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MONTHLY REVIEW of Credit and Business Conditions Second Federal ReserveAgent Federal D is t r ic t Federal ReserveBank, NewYork Money Market inSeptember Theannouncement wasmadebytheBritishGovern ment onSeptember 20 of the suspensionfor thetime beingof the operationof the sub-sectionof the Gold StandardAct of 1925whichrequiredtheBankof Eng landtosell goldat afixedprice. This actiononthe partofGreatBritainwasthedominatinginfluenceupon theNewYorkmoneymarketinSeptember. Inthedays beforetheactionwasactuallytaken, apprehensionwith regard to Great Britain’s position was a disturbing factor, but thesuspensionof goldpayments camesud denlyandsubsequent eventsindicatedthat themarket generallywassurprisedbythemove. Theeffectsof the Britishactionwereaccentuatedbythesuspensionofgold redemptioninanumberof othercountries. Sterling exchange dropped immediately to between $4.10 and$4.30 andsubsequently declinedtobetween $3.75and$3.95, andanumberofotherforeignexchanges that hadbeenweakinrecentmonthsdeclinedrelatively further. Infact, for afewdays theforeignexchange marketwasdisorganizedandregularquotationsinmany caseswereunobtainable. Thepricesofforeignsecurities inthismarketwereseverelyaffected,manyissuesdeclin inganumberofpointstofractionsofthepricesatwhich theyhadoriginallybeensold. Domesticsecurityprices aftersom eearlystrengthlatershowedirregulardeclines of substantial proportions. The development affecting the New York money market most directly was the earmarking of approxi mately$270,000,000 of goldfor theaccount of foreign central bankswhichinmost caseswereseekingtoshow anincreaseinmetallic goldreserveintheir published statements. Inaddition, som egoldwaspurchasedhere forexporttoFrance, reflectingarateofexchangewhich madegoldmovementprofitable. Therewereexportsalso toHollandandSwitzerland. Thefunds usedbyforeigncentral banks topayfor goldearmarkedwereprovidedinthreeprincipal ways. InthefirstplaceforeigncentralbanksheldonSeptember 21about $185,000,000of depositsat theReserveBanks, andaconsiderablepart of thesewereturnedintogold. Inadditionforeigncentral banks soldto the Reserve Banksaconsiderablevolumeofbillsheldinsafekeeping forthembytheReserveBanks. Neitherofthesetwoop erations tookfunds out of themoneymarket. But in additiontotheseoperationsforeigncentral bankscalled uponcorrespondentbanksinNewYorkCitywithwhich Reserve October 1, 1931 theyhaddepositsorfundsemployedtomakepayments totheReserve Banks for the purchase of gold. This withdrawaloffundsfromthemarketwasoffsetbylarge salesofbillsbymemberbanksanddealerstotheReserve Bank. Thustherewasnonetlossof fundstothemoney market asaconsequenceof either goldexports orear marking, andtheNewYorkCitybanksfoundthemselves attheendofthemonthnotonlypracticallywithoutany indebtedness at the Reserve Bank but with surplus reservesapproximatelyaslargeastheyhadheldbefore thesemovementsbegan. Large offerings of bankers acceptances todealers in connection with these movements of funds, together withsom eapprehensionastopossibleeffects onmoney conditions of continuedgoldexports andearmarkings, resultedinadvanceinmarket rates onacceptances by %of onepercent, followedthenext daybyanadjust mentupwardof %of 1percentintheFederal Reserve buyingrateforbills. Therewasacorrespondingupward movementintheyieldsonshort-termGovernmentsecur ities, andtimemoneywasslightlyfirmer. Thesechanges were, however, evidentlyduetotheparticularsituation ofthebillmarket, andtoanticipationofpossiblegeneral tendenciesinmoneyratherthantoanyactual shortage offundsinthemarketasisindicatedbyacontinuedex cessreservepositionofNewYorkbanks, thecontinuation of thecallmoneyrateunchangedat l1 /^percent, anda quotationof Vsto%of oneper cent onFederal funds B IL L IO N S O F D O L L A R S M onetary Gold Stock o f the United States (End o f month figures— September preliminary) 74 MONTHLY REVIEW, OCTOBER 1, 1931 throughout this whole period. The anticipation of a T T P O tendencytowardfirmer rates was alsoreflectedinthe Operations totaling more than $2,000,000,000 were bondmarket, whereGovernmentbondsaswell asothers conductedfortheUnitedStatesTreasurybytheReserve showedreactionarytendencies. Banks during the September tax period, with little effectonthemoneymarket. Thesetransactionsincluded thesaleof $800,000,000 of 3per cent Treasurybonds maturing 1951-55 and $300,000,000 of 1% per cent Treasurycertificatesmaturinginoneyear, theredemp tionof morethan$600,000,000of maturingcertificates, the payment of interest onthe national debt, andthe collection of third-quarter income taxes. Over $300,000,000 of thematuringsecurities were exchangedfor securitiesof thenewissue, but cashredemptionsof the remainderexceededincometaxes actuallycollectedand cashpayments for newsecurities onSeptember 15 by approximately $130,000,000. The Treasury issuedspe cial one-daycertificates of indebtedness totheReserve B nkstocoverthesepayments, andtheFederal Reserve The effects of these goldmovements onthe Federal a ankof NewYorksoldparticipations! totaling$90,000,ReserveSystemandonthecountry’sbasicreserveposi B 000onthe15thandhalf that amount onthefollowing tionareshownbythefollowingtablegivingchangesin d aytomemberbanks, inordertorelievethebanksof a the basic elements of supply and demandfor reserve pa tof thelargeexcessof fundswhichtheyheldasthe funds andcurrencyonWednesday, September 16, the resru lt of Treasury disbursements. Nevertheless, the report datejust before theBritishsuspension, andon p r in c al NewYorkbanksheldaconsiderableexcessof Wednesday, September30. Forpurposesof comparison reservip e s duringthetaxperiod. thefiguresarealsogivenforDecember31, 1929. reasury ax erio d p e r a t io n s M oney Rates at New Y ork Sept. 30,1930 Aug. 31, 1931 Sept. 30, 1931 Stock Exchange call loans........................ Stock Exchange 90 day loans................. Prime commercial p ap er.......................... Bills— 90 day unindorsed......................... Customers’ rates on commercial loa n s.. Treasury certificates and notes Maturing December 15 (yield )........... Maturing March 15 (yield)................. Federal Reserve Bank of New Y ork re discount ra te........................................... Federal Reserve Bank of New York buying rate for 90 day indorsed bills tt2 M -2 K 3 IVs f 4 .00 1H t tlK -lM 2 % 13.44 iy 2 2yz 2 IK t3 .3 3 1.25 1.77 .34 .48 .85 1.17 2M iy 2 1H i IX J2 f t Nominal f Average rate of leading banks at middle of month t l- 7 5 days— 1 % per cent B il l M (In millions of dollars) Dec. 31 1929 Sept. 16 1931 Sept. 30 1931 Supply: M onetary gold s to c k ...................................................... Federal Reserve cred it................................................. Treasury currency ad ju sted *....................................... 4,284 1,582 1,778 5,015 1,279 1,800 4,739 1,578 1,776 T o t a l.............................................................................. 7,644 8,094 8,093 4,866 2,355 5,087 2,418 5,246 2,364 30 393 224 365 120 363 7,644 8,094 8,093 Demand: Currency in circulation................................................. Member bank reserves................................................... Foreign, non-member, and other deposits in F. R. B an ks............................................................................. Unexpended capital funds of F. R. B an ks............... T o t a l.............................................................................. ♦Currency based primarily on the credit of the United States Government (such as United States notes, National Bank notes, and silver currency) less funds held on deposit in the Reserve Banks by the Treasury. As thetableindicatesthemonetarygoldstockof the UnitedStatesreachedatotal inexcessof $5,000,000,000 inthethirdweekof September, reflectinganincrease of over$700,000,000sincetheendof 1929. Inthepast tendays gold earmarkings andexports have restored to other nations somethingless thanhalf of the gold theysenttotheUnitedStatesinthesetwoyears. Thus inafewdaysasubstantial stephasbeentaken;towards som eredistributionof apartof thiscountry’sexcessive gold reserve. As the foregoing diagram indicates, however, this country’smonetarygoldstockat theend of September remainedabout $150,000,000 larger than at thebeginningof 1931, andconsiderablylargerthan at anytimeintheprecedingthreeyears. Sinceacon siderablepart of thehugegoldimport tothis country intheyearssince1920hasnotbeenusedasabasisfor credit orcurrencyexpansion, largeexports ortransfer of ownershipof goldherethroughearmarkingcannow takeplacewithout anyimportant effect onthe money market or onthecountry’s general monetaryposition. arket Duringthefirstpart of Septemberdealers’ purchases of bills exceededtheir sales, andtheportfolios of the discount housesshowedanet increaseuntil aroundthe middle of the month. At that time, the quarterly financingoperations of theTreasuryplacedaconsider able amount of funds intheNewYorkmoneymarket temporarilyandcausedanexcessofreservesintheNew YorkCitybanks, sothatthesebanksbecamebuyers of bills, anddealers’ portfolios werereducedtoabout the level prevailingat the openingof themonth. Inthe succeedingweek, however, substantial offerings of bills weremadetothedealersbyNewYorkbankswhichwere disposingof billsfortheaccountof foreigncorrespond ents, inordertoprovidefundswithwhichtopurchase goldforearmarkingattheFederal ReserveBank. These salestothedealerstogetherwithsomeapprehensionof firmer conditions inthe money market leddealers to raise their rates by % per cent for all maturities on September22andtoeffectafurthergeneral advanceof *4PercentonSeptember24. Therateincreasesbythe dealers causedNewYorkbanks tosell tothe Reserve Bankaverylargevolumeof billswhichtheyhadpur chasedor discountedat lower rates. Thesebills were boughtbytheReserveBankatitspreviouslyestablished buyingrates, but onthefollowing day, September 25, the buying rate of the NewYork Reserve Bankwas raisedinconformitywiththeadvance inopenmarket rates. Openmarket rates for 5 and 6 months bills were raised%percent furtheronSeptember28, sothat the offeringquotationfor thesematurities towardthe end of September at 1%per cent was % per cent higher thanamonthearlier. Theofferingratesof 1%percent for30to90daybillsand1%percentfor4monthsbills attheendof Septemberwere%percenthigherthana FEDERAL RESERVE AGENT AT NEW YORK monthearlier. Asaresultof salestotheReserveBank andthehigher bidrates quoted, dealers’ portfolios of bills towardtheendof themonthbecameof compara tivelysmall proportions. Duringthemonthof September, thetotal portfolioof purchased bills held by the Federa] Reserve Banks showedanincreaseof $270,000,000to$469,000,000, the largest holdings since January 1929. This increase included the large purchases of bills fromdomestic banks anddiscount houses andalsothe repurchase of billsfromforeigncentralbankswhichdesiredtoconvert at least apart of thefunds theyhadinvestedinthis market intogold. At theendof August, thegroupof acceptingbanks andbankers that report to the AmericanAcceptance Council were holding as investments $606,000,000 of bills out of atotal of $1,090,000,000 outstanding, but their holdings were reducedduring September as the resultof salesofbillstotheReserveBanks. C o m m e r c ia l P a p e r M arket Inactivitycontinuedtobereportedinthecommercial paper market during September. On one side, the amount of newpaperthatwas'createdwasof small vol ume, whileontheotherhandthebankinvestment de mand was generally light. In previous months the principal deterrenttoalargersalesvolumehadbeenthe limitedamount of paper that dealers hadbeenableto offer, but inSeptember the absence of a demandfor paperonthepartof thebankswasalsoafactor. Con sequently, therewas atendencytowardslightlyhigher ratesinthesecondhalf of September, althoughthepre vailingrateforprimenamesremainedat2percent. AttheendofAugust, theamountofcommercialpaper outstandingthrough20dealersthatreport theirfigures tothisbankwas6percentsmallerthanamonthearlier. Theoutstandings of $271,000,000 werelittlemorethan halfoftheamountreportedatthistimein1930. BankingandCredit Abroad Acritical pointininternational monetaryaffairswas reachedduringSeptember, and,asinthepreviousmonth, Londonwasthecenterof financial disturbance. Inthe firstthreeweeksof Septemberithadbecomeknownthat thecreditof$400,000,000extendedbyFrenchandAmer icanbankers tothe British Government hadnot ade quatelyservedtorepulsethosefactorswhichwereexer