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MONTHLY REVIEW
of Credit and Business Conditions
S econd

Federal Eeserve Bank, New York

F e d e ra l

R e s e rv e

D is tr ic t

October 1, 1937

On September 12, following a meeting of the Federal
Open M arket Committee to review the business and credit
The increase in currency circulation over the August situation, the Committee issued the following statem ent:
month end and Labor Day holiday, together with the
The Federal Open Market Committee met in Washington on
September 11 and 12 and reviewed the business and credit
usual transfer of funds from New York to other parts of
situation. In view o f the expected seasonal demands on the
the country after the first of each month, again reduced
banks for currency and credit during the coming weeks the
Committee authorized its Executive Committee to purchase
excess reserves of New York City banks to comparatively
in the open market from time to time sufficient amounts o f short
small amounts during the early part of September. Al­
term U. S. Government obligations to provide funds to meet
seasonal withdrawals o f currency from the banks and other
though the amount of excess reserves did not fall as low
seasonal requirements. Reduction o f the additional holdings
as in the early part of August, it was nevertheless quite
in the open market portfolio is contemplated when the seasonal
influences are reversed or other circumstances make their reten­
small in proportion to the expected seasonal demand for
tion unnecessary.
funds during the remainder of the year.
The purpose o f this action is to maintain at member banks
an aggregate volume o f excess reserves adequate for the con­
A t the same time industrial activity, after holding dur­
tinuation o f the System’s policy of monetary ease for the fu r­
ing the summer at levels only slightly below those of last
therance o f economic recovery.
As a further means o f making this policy effective, the Open
winter and the early spring, showed signs of slackening
Market Committee recommended that the Board of Governors
in September. Forw ard ordering of industrial materials
o f the Federal Reserve System request the Secretary o f the
Treasury to release approximately $300,000,000 of gold from
and finished goods during recent months has been in
the Treasury’s inactive account. The Board o f Governors
reduced volume, and commodity prices have been tending
acted upon this recommendation and the Secretary of the Treas­
ury agreed to release at once the desired amount o f gold. This
to weaken—a situation in marked contrast to that of the
will place an equivalent amount o f funds at the disposal o f the
early p art of the year when prices were rising strongly,
banks and correspondingly increase their available reserves.
This action is in conformity with the usual policy o f the
and forw ard buying on a large scale was done in antici­
System to facilitate the financing o f orderly marketing o f crops
pation of further advances in prices.
and of autumn trade. Together with the recent reductions of
discount rates at the several Federal Reserve banks, it will
Rapid expansion in member bank commercial loans has
enable the banks to meet readily any increased seasonal demands
continued but has been offset by reductions in bank invest­
for credit and currency and contribute to the continuation o f
easy credit conditions.
ments ; so that the total volume of bank credit outstanding,
after rising rapidly from the spring of 1934 to the end of
1936, has now shown no net increase for a number of
months. Accompanying this check to credit expansion, the
volume of deposits in individual accounts leveled off dur­
ing the first five months of this year, and subsequently has
shown a slight downward tendency. In the m arketing of
new securities also there has been a considerable, although
more recent, change in conditions. D uring the first seven
months of 1937 sales of securities to provide new capital
for industries continued the irregular upward trend of the
preceding two years, but since July flotations of such
securities have fallen off sharply, accompanying unsettled
conditions in the m arket for high grade securities and
substantial declines in the market prices of lower grade
bonds and of stocks. This source of funds for business
expansion, consequently, has been limited during the past
two months.
M o n e y M a r k e t in S e p t e m b e r




