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MONTHLY REVIEW o f C r e d it a n d B u s in e s s C o n d it io n s Second F e d e ra l R e se rv e D is tric t FederalReserveBank,NewYork M o n e y M a r k e t in O c to b e r There was considerable interest during October in present and prospective increases in bank loans, arising from improvement in general business conditions and due in part to the National defense program. On Octo ber 9, the “ Assignment of Claims Act of 1940” became law, and thereby the making of bank loans to finance the expansion of plant and equipment and production of materials for National defense purposes was facilitated. This Act makes it possible for contractors having con tracts for Government work to assign their claims for paym ent by the Government (in amounts of $1000 or more) to a bank, trust company, or other financing institution (including any Federal lending agency), which assignments can be used as security for loans granted by such lenders. In many cases, banks would have been willing to grant loans to businesses having Government contracts, without the added security of the assignment of claims for paym ent under these contracts, but the provision for obtaining the assignment of such claims, thereby making the contracts “ bankable,” un doubtedly widens the field of potential participation of the banks in the financing of the defense program, and to that extent reduces the aid which might otherwise have been needed from Government loan agencies. The overall net increase in the commercial, industrial, and agricultural loans of the weekly reporting banks in principal cities amounted to $171,000,000 in the four weeks ended October 23. Despite the October increase, however, and a sizable increase in the second week of September which included a large term loan of a refund ing character, the rise this year from the seasonal low point of the end of May has been less than the rise which occurred in the corresponding period a year ago, as the accompanying diagram indicates. Last year there was a very sharp advance in loans, beginning at about the time of the outbreak of the w ar which caused a number of businesses to accumulate inventories, thereby increas ing their needs for funds. On the current rise, “ commer cial loans” , while well above the level of a year ago, have not yet reached the peak of October, 1937; despite the inclusion in the reported figures of a considerable known volume of “ term ” loans, some of which represent refund ing operations, the total on October 23 remained about $120,000,000 below the 1937 high. Aggregate commercial loans of reporting banks outside New York are about at the 1937 peak, but such loans made by New York City banks remain lower. November1,1940 In addition to the increase in commercial loans, the weekly reporting banks also increased their holdings of United States Government securities by $155,000,000 during the four weeks ended October 23, with the result that, after allowing for minor changes in other earning assets, the total of their loans and investments rose $323,000,000 to $24,489,000,000, or approximately $60,000,000 above the previous peak reached in October, 1929. Of the rise in United States Government securi ties, $83,000,000 represented an increase in Treasury bill holdings, which had been reduced in the previous two months; $31,000,000 represented a net rise in Govern ment bond holdings in excess of the reduction which occurred in Treasury note holdings accompanying the exchange by the Treasury of Treasury notes m aturing December 15, 1940, for 2 per cent Treasury bonds of 1953-55, which was carried out during the week ended October 9; and $41,000,000 represented an increase in holdings of fully guaranteed obligations of the United States. E xcess R eserves F u rth er increases in excess reserves of all member banks occurred during October, and on the October 23 statement date the total broke through the previous high of $6,880,000,000 reached on July 17, advancing to $6,940,000,000. The rise in October was at a somewhat faster rate than had prevailed in the preceding advance BILLIONS OF DOLLARS 3.5 L^v_______ ___________________________________________ :____ -A-vi J F M A M J J A S O N D Commercial Industrial, and Agricultural Loans of Weekly Reporting Banks in 101 Leading Cities (Latest figure is for October 23) 82 MONTHLY REVIEW, NOVEMBER 1, 1940 from the tem porary low of $6,330,000,000 to which excess reserves had been reduced in early August by the cash payments for new Government security issues. The principal factors in the rise in member bank excess reserves during the four weeks ended October 23 were heavy disbursements by the Treasury from its previously accumulated cash holdings and balances with the Reserve Banks, totaling $475,000,000, and a further rise in the gold stock of $262,000,000. Meanwhile, a p art of the resulting addition to reserve funds was absorbed by a continued rise in the amount of currency outstanding to a new high, sales of $82,000,000 of Government securi ties from the Reserve System ’s holdings, an increase in foreign and other nonmember deposits at the Reserve Banks, and a sizable increase in member bank reserve requirements, which accompanied increases in adjusted demand and interbank deposits to new high levels. M oney R ates Short term money rates were unchanged during October, except for further reduction in the rates on weekly issues of Treasury bills to a point where, for the last four issues floated in October, no yield was obtain able on part of the issues, and negative yields prevailed for the remaining parts of these issues. Yields on Treas ury notes of 3 to 5 year term showed further declines for the month, and yields on high grade bonds likewise tended lower. Money Rates in New York Oct. 31, 1939 Sept. 30, 1940 Oct. 30,1940 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 12 years).................... Average rate on latest Treasury bill sale 91 day issue......................................... Federal Reserve Bank of New York dis count rate............................................ Federal Reserve Bank of New York buying rate for 90 day indorsed bills. * Nominal 1 1 *1 X *1K 1 * IW X rX r A t 0.64 0.45 0.40 2.49 2.20 2.18 0.028 0.013 f 1 1 1 X X A X t Negative yield G overnment S ecurities D uring October Government security prices generally showed continued firmness. Price fluctuations were nar row; the price range for long term Treasury bonds amounted to only % of a point on the average and for intermediate term Treasury bonds to less than % of a point. The average price of long term Treasury bonds advanced irregularly early in the month until on Octo ber 7 it was within a small fraction of a point of the 1940 high attained in April, and not far from the record high for this class of bond reached in June, 1939. However, the average price declined a total of % a point by Octo ber 11, following reports of the movement of German troops into Rumania. Somewhat higher levels were reached later in the month but no consistent tendency was apparent. Treasury note prices advanced slightly through Octo ber 7. In succeeding sessions and during the middle of the month they lost part of this gain, but the advance was resumed on October 19. The average yield on 3 to 5 year Treasury notes, after an irregular decline during much of October, stood on October 30 at 0.40 per cent. Treasury bill financing during October was composed of five weekly issues, each in the amount of approximately $100,000,000 and each a replacement of similar m aturi ties. The bills dated October 2 were all awarded on par bids, and accepted bids for the following four issues were at prices slightly above par and at par. On October 24, the Treasury, on behalf of the United States Housing Authority, offered for subscription at par and accrued interest, $100,000,000 of *4 per cent one year notes of the Authority, dated November 1. This issue, fully guaranteed by the United States, was heavily oversubscribed. C ommercial P aper and B ills Commercial paper rates remained virtually unchanged during October; average grade prime 4 to 6 month com mercial paper moved at both y 2 and % per cent, and the choicest grade of material, when available, was sold at % per cent. The continued strong bank investment demand absorbed without delay the moderate quantity of new notes that dealers were in position to offer for sale in the open market. A t the end of September com mercial paper concerns had paper outstanding in the ag gregate sum of $250,700,000, the largest amount since May, 1938. The September 30 figure was about 3 per cent larger than a month previous and 20 per cent larger than a year ago. The bill m arket remained very inactive, owing prim ar ily to the tendency of acceptors to keep new bills for their own account. D ealers’ quoted rates for bankers acceptances held largely nominal at previously quoted levels. The total of bankers acceptances outstanding on September 30, at only $177,000,000—a new low for at least 20 years—was about 3 per cent smaller than a month previous and 18 per cent under the figure for a year ago. Decreases in outstanding bills drawn to finance exports and in those based on goods stored in or shipped between foreign countries accounted for the larger portion of the decline from a year ago. S e c u rity M a rk e ts Price fluctuations in the security markets in October were narrow and indecisive. In general, domestic bond quotations were firmer than share prices. The volume of trading activity last month averaged higher than in September. The average price of common stocks in the Standard Statistics 90 stock index showed an irregular decline of almost 4 per cent between October 3 and 9 on disturbing news from the Balkans and the F ar East. D uring the remainder of the month stocks advanced irregularly and at the end of October stock prices reached the highest level since early in May. Prices of medium grade domestic corporation bonds varied little, on balance, in the first half of October, but firmer tendencies prevailed later in the month. On October 31 Moody’s Investors Service average price of FEDERAL RESERVE BANK OF NEW YORK Baa issues was at the highest point since February, 1937. Prim e corporate bonds, those classified as Aaa by Moody, remained at September record highs during much of the first half of October. The average price moved up ^4 of a point further on October 16 and m aintained that level during most of the remainder of the month. High grade municipal bond prices continued their September advance into new high ground. N e w F in a n c in g The volume of corporate and m unicipal new security issues floated during October rose sharply to $525,000,000, the highest level in almost a year and a half. Both classifications of securities participated in the advance. Corporate flotations amounted to $362,000,000, the greatest total for any month since June, 1937. The increase was accounted for by refunding operations; the volume of funds sought for corporate new capital pu r poses amounted to only $40,000,000, or substantially less than in either of the two previous months. On October 9, public offering was made of $108,000,000 Southern California Edison Company, Ltd., refunding bonds m aturing in 1965. This issue represented the largest corporate offering since August, 1939. By October 24, underw riters for the offering were able to announce that subscription books had been closed and price restrictions removed. Details of this and other m ajor new security issues marketed during the month appear in the following table. Corporate $108,000,000 Southern California Edison Company, Ltd., 3 per cent first