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MONTHLY REVIEW ofCreditandBusinessConditions S e c o n d F e d e r a l Federal Eeserve Bank, New York M o n e y M a r k e t in O c t o b e r There have been indications in all p arts of the money market, du ring October, that the effect of the w a r in Eu ro p e, as a day-to-day influence, was dim inishing, and that more immediate emphasis was being placed on the domestic situation and outlook. The w a r in Eu ro p e, of course, is still a facto r in all calculations of futu re possibilities, but the first shock of the outbreak of w a r appears to have been assimilated. P rices of Governm ent and other high grade bonds, which, despite the continued accum ulation of idle funds in the banks, and with other large investors, had experi enced early in Septem ber the most rap id price declines in several years, showed an irre gu la r but substantial recovery in October. There w as evidence that expecta tions of such a large expansion in commercial loans, as would cause a rise in interest rates, had been revised downward, as well as evidence of reduced sensitivity to news from Eu rop e, and investment b u yin g of high grade securities was resumed on a moderate scale b y banks and other investing institutions. In general, offerings of such securities fo r sale w ere light, so that on days when b u yin g was most active there were sharp advances in prices. Conversely, however, when bu yin g orders were w ithdraw n, prices fell a w a y rather easily on small volume. A t the highest points reached in October, long term Governm ent and corporate bonds showed average recoveries of approxim ately h a lf the preceding declines. On the other hand, despite a fu rth er substantial rise in business a ctivity and the prospect of fu rth er gains du ring the rem ainder of the year, b u yin g interest in stocks and lower grade bonds diminished considerably, and prices of such securities showed irregu la r fluctua tions, w ith little net change fo r the month as a whole. H esitan cy in the markets fo r these securities ap paren tly reflected less optim istic estimates as to the influence of w a r demands on business in this country, regardless of the outcome of n eu trality legislation, and fe a r that if no m aterial expansion in export business develops w ithin the next few months, the grow ing domestic demands arisin g out of greater employment and increased N ational income m ay not be sufficient to sustain industrial ac tiv ity at the levels reached in the fou rth quarter of this year. The reappearance o f labor troubles in some im portant industries and concern over cost-price relation ships also contributed to this situation. Ind u strial a ctivity rose to approxim ately the highest levels in the R e s e r v e D is t r ic t November 1, 1939 last ten years, while prices of industrial stocks remained nearly 30 per cent below the peak levels reached in the first quarter of 1 9 3 7 and railroad stocks nearly 50 per cent below, and prices of the lower grade bonds also remained fa r below the levels reached early in 19 3 7 . Some fu rth e r increase in commercial and industrial loans was reported b y member banks in the p rin cipal cities du ring October, but the rate of increase diminished con siderab ly; in fa c t there was v e ry little increase a fter the second week of the month. A s the accom panying dia gram shows, the demand fo r such loans du rin g early autum n this y e a r w as fa r greater than in the correspond ing period last year, both in N ew Y o rk C ity and in other prin cip al cities, but the volume of loans outstanding at the end of the month w as still much below the volume reached du ring the period of inventory accum ulation in the autum n of 1 9 3 7 . The increase since the end of Ju n e this y e a r has amounted to nearly $280,000,000 in N ew Y o rk C ity, and $180,000,000 in 10 0 other p rin cipal cities, but in each case the volume on October 2 5 remained n early $300,000,000 less than at the October, 1 9 3 7 peak. S e c u rity loans have rem ained at v e ry low levels. Thus fa r, therefore, the expansion in the demand fo r bank loans has not been sufficiently great to have an ap pre ciable effect on the money m arket position, or to relieve m aterially the dependence of banks upon investments fo r income. Meanwhile, the volume of excess reserves has shown a furth er, though more grad u al increase, rising $200,000,000 BILLIONS OF DOLLARS Commercial, Industrial, and Agricultural Loans of Weekly Reporting Member Banks in New York City and in 100 Other Cities MONTHLY REVIEW, NOVEMBER 1, 1939 82 in the fou r weeks ended October 25, to cross the 5 % billion dollar level. The continued, but slower growth of excess reserves reflected in p a rt a sim ilar movement in the gold stock of this country, w hich increased $114 ,0 0 0 ,0 0 0 in the fo u r week period, after rising nearly $300,000,000 in September, and about $400,000,000 in A u g u st. N et Governm ent disbursements also continued to add to the amount of member bank reserves, although the increase in reserves from this source w as limited in the latter p a rt of October b y the sale of an extra $50,000,000 of T re a su ry bills, in each of three weeks beginning with the week of October 16 . Th is increased su p p ly of T re a su ry bills found a ready m arket at low rates (well below the tem porarily higher rates of early Septem ber), the demand for these obligations respond ing to special factors connected w ith the approach of the year-end statement period, as well as to the large volume of idle funds. M on ey R a tes The p rin cip al changes in money rates du ring October were declines in yields on Governm ent securities of all m aturities and on other high grade securities, which accompanied the recovery in prices of such securities previously discussed. Y ie ld s on new T re a su ry bills and on outstanding T re a su ry notes declined to the lowest levels since the latter p art of A u gu st, and as the following table indicates, were approxim ately the same at the end of October as a y e a r ago. Y ie ld s on long term T rea su ry bonds also declined du rin g the month, and were only sligh tly higher at the end of October than a y ea r previous. Money Rates in New York Oct.. 31, 1938 Stock Exchange call loans.................................... Stock Exchange 90 day loans.............................. Prime commercial paper— 4-6 months.............. Bills— 90 day unindorsed..................................... Average yield on Treasury notes (3-5 years). . Average yield on Treasury bonds (not callable within years).................................................. Average rate on latest Treasury bill sale 91 day issue....................................................................... Federal Reserve Bank of New York discount rate........................................................................ Federal Reserve Bank of NewYork buying rate for 90 day indorsed bills................................... 12 1 *1H A 5 -H X* Sept. 30, 1939 1 *1H Vs-H % Oct. 30, 1939 1 *1 X Vs-U % 0.69 0.98 0.65 2.47 2.75 2.50 0.026 0.082 0.028 1 1 1 X X X and p a rtly as a result of an increase in the item of “ loans to brokers and dealers in securities’ ’ in the last two weeks, which ap paren tly reflected larg e ly borrow ings by dealers in connection w ith Governm ent refu n d ing operations. Dem and deposits rose to new high levels in N ew Y o rk C ity and also in other p rin cip al cities, and the volume of interbank deposits also continued to rise, although at a less rap id rate than in Septem ber. G o v e r n m e n t S e c u r it ie s T ra d in g in the Governm ent security m arket w as v e ry quiet during the first h alf of October, but became some w hat more active in the second h alf of the month. P rices recovered fu rth er from the low levels reached in Septem ber, and by October 24, the average price of T rea su ry bonds not callable w ithin 1 2 years had risen 4 % points from the Septem ber 2 5 low, representing a recovery of n early one h alf of the preceding decline, the largest p art of which occurred im m ediately follow ing the outbreak of w ar. A t the October 24 level, the average yield on long term bonds was down to 2.48 per cent, as com pared w ith the Septem ber high of 2.79 per cent and the Ju n e low of 2.07 per cent. D u rin g the period a fter October 24, T reas u ry bond prices developed some irregu la rity, and a decline of about % of a point occurred in the average price of long term bonds, so that the average yield rose to 2.50 per cent. P rices of T rea su ry notes, like those of T re a su ry bonds, advanced considerably fu rth er in the first p a rt of October, and the average yield on 3 to 5 y e a r m aturities declined from 0.98 per cent at the end of Septem ber to 0.62 per cent on October 2 5. Th is level compares w ith 1.3 0 per cent at the lowest point of prices on Septem ber 6 and the record low yield of 0.35 per cent last Ju n e . In the closing days of October, prices of T re a su ry notes also eased slightly. Betw een October 1 7 and October 3 1 , the T rea su ry made several announcements concerning offerings of new securities, in addition to the weekly T re a su ry bill issues, which had been increased from $100,000,000 to $150,00 0,000 beginning w ith the issue offered on October 1 3 . The first announcement, on October 1 7 , was of an PER CENT *Nominal. M e m b e r B a n k C r e d it The largest change in loans and investments of w eekly reporting member banks du ring the fou r weeks ended October 2 5 was an increase of $210,000,000 in holdings of T rea su ry bills, which more than absorbed the increase in the available su p p ly that resulted p a rtly from the sale b y the T re a su ry of $100,000,000 more bills than m atured du ring the period, and p a rtly from a reduction of $68,000,000 in Reserve B an k holdings of T re a su ry bills. The reporting N ew Y o rk C ity banks increased their hold ings b y $156,0 00,00 0 du ring the fou r week period, and reporting member banks in other prin cip al cities in creased their holdings b y $54,000,000. Investm ents b y these banks in T re a su ry bonds, notes, and Governm ent guaranteed securities showed small net reductions. Total loans of the reporting banks increased moder ately, p a rtly as a result of the fu rth er increase in com m ercial and industrial loans previously commented upon, 12 Bonds not Callable within Years (Scale inverted to show 'movement of prices) 83 FEDERAL RESERVE BANK OF NEW YORK offering of Com m odity C redit Corporation 1 per cent notes due November 1 5 , 1 9 4 1 , dated November 2, 19 3 9 , to be issued only in exchange fo r Com m odity C redit Corpo ration % per cent notes due November 2, outstanding in the amount of $206,000,000. The second offering, on Oc tober 24, was of 1 per cent T re a su ry notes due M arch 1 5 , 19 4 4, dated Novem ber 1 , 19 3 9 , to be issued only in exchange for 1 % per cent T re a su ry notes due December 15 , 19 3 9 , outstanding in the amount of $526,000,000. Both of these exchange offerings were well received and all but small amounts of the Com m odity C redit Corpora tion issue due November 2, and of the T rea su ry note issue due December 1 5 , were exchanged for the new securities offered. On October 30, the Se cre tary of the T rea su ry announced that on the following d ay the T rea su ry would offer on behalf of the Reconstruction Fin an ce Corpora tion $250,000,000 of R .F .C . notes, the proceeds to be used b y the R .F .C . to retire indebtedness to the T reas u ry. A s f a r as the m arket is concerned, this offering which is a 1 per cent note issue dated November 10, 19 3 9 and m aturing J u l y 1, 19 4 2 w ill constitute the borrowing of new money, the first such borrowing, w ith the excep tion of the increased T re a su ry bill offerings, since the out break of the w ar in Eu rop e. T rea su ry bill issues in October included $100,000,000 issues in each of the first two weeks of the month and $150,000,000 issues in the last three weeks (including the issue which was bid for on October 30 and allotted as of November 1 ) . The $100,000,000 issues were sold at average rates of 0.036 and 0.022 per cent, and the $150,000,000 issues at 0.033, 0.027, and 0.028 per cent, continuing the decline from the somewhat higher rates for T rea su ry bills tem porarily reached in the first p art of September. M aturities du ring October (and on Novem ber 1 ) amounted to approxim ately $500,000,000, so that $150,000,000 of additional funds were raised through T rea su ry bill financing operations in October. C o m m e r c ia l P a p e r a n d B il l s Fo llo w in g an advance during Septem ber of about Ys per cent in the prevailin g range of rates fo r open m arket commercial paper, the u n derlying ease of the money situation became m anifest again in October. W hereas in the latter p a rt of Septem ber the bulk of the sales of prim e commercial paper were made at % per cent, the higher quotation in the range of % - % per cent then established, sales du ring the latter p a rt of October were large ly made at % per cent. In addition, there w as a reappearance of small amounts of especially choice paper of short m atur ity, offered at Y2 per cent. A s fo r m an y months past, the sup p ly of new paper w as quite inadequate to cover the investment demand. R eportin g dealers had outstand ing at the end of Septem ber an aggregate of $209,300,000 of paper, the largest amount in eleven months. This total compares w ith $20 1,10 0 ,0 0 0 a month earlier and $212,30 0 ,0 0 0 a yea r ago. T ra d in g in the bill m arket continued v e ry limited d u r ing October, and no change occurred in dealers’ quoted rates. A s shown in the accom panying tabulation, a decline of $19,000,000 to $216,00 0,00 0 occurred du ring Septem ber in the amount of bankers acceptances out standing. This decline w as a result of a drop in the cate go ry of bills based on goods stored in or shipped between foreign countries, w hich w as caused b y the term ination of the Germ an Stan dstill agreement. Reductions in all classes of bills, except domestic shipment and dollar exchange acceptances, have contributed to the $45,000,000 decline in the outstanding volume of bills from the level of September, 19 3 8 . (Millions of dollars) Type of acceptance Sept. 30, 1938 Aug. 31, 1939 Sept 30, 1939 Import....................................................................... 