MONTHLY REVIEW, OCTOBER 1, 1937

74

The first step in executing the policy indicated by this
statement was taken by the Treasury, which immediately
released from the inactive gold account, $300,000,000 of
gold previously “ sterilized” . The proceeds were de­
posited in the Government account with the Federal
Reserve Banks, from which the Treasury makes disburse­
ments in meeting current Government expenditures. In
view of this large increase in the Government’s deposit
with the Reserve Banks, and in order to expedite the dis­
bursement of the funds, a call which had been issued to
Government depositaries (other than the Reserve Banks)
for the repaym ent on September 15 of $50,000,000 of the
deposits held by such institutions was canceled.
Disbursements from the Government account with the
Reserve Banks quickly attained large volume, as a con­
siderable amount of interest on the National debt was
payable on September 15, and $350,000,000 of Treasury
bills were redeemed on September 16 to 18 inclusive.
These and other Government disbursements were partly
offset by the collection of third quarter income tax instal­
ments and other Treasury receipts, but net outpayments
totaled over $200,000,000 by September 22 and about
$275,000,000 by September 29, and bank reserves were
thereby increased by corresponding amounts.
As a large p art of the Treasury bills that m atured on
September 16 to 18 were held in New York, partly by
the New York City banks and partly by other domestic
and foreign investors, the redemption of these securi­
ties had the effect of increasing chiefly the New York
City banks’ reserves. Excess reserves of the New York
City banks rose from a low point of approximately
$75,000,000 on September 9 to more than $300,000,000
at the close of business on September 18. Subsequently
the amount increased further to about $350,000,000 on
September 22, and to more than $400,000,000 near the
end of the month, due partly to transfers of funds from
other parts of the country and partly to payments for
incoming gold. Thus excess reserves in New York rose
to the highest level since last A pril as the preceding
diagram shows, and the New York banks were placed in
a position to meet further autum n demands for funds
readily without liquidating earning assets.
M

oney

R ates

The principal reflection in short term money rates of
this change in the reserve position of the New York banks
was in the rate bid for the weekly offerings of Treasury
bills, as the interest yields on these securities have for some
time been more sensitive to changes in the money market
situation than other short term money rates. Average
yields on nine month Treasury bills receded during the
latter part of September to the lowest levels since F ebru­
ary. A t the same time yields on the longer term Treasury
securities also declined, accompanying a strengthening in
the market for such securities, and yields on high grade
corporation bonds became steadier. The m arket for lower
grade corporation bonds, however, was influenced more
largely by the stock m arket situation than by the money
market position, and yields on such bonds rose further.

Money Rates in New York
Se p t. 30, 19 3 6 A u g . 31, 193 7 Se p t. 30, 19 3 7
S t o c k E x c h a n g e c a l l l o a n s .......................
S t o c k E x c h a n g e 9 0 d a y l o a n s .................
P r im e c o m m e rc ia l p a p e r 4 t o 6 m o n t h s.
B i l l s — 9 0 d a y u n i n d o r s e d ........................
C u s t o m e r s ’ ra t e s o n c o m m e rc ia l lo a n s
(A v e ra g e ra te o f le a d in g b a n k s a t
m i d d l e o f m o n t h ) ..............................
A v e r a g e y ie ld o n T r e a s u r y n o te s (1 -5

*IX
1

1

X

*1X
1
1

*
t

1 .6 7

1 .6 7

1 .5 8

0 .8 0
A v e r a g e y ie ld o n T r e a s u r y b o n d s (m o re
t h a n 5 y e a r s t o e a r lie s t c a ll d a t e ) . . . .
A v e r a g e r a t e o n la t e s t T r e a s u r y b ill
s a l e 2 7 3 d a y i s s u e ..................................
F e d e ra l R e s e rv e B a n k o f N e w Y o r k re ­
d i s c o u n t r a t e ...........................................
F e d e ra l R e se rv e B a n k of N e w Y o r k b u y ­
in g ra te fo r 9 0 d a y in d o r s e d b i l l s . . . .