and refunding mortgage bonds o f 1965, priced at 104 to yield 2.78 per cent, for refunding 45.000.000 Youngstown Sheet and Tube Company 3 % per cent first mortgage bonds due in 1960, priced at 103 to yield 3.05 per cent, for refunding 29.000.000 Columbus and Southern Ohio Electric Company 3*4 per cent first mortgage bonds o f 1970, priced at 107 to yield 2.90 per cent, for refunding 27.333.000 New York Connecting Railroad Company 3% per cent first mortgage bonds o f 1965, priced at 102 to yield 3.38 per cent, for refunding 20.000.000 Great Northern Railway Company 4 per cent col lateral trust bonds consisting o f $7,000,000 serial bonds maturing from 1941 to 1951, priced to yield 0.50 per cent to 3.60 per cent; and $13,000,000 term bonds o f 1952, priced at 103 to yield 3.69 per cent; for refunding 18.100.000 Central Maine Power Company 3 y2 per cent first and general mortgage bonds o f 1970, priced at 1 0 7^ to yield 3.11 per cent, chiefly for refunding 83 Not included in the $525,000,000 aggregate of new financing was $140,000,000 of short term securities, the bulk of which was accounted for by $100,000,000 State of New York 0.20 per cent notes due in May, 1941, and $28,000,000 of Federal Interm ediate Credit bank 0.75 per cent nine and twelve month debentures sold at prices to yield 0.30 per cent and 0.35 per cent, respectively. Forthcoming issues indicated by public announcements include approximately $99,000,000 of Detroit Edison Company refunding bonds, an issue of around $75,000,000 under a refinancing program of the United Gas Corpora tion, and about $53,000,000 of Boston Edison Company refunding bonds. In addition t ) these, a somewhat longer and more diversified list of stock issues than usual is pending for offering to stockholders or to the public. G o ld M o v e m e n t D uring October the volume of imports of gold into the United States declined further from the peak reached last June, and at the same time the amount of gold held under earmark at the Federal Eeserve Banks for foreign account increased about $115,000,000 to a total of approx imately $1,775,000,000. Consequently, the increase of about $255,000,000 in the gold stock of the United States which occurred during the month was the smallest for any month since March of this year, as the accom panying diagram indicates. Following imports of $78,400,000 in the week ended September 25, of which $50,400,000 came from Canada, receipts during the four weeks ended October 23, as re ported by the D epartm ent of Commerce, totaled $307,600,000, of which $221,500,000 came from Canada, $17,800.000 from Portugal, $16,500,000 from Argentina, $14,900.000 from Japan, $14,800,000 from Australia, $5,700,000 from Russia, $5,000,000 from South Africa, $2,200,000 from the Philippines, $1,700,000 from Spain, $1,300,000 from the United Kingdom, and $1,100,000 from Peru. MILLIONS OF D O L L A R S 800 700 600 500 400 M u n ic ip a l $60,000,000 New Y oik City 3 per cent serial water bonds, maturing from 1941 to 1970, awarded at a net interest cost o f 2.97 per cent and reoffered to yield from 0.30 per cent to 3.10 per cent, for new capital purposes 42.592.000 City o f Los Angeles Department o f Water and Power revenue bonds, consisting o f $20,592,000 o f 2 V2 per cent and 2% per cent bonds, due serially from 1941 to 1976, reoffered at prices to yield 0.25 per cent to 2.85 per cent; and $22,000,000 o f 3 per cent bonds due in 1976, priced at 102.75 to yield 2.88 per cent to matur ity ; for refunding. 300 200 100 O -5 0 1934 1935 1936 1937 1938 1939 1940 Monthly Changes in United States Gold Stock (October, 1940, estimated) 84 MONTHLY REVIEW, NOVEMBER 1, 1940 areductiononSeptember12by theNational Bankof Rumaniafrom3%percent (prevailingsinceMay, 1938) Possiblythemostsignificantdevelopmentinanother to3percent. wiseverydull foreignexchangemarketduringthepast monthwasthemovement of certainforeignfundsfrom thiscountryasaresultoffearsthatthesituationabroad, F o re ig n T ra d e particularlyintheBalkans, might leadtoextensionof During September both merchandise exports and theUnitedStates’ “freezing” regulationstoadditional importsofthis countrydeclinedsharplyfromthelevels foreignaccounts. ofthepreviousmonthandexportsof agricultural prod SwissexchangecontinuedindemandduringOctober, u ctswereatthelowest level, for September, inat least accompanyingafurthersubstantialrepatriationoffunds tw enty-fiveyears. Exports, atatotalvalueof$295,000,fromthismarkettoSwitzerland. TheratefortheSwiss 000, were $55,000,000 less thanin August—despite a francwaspermittedtoappreciategraduallyfrom$0.2296 sonaltendencytowardexpansionatthistimeofyear— to $0.2323, alevel 81 points above that prevailing in saenad the smallest for any monthsince last November. mid-June andthehighest sinceMarch, 1938, prior to Importsdeclined$26,000,000fromtheAugust figureto the Germanabsorptionof Austria. The free rate for $195,000,000, thesmallest value for imports since Sep theArgentinepeso, afterhavingreactedtemporarilyto tember, 1939. Bothexports andimports, however, re $0.2285duringthepreviousmonth,recoveredtoashigh mainedsomewhathigherthanayearago. Shipmentsto as $0.2386 duringthefirst half of October, reportedly theUnitedKingdom,Canada, Japan, andanumberof stimulatedby the transfer of European capital from othercountrieswerereportedtohavebeensmallerthan NewYorktoArgentina. Bytheendofthemonth,how inAugust. Theexportbalanceof $100,000,000wasless ever, the rate had receded to $0.2320. The Mexican than that of either the previous month or Septem peso, whichopenedthemonthat about $0.2032, firmed ber, 1939. toabout$0.2062andheldnearthislevel throughoutthe ThelargestsinglefactorinthedeclineduringSeptem secondhalf ofthemonth. ThestrengthinMexicanex berintotal exportswasareduction of $14,500,000in change is reportedtohave reflectedprimarily anim shipmentsabroadof