89 57 9 47 79 40 78 40 31 18 33 18 Domestic shipment................................................ Domestic warehouse credit.................................. Dollar exchange...................................................... Based on goods stored in or shipped between foreign countries ............................................... Total...................................................................... 2 8 10 57 59 37 261 235 216 S e c u r ity M a r k e ts Fo llo w in g the sharp advance in stock prices which occurred du ring the first p art of Septem ber a fter the outbreak of w ar, the general average of share prices has fluctuated within narrow limits. P rices tended a trifle lower in the first h alf of October, but moved sligh tly higher in the second h alf of the month. A s a net result of these small movements and sim ilar ones in the latter p a rt of September, the general average of stock prices near the end of October w as close to the highest level reached in September. W ith respect to the m ajor groups, industrial stocks near the end of October were 3 per cent below the Septem ber 1 2 high, and railroad shares were 5 per cent below the high which was reached 011 Septem ber 2 7 ; public u tility shares, however, which showed only a small advance in Septem ber, rose somewhat fu rth er in October. The volume of tradin g in stocks on the N ew Y o rk Stock E xch a n ge w as much less in October than in Septem ber; on no d a y did turnover exceed 2 million shares, and fo r the month as a whole averaged 1,100,00 0 shares daily, as com pared w ith 2,600,000 shares in September. Corporation bond prices made fu rth er p artial recover ies in October from the Septem ber lows. In the case of highest grade corporate issues, of the type rated A a a b y M o o d y’s Investors Service, there w as an advance of 3 Y2 points, which, w ith the initial recovery in the latter p a rt of September, has resulted in a total recovery of 5 % points. The preceding decline from the J u l y highs had amounted to about 10 points, of which IY 2 points occurred in September. A s a result, highest grade corporate bonds are now selling at an average price some 4 % points be low their recent h ig h s; the net change in average yield since J u l y has been from 2.88 per cent to 3.09 per cent, according to the data of M o o d y’s Investors Service. Anoth er average of high grade corporate bond yields, however, measures the net rise in yields du ring recent months as nearer to one third of one per cent. Less high grade corporate issues (those rated B a a b y M o o d y’s), which, a fte r a fa ir ly sharp drop in the latter p a rt of A u g u st and first few days of Septem ber, rose considerably in Septem ber, advanced about 1 % points fu rth er in October. Th is rise in the average reflected entirely advances in industrial and public u tility issues, as ra il road bonds of this grade, which had shown substantial advances du ring most of Septem ber, were little changed 84 MONTHLY REVIEW, NOVEMBER 1, 1939 fo r October. A s com pared w ith the highs reached in A u g u st, B a a bonds at the end of October remained about 1 point lower, on the average. A number of foreign bonds listed in this m arket showed recoveries in October. Reflecting this movement, the N ew Y o rk Tim es average of 10 foreign bonds, which had dropped 16 points in the first three weeks of September, recovered 9 points in October. N e w F in a n c in g D u rin g the past month sales of new security issues continued at a low ebb. A ll the larger bond issues in proc ess of registration with the Securities and E x ch an ge Commission were deferred as effective dates of registra tion approached, and tow ard the end of the month the Tide W a te r Associated Oil Com pany asked permission to w ith d raw its statement, origin ally filed on Ju n e 30, cover ing the issue of $50,000,000 of debentures and serial notes. The un usually sm all su p p ly of m unicipal offerings, together with an increased investment demand, resulted, during the latter p a rt of the month, in keen competition among investment dealers for new m unicipal issues. O f the public offerings of corporate issues during October, the largest w as $8,000,000 of 2 % per cent equip ment trust certificates of the Atchison, Topeka and San ta F e R a ilw a y , offered on October 17 . These certificates, the proceeds from w hich w ill be used for the purchase of new rolling stock, m ature serially from 19 4 0 through 19 4 9 ; they were aw arded to a syndicate at 10 1.8 9 9 , and were quickly taken up b y investors at prices yieldin g from 0.40 to 2.40 per cent. On October 26, the Northwestern E le c tric C om pany (of W ashington) sold to a group of fou r insurance companies $6,700,000 of 4 per cent first m ortgage bonds, $5,400,000 of the proceeds of which are to be used to refun d outstanding 6 ’s. Announcem ent was made du ring October that the interested public authori ties had approved the p rivate sale to insurance companies of $66,600,000 of 3 % per cent first m ortgage refun ding bonds of the N ew Y o rk P ow er and L ig h t Corporation, fo r which arrangem ents had been concluded in Septem ber. In addition to the m onth’s public offerings and p rivate sales, an exchange offer of the E . I. du P on t de Nem ours and Com pany, of $4 .5 0 cum ulative preferred stock fo r 6 per cent debenture stock outstanding in the amount of $109,000,000, appears to have been success fu lly consummated. W ith in the past month, six railroads have requested Interstate Commerce Commission auth ority to issue equipment trust certificates, the proceeds of which, am ounting to about $20,000,000, would be used fo r the purchase and rep air of rolling sto ck ; however, it appears that at least fou r of these issues w ill be offered to the Reconstruction F in an