decline on October 8 to 8.05 cents a pound, closed the mojith at 8.24 cents a pound, only 22 points lower than at the end of September. Continuing the decline which began at the end of September, metal prices dropped further in October. A decrease of $2.50 a ton in scrap steel at Pittsburgh and of $2.75 at Chicago brought these prices to the lowest levels since July, 1936. The price of lead was reduced y2 cent to 5% cents a pound, the lowest since last December; the zinc quotation declined % cent to 5.75 cents a pound, a new low since Janu ary ; copper was quoted at the end of the month at 11%-12 cents a pound as compared with a range of 12%-13 cents at the end of September; and tin closed the month 7% cents lower at 48 cents a pound. In d e x e s o f B u s in e s s A c t i v it y During the first half of October, departm ent store trade in the M etropolitan area of New York showed nearly as large an increase as usual over September, and continued above a year previous. The movement of freight over the railroads, however, showed a slight re duction from the September level, whereas ordinarily traffic tends to increase at this time of year. A t least the usual seasonal advance appears to have taken place in the level of general business activity and the distribution of goods during September. Increases of the usual m agnitude or greater occurred in depart ment store, chain, and mail order house sales, in the volume of check transactions throughout the country, and in freight car loadings. Registrations of new pas senger cars are estimated at 230,000 units, a decrease of 70,000 cars from the relatively high August figure, which is larger than the decline last year but smaller than the MONTHLY REVIEW, NOVEMBER 1, 1937 88 decline in 1935. Less than the usual seasonal advance was shown in the volume of advertising in September, and about the usual decline occurred in sales of new ordi nary life insurance policies. (Adjusted for seasonal variations, for usual year to year growth, and where necessary for price changes) 1936 Sept. Primary Distribution Car loadings, merchandise and misc........ Car loadings, other...................................... Exports........................................................... Imports........................................................... Distribution to Consumer Department store sales, U. S .. ................. Department store sales, 2nd D ist............ Chain grocery sales r................................... Other chain store sales................................ Mail order house sales................................. Advertising..................................................... New passenger car registrations r............. Gasoline consumption.................................. General Business Activity 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............................................................. New life insurance sales.............................. Employment, manufacturing, U. S .......... Employee hours, manufacturing, U. S. . . Residential building contracts................... Nonresidential building and engineering contracts..................................................... New corporations formed in N. Y . State General price level*...................................... Cost of living*............................................... p Preliminary r Revised 73 78 1937 July Aug. 75 74 83 91 95 74 85 86 p 86 p 89 80 91 91 87 82 89 83 94 p 96 94 79 109p 90 101 91 87 94 96 98 76 101 90 82 90 97 94 79 96 103 110 Sept. 98 41 64 38 64 33 69 70 46 75 95 84 38 48 69 104 93 35 44 71p 104 54 71 72 62 68 156 147 163 151 164 152 95 33 66p 37 » 69 45 71 p 102?? 88p 27 p 44 p 55 63 160p 152p *1913 average = 100; not adjusted for trend. W h o le s a le T r a d e September sales of reporting wholesale firms averaged 7 per cent higher than last year, a more favorable year to year comparison than in the previous two months. The m en’s clothing and stationery concerns recorded the largest increases in sales since last May, the grocery and hardware firms showed the most favorable comparisons with sales of a year ago since June, and a substantial gain in sales occurred in drugs and drug sundries. The advance shown in sales of the diamond concerns was Percentage change September 1937 compared with September 1936 Commodity Groceries............................ Men’s clothing................ Cotton goods.................... Rayon and silk goods. . . Shoes.................................. Drugs and drug sundries Hardware.......................... Stationery......................... Paper.................................. Diamonds......................... Jewelry.............................. Weighted average. . Net sales Stock end of month D e p a rtm e n t S tore T ra d e During the first half of Octobqr^ total sales of the reporting departm ent stores in the; M etropolitan area of New York were 3 per cent higher than in the cor responding period of last year, and an advance over the September level was indicated, in keeping with the usual seasonal tendency. September sales of the reporting departm ent stores in this district were 5.8 per cent higher than last year, a slightly larger increase than in August. The Rochester, Syracuse, Bridgeport, Westchester agd Stamford, and Central New York State departm ent stores recorded the largest gains in sales over last year? Reporting stores in practically all the other localities also showed some increase in sales. The leading apparel stores in this district reported sales 2.3 per cent higher than last year, following two months in which recessions from a year ago had been indicated. Departm ent store stocks of merchandise on hand at the end of September remained higher than a year ago, though by a smaller percentage than in any month this y^jar; apparel store stocks continued to show a moderate increase over those of a year previous. Collections were slightly lower this year than last in the departm ent stores, but were somewhat better in the apparel stores. Percentage change September 1937 compared with September 1936 Per cent of accounts outstanding August 31 collected in September 1936 1937 + 1 0 .4 + 2 .7 + 13.4 + 5.6 — 32.1* — 6 .4 * — 2 .5 + 14.4J + 4 .7 7 J + 7 .4 + 2 8 .1 + 1 6 .9 + 4 .0 + 2 1 .9 + 7 .0 — 3 .8 + 1.1 90.6 41.8 44.1 62.8 38.7 93.4 41.8 45.1 53.0 35.7 46.0 61.4 54.0 42.4 53.4 46.8 22.6 20.3 + 7 .0 58.6 57.2 Per cent of accounts outstanding August 31 collected in September Stock on hand end of month 1936 1937 Elsewhere............................................................ Northern New York State......................... Southern New York State.......................... Central New York State............................. Hudson River Valley District................... Capital District............................................. Westchester & Stamford........................... Niagara Falls................................................. + 6 .0 + 4 .4 + 9 .5 + 11.0 + 3.3 + 9 .6 + 5 .5 — 1.8 + 3 .6 + 9 .4 + 4 .3 + 5 .3 + 8 .5 + 6 .4 + 1 4 .2 + 13.4 + 10.4 + 19.4 + 11.1 + 5.4 + 3.1 46.2 47.1 43.4 37.4 39.6 39.4 32.3 46.0 43.2 45.3 37.9 39.8 37.4 33.2 All department stores.............................. + 5 .8 + 1 3 .2 43.2 43.0 Apparel stores............................................ + 2 .3 + 6 .5 39.2 39.8 Locality * Quantity figures reported by the National Federation of Textiles, Incorporated, not included in weighted average for total wholesale trade, t Reported by Department of Commerce. larger than in August, and the decline in shoe sales was smaller than in the previous two months. The cotton goods firms, however, reported a smaller increase in sales than last month, and the paper concerns recorded the smallest gain in sales in almost a year. Sales of the jewelry firms were below the figure of a year previous for the first month since January 1936, and yardage sales of rayon and silk goods showed the largest decline since June 1935. The grocery, drug, ^hardware, diamond, and jewelry concerns continued to report larger stocks of merchandise on hand this year than last, but the increases were con siderably less than those reported in the preceding few months. Collections in practically all reporting lines continued at a lower rate than a year ago. Northern New Jersey...................................... Net sales FEDERAL RESERVE BANK OF N E W YORK MONTHLY REVIEW, NOVEMBER 1, 1937 B u sin ess C o n d it io n s in th e U n it e d S ta te s (Summarized by the Board o f Governors o f the Federal Eeserve System) ECLINES in industrial production in September and the first part o f October reduced output to the level o f a year ago, and commodity prices continued to decline. The volume o f distribution to consumers was maintained at the level o f previous months. D P r o d u c t io n In d e x N u m b e r o f P r o d u c t io n o f M a n u f a c t u r e s a n d M in e r a l s C o m b in e d , A d j u s t e d fo r S e a s o n a l V a r ia t io n (1 9 2 3 - 2 5 a v e r a g e = 1 0 0 p e r c e n t) In d e x e s o f D a ily A v e r a g e V a lu e o f D e p a rtm e n t S t o r e S a le s , A d j u s t e d fo r S e a s o n a l V a r ia t io n a n d U n a d ju ste d (1 9 2 3 -2 5 a v e ra g e = 100 p e r ce n t) PER CENT a n d E m p l o y m e n t Volume o f industrial production, as measured by the B oard’ s seasonally adjusted index, declined in September to 111 per cent of the 1923-1925 average as compared with 114 in June and July and 117 in August. A t steel mills, where output in August liad been at a high level, partly on the basis of orders placed earlier in the year, activity was reduced to an average rate o f 75 per cent o f capacity in September. This decline continued in October, as new orders were in limited volume, and the rate of steel output in the fourth week o f the month is estimated at about 52 per cent of capacity. There were also declines in September in activity at woolen mills, shoe factories, and at sugar refineries, and activity at cotton mills showed little change, although an increase is usual at this season. Increases in output were reported at silk mills and meat packing establishments where activity recently has been at a low level. Automobile production showed a decline from the high level o f August, but in the first three weeks o f October advanced sharply as most manufacturers began assembling 1938 models. Mineral output increased in September, reflecting an expansion in coal production. Output o f crude petroleum declined somewhat but continued in large volume. Value o f construction contracts awarded, as reported by the F. W. Dodge Corporation, was smaller in September and the first half of October than in the preceding six weeks, with a moderate decline in private residential building and sharp declines in awards for other private work and for publicly financed work. Currently the dollar volume of private work is about the same as a year ago, while awards for public work are in smaller volume. Factory employment showed little change from August to September, although an increase is usual at this season. There were declines in the number employed at textile mills, shoe factories, railroad repair shops, and lumber mills. A t canning establishments employment increased seasonally. Factory payrolls, which usually expand in September, declined substantially, reflecting principally a reduction in the average number of hours worked by those employed. The levels o f employment and payrolls continued to be considerably above last year. D is t r ib u t io n Distribution o f commodities to consumers by department stores and mail order houses increased more than seasonally in September, and variety store sales showed about the usual seasonal expansion. Freight car loadings increased by the usual seasonal amount from August to September. C o m m o d it y G r o u p P r ic e In d e x e s o f B u r e a u o f L a b o r S t a t is t ic s (1 9 2 6 a v e ra g e = 1 0 0 p e r ce n t) P r ic e s The general level o f wholesale commodity prices, according to the Bureau o f Labor Statistics 1 index, declined from 87.5 per cent o f the 1926 average in the latter part o f September to 85.2 in the middle o f October. During that period price declines occurred in most commodities traded in on organized exchanges and in some manufactured products. In the ten days ended October 25 commodity markets were steadier. New models o f automobiles are currently being introduced at higher prices. B a n k C r e d it Excess reserves o f member banks, after increasing in September from $750,000,000 to over $1,000,000,000, showed little further change in October. Total loans and investments o f reporting member banks in 101 leading cities declined somewhat in the four weeks ended October 20, reflecting chiefly a steady reduction throughout the period in loans to security brokers and dealers. Commercial loans increased further. M W ednesday Figures for Reporting Member Banks (Latest figures are for October 20) o n e y R a t e s a n d S e c u r it y P r ic e s Rates on 9 month Treasury bills in October declined to about % o f one per cent, the lowest since last January. Prices o f high grade bonds showed little change in September and October, while prices o f lower grade bonds and of common stocks declined sharply to the lowest levels since the middle o f 1935.
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