cisingadepressinginfluenceuponsterlingexchange. On September20, afterconsultationwiththeBankof Eng land, theBritishGovernment announcedthat theBank wouldnolongerberequiredbylaw4‘tosellgoldatfixed prices,’’ theLondonstockexchangewouldnotbeopened onthefollowingday, andthecommercial banks would 6‘cooperateinrestrictingpurchasesbyBritishcitizensof foreignexchange except those requiredfor the actual needsof tradeorformeetingcontracts.’9 It wasadded that if further measures prove to be advisable, “his Majesty’s Government will not hesitatetotakethem.” Thechief reasongivenforthisdecisionwasthat “since the middle of July, funds amounting to more than £200,000,000 have been withdrawn fromthe London market,” and“duringthelastfewdayswithdrawalsof 75 foreignbalances have accelerated so sharply that his Majesty’sGovernment felt theywereboundtotakethe abovedecision.” Thestatementcontainedthefollowing declaration: “This decisionwill, of course, not affect the obligations of his Majesty’s Government or of the Bank of England which are payable in foreign cur rencies.” Simultaneously the Bank of England an nouncedtheraisingof its discount ratefrom4^ to6 percent. On Monday September 21 the British Parliament passedthe“GoldStandard (Amendment) Act, 1931”, whichsuspendedtheforceof sub-section2, Section1of the GoldStandardAct of 1925, releasedthe Bankof Englandfromtheobligationtoobservethat sub-section oftheact, andempoweredtheTreasury, foraperiodof sixmonths, “tomake andfromtime to time to vary ordersauthorizingthetakingof suchmeasuresinrela tiontotheexchangesandotherwiseastheymayconsider expedient for meetingdifficulties arisinginconnection withthesuspensionof the goldstandard.” The sub sectionreferredtohadput upontheBankof England the obligation to deliver against legal tender, “gold bullionat thepriceof £3 17s 10%dper ouncetroyof goldof thestandardof finenessprescribedforgoldcoin bythecoinageact, 1870, but onlyintheformof bars containingapproximately400ouncestroyof finegold.” Ashipment of bar goldwas soldonSeptember 24 in Londonattherateof£53s5dafineounce, whichwould give the British pound a gold value onthat day of slightly under $4.00, andafurther small amount was soldonSeptember 29 at £5 5s 3d, indicatingthe gold valueofithepoundthenas$3,928. Theworld-wideeffectsof theBritishdecisioncannot be calculatedintheir variety andcomplexity sosoon aftertheevent. Newsreportsindicatethat, apart from theclosureforseveral daysofmost Europeanandother stockmarkets, andthegeneral demoralizationofthefor eignexchangesduringthat period, thefollowingoccur renceshavetakenplace: inDenmark, Norway, Sweden, andEgypt thenormal operationof the goldstandard has beensuspended; in Italy som e regulation of the acquisitionofforeignexchangehasbeeneffected; Brazil byofficial announcement andGreeceaccordingtopress report will nowbase their currencies on the United States dollar; the Portuguese escudo, whichhadbeen stabilizedat therateof 110escudostothepoundster ling, will remaininthat relationship; theIndianrupee continues basedonsterling; the SouthAfricanpound, however, will accordingtopress despatches, remainon thegoldstandard; andCanada’sintentiontomaintain thegoldstandardwasannouncedbytheCanadianPrime Minister. The central banks of Czechoslovakia, the Netherlands, Denmark, Norway, Sweden, Italy, Greece, andBulgariaandtheImperial Bankof India, followed theBankof Englandinraisingtheir several discount rates. ElsewherethaninEngland, themostimportant event inthefieldof credit wasthesigningonSeptember 17, byalltheinterestedparties, oftheso-calledStillhaltung AgreementbetweenforeigncreditorsandGermandebt orsinrespectofshorttermforeignbankingaccommoda MONTHLY REVIEW, OCTOBER 1, 1931 76 tionextendedtoGermany. Theagreementwill runfor GoldMovement six months fromSeptember 1, 1931, and guarantees Duringthemonthof September, earmarkingsof gold Germany, duringthisperiod, themaintenanceof all the r foreigncentral banksandexports toseveral Euro foreignbankingcreditactuallyinusebyGermanbanks fo eancountrieswereconsiderablyinexcessoftheamount onJuly31, 1931. Thefundsspecificallyexceptedfrom p o f oldimportedandresultedinareductionof about the maintenance provisions of the agreement are (1) $25g 5 00,000 inthemonetarygoldstockof theUnited reichsmarkbalancesheldinGermanbanksinthenames State,0 s , thelargestmonthlylosseverrecorded. Theear of theforeignpartiestotheagreement, and (2) funds marking nsactionsalone, chieflyconsummatedonand requiredinsettlement of overdueand/ormaturingfor fter Septtream ber 21, accountedfor anet loss of $277,wardforeignexchangecontractsbetweenthepartiesto a 0 0 0 ,0 0 0 o f g o . Withdrawalsof goldforexport inthe theagreement. Thelatterbecomepayableonmaturity secondhalf old f themonthtotaled$28,700,000, of which andtransferrableintoforeigncurrenciesatthewillofthe $23,600,000 w ent to France, $4,200,000 to Holland, foreigncreditor; ofthereichsmarkbalances, 25percent $700,000toSw rland, andminor amounts toseveral of thetotal maybewithdrawnandtransferredabroad other Europeanitzce o ntries. The actual exports of gold within the first month after signature of contracts ere more than u offset by further imports totaling betweenindividual creditorsanddebtors, andthereafter w 46,000,000. Of this amount $25,700,000 was received 15 per cent becomes soavailableeachmonthuntil the $ a t NewYorkfromArgentina, $6,300,000fromCanada, balanceisexhausted. Itisprovided,however, thatifthe $3,6 0,000fromMexico, $2,900,000fromColombia, and Reichsbank represents to the Bank for International $2,00 0 ,000 fromPeru, while $3,500,000 arrivedat San Settlementsthat thetransferof thesefunds abroadim ranc0is cofromChina. Notwithstandingthelargeloss perils the position of the reichsmark exchange, such F o f g o ld September, themonetary goldstockof this transfermaybepostponedfrommonthtomonthwithin countryin still showsagainof about $145,000,000forthe thelifeof theStillhaltungAgreement. yeartodate. TheBankof Englandincreasedits goldholdingsby about $7,500,000 duringSeptember. Theprincipal ac Central BankRate Changes quisitions includedthe purchase of $10,000,000 South During September thirteenEuropean central banks Africangoldinthemarket, thereceipt of $2,750,000in changedtheirdiscountrates. Reductionswerereported