aircraft, whichwerevaluedat$37,provedoutlookforpolitical stabilityinMexico. Among 000,000inAugust. Exportsofcoppershowedanexcep theotherLatinAmericancurrencies, thediscountonthe tionallyheavydecline, fromthepeakof $13,000,000in Cubanpeso narrowedto 7% per cent on October 7, thepreviousmonthtolessthan$3,000,000inSeptember, accompanyingreports of negotiations for asizableEx andwereabout one-thirdthevalue ayear ago. Ina port-Import Bank credit to the CubanRepublic, but smaller degree reductions from the August levels subsequentlywidenedtoaround9percentfortheremain extended to a wide variety of exports, including derofthemonth. especiallysemimanufactures of ironandsteel, lubricat TheChinesedollaradvancedsubstantiallyagainstboth ing oil, certaintypes of machinery, woodpulp, paper thepoundsterlingandtheUnitedStatesdollarduring products, andtobacco. However, shipments of chem October. Whiletheannouncement onOctober8of the icals, metal-working machinery, and automobiles were BritishintentiontoreopentheBurmaRoadapparently upsomewhatfromthepreviousmonth. Exportsof raw lentconsiderablestrengthtoChineseexchange,theaccen cotton,valuedat $5,000,000, showedmuchless thanthe tuatedFarEasterntensionmayalsohavecausedsom e customarygainatthisseason,andwere$30,000,000less accumulationof Chinesecurrencyforfearthat Chinese thaninSeptember, 1939. Infact, exportsofall agricul funds held abroad might become unavailable. The tural products, combined, in September of this year Shanghai dollarwas quotedat slightlyover6cents at equaledonlytwothirdsofthevalueofcottonexportsin theendofthemonth,asagainst5%centsamonthearlier. Septemberof last year. Onthe otherhand, atenfold Indesultorytrading, littlechangeoccurredinthefree increaseoverthesmall figuresof September, 1939was rateforthepound,thefluctuationsofwhichheldwithin recorded in exports of firearms and explosives; ship anarrowrange of $4.02%-$4.04%. The unofficial dis ments of aircraft, ironandsteel products, andmetal countontheCanadiandollaralsoshowedrelativelylittle workingmachinerywerefromtwotothreetimesaslarge fluctuationduringOctober. asayearago. Withrespecttoimports, material gainsoverboththe previous month and September, 1939, were confined C e n tra l B a n k R a te C h a n g e s chieflytosuchcommodities asburlap, rubber, tin, and OnSeptember 16 the discount rate of the National copper. Receipts of unmanufacturedwool andof dis BankofBulgariawasloweredto5%from6percent, the tilledspiritswerealsolargerthaninthepreviousmonth, latterratehavingbeenineffectsinceAugust, 1935, and but werebelowthefigures of ayear ago. Imports of onOctober22theNational Bankof Hungaryreduced crudepetroleumandcocoa, although smaller than in itsrateto3from4per cent, whichratehadprevailed August, showedsizableincreases over ayear previous. sinceAugust, 1935. Sugar andsilkreceipts wereconsiderablyless thanin Accordingtoapressreport, thediscount rateof the August andshowedexceptionallylargereductionscom National Bankof Denmarkhasbeenloweredfrom4% paredwithSeptemberoflastyear. Themajorityofthe to4percent,apparentlyeffectiveasofOctober16.Recent remainingimportsregisteredeitheronlyslight changes publications report a reduction onAugust 1 by the ordecreasescomparedwiththepreviousmonthandwith Central ReserveBankof Peruofits discountratefrom September, 1939. 6 to5percent (thefirst changesinceM ay, 1932), and Forthefirstyearofthewar, exportsfromtheUnited F o r e ig n E x c h a n g e s FEDERAL RESERVE BANK OF NEW YORK States to the British Em pire countries amounted to $1,775,000,000, or 44 per cent of the aggregate value of exports to all countries. (In July and August the pro portion of exports to the British Em pire rose to about two thirds of the total.) One half of the increase over the 1934-38 average in the value of shipments to all countries was due to larger exports to the British Empire, as is indicated in the accompanying table, although Latin American purchases from this country showed an even larger percentage increase. Im ports into the United States from the British Em pire in the first year of the war were valued at $1,051,000,000, which represented a 33 per cent increase over the 1934-38 average, and imports from Latin America showed a 25 per cent increase. Im ports from all other countries were frac tionally less than in 1934-38. Compared with the 1926-30 averages, both exports and imports with all three groups of countries were lower. United States MerchandiseTTradi»',with the British^Empire, Latin America, and AH Other Countries (In millions of dollars) First year of the war (Sept., 1939-Aue., 1940 incl.) compared with averages for years 1926-30 (incl.) and 1934-38 (incl.) Dollar change from Percentagechange from Value first year of war 1934-38 av. 1926-30 av. 1934-38 av 1926-30 av. Exports to British Empire. . . . Latin America........ All other countries. 1,775 790 1,451 +677 +320 +356 —252 — 61 —448 +62 +68 +33 — 12 — 7 —24 All countries....... 4,018 +1,353 —761 +51 — 16 British Empire....... Latin America........ All other countries . 1,051 650 924 - +261 +132 — 2 — 303 — 356 — 749 +33 +25 0 —22 —35 —45 All countries....... 