ce Corporation. Announcem ents have been made of the contemplated p rivate sale of P h ila delphia E le ctric C om pany 2 % per cent one to ten y e a r notes, in the amount of $10,000,000, together w ith 50,000 shares o f no p ar value preferred stock of the same com pany, and of a forthcom ing public offering of $39,000,000 of Je r s e y Central P ow er and L ig h t C om pany first m ort gage bonds. Several large m unicipal offerings have been scheduled fo r next month. These include $30,000,000 of serial bonds o f the C ity o f N ew Y o rk , and the same amount of notes of the State of Pennsylvania. F o re ig n E x c h a n g e s F o reig n exchange dealings in the N ew Y o r k m arket continued extrem ely limited du rin g October. W ith respect to the N ew Y o rk rate fo r the pound sterling, which du ring the previous month had pursued a course more or less independent of the London official market, quotations du ring the greater p a rt of October held fa ir ly close to the B an k of E n g la n d ’s official b u yin g and selling quotations fo r the pound, which rem ained at $4.0 2 and $4.04, respectively. Some demand fo r sterling developed at the tu rn of the month and the N ew Y o rk rate rose to as high as $ 4 .0 5 % on October 4. Subsequently, however, sterling was reported to have been made available in the London m arket, and the N ew Y o rk rate eased somewhat to fluctuate n arro w ly around $4 .0 3 un til October 1 3 , when a decline to a low of $ 3 .9 6 occurred, owing in large p a rt to pessimistic reactions to P rim e M inister Cham berlain ’s statement in the House of Commons on the previous day. In the succeeding days, however, the rate returned to around $ 4 .0 1 when it became known that sterling aris ing out of approved transactions w as being absorbed b y the B ritish control. T o w ard the end of October the rate eased somewhat to close the month at about $ 3 .9 9 % , as against $ 4 .0 1 % at the end of Septem ber. In the fo rw ard m arket, the discount on three month fo rw a rd sterling in N ew Y o rk narrowed from 3 % per cent per annum to 2 % per cent. The official London quotation fo r one month dollar contracts, w hich w as lowered from a prem ium equivalent to 3 per cent per annum to the equivalent of 2 1 4 per cent tow ard the end of Septem ber, rem ained at this lower level du ring the past month. The F ren ch f r a n c ’s peg to sterling continued du ring the past month. The N ew Y o rk rate fo r the fran c declined, along w ith sterling, to reach a low of $ 0 .0 2 2 4 % on October 1 3 , but subsequently recovered to close the month at $ 0 .0 2 2 6 % , fo r a net loss of only 1 % points fo r the month as a whole. There were m arket indications o f some pressure against the so-called neutral currencies du rin g most of the past month. In the case of the belga, the N ew Y o rk rate declined to $ 0 .1 6 7 3 du ring the first week of October and after firm ing to $ 0 .16 8 8 on October 18 , again turned dow nw ard to reach $ 0 .16 6 3 on October 28, the lowest rate since Ju n e , 1 9 3 3 . A t the close of the month, belgas were quoted at $0 .16 6 9 , as com pared w ith $ 0 .16 8 7 a month earlier. G uilders depreciated in this m arket from $ 0 .5 3 3 1 at the end of Septem ber to $ 0 .5 3 10 , and a net decline of 1 6 % points brought Sw iss fran cs to $ 0 .2 2 4 3 % at the end of October. W ith respect to other Continental exchanges, it w as confirmed du rin g October that, based on the latest official rates fo r dollars of the H u n garian N ational B an k, b u yin g and selling rates o f the H u n garian pengoe in N ew Y o rk are now equivalent to $ 0 .1 7 1 4 and $0 .17 6 0 . These rates represent a considerable depreciation from the previous level of about 1 9 % cents. A m o n g the non-European currencies, the discount on Can adian dollars in this m arket widened to 1 1 % per cent on October 6, the largest discount in a num ber of years, but subsequently narrow ed, to close the month at about 1 0 % p er cent, only sligh tly w ider than at the end of Septem ber. T o w a rd the end of October it w as reported that henceforth the Ja p an ese yen would be d irectly linked to the dollar at b u yin g and selling rates of $ 0 .2 34 4 85 FEDERAL RESERVE B AN K OF N EW YO R K thousands and $ 0 .2 34 7 . A firm er tendency w as shown du ring the latter p a rt of October in the Sh angh ai dollar, which rose to 5 9 / 3 2 pence, the highest level since the middle of last J u ly . G old M ovem ent The volume of gold im ports into the U nited States declined sh arp ly in October and total receipts were the smallest fo r an y month since J u l y , 19 3 8 . Im ports, how ever, were supplemented b y releases of gold previously earm arked h e re ; the amount of gold held under earm ark fo r foreign account at the F e d eral Reserve B an k of N ew Y o rk showed a net decrease of about $79,000,000 during October to approxim ately $1,054,000,000. I t is estimated that the gold stock of the U nited States increased approxim ately $160,000,000 du ring the month, reaching a new high of $17,090,000,000. The past m onth’s increase was not much more than one-half as large as the Septem ber rise. D u rin g the three weeks ended October 20, gold imports into the U nited States, as reported b y the D epartm ent of Commerce, totaled $40,600,000, of which $9,400,000 came from Canada, $7,000,000 from Ja p a n , $6,300,000 from E n glan d , $4,900,000 from Ita ly , $4,800,000 from A u stralia, $2,200,000 from N o rw a y, $1,400,00 0 from H ong K ong, and $1,000,000 from India. C e n tra l B a n k R a te C h a n g e s The B an k of E n g la n d reduced its discount rate on October 26 to 2 per cent, follow ing a reduction from 4 to 3 per cent on Septem ber 28. The rate was thereby re turned to the level which had been m aintained without interruption from Ju n e 30, 1 9 3 2 until A u g u st 24, 19 3 9 , when the rate was raised to 4 p er cent. The return to the p re-w ar rate of 2 per cent w ithin two months in this case contrasts w ith the eight y ea r period w hich elapsed du ring and a fter the W o rld W a r before the 1 9 1 4 rate of 3 per cent was reestablished in J u l y , 19 2 2 . Effective October 10 , the N ational B an k of Denm ark raised its discount rate to 5 % per cent from 4 % per cent, the latter rate having been in force since Septem ber 20. B efore the outbreak of hostilities in E u ro p e the Danish bank rate had been 3 % per cent. 1929 1930 1931 1932 1933 1934 The pronounced rise in business a ctivity which fo l lowed the outbreak of w a r in E u ro p e continued in October, although ap p are n tly at a somewhat less rap id pace. A lth ough the steel m ill operating ratio leveled out as the month progressed, as some plants reached cap acity operations and delays