sovereignsfromSouthAfrica, andthereleaseof $4,300,inthefirstpartofthemonthbythefourbankslistedin 000 of goldfromearmark. Atotal of $21,500,000 was the first group of the following table, reflecting the withdrawnfromtheBankof Englandfor shipment to relaxationinCentral Europeof thestrainexperienced Hollandbeforethesuspensionof goldpaymentsbythe at thepeakof thesummercredit crisis. Theincreases Bankwasannounced. showninthesecondpart of thetablewerepractically all aconsequenceof thedevelopmentsinGreat Britain, ForeignExchange althoughpart of therateincreasesshownforDenmark Priortothesuspensionof thegoldstandardbyGreat andNorwayoccurredpriortotheBankof Englandrate BritainonSeptember 21, nearly all the activeforeign changeonSeptember 21. Thethirdpart of thetable xchanges fluctuated uncertainly. Sterling sold at showstheprincipal Europeancentral bankswhosedis e $4.86 5/32 onSeptember 1, declinedto$4.85%onthe countratesremainedunchangedduringSeptember. 10th, and after a mild recovery, dropped further to Outside of Europe, the onlycentral banktochange $ .85 onthe19th. Threemonths forwardsterlingwas its rate during September was the Imperial Bank of a4 t iscount of 9cents onthe19thas against 2*4 on India, whoseratewasadvancedfrom7to8percent on thea1d 7 t h. Frenchfrancsweresteadyaround$0.0392^8 September22. during most of this period. Reichsmarks dropped rapidlyfrom$0.2373onthe1stof themonthto$0.2330 onthe9th, andthenrecoveredto$0.2365 bythe 18th. Guilders, from$0.4031%, recededto$0.4029onthe5th, but strengthened to $0.4037 by September 19, while Swiss francs rosefrom$0.1947 to$0.1953betweenthe 1stand19th. OnMonday, September21, theforeignexchangemar ket was disorganizedforseveral hours andfirmquota tions were obtainedwithdifficulty. Sterlingclosedat $4.31 after wide fluctuations, which had carried the nominal quotationsmuchlowerduringthecourseof the day. Anirregular decline continued duringthe suc ceeding days until sterling reachedits lowest closing rate at $3.75 onthe 25th; the rate thenfirmed and steadied, closingat $3.91%onthe29th. Frenchfrancs closedat $0.0391%onthe 21st, andonthe 22ndrose suddenly above the estimated gold export point to $0.0394, holdingthereafter at about thislevel. Reichs European Central Bank Rates (per cent) Central Bank of Recent Low Decreases during September Hungary....................................... 5 6H 5 5H Aug. 31, 1931 7 7 10 9 Sept. 30, 1931 6 6X 8 8 Increases during September Netherlands................................ m 4 3H 2M 9 5H 2 4 3 SH 5 3H 4X 9 5X 2 4 4 9M 6X 6 6 12 7 3 8 8 5 2H 2 7H 2 10 2X 2 7H 2 10 2X 2 7X 2 Unchanged during September F rance.......................................... FEDERAL RESERVE AGENT AT NEW YORK 77 marks, after holdingfairly well, dippedto$0.2250 on the 23rd, but recovered subsequently and closed the monthat $0.2350. Guilders firmedto $0.4040 onthe 23rd, inthe three following days declinedsteadily to $0.3994, but endedthemonthat $0.4020. Swissfrancs were the one uninterruptedly strong European cur rency of the period, remaining throughout at alevel well abovethetheoretical goldexport point toSwitzer landandclosingonthe29that $0.1960. Belgas, after atemporarydeclineshortlyafterthe21st, recoveredto closethemonthat$0.1399, somewhat abovethemonth’s opening. Lirewerehighlyirregularinarangebetween $0.05221/2onthe23rdandareportedquotationat one timeof$0.0494, butclosedthemonthat$0.0507. Quota tions of theScandinavianexchangeswerelargelynom inal. Danishcrownswerethemostunsteady, following announcementof agoldexportembargo, goingaslowas $0.2070 onthe24thandclosingthemonthat $0.2200; Norwegians declinedto $0.2180 onSeptember 25 and closedat $0.2200 onthe28thonannouncement of the suspensionof the goldstandard. After holding gen erallyintheneighborhoodof $0.2660, Swedishcrowns droppedto$0.2350 onSeptember 28 onthenews that Swedenhadalsosuspendedthegoldstandard. revailingat the1929peakof prices, Inthecourseof AfterSeptember21, thediscountonCanadiandollars tph twoyeardeclineinthestockmarket somewhatmore widenedsuddenly to about 7 per cent, andincreased the a n two-thirds of the September 1929 market prices further to 12 per cent on September 30. The only has va hed—probably alarger proportionate decline SouthAmericancurrencies quotedinNewYork after thanatnis a nytimeinthepast, andcertainlythelargest the 21st were Argentine pesos and Brazilianmilreis; for the p bothtouchednewlows, pesosat$0.5405onthe23rdand available. eriod for which stock price averages are milreis at $0.0525 onthe 25th. Yen, after weakening Accompanyingthe September decline inprices, the temporarily, steadied at about $0.4938. The Chinese turnoverofstocksontheNewYorkExchangeincreased, silver currencies advanced in the latter part of the but for the most part was still inthe comparatively monthduetohigherpricesinthesilvermarket. moderate range of 2 to 3 million shares daily. The largest turnover was onSeptember21, when4,400,000 SecurityMarkets shareschangedhands. BeginningearlyinSeptember, industrial andpublic The bond market was also subject to large price utility stocks joined with railroad shares, whichhad declines andtoamateriallyenlargedvolumeof selling beenweakthroughout August, inshowing substantial duringSeptember. All divisions of thebondlist par daytodaypricereductions. As aresult, bythe19th ticipated in the downward movement, with foreign of themonththegeneral level of stockprices, including issues showingthegreatest depreciationforthemonth. industrials, rails, and utilities had been lowered by Availablepriceaverages of domesticcorporationbonds about 20 per cent fromthe prices prevailing at the droppedsteadilyinSeptember, followinganet decline opening of September. In the days immediately fol duringtheprevious month, andbytheclosingdays of lowingtheannouncement of Great Britain’ssuspension Septemberweredown5to9%pointsfor themonthto of theGoldStandardAct withits attendant upheaval newlows for several years past. The comparisonwith in international finance, stock prices in this market the lows of previous years depends to a considerable showedextremelywidefluctuations, daytoday1changes extent upontheparticular issues andgrades of bonds of 5 to 10 points occurring in many of the leading