2,625 +391 — 1,408 +18 —35 Imports from E m p lo y m e n t a n d P a y ro lls During September, working forces and wage payments in New York State factories increased more than season ally and reached the highest levels since November, 1929. The gains over August of 4% per cent in employment and 6 per cent in payrolls were attributed to the con tinued stimulus of the National defense program in addition to the usual autum n acceleration of activity. Gains were widely distributed; all industrial districts in the State and all industrial groups showed increases in employment, in payrolls, or in both. The im portant metals and machinery group added to working forces for the fifth consecutive m onth; the largest gains occurred at shipyards and at aircraft and automotive plants. Canneries, textile plants, and women’s apparel firms reported seasonal increases in employment, but up-State m en’s clothing concerns, which had already passed the peak of their fall season, employed fewer persons during September. Factory employment as a whole was 11 per cent above the September, 1939 level, and payrolls were 19 per cent greater. More than 600,000 persons were added to working forces in nonagricultural occupations throughout the 85 PER CENT Employment in Durable and Nondurable Goods Industries, Adjusted for Seasonal Variation (1923-25 average=100 per cent) United States in September, according to estimates of the Bureau of Labor Statistics. Together with the August gain, this represents an increase of over 1,000,000 work ers in two months. The gain in the summer and early autum n this year was one of the largest ever recorded. All m ajor fields of employment showed increases, but the largest p art of the September gain occurred in m anufacturing and in retail and wholesale trade. United States factory employment increased during September for the fourth consecutive month, rising 3% per cent to the highest level since October, 1937. Factory payrolls were 5 y 2 per cent greater than in August, and nearly equal to the 1937 peak. As the accompanying diagram indicates, employment in durable goods m anu facturing has benefited much more from the current upswing in business than has employment in nondurable goods industries. W hile the number of workers in the durable goods classification was 17 per cent greater than in September, 1939, nondurable goods working forces were at approximately the same level as they were during the first month of the war. Most of the industries stimulated by the w ar and the National defense program are in the durable goods category; the aircraft, machine tool, engine, and shipbuilding industries have all reported sizable employment gains month after month. Found ries, sawmills, electrical m anufacturing plants, and steel mills have also added considerably to their working forces in recent months. In addition there were seasonal increases in employment in September in the m anu facture of automobiles, cotton textiles, confectionery, and women’s clothing. Compared with September, 1939, total factory employment in the United States was 7 per cent higher and payrolls were 16^o per cent larger. P ro d u c tio n a n d T ra d e Prelim inary evidence suggests that the acceleration of National defense preparations in October resulted in a further advance in the general level of business activity. Steel mills were increasingly active during the month and by the final week operations were proceeding at 951/2 per cent of capacity, or at a higher rate than at any time 86 MONTHLY REVIEW, NOVEMBER 1, 1940 THOUSANDS OF CARS was largely accounted for by the exceptional speed with which new model passenger car production reached large proportions. (A djusted fo r seasonal variations and estim ated long te rm tre n d ; series reported in dollars are also adjusted fo r price changes) 1940 1939 since 1929. Owing to the increased capacity of the indus try, actual producion of steel ingots is larger now than in the earlier year. Automobile assemblies continued to mount in October, as is shown in the accompanying dia gram. The steady rise in automobile production from the low point for the year had continued for eleven weeks by October 26, whereas the comparable advance last year ran for seven weeks, and in 1937 the upturn was of only five weeks’ duration. Reflecting the influence of National defense orders and increased civilian demand, mill sales of textile goods continued in heavy volume in October; sales of cotton gray goods were reported in excess of out put, and many woolen mills were said to have operated at near capacity rates. Railroad loadings of m erchan dise and miscellaneous freight increased more than usual during the four weeks ended October 26, but the move ment of bulk freight declined owing to a reduction in coal shipments. Electric power production gained over September. The upw ard movement in the general level of business activity continued in September, although the advance in this bank's index of production and trade was some what less pronounced than in the preceding month be cause of a rather sharp decline in foreign trade and the failure of countrywide retail trade to expand as much as usual following the sharp rise in August. The index for September is placed at 94 per cent of estimated long term trend, as compared with 93 in August, 89 in Sep tember, 1939, and 95 at the peak reached in December, 1939. In production, the most pronounced gains were again evident in durable goods industries which continued to benefit from the stimulation of w ar and National defense orders; activity at shipyards, airplane factories, and machine tool plants expanded still further, and steel mill operations averaged over 90 per cent of capacity. Among nondurable goods lines, wool consumption expanded sub stantially further to the highest rate since early 1937, reflecting business placed by the m ilitary services, but cotton mill activity, although at a high level, failed to increase as much as usual for this time of the year. The rise in the index of consumers ’ durable goods production Sept. 91 93 p 94p 91 98 94 p 99 p 96 p lOOp 66 96 68 95 73 p 93 p 79p 95 p 86 93 89 92 90 p 96 p 87 p 95 p 94 84 91 88 96 110 125 103r 97 92 118 78 95 86 99 113r 110 102 97 89 115 56 97 86 lOOp 115 115 lOOp 97 89 114 117 95 p 89 p lOOp 112 133p 95p 101 90 91 86 94 89 96 92 97p 95p J u ly Index of Production and Trade P roduction of: Producers’ durable goods....................... Producers’ nondurable goods................. 89 78 98 Consumers’ durable goods..................... Consumers’ nondurable goods............... P rim a ry d is trib u tio n .................................... D is trib u tio n to consum er............................ Industrial Production Weekly Automobile Production in the United States and Canada (Based on Ward's Automotive Reports) Aug. Sept. Autom obiles r ................................................ B itu m in o u s coal............................................ C rude p e tro le u m ........................................... E le ctric p ow e r............................................... C otto n co nsum ption.................................... W ool co nsu m p tio n ....................................... M e at p ackin g ................................................. Tobacco products......................................... Manufacturing Employment E m p lo y m e n t.................................................. M an-hours of e m plo ym e nt......................... Construction R esidential b u ild in g contracts................... N onresidential b u ild in g and engineering 51 55 60 58 62 71 75 60 85 92 88 80 84 95 108 81 85 94 113 80 87 95 85p 74p Distribution to Consumer D epartm ent store sales (U. S .) ................. G rocery chain store sales............................ V a rie ty chain store sales r .......................... M a il order house sales................................. New passenger car sales.............................. 90 97 100 101 68 89 96 95 94 82 97 99 106 103 61 97 95p 99 98 79 Velocity of Deposits* V elo city of demand deposits, outside New Y o rk C ity (1919-25 average— 1 00 ).. V e lo city of demand deposits, New Y o rk C ity (1919-25 average = 100).............. 60 53 53 55 34 24 23 25 Cost of Living and Wages* Co«t of liv in g (1935-39 average = 100)r. Wage rates (1926 average = 100)........... 104 111 104 114 104 114p 104 114p Prim ary Distribution R y . fre igh t car loadings, mdse, and misc. r R y. fre ig h t car loadings, o th e r.................. p P re lim in a ry r Revised * N o t adjusted fo r tre n d B u ild in g D uring September the total value of construction con tract awards in the 37 States covered by the F. W. Dodge Corporation survey was 16 per cent below the y ear’s high reached in August, owing to a sharp decline in construc tion awards for National defense purposes. Contracts for other classes of construction showed little change from the preceding month. In the first half of October, however, there was some increase in construction con tracts awarded. The accompanying chart shows the value of total con tract awards monthly since January, 1939, with a segre gation of projects for National defense in the June to September period of this year. (In previous months contracts for National defense purposes presumably did not bulk large.) The expansion in construction awards FEDERAL RESERVE BANK OF NEW YORK this summer, which in Ju ly and August reached the highest monthly totals since 1930, was due prim arily to the stim ulating effect of the defense program. In August —the peak so far this year in the volume of defense con struction—awards for this purpose accounted for over one quarter of total construction contracts. On a daily average basis the value of awards in Sep tember was 10 per cent below August, but was 8 per cent above the corresponding month of 1939. Daily average awards for heavy engineering projects were 29 per cent below the August average, owing to a 46 per cent decline in public works contracts, chiefly for projects connected with the defense program. Owing to a decline in public purpose building, the daily rate of awards for nonresidential building declined 8 per cent from the August average. Compared with September, 1939, however, the latter type of building was up 23 per cent, the most significant increase being in awards for industrial building, which were 83 per cent above the rate in the same month of last year. D uring the four months from June through September almost one third of all building of this type represented new plant construction and alteration of existing plants to handle defense orders. The only m ajor category to show an increase in the daily rate of awards during September was residential building, which was 8 per cent above the average of the preceding month and the highest for any September since 1928. Compared with September, 1939, the rate of resi dential building awards was up 18 per cent. Over 40 per cent of this gain represents an increase in housing projects connected with m ilitary establishments. D uring September the daily rate of construction con tract awards in New York and N orthern New Jersey was about unchanged from the August average, but 13 per cent below the same month of last year. Daily average awards in September for residential building were off 5 per cent from the previous month and 31 per cent lower than in September, 1939. Nonresidential building also declined from August, but was up almost one-third over a year ago. The chief factor contributing to this gain was awards for industrial building, which were made at two and a half times the rate of September, 1939. Off setting the August to September declines in residential and nonresidential building, the daily rate of heavy engi neering construction was about one-third higher during September than in the previous month, owing to the in clusion in the utility classification of a large contract for a portion of a rapid transit railroad in Brooklyn. Com pared with September, 1939, heavy engineering projects were off 5 per cent. F or the first two weeks of October the daily rate of construction contract awards in 37 States was almost 7 per cent higher than in September. The gain reflected increases of 27 per cent in nonresidential building and 16 per cent in heavy engineering. As a partial offset, residential building awards declined 12 per cent. Con struction awards of all classes were 31 per cent above the daily rate in the corresponding two week period of last year, as sizable increases in the nonresidential and heavy engineering categories overbalanced a slight decline in residential building. 