were encountered in bringing older and higher cost units into operation, output was estimated to have exceeded 90 per cent of theoretical cap acity at the end o f October. Moreover, the actual out p u t of steel ingots appears to have reached a point ro u ghly comparable w ith the peak months of 19 2 9 and 19 3 7 , as the accom panying diagram indicates. In the cotton textile ind ustry, while new business booked in October was said to have been below current produc tion, the mills were reported to have increased operations as a result of the exceptionally large orders placed in 1936 1937 1938 1939 September. E le c tric power production and ra ilw a y fre igh t traffic also advanced furth er. Less than the expected seasonal increase occurred in the production of automobiles, however, as labor troubles curtailed opera tions at the plants of a m ajor producer. Septem ber data on business a ctivity indicate a rather general acceleration of the increase in a ctivity that had been in progress du rin g the summer. W hereas in m any (Adjusted for seasonal variations, for estimated long term trend, and where necessary for price changes) 11938 Steel................................................................. Passenger cars............................................... Motor trucks................................................. Bituminous coal............................................ Crude petroleum........................................... Electric power............................................... Cotton consumption.................................... Wool consumption........................................ Meat packing r ............................................. Tobacco products......................................... Employment Employment, manufacturing, U. S. r .. . . Employee hours, manufacturing, U. S. r. Residential building contracts................... Nonresidential building and engineering 1939 July Aug. Sept. 76 57 94 97 70 90p 79 p 97 p 110 93 86 82 56r 65 85 64 96p 60 106 119 109p 95 93 lio 126 p 99 p 97 89 91 77 96 82 97 85 lOOp 87 p 42 43 53 52 ’Sept. Industrial Production Construction P r o d u c tio n a n d T r a d e 1935 D aily A v era g e Production o f Steel In go ts (O ctober, 1 9 3 9 estim ated ) 60 39 48 76 84 90r 55 90 95 105 92 90 88 82 88 95 62 105 116 65 50 55 59 75 70 78 73 77 81 87 75 78 81 92 71 85 93 94p 81p 83 80 94 92 92r 55 100 100 84 79 87 79 107 94 p 83p 104p lOlp 105 81© Primary Distribution Car loadings, merchandise and misc........ Car loadings, other...................................... Distribution to Consumer Department store sales, U. S..................... Department stores sales, nd District. .. Chain grocery sales r................................... Other chain store sales................................ Mail order house sales................................. New passenger car registrations............... 2 97 75 101 73 p 88 Velocity of Deposits* Velocity of demand deposits, outside New York City (1919-25 average = ) ... Velocity of demand deposits, New York City (1919-25 average = ) .............. 100 100 Prices and Wages* 100 General price level (1913 average = ) Cost of living (1913 average = ) .... Wage rates (1926 average = ) ............ 100 100 ^Preliminary. rRevised. 61 58 58 60 38 31 30 34 154 148 109 153p 146r lllp 152p 146 lllp 155p 148p *Not adjusted for trend. MONTHLY REVIEW, NOVEMBER 1, 1939 86 years there has not been a great deal of change in steel production between A u g u st and September, this year d aily average output rose 16 per cent between these two months, as the average rate of steel mill activity increased from 62 to 7 2 per cent of estimated capacity. The increase in a ctivity w as also substantial in the cotton textile ind ustry, where the daily rate of m ill con sum ption of cotton increased 1 2 per cent. Orders received b y the m ills in the early p a rt of the month were sufficient to reduce their stocks substantially and to create large backlogs of orders fo r futu re delivery. Automobile assemblies rose sh a rp ly as a number of m anufacturers approached volume production of 19 4 0 models, and figures fo r bitum inous coal production indicated an in crease of more than seasonal proportions. General indica tors of business activity, such as electric power produc tion and ra ilw a y freigh t traffic, also showed considerable gains. B u ild in g Construction contracts in the 3 7 States included in the F . W . Dodge Corporation su rvey were aw arded d u r ing Septem ber at an average daily rate 8 per cent greater than in A u g u st. The increase from the previous month occurred despite substantial reductions in contracts for public works projects and buildings fo r public purposes. P u blic u tility aw ards were double the A u g u st volume, owing p rin cip a lly to the placing of large contracts for additional units of the Chicago subway. Contracts for commercial and industrial building showed a 5 5 per cent increase over A u g u st, and residential aw ards were 6 per cent larger. Com parisons w ith a yea r previous showed sim ilar tendencies in the various types of construction, and total contracts were 7 per cent larger. F o r the first nine months of 19 3 9 , total construction contracts showed a 2 3 per cent gain over the corresponding period of 19 3 8 , reflecting to a considerable extent the large increases early this yea r in contracts for residential building. Com m ercial and industrial building aw ards registered an increase of 2 1 per cent over the first nine months of last year, and contracts fo r public works and other types of construction showed sm aller gains. THOUSANDS OF DOLLARS Daily Average Value of Contracts for Commercial and Industrial Buildings in 37 States, Adjusted for Seasonal Variation (Based on F. W . Dodge Corporation data) A s the accom panying diagram indicates, the sharp increase in commercial and industrial construction con tracts in Septem ber carried the volume of such contracts to the highest point since 19 3 7 . The volume of facto ry and commercial construction tends in a general w a y to fluctuate w ith business activity, and a fte r increasing con siderably from 1 9 3 5 to 1 9 3 7 , w as curtailed sh a rp ly du ring the latter h a lf of 1 9 3 7 and early months of 19 3 8 . Subse quently there w as a grad ual recovery, and the Septem ber increase carried contracts fo r such construction to a level approxim ately twice that of F e b ru a ry , 19 3 8 , a fter allowing fo r seasonal factors. In the N ew Y o rk and N orthern N ew Je r s e y area, the d aily rate of contract aw ards in Septem ber showed a decrease of 1 7 per cent from the com paratively large vol ume in the previous month, owing to substantial cu rtail ment in contracts fo r public