composing the various averages, but in general it shares quotedontheNewYorkStockExchange. The appears that domestic corporateissues have reacheda net effect of these movements was a further drop in lowerlevel thanat anytimesinceat least 1924. industrial andpublicutilitystockprices. Towardthe As the result of the marked weakness in foreign end of the month industrial stocks as a group were issues, including virtually all issues quoted on the quotedatnewlowlevelssince1924, publicutilityaver Exchange, aprice average composedof 40 representa ages were the lowest since 1927, andrailroad shares tive foreignissues dropped18 points further in Sep wereonlyslightlyabovetheSeptember 19level, which tember. This decline* followed a decline of about 3 appearstohavebeenthelowestforrailroadstockssince points inAugust andone of nearly 8points inJuly, sothat the average reached a newlowlevel for the 1897. Fromthe accompanyingdiagram,it appears that as periodof approximately sevenyears during which it a result of the most recent declines, quotations for hasbeencomputed. Losses that werelargefor United industrial, railroad, and public utility stocks have States Governmentbonds, thoughsmallerthaninother recededtolevels that are less thanone-thirdof those types of bonds, occurredalsointheprices of Treasury 78 MONTHLY REVIEW, OCTOBER 1, 1931 andLibertyLoanissues. ThenewTreasuryBondissue floated on September 15 dropped to 97%, and other TreasuryBondsshowednet losses of 2%to3%points, whileLibertyLoanissues wereoff morethan1to2% points. NewFinancing Final figuresfortheamount of newsecuritiesoffered duringAugustwerenotmateriallyhigherthanthepre liminarydataforthemonth. Thetotal of $126,000,000, whichincluded$120,000,000 of newcapital issues and $6,000,000of refunding, wasthesmallestforanymonth inrecent years. Of the newcapital issues, State and municipal financingaccountedfor$74,000,000, domestic corporatebondsfor$34,000,000, anddomesticcorporate stock issues for $12,000,000. There was no foreign financingconsummated. Althoughofferings of newsecurities continuedtobe insmall volume during September, the total for the monthasawholeappearstohavebeensomewhatlarger thaninAugust. IntheweekbeginningSeptember21, however, newofferings werealmost entirelysuspended. Themonth’stotalwascomposedchieflyofState, munici pal, andFederal Intermediate Credit Bankissues, in cludinga$20,000,000 Stateof NewJerseyissue, which was takendirectlybyalargeinsurance company, and $40,000,000of StateofNewYorkserialbonds. Thislat ter issuewas purchasedby anunderwritingsyndicate fordistributionataninterestcostof3.23percenttothe State, thelowestinterestchargeforanycomparablebor rowingof theStateinabout25years. Alsoincludedin themonth’stotalwasthesaleinthismarketof apartof a$50,000,000issueof CanadianNationalRailwaybonds, guaranteedbytheCanadianGovernment. ForeignTrade This country’s total foreign merchandise trade fol lowedduringAugust thedownwardcourseof thepast twoyears, contrarytotheusual tendencyatthisseason. Imports were reducedto $167,000,000 and exports to $162,000,000, thus creating anunfavorable balance of merchandise trade for the first time since May 1929. Imports were24percent less invaluethaninAugust 1930, asomewhatsmallerdecreasefromayearagothan inmost recent months. Exports, onthe other hand, were46percentsmallerthaninAugust 1930, whichis the largest loss so far reported during the present depression. Grain and cotton exports, especially to Europe, showed unseasonal declines in August and were far belowthelevels of ayear ago. The quantity of grain shippedabroadwas49percent smallerthanayearago andcottonexports were42 per cent smaller; invalue thedeclineswereconsiderablylargerduetotheunusu allylowpricesobtainablefor thesecommodities. Theaccompanyingdiagramindicatesthechangesthat have occurredinthe export andimport trade of the UnitedStatessincethe1929peak. Thedatashownare average daily figures for each month of the period, adjusted for the usual seasonal movements indicated bypast experience. It appears fromthediagramthat theseasonallyadjustedfiguresforexportshavedeclined considerablymorefromthepeakof 1929thanhavethe M IL L IO N S O F D O L L A R S Average Daily Merchandise Exports and Imports During Each Month of 1 929-1931, Adjusted for Seasonal Variations similarfiguresforimports, sothattheexcessof exports hasnarrowedmateriallyinrecentmonths. Thedecline inexports has beencontinuous during1930 and1931, while imports, after showing in 1930 muchthe same decreaseasexports, haveheldat afairlyconstant level betweenJanuaryandAugust of thisyear. Building The course of building contract awards continued downwardinAugust, andall of themajorcategoriesof buildingandengineeringworkweremorethanseason allybelowthelevel of theprevious month. According tothe F. W. Dodge Corporationreport, the principal declinewasincontracts for publicworks andutilities, whichafter seasonal adjustment were thelowest since 1925. ThedeclineinthisgroupfromtheAugust 1930 volumeamountedto43per cent, whileresidential and other non-residential contracts were down 28 and 27 percent, respectively. Consequently, totalbuildingand engineering contracts inAugust showedadecrease of 33percentascomparedwithAugustoflastyear. Con tract awardsduringthefirstthreeweeksof September, however, weremorethanseasonallyabovethelevel of August; increasesinthedailyaveragefiguresweredue tolargercontractsforpublicworksandutilitiesandfor othernon-residential building. InMetropolitanNewYorkandvicinity, August con tracts showedacontractionof about one-thirdfroma yearago, duechieflytothecontinuedlowlevel of com mercialbuilding. CommodityPrices After holding fairly steady for several months, the general level of wholesale commodity prices weakened somewhatinthelatterpart of September, andprobably reachedalevelslightlybelow1the1913average. Among individual commodities, newlowrecords for all time were establishedincopper at 7 cents apoundandin rubber at 41/2 cents a pound. The price of cotton declinedto5.95 cents apound, andcashcorndropped furtherto37%cents abushel, bothnewlowlevels for many years. Hog prices also declinedto anewlow for anumber of years, andthe prices of meats and hides showedadownwardtendency. Lead, zinc, and FEDERAL RESERVE AGENT AT NEW YORK 79 tin prices declinedsomewhat towardthe close of the downwardtendencyprevailedinmost of theimportant month, butonlytinbrokethroughthelowlevel reached industrial groups. Activityintheironandsteel indus earlierthisyear. try declinedfurther duringAugust tothelowest level Cashwheat prices recoveredsharply by the middle since 1921, and an unseasonal drop occurred in the of Septemberto72centsabushel forNumber1North output of lead. Inthe automobile andlumber indus ernat Minneapolis, as comparedwiththeJulylowof tries alsoproductionwas further curtailedinAugust. 