87 MILLIONS OF DOLLARS Total Construction Contracts in 37 States, Showing Amounts for National Defense Purposes Beginning in June, 1940 (F. W . Dodge Corporation data) C o m m o d ity P ric e s Prices of most basic commodities tended to show strength during October. The Bureau of Labor Statis tics daily index of 28 basic commodities rose 2% per cent further during the month to 113.3 per cent of the prew ar (August, 1939) level, or about 7% per cent above the low point reached during the past summer. Reflecting continued light offerings in the “ free market, ’ ’ spring wheat in Minneapolis advanced sharply to 89 cents a bushel on October 23—the highest price since the middle of May—but liquidation later led to a downward reaction and the net gain for the month as a whole was only fractional. Fluctuations in prices of winter wheat in Kansas City and of corn in Chicago followed a roughly similar course. Livestock quotations, after advancing sharply in the first half of October, weakened considerably. Hog prices, owing to heavy receipts in the past two weeks, closed the month at $5.97 Daily Indexes of Wholesale Commodity Prices, Computed by Bureau of Labor Statistics (August, 1939=100 per cent) 88 MONTHLY REVIEW, NOVEMBER 1, 1940 a hundredweight, 28 cents lower than at the end of Sep tember, although steers at $11.75 a hundredweight showed a net advance of 75 cents. Although cotton prices showed some response to for eign developments during October, the Government loan program continued to exert a stabilizing influence on the market. The average price for spot cotton in 10 Southern markets, at 9.16 cents a pound on October 30, was down only slightly for the month. Wool tops advanced progressively from an initial price of $1.23 to $1.37 a pound at the end of October. Silk prices, after rising abruptly in the middle of the month, reflecting developments in the F a r East, subsequently returned to approximately the end of September level. Hides were especially strong, and showed an aggregate gain of 2 cents for the month to 15 cents a pound, the highest price this year. Sugar quotations recovered 13 points further to 2.88 cents a pound, and rubber was up some what. The metal markets on the whole remained firm through out October. Lead advanced 50 points further to 5.50 cents a pound—the highest level since January. Scrap steel at Pittsburgh was up 25 cents to $21.50 a ton. The recent upw ard movement of industrial raw m aterial prices has carried this subgroup of the Bureau of Labor Statistics daily index to the highest level since early in February, as is indicated in the accompanying chart. This increase, no doubt stim ulated in large measure by the defense program, has been the dominant influence in the general advance in the combined index of 28 basic commodities since the middle of September. Foodstuffs as a group, while considerably above the low level reached in August, showed a less pronounced gain during October than industrial materials. D e p a rtm e n t S to re T ra d e F or the four weeks ended October 26, total sales of the reporting departm ent stores in this D istrict were about 4% per cent higher than in the corresponding 1939 period. The daily rate of sales for this portion of October failed to show the usual seasonal gain over September, but improved as the month advanced. Total September sales of the reporting departm ent stores in this D istrict were approximately 4 per cent higher than a year ago. A fter allowing for differences in the number of shopping days between this year and last, the year-to-year increase in average daily sales amounted to about 10 per cent, and a further gain in the volume of retail trade, even considering seasonal factors, was indicated. Sales of the leading apparel stores in this D istrict were approximately 2 y 2 per cent lower than in September, 1939, but on an average daily basis were about 3 y 2 per cent higher than last year. The relation of merchandise stocks held by departm ent stores to the volume of their sales is shown in the accom panying diagram on a seasonally adjusted basis. From a peak reached in the spring of 1938 the ratio of stocks to sales moved irregularly lower through 1939, owing partly to a moderate reduction in stocks, but more PER CENT Ratio of ^ Merchandise Stocks to Sales of Reporting Department Stores in the Second Federal Reserve District, Adjusted for Seasonal Variation (3 month moving averages of monthly data; 19 23-25 average = 1 0 0 per cent) largely to a gradual rise in sales. The advance in the ratio in the early part of this year was occasioned by a substantial decline in sales, stocks rem aining fairly steady. The current steep decline in the ratio reflects the sharp advance experienced in departm ent store sales, accompanied by a much less pronounced rise in stocks. The present position of the ratio indicates that stocks of merchandise in departm ent stores in the Second Federal Reserve D istrict are now as low relative to the current volume of sales as at any time in recent years. Percentage change September, 1940 compared with September, 1939 Locality New York and Brooklyn.............................. Buffalo............................................................ Syracuse......................................................... Northern New Jersey................................... Northern New York State....................... Southern New York State........................ Central New York State.......................... Hudson River Valley District.................. Westchester and Stamford....................... Niagara Falls............................................. Net sales + 3.2 + 3.2 + 0.9 + 5.3 + 10.4 + 1.4 — 0.4 + 4.4 + 1.9 + 9.9 — 4.4 — 2.0 — 8.1 Per cent of accounts outstanding August 31 collected in September Stock on hand end of month 1939 1940 + 3.4 +10.6 + 7.4 + 11.4 +10.1 + 3.9 + 1.4 46.7 45.6 54.4 39.1 38.1 38.3 33.1 45.6 41.3 49.1 38.6 33.6 37.2 34.1 All department stores........................... + 3.9 + 5.2 43.7 41.0 Apparel stores........................................ — 2.3 — 1.1 39.1 37.8 Indexes of Department Store Sales and Stocks, Second Federal Reserve District (1923-25 average=100) 1939 1940 Sept. July August Sept. Sales (average daily), unadjusted................ Sales (average daily), seasonally adjusted.. 97 93 67 94 76 101 107 103 Stocks, unadjusted........................................ 81 78 68 79 76 80 85 81 FED ER AL RESERVE B A N K OF N E W Y O R K MONTHLY REVIEW, NOVEMBER 1, 1940 Business Conditions in the U nited States (Summarized by the Board of Governors o f the Federal Reserve System) OLUME of industrial production increased sharply in September, owing mainly to a continued rise in output of durable manufactured products, and this month a further increase is indicated. Prices o f basic industrial materials advanced in September and the first half o f October. V P roduction Index of Physical Volume of Industrial Production, Adjusted for Seasonal Variation (1935-1939 averages 100 per cent; durable manufactures, nondurable manufactures, and minerals ex pressed in terms of points in total index) BILLIONS OF DOLLARS _ United States Department of Commerce Estimates of the Amount of Income Payments to Indi viduals, Adjusted for Seasonal Variation The Board's seasonally adjusted index o f industrial production, which for three months had been at a level o f 121 per cent o f the 1935-39 average, advanced to about 125 per cent in September. In the durable goods industries increases in output were general. Steel production rose to 93 per cent of capacity, and in the first half o f October the rate was slightly higher as new orders continued in large volume both from domestic and foreign sources. Steel exports amounted to about 20 per cent o f ingot producing capacity in August, the latest month for which data are available, with nearly three quarters o f these shipments going to the United Kingdom and Canada. Activity in the machinery, aircraft, and ship-building industries advanced further in September following considerable increases in August, and automobile output increased sharply as volume production o f new model cars was rapidly attained. Plants producing railroad cars and locomotives also showed an expansion in activity. Lumber production continued to rise under the impetus o f a growing volume of demand for defense program purposes. Changes in output o f nondurable manufactured goods and minerals in September were mixed. A t wool textile mills activity advanced sharply further to near the peak reached last autumn, reflecting in part expanding production on Government orders. A t cotton mills, however, activity showed less than the usual seasonal rise, following a sharp increase in August, and rayon deliveries declined somewhat owing partly to a strike at plants o f one large producer. Shoe production also declined in September. Paper production remained in reduced volume following a high rate o f output during the early summer accompanying some inventory accumulation at that time. Output o f most metals continued large during September. Crude petroleum production, which had been curtailed sharply during the summer, rose considerably, but coal produc tion, which for several months had been maintained at high levels, showed a smaller increase than is usual at this season. Value o f new construction work started in September was lower than in July and August, according to reports o f the F. W . Dodge Corporation and the San Francisco Federal Reserve Bank. The decline occurred chiefly in contracts for defense projects which had been large in the previous two months. Awards for private residential building showed little change from recent high levels. Awards for other private work declined somewhat but continued con siderably above the level o f a year ago. D istribu tio n Federal Reserve Groupings of Wholesale Prices of Industrial Materials and Foodstuffs, Com puted from Bureau of Labor Statistics Data (1926=100 per cent) In September and the early part o f October department store sales showed somewhat less than the usual seasonal increase from the exceptionally high level reached in August. Freight car loadings rose somewhat more than seasonally in September, reflecting to a large extent increased shipments o f miscellaneous freight. Loadings o f coal, which have been large in recent months, showed less than the usual seasonal rise. Co m m o d it y P rices Prices o f most industrial materials, particularly lumber, steel scrap, nonferrous metals, hides, and wool, continued to advance from the middle of September to the middle o f October, and there were also increases in some manufactured products, notably cotton and woolen goods. Wheat prices were higher while prices o f most other foodstuffs showed little change. B a n k Credit Commercial loans at reporting member banks in New York and 100 other leading cities continued to increase during the four weeks ended October 9, reflecting in part seasonal demands. Holdings o f United States Government obligations decreased further with the result that total loans and investments o f these banks showed little change. U n ited S tates G over n m ent S ecurity P rices Wednesday Figures for Reporting Member Banks in 101 Leading Cities (Latest figures are for October 9) Prices o f United States Government securities advanced in the second half o f September and the first week in October, rising close to the high level of the year reached early last April.