works projects and public purpose building. Other m ajor types of construction in this area showed increases, including in the public u tility classification an aw ard fo r an electric generating station, and, in the residential category, another contract fo r the large scale housing project of the M etropolitan L ife Insurance Com pany. Contracts fo r commercial and in dustrial construction showed a 3 3 per cent advance over the previous month. D u rin g the first three weeks of October, total construc tion contract aw ards in the 3 7 States declined 1 5 per cent from the Septem ber a v e ra g e ; there w ere reductions of 3 1 per cent in heavy engineering contracts, 9 per cent in nonresidential aw ards, and 5 p er cent in residential contracts. Com pared w ith the first three weeks of October last year, total construction contracts were 22 per cent lower, owing to large decreases in aw ards fo r nonresidential building and h eavy engineering projects. E m p lo y m e n t a n d P a y r o lls The Se cre ta ry of L ab o r estimates that the num ber of workers employed in all m an ufactu ring industries in the U nited States increased b y more than 200,000 between the middle of Septem ber and the middle of October, despite a large seasonal decrease in the canning ind ustry and an industrial dispute involving about 50,000 automo bile workers. The October increase, follow ing sizable gains in A u g u st and Septem ber, indicates a net addition to facto ry w orking forces of over 700,000 persons since J u l y . I t is estimated that less than 300,000 of these addi tional workers would have been employed on the basis of the usual seasonal expansion du ring these months. Betw een A u g u st and September, more than 500,000 persons were added to nonagricultural w orking forces. In addition to the large gain in facto ry employment, increases were reported fo r retail and wholesale trade, m ining, and the railroads. A s compared with a y e a r ago, it is estimated that there were approxim ately 1,150 ,0 0 0 more workers employed in nonagricultural pursuits in Septem ber, 19 3 9 . D u rin g Septem ber both fa cto ry employment and p a y rolls in the U nited States increased about 4 per cent, whereas u su ally only slight increases occur at this time of the year. Alm ost every m ajor industrial group showed larger w orking forces, but the most pronounced gains were centered in the durable goods industries. The out 87 FEDERAL RESERVE BANK OF NEW YO R K standing advance fo r the period w as registered b y the automobile ind ustry which employed over 40 per cent more workers than in A u g u st, as m anufacturers com menced volume production on 19 4 0 models. Other large gains occurred in the steel and electrical m achinery in dustries, and a sizable increase of a seasonal nature oc curred at cotton mills. The relatively few declines reported were gen erally seasonal in character. Total fa c tory employment in Septem ber w as 9 per cent larger than in the same month last year, and p ayrolls were 1 5 per cent higher. The U nited States Departm ent of A g r ic u ltu re ’s esti mate of farm em ployment on October 1 , however, w as the lowest fo r this date in the fourteen y e a r period covered b y the records. A lth o ugh agricu ltu ral w orking forces increased b y more than 200,000 persons during September, it is estimated that there were about 170,000 few er workers employed than a y e a r ago. In N ew Y o rk State, fa c to ry em ployment increased 4 per cent between A u g u st and Septem ber, representing somewhat more than the o rdin ary gain at this time of year, and facto ry payrolls increased 3 per cent, about the usual seasonal advance fo r Septem ber. F a ilu re of payroll figures to increase more w as ap paren tly traceable to observance of religious holidays and L ab o r D a y du ring the reporting period. The expansion in w orking forces was well d iversified; all industrial areas, and almost all m ajor industrial groups shared in the advance. The largest gain in employment and payrolls du ring the period was reported b y the canning and p reserving ind ustry which more than doubled its A u g u st w orking force. Total fa cto ry employment in Septem ber was 9 per cent greater than in the same month last year, though still sligh tly less than in Septem ber, 19 3 7 , and payrolls were 10 per cent higher than a y ear ago. C o m m o d ity P ric e s In October commodity prices fluctuated w ithin much narrow er ranges than du ring Septem ber and in m any cases quotations were considerably below the highest levels reached in Septem ber follow ing the outbreak of the war. Influenced b y rum ors of peace in E u ro p e and b y large Monthly Range of Wholesale Prices of Wheat, Cotton, world supplies, cash wheat prices declined about 4 cents to a low point on October 9, around 83 or 84 cents a bushel, but rallied to show little net change fo r the month as a whole when severe drought conditions in the South west threatened the new w inter crop. Cash corn moved irregu la rly and showed a slight net loss fo r the month as a whole, reflecting in p art the a rriv a l of large supplies of the old crop on the market. The average price of hogs declined 30 cents to $6 .8 2 a h un dredw eight; ra w sugar dropped 7 7 % points to 2.90 cents a pound, 2 points below the A u g u st 3 1 figu re; and % cent losses occurred in the quotations fo r hides and rubber. Su p po rted by a high level of textile m ill activity, cotton prices remained firm, and average quotations fo r domestic wool estab lished a new high since M arch, 19 3 7 . Silk prices reached $ 3 .5 5 a pound on October 2 3, a new high level fo r almost a decade, owing to scarcity of spot silk in Jap an ese m ar kets and apprehension concerning the imposition of p enalty duties by the U nited States a fte r the abrogated A m erican -Jap an ese trade treaty expires on Ja n u a r y 26, 1940. A generally firm undertone continued to p revail in the metal markets du ring October. The domestic price of copper was increased % cent to 1 2 % cents a pound in the first few days of October, and the export price reached 1 3 cents by the end of the month. Zin c and lead m ain tained the levels reached in September, and tin, after declining 5 cents early in October to 5 5 cents a pound, remained close to that price du ring the rem ainder of the month. S c ra p steel at P ittsb u rgh reached $ 2 4 .2 5 a ton, 50 cents above the highest level of 1 9 3 7 , but later settled back to $22 .50 . Pre-crisis Aug. 15 Wheat, Kansas City, bu................. SO. 66^ .44% 5.78 8.63 Hides, lb............................................. Sugar, lb............................................. Cotton, So. mkts., lb................. Wool, lb.............................................. Silk, lb................................................ Rubber, lb.......................................... Copper, domestic, lb....................... T in ,lb ................................................. Scrap steel, Pittsburgh, ton........... 10 .11 .0282 .0896 .71 2.74 . 16 % M .4875 16.25 .10 Pre-war Aug. 31 $ 0 .6 9 ^ .4 5 K 6.56 9.13 .11 .0292 .0855 .72 2.65 .1 6 ^ • K .4950 16.25 10 Subsequent October 30 high $0.91 y2 $0.87% •48% 8.98 10.75 .17 . 0385 .0944 6 .82 9.58 .16 .0290 .0896 1.08 3.48 . ^ .63H 1.10 3.55 .25 • 123^ .75* 24.25 ^Nominal. Steel, and Crude Rubber (Latest date included is October 28) 20 .12H .5550 22.50 88 MONTHLY REVIEW, NOVEMBER 1, 1939 F o r e ig n T r a d e The value of this c o u n try ’s foreign trade increased d u r in g Septem ber both in comparison w ith A u g u st of this ye a r and w ith Septem ber of last year. E x p o rts amount ing to $289,000,000 showed a gain of 1 7 per cent over Septem ber a ye a r ago and general im ports at $18 1,0 0 0 ,0 0 0 were 8 per cent larger. Im ports fo r consumption, which include, in addition to im ports of foreign goods entering immediate m erchandising channels, w ithd raw als of cer tain im ports from bonded warehouses, which were excep tionally large in Septem ber, reached a value of $199,000,000, 1 5 per cent more than a y e a r ago. The follow ing table by m ajor economic divisions shows striking contrasts between the immediate effects on this co u n try ’s exports of the outbreak of the present E u r o pean w a r and of the W o rld W a r. In general it appears from the table that, in the first month a fter the outbreak of the present w ar, U nited States exports have compared somewhat more fav o ra b ly w ith a y e a r ago than in p re ceding months, while in the first month a fter the begin ning of the W o rld W a r A m erican exports suffered a large decline. Percentage Change in Export Values Maior Export Groups* Crude materials........... Crude foodstuffs.......... Manufact’d foodstuffs. Semimanufactures. . . . Finished manufactures Total exports........... Jan.-July, 1914 compared with Jan.-July, 1913 Aug., 1914 compared with Aug., 1913 + 6 — 17 —20 — 65 + 7 —10 — 7 — 16 Jan.-Aug., 1939 compared with Jan.-Aug., 1938 Sept., 1939 compared with Sept., 1938 —22 — 52 — 50 — 26 — 60 + 7 + 7 + 3 — 48 +24 +47 +15 — 41 — 8 +12 substantial quantities in Septem ber, w ere almost two and a h alf times as large as a y ear ago. Silk receipts were nearly twice the Septem ber, 19 3 8 value, owing in some measure to an additional price increase. M aterial increases also occurred in receipts of crude rubber, new sprint paper, copper, nickel, and tin. On the other hand, im ports of coffee, cocoa, edible vegetable oils, flaxseed, woodpulp, diamonds, and the m ajo rity of finished m anu factures were sm aller than in Septem ber, 19 38 . D e p a rtm e n t S to re T ra d e O wing especially to a large gain in the th ird week of the month, total sales of the reporting departm ent stores in this D istrict du ring the three weeks ended October 2 1 were about 8 per cent above the corresponding 19 3 8 period. The daily rate of sales fo r this portion of Octo ber showed about the usual seasonal advance over S e p tember which w as a relatively active month fo r retail trade. Total Septem ber sales of the reporting departm ent stores in this D istrict were about 6 per cent higher than last year, and the average d aily rate of sales showed more than the usual rise from the A u g u st average. D epartm ent stores in all localities reported a larger volume of sales than in Septem ber a y e a r ago, and the apparel stores registered a gain of almost 10 per cent. Stocks of merchandise on hand in the departm ent and apparel stores at the end of Septem ber continued low er than a y e a r ago. Collections in Septem ber were at a somewhat higher rate than a y e a r ago both in the d ep art ment and apparel stores. +1 7 *Based on domestic exports only. In September, 19 3 9 , the gain of 1 2 per cent in exports of crude m aterials over a y e a r ago was due p rin cip a lly to a 74 per cent increase in shipments of A m erican cotton. Cotton exports to the U nited K ingdom were more than seven times as large as the relatively small amount in Septem ber last year, and the volume shipped to Belgium , Sp ain , Canada, and I ta ly also w as m aterially la r g e r ; on the other hand, cotton exports to G erm an y ceased a fter the first week of September, and the q u an tity sent to Ja p a n and certain other countries was gre atly reduced. E x p o rts of crude foodstuffs, while am ounting to only about one-half the Septem ber, 19 3 8 value, showed a sm aller year-to-year reduction than in preceding months. The m ajo rity of m an ufactured foodstuffs, including wheat flour, canned fru its, and meat products, were exported in considerably larger volume than a y e a r ago. E x p o rts of w holly and p a rtly finished m anufactures showed large increases over a y e a r ago, reflecting ship ments of petroleum products, iron and steel m ill prod ucts, industrial chemicals, a ircra ft, m etal w orking m achinery, passenger automobiles, and textile and rubber m anufactures, some of which, however, were in sm aller volume than in A u g u st. A m o n g the Septem ber im ports fo r consumption, a 34 per cent increase over a y e a r ago occurred in m an ufac tured foodstuffs, w hich w as accounted fo r in p a rt b y net w ithdraw als from warehouses of sugar, w hiskey, and wines. Im ports of wool, also released from warehouses in Percentage change September, 1939 .compared with September, 1938 Locality Net Sales New York and Brooklyn................................ 6.0 Stock on hand end of month Per cent of accounts outstanding August 31 collected in September 1938 1939 Rochester............................................................ Syracuse.............................................................. Northern New Jersey...................................... Bridgeport.......................................................... Elsewhere........................................................... Northern New York State......................... Southern New York State.......................... Central New York State............................ Hudson River Valley District................... Westchester and Stamford......................... Niagara Falls................................................. + + 3 .9 + 5 .4 + 9 .8 + 2 .7 + 2 0 .4 + 9 .4 + 7 .9 + + 1 1 .7 + 8 .4 + + 8 .9 — 2 .5 + 5 .2 + 7 .2 + + 1 .9 + 7 .4 + 3 .1 2.1 46.0 40.9 50.6 40.1 38.0 34.8 3 2.3 46.7 42.4 54.4 41.1 38.1 38.3 33.4 All department stores.............................. + 5 .8 — 0.6 42.8 43.7 Apparel stores........................................... + 9 .9 — 4 .6 36.9 38.9 8.1 11.8 Department Store Sales and Stocks, Second Federal Reserve District (1923-25 average = 100) 1938 1939 Sept. July Aug. Sept. Sales, unadjusted.............................................. Sales, seasonally adjusted............................... 