56%cents, butdeclinedto64%centsinthesecondhalf Amongthefuels, crudepetroleumoutput declinedsub of the month; wheat futures at Chicago meanwhile stantially, bituminous coal production failed to show declinedtothelowestlevelsonrecord. Crudepetroleum all of theincrease that is usual for August, andcoke quotations rose further during September to 84 cents productionwas reduced; anthracitecoal alonemade a a barrel, according to a composite average, and coal favorablecomparisonwiththepreviousmonth. Among prices were a little higher. The price of silver rose thetextiles, mill consumptionof rawcottonshoweda sharply, accompanyingthesuspensionof goldpayments small but unseasonal decline, andconsumptionof raw byseveral countries, andtouchedahighof 31cents, but silkalsodecreasedinsteadof showingtheusual expan sion, but the index of wool mill activity remained at subsequentlylost all of this; gain. the relativelyhighlevel of July, andsole leather and Employment andWages shoe production increased. Declines occurred in the ndexes of production of tobacco products, news InAugust, itisusualforfactoryemploymenttobegin ip rint paper, cement, and wheat flour, and in melt toshowthe autumnexpansion, but this year employ in gs of sugar, but anincrease occurred inlive stock ment inNewYorkStatedeclinedslightlyfurther, and sla forthecountryasawholeshowedalessthanseasonal ughterings. increase. Thisbank’semployment indexesconsequently declinedtonewlowlevelsforthepost-waryearswhich they cover. In regardtonon-manufacturing employ ment, theUnitedStates Employment Service reported that the number of workers engagedinhighway con structionremainedatahighlevel inAugust, but that a substantial surplus of building labor continuedto be apparentinmost cities. Factorypayrollsbothforthecountryasawholeand for NewYork State showeda decline instead of the usual seasonal advanceinAugust, andaverageearnings of thoseworkers whowere employeddeclinedfurther. TheBureauof LaborStatisticsreportedthat atotal of 221 establishments reduced their wage rates in the monthendedAugust 15; thesereductions averaged10 per cent and affected 21,000 employees. Toward the closeof September anumberof largecorporations, led by the United States Steel Corporation, announced reductionsintheirwagescales. Production Dataavailablefor Septemberindicatethat, aftersea sonal adjustment, afurther declinehasoccurredinthe level of productiveactivity. Steel mill operationswere curtailedduring the month, andthe weekly estimates of activity droppedbelow30 per cent of capacity for the first time inthe current depression. Automobile production showed a further decline, and output of crude petroleumwas far belowthe August average, owingtoenforcedcurtailment inthe East Texas field. Ontheotherhand, productionof bituminous coal and Indexes of Business Activity of cottongoodsincreasedseasonally. DuringAugust, productiveactivityingeneral showed Carloadingsofmerchandiseandmiscellaneousfreight a small decline, and, as it is usual for the autumn indicatethat themovement of goodsfailedtoshowthe expansiontocommenceinthismonth, apreponderance customary seasonal expansioninthe first three weeks ofthisbank’sadjustedindexeswerelowerthaninJuly. of September. Usually a substantial rise takes place TheFederal ReserveBoard’sseasonallyadjustedindex lateinAugust andcontinues totheendof September, of theproductionof manufactures andminerals, from but this year car loadings of this type of freight in whichthetrendof growthis not eliminated, dropped creasedless than1per cent throughthe first weekof toanewlowsince1922, theAugust figureshowinga Septemberandthenshowedadownwardtendency. declineof 37per cent fromthepeakof June1929. A This bank’s August indexes of the distribution of (Adjusted for seasonal variations and usual year-to-year growth) 1930 1931 Aug. June July Tin deliveries................................................. 86 86 79 93 75 85 56 58 63 53 41 73 50 52 55 56 37 76 43 48 54p 52 38 76 Automobiles Passenger ca rs................................................ M otor trucks.................................................. 51 70 50 7Or 46 63 4 Op 59 p 88 93 89 89 88 80 70 65 86 80 79 61 61 86 80 76p 66p 57 80 p Aug. Metals Steel ingots..................................................... Fuels Bituminous coal............................................. Anthracite co a l.............................................. Petroleum, cru d e........................................... Petroleum products...................................... Textiles and Leather Products C otton consum ption.................................... W ool mill a ctiv ity ......................................... Silk consum ption.......................................... Leather, s o le ................................................... Leather, upper n ........................................... Boots and shoes............................................ 65 71 75 105 93n 84 78 89 79 82 93 n 94 82 98 85 84 78 99 77 91p 89p 94p Foods and Tobacco Products Live stock slaughtered................................. W heat flou r.................................................... Sugar meltings, U. S. p o rts........................ T obacco products.......................................... 93 101 74 100 84 81 69 97 84 98 81 91 91 92 74 88 114 66 68r 87 90 84 91 93 81 54r 82 88 82 p 78 89 73 49r 81 90p 45r Miscellaneous Printing a ctiv ity ........................................... Paper, newsprint........................................... Paper, other than new sprint...................... p Preliminary r Revised n New series 79 p 83 80p 80 MONTHLY REVIEW, OCTOBER 1, 1931 goods andof general business activityshowedadecid edlydownwardmovement. Carloadings, bothof mer chandise andmiscellaneous freight andof bulkmate rials, underwent unseasonal declines, andfurtherlosses wererecordedinthiscountry’sforeigntrade. Declines wereshownalsointheindexes of wholesaletrade and of traffic onimportant waterways. Department store sales in this district and in the country as a whole increasedalittle less thanusual during August, and declines after seasonal adjustment occurred also in chain grocery sales, advertising, automobile registra tions, and postal receipts. Moreover, the number of business failures didnot declineas muchas usual for themonthof August. (Adjusted for seasonal'variations and usual year-to-year growth) 1931 1930 Aug. June July Aug. Primary Distribution Car loadings, merchandise and m isc........ Car loadings, oth er....................................... Exports r .......................................................... Imports r ......................................................... W aterways traffic n ...................................... Wholesale trade r .......................................... 88 86 89r 87 r 87 n 92 r 78 65 67r 79r 61n 93r 75 69 64r 80r 64n 97r 72 64 57 r 72r 58n 89r Distribution to Consumer Department store sales, 2nd D ist............. Chain grocery sales r .................................... Other chain store sales r .............................. M ail order house sales r .............................. A dvertising..................................................... Gasoline consumption n .............................. Passenger automobile registrations n . . . . 99 97r 96r 96r 82 9 On 64 n 99 96r 90r 89r 76 91n 57n 90 94r 87 r 91r 76 86 n 53 n 89 91r 90r 95 83r 86 84r 82 72r 81 67r 86 77 76 81 90 74 48n General Business Activity Bank debits, outside of New Y ork C ity.. Bank debits, New Y ork C ity r ................. Velocity of bank deposits, outside of New Y ork C it y ................................................... Velocity of bank deposits, New York C ity Shares sold on N. Y . Stock E xch an ge. . . Postal receipts................................................ Life insurance paid f o r ................................ Electric p ow er................................................ Employment in the United S tates........... Business failures............................................ Building contracts......................................... New corporations formed in N. Y . State Real estate transfers.................................... 103 112 127 91 95 89 86 105 72 85 63 89 96 157 84 92 81 78 98 62 94 52 88 80 104 85 89 83p 77 100 58 96 52 76 104 49 95 52 General price level * .................................... Composite index of wages * ....................... Cost of living * .............................................. 166 223 164 150 215 148 149 213 148 149 214 148 p Preliminary r Revised n New series *1913 average= 100 Department StoreTrade Salesofthereportingdepartmentstoresinthisdistrict duringAugust averaged12%per cent smaller thanin August 1930, thelargestyear-to-yeardeclinesinceMay. Department stores locatedinNewYorkCity, Newark, SouthernNewYorkState, andthe Capital District re ported decreases of about 13 per cent, while larger decreaseswerereportedforstoresinRochester, Northern NewYork State, and Bridgeport District. Declines somewhat less thanthe average were reported in the sales of stores inthe Syracuse andthe HudsonRiver Valleydistricts. TheBuffaloandWestchester District reportingdepartmentstoresshowedcomparativelysmall decreasesfromthesalesof ayearprevious. Salesof the leading apparel stores showed a large decline from August1930. Duringthefirsthalf of September, department stores intheMetropolitanareaof NewYorkreportedsales17 percentlessthaninthecomparableperiodof lastyear. Stocksof merchandiseonhandat theendof August, valuedat retail prices, remainedsubstantially smaller thanayear ago. Collections oncharge accounts out standingcontinuedtobesomewhat slower thaninthe previousyear. Percentage change from a year ago Locality Per cent of accounts outstanding July 31 collected in A ugust Net sales January August toAugust — 12.7 — 6 .0 — 17.5 — 11.2 — 12.8 Bridgeport D istrict......................... — 14.9 — 12.7 Northern New York State. . . . — 18.2 Southern New York State........ — 13.2 Hudson River Valley D istrict.. — 11.2 Capital D istrict........................... — 12.8 Westchester D istrict.................. — 2 .8 — 7 .1 — 8 .6 — 6 .0 — 9 .2 — 5 .4 — 10.4 — 8 .8 Stock on hand end of month 1930 1931 — 14.3 — 10.2 — 11.5 — 11.4 — 9 .6 — 17.2 — 12.4 36.1 4 4.0 3 1.0 2 4.8 35.1 3 6.7 34.3 35.9 39.9 34 .8 2 3.4 3 3.0 3 3 .4 3 1.7 All department stores............ — 12.5 — 7 .1 — 13.3 3 5.3 3 4.4 Apparel stores.......................... — 19.5 — 9 .2 — 16.2 3 4.4 34.1 WholesaleTrade Reportingwholesalefirmsinthisdistrictshowedtotal August salesabout22percentbelowthepreviousyear, the largest decrease since February. Declines froma yearagoexceeding20percent wereagainreportedin the sales of men’s clothing, cottongoods, paper, dia monds, andjewelry, while decreases of 15 per cent to 20 per cent occurredin the sales of groceries, shoes, hardware, and stationery. Wholesale drug sales also were16percent smallerthanin1930, followinganin creaseinJuly, andmachinetool orders, reportedbythe National Machine Tool Builders Association, remained far belowthe1930 level. Yardage sales of silkgoods, reportedbythe SilkAssociationof America, however, continuedtobelargerthanayear ago. Thevalueofstocksonhandattheendof Augustwas belowayear agoinall reportinglines. The ratio of collections toaccounts outstandingwas about thesame asinAugust 1930. Com m odity Percentage change August 1931 compared with July 1931 Net sales — 14.5 M en’s clothing............... + 1 4 4 .1 C otton go o d s.................. + 9 .7 + 2 6 .6 * + 2 5 .7 — 12.3 — 4 .3 Machine tools**............ + 1 6 .6 — 18.4 — 9 .4 + 9 .5 + 6 .3 W eighted average... . + 2 9 .4 Stock end of month — 0 .4 + — + + — 4 .4 5 .8 * 5 .4 9 .4 5 .3 — 6 .1 — 0 .2 Percentage change August 1931 compared with August 1930 Net sales — 18.7 — 3 5.2 — 24.9 + 1 1 .4 * — 14.8 — 16.0 — 16.4 — 3 7.0 — 20.8 — 2 4.6 — 5 9.2 — 41.9 — 2 1.6 Stock end of month — 9 .3 — 3 i]9 — 20.2* — 28.3 — 0 .7 — 5 .5 — 32.6 — 33.7 Per cent of accounts outstanding July 31 collected in August 1930 1931 7 3.2 3 4.4 3 5.8 4 3.6 3 6.0 41.8 4 4 .8 7 4.7 3 5.8 3 5 .0 5 3.9 3 4 .3 3 1 .0 4 3 .3 6 7 ’.9 5 5.3 66! 