94 90 63 89 67 90 97 93 Stocks, unadjusted........................................... Stocks, seasonally adjusted............................ 82r 79r 67 77 74 78 81 78 r Revised. FED ERAL RESERVE BANK OF NEW YORK M ONTHLY REVIEW , NOVEMBER 1, 1939 PER CENT Business C on ditions in the U n ited States (S u m m a rized b y the B o a r d o f G ov ern ors o f the F e d e r a l R eserve S y stem ) O L U M E o f in d u s tria l p ro d u ctio n , w h ich ha d tu rn ed up sh arp ly last sum m er, a d v a n ced still m ore r a p id ly in the six w eeks a fte r the ou tb rea k o f w ar. E m p loy m en t also in creased b u t a t a less ra p id rate. C on su m p tion o f g o o d s b y in d u s try an d b y in d iv id u a ls has n o t ex p a n d ed so r a p id ly as p ro d u c tio n and orders. B u y in g o f b a sic com m od ities, a ft e r a b u rs t o f a c tiv ity in ea rly S ep tem ber, has slacken ed con sid era b ly , bu t ord ers f o r m an y sem ifinished g o o d s and f o r finished p rod u cts, p a r tic u la rly m a ch in ery an d ra ilro a d equ ipm ent, have con tin u ed in la rg e volum e. M ost orders have com e fr o m d om estic sou rces. P r ic e s o f b a s ic com m od ities a d v a n ced sh a rp ly in the ea rly p a r t o f S ep tem ber, bu t in recen t w eeks p rices o f fo o d s t u ffs have d eclin ed w h ile p rice s o f in d u s tria l m aterials in m ost in stan ces have been m a in ta in ed . P ric e s o f fin ished g o o d s have show n a m uch sm aller ad vance. V Index o f P h ysical V o lu m e o f Industrial P roduc tion, A d ju ste d for Seasonal Variation ( 1 9 2 3 - 2 5 average = 1 0 0 per cen t) P r o d u c t io n I n S ep tem b er the B o a r d ’ s sea son a lly a d ju s te d in d ex o f in d u stria l p r o d u c t io n a d v an ced to 110 p er cen t o f the 1923-1925 av era g e as com p a red w ith 103 in A u g u s t an d 92 la st sp rin g . In crea ses in ou tp u t o f ir o n and steel, flou r, su gar, m eat p rod u cts, an d p etroleu m w ere p a r tic u la rly m arked in S ep tem ber. I n the steel in d u s try in g o t p ro d u c tio n rose fr o m an a v era g e rate o f 61 p e r cen t o f c a p a c ity in A u g u s t to 71 in S ep tem ber. I n the first three w eeks o f O cto b e r the rate a d v a n ced fu rth e r to 90 p er cen t and a ctu a l volum e o f ou tp u t w as a t the h ig h est lev el on record . F lo u r p ro d u c tio n rose to near re co rd levels an d at m eat p a c k in g establish m en ts a c tiv ity w as a t the h ig h est rate reach ed in several y ears. T he sharp in crease in ou tp u t o f cru de p etroleu m fo llo w e d a con sid era b le re d u ctio n in the p rev iou s m onth an d cu rren tly p ro d u c tio n is a t a b o u t the h ig h rate p re v a ilin g b e fo r e w ells w ere closed in the la tte r h a lf o f A u g u st. Index o f T otal Loadings o f R evenue F reig h t, A d ju ste d for Seasonal Variation ( 1 9 2 3 - 2 5 average = 1 0 0 per cen t) I n oth er in d u stries increases in a c tiv ity , th ou g h qu ite gen eral, w ere n o t so m arked. A u to m o b ile p ro d u c tio n sh ow ed a sharp seasonal rise as volum e p ro d u c tio n o f new m od el cars w as b eg u n a t m ost p lan ts, an d in rela ted lines, such as p la te glass, a c tiv ity also in creased . T e x tile p ro d u c tio n in crea sed som e w h at fu rth e r fr o m the h ig h lev el reach ed ea rlier. S hoe p ro d u c tio n , how ever, w h ich had been in la r g e volum e in the first e ig h t m onths o f the y ea r, d ecreased in S ep tem ber. M in era l p ro d u c tio n a d v a n ced g e n e ra lly and ir o n ore sh ipm ent schedules w ere ex pa n d ed to b u ild u p stock s at low er lake p orts b e fo r e the close o f the sh ip p in g season. V a lu e o f c o n stru ction con tra cts, as rep orted b y the F . W . D o d g e C o rp o ra tion , rose fu rth e r in S ep tem ber, re fle ctin g a con tra sea son a l in crea se in p riv a te re sid en tia l b u ild in g . O ther p riv a te co n stru ctio n sh ow ed little ch an ge and there w as som e r ed u ction in th e volu m e o f new p u b lic p r o je c ts , b o th resid en tia l and n on resid en tia l. D is t r ib u t io n I n S ep tem ber and the ea rly p a rt o f O ctob er d ep a rtm en t store sales in crea sed c o n sid era b ly . F r e ig h t ca r lo a d in g s also a d v an ced sh arply, w ith the m ost m arked in creases rep orted in sh ipm ents o f co a l and o f m iscella n eou s fr e ig h t, w h ich in clu d es m ost m a n u fa ctu re d p rod u cts. C o m m o d it y Indexes o f W h o le sa le P rices Com piled b y U nited S ta te s B ureau o f Labor S ta tistic s ( 1 9 2 6 average = 1 0 0 per cen t) BILLIONS OF DOLLARS P r ic e s W h olesa le p rices o f fo o d s t u ffs d eclin ed a ft e r the m id d le o f S ep tem ber, f o llo w in g sharp ad van ces earlier in the m onth. P ric e s o f in d u stria l com m od ities, w h ich rose con sid e r a b ly u n til the th ird w eek in S ep tem ber, su bsequ en tly w ere g e n e r a lly m ain tain ed , alth ou gh p rices o f som e m aterials, such as steel scrap , h id es, an d ru b b er, d eclin ed fr o m earlier p eak levels. B a n k C r e d it F o llo w in g red u ction s d u r in g the e a rly p a r t o f S ep tem ber, G overn m en t secu rity h o ld in g s b y m em ber ba n k s in 101 le a d in g c itie s in creased som ew hat d u r in g the three weeks ended O cto b e r 11, refle ctin g la r g e ly the p u rch ase o f T rea su ry b ills. C om m ercia l loan s con tin u ed to increase, b u t a t a less ra p id rate than in late A u g u s t an d ea r ly S ep tem ber. T he volum e o f dem and d ep osits at c ity banks also in creased fu rth e r. E x cess reserves, w h ich h a d in crea sed sh a rp ly a t m em ber ba n k s d u rin g the first h a lf o f S ep tem ber, sh ow ed fu rth e r m od erate in creases d u rin g the fo u r w eeks en d ed O cto b e r 11. M oney Wednesday Figures for Reporting Member Banks in 101 Leading Cities (Latest figures are for October 11) R ates and B ond Y ie l d s P r ic e s o f U n ited S ta tes G ov ern m en t secu rities in creased in the la tter p a r t o f S ep tem ber an d the first h a lf o f O cto b e r, fo llo w in g sharp d eclin es ea rly in S ep tem ber. A v e r a g e y ie ld s on lo n g term T rea su ry b on d s d eclin ed fr o m 2.79 p er cen t on S ep tem b er 21 t o 2.62 p er c en t on O ctob er 16. Y ie ld s on T rea su ry notes d eclin ed to 0.78 p e r cen t fr o m 1.30 p er cen t ea rly in S ep tem ber.
@FedFRASER