9 4 6 .6 2 0.6 } 17.6 } 4 8 .4 4 8 .6 *Quantity not value. #Reported by Silk Association of America **Reported by the National Machine Tool Builders Association FEDERAL RESERVE BANK OF NEW YORK M O N T H L Y R E V I E W , O C T O B E R 1 , 1931 B u s in e s s C o n d itio n s in th e U n ite d S ta te s (Summarized by the Federal Eeserve Board) V OLUME o f industrial production and factory employment, which usually increases at this season, showed little change from July to August, and the B oard’s seasonally adjusted indexes consequently declined. The general level o f wholesale prices remained in August at about the same level as in the two preceding months, but declined somewhat in the first three weeks o f September. P r o d u c t io n Index Number of Production of Manufactures and Minerals Combined, Adjusted for Seasonal Variations (1 923-25 average = 100 per cent) Federal Reserve Board’ s Index of Factory Em ployment with Adjustment for Seasonal Varia tions (19 23 -2 5 average = 100 per cent) and E m ploym ent Industrial production, as measured by the B oard’s seasonally adjusted index, declined from 83 per cent o f the 1923-1925 average in July to 80 per cent in August, which compares with the previous low level o f 82 per cent for December 1930. Output of steel, which ordinarily increases in August, declined further to 31 per cent o f capacity, reflecting in part curtailment in automobile production; lumber output also decreased, contrary to seasonal tendency. Activity at textile mills and shoe factories showed about the usual seasonal changes, and production in these industries continued to be in substantially larger volume than a year ago. In the latter part o f August, output o f crude petroleum decreased 30 per cent, the reduction being in East Texas, follow ing earlier curtailment in Oklahoma fields; in the middle o f September pro duction increased somewhat. Volume of factory employment, which usually increases at this season, showed little change from the middle o f July to the middle o f August. The number employed in the clothing and shoe industries and in canning factories increased, while employment at steel mills, automobile plants, foundries, and car building shops declined. Value o f building contracts awarded, as reported by the F. W. Dodge Corporation, continued to decline in August and for the first eight months of 1931 was 31 per cent less than in the corresponding period o f 1930, reflecting decreases o f 18 per cent in contracts for residential building, 30 per cent for public works and utilities, 54 per cent for factories, and 56 per cent for com mercial building. Department o f Agriculture crop estimates based on September 1 con ditions were about the same as estimates made a month earlier. High yields per acre and large crops were indicated for cotton, winter wheat, and tobacco, while crops o f spring wheat and hay were expected to be unusually small, chiefly on account o f dry weather. The corn crop was estimated at 2,715,000,000 bushels, 600,000,000 bushels larger than last year, but 50,000,000 bushels smaller than the five-year average. D is t r ib u t io n Daily average freight-car loadings declined somewhat in August, con trary to the seasonal movement, while department store sales increased, but by an amount slightly smaller than is usual in August. P r ic e s The general level of wholesale prices increased from 70.0 per cent of the 1926 average in June and July to 70.2 per cent in August, according to the Bureau o f Labor Statistics, reflecting increases in the prices of livestock, meats, dairy products, and petroleum, offset in large part by decreases in the prices o f grains, cotton, and cotton textiles. During the first three weeks o f September, prices o f livestock, meats, hides, and cotton declined while prices o f dairy products continued to increase. B ank Wholesale Price Index of United States Bureau of Labor Statistics (1926 average — 100 per cent) Monthly Averages of W eekly Figures for Re porting Member Banks in Leading Cities (Latest figures are averages of first three weeks of September) C r e d it Volume o f Reserve Bank credit, which had increased by $240,000,000 during the month o f August, increased further by $70,000,000 in the first part o f September, and in the week ended September 19, averaged $1,265,000,000. The demand for the additional Reserve Bank credit arose chiefly from an increase o f $295,000,000 in the volume o f currency outstanding; there were also further transfers to the Reserve Banks by foreign correspondents of funds previously employed in the acceptance market, offset in large part by a growth o f $60,000,000 in the country’s stock o f monetary gold. Following the suspension o f the gold standard act by Great Britain, more than $100,000,000 in gold was added to the amount held by the Federal Reserve Banks under earmark for foreign account and there was a corresponding decrease in the country’s stock o f monetary gold. Loans and investments of reporting member banks in leading cities, after declining in July and the first half o f August, showed little change in the threeweek period ended September 9. There was a further decline in loans on securities while the banks’ holdings o f investments increased somewhat. In the following week, the banks added $227,000,000 to their holdings o f United States Government securities when an issue o f $800,000,000 o f United States Government bonds was brought out, while holdings o f other securities were reduced by $40,000,000. Loans on securities continued to decline, and all other loans were also reduced, contrary to the usual seasonal tendency. Money rates in the open market continued at low levels. On September 22 the rate on bankers acceptances advanced from % o f 1 per cent to 1 per cent. Yields on high-grade bonds increased during the last half o f August and the first part o f September.
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