3/16

*1
1
7/16

1 .3 5

t l.1 7

%

7/16

2 .3 3

2 .5 4

2 .5 0

0 .1 9

0 .6 2

0 .3 8

1M

1

1

tt

tt

tt

N o m in a l.
C h a n g e o f + 0 . 0 7 f r o m p r e v io u s y ie ld s d u e t o d r o p p in g t h e 2 tt p e r c e n t T r e a s u r y
n o t e s m a t u r in g S e p t. 15, 1 9 3 8 , a n d in c lu d in g t w o n e w issu e s, t h e 1 3 4 p e r c e n t
n o t e s m a t u r in g D e c e m b e r 15, 1 9 3 8 , a n d th e 2 p e r c e n t n o t e s m a t u r in g S e p t.
15, 1 94 2.

month. On September 22 the volume of such loans in the
weekly reporting member banks in the principal cities
was $172,000,000 higher than four weeks previously,
nearly $450,000,000 larger than at the end of June, and
probably at least $1,000,000,000 above the low point of
the year at the end of January. The increase in commer­
cial loans, however, was more than offset during the past
month by a further decline in bank holdings of Govern­
ment securities, reflecting in p art the redemption of
Treasury bills during the tax period previously com­
mented upon, together with some liquidation of borrow­
ings by security brokers and dealers. Government
security holdings showed a decrease of about $300,000,000, a considerable p art of which occurred in the third
week of September when the large volume of m aturing
Treasury bills was redeemed. The decline in security
loans occurred largely in New York, in view of the fact
that the security markets are financed to a large extent
in the New York market. The total loans and invest­
ments of the principal New York City banks declined
during the past month to the lowest level since February
1936, and were about 10 per cent less than at the high
point which was reached in June of last year. In 100
other principal cities, however, the decline in total loans
and investments during the past month approximately
canceled the increase of the preceding month, and the
present volume is about 2 per cent below the high point
of last year.
A djusted demand deposits, after showing little net
change in the first five months of the year, have since
shown some decline, but are not m aterially less than a
year ago. Time deposits have continued to increase
gradually.
G o v e r n m e n t S e c u r it ie s

Prices of Treasury bonds declined further by an aver­
age amount of about % point during the first week of
September to within about % of a point of the low level
of last April. A fter the details of the quarterly Treasury
financing program were announced on September 7, and
especially after the success of the issues was assured a
few days later, however, outstanding Treasury bonds
steadied and then showed a slight rising tendency, and
M
B
C
in the succeeding week advanced about % of a point. F or
The expansion in commercial, industrial, and agricul­ the balance of the month there was little net change, so
tural loans continued at a rapid pace during the past that quotations showed a net rise of about ^4 point for




em ber

ank

r e d it

75

FEDERAL RESERVE BANK OF NEW YORK

September as a whole. The average yield on Treasury
bonds with more than 5 years to call date or m aturity
stood at 2.50 per cent at the end of the month as compared
with 2.60 per cent on September 8 and 2.54 per cent
at the end of August.
Yields on intermediate and short term Government
obligations, however, showed much larger reductions.
The average yield on Treasury notes of 1 to 5 year m atur­
ity, after rising somewhat in the first week of the month,
subsequently was reduced about % per cent, and the
average rate at which new issues of 273 day bills were
sold by tender, after rising to 0.711 per cent on the issue
dated September 8, subsequently declined to 0.384 per
cent on the issue of September 29, a reduction of about
per cent.
The September quarterly financing operations of the
Treasury comprised only two new Treasury note issues
offered exclusively in exchange for S1^ per cent notes
/
m aturing September 15 in the amount of $817,500,000.
These notes were exchanged to the extent of $775,600,000,
of which $433,500,000 went into the new issue of 1% per
cent 15 month notes and $342,100,000 into the new 2 per
cent 5 year notes. M arket quotations for the new issues
advanced during the second half of September to a
premium of about % of a point in the case of the shorter
m aturity and to more than 1 point for the longer
m aturity. The remaining $41,900,000 of Treasury notes
due September 15 which were not exchanged, have been
or will be shortly redeemed in cash, reducing to that
extent the interest bearing debt. Furtherm ore, on Sep­
tember 16,17, and 18 a total of $350,000,000 of Treasury
bills m atured without being replaced with other issues,
and although two new $50,000,000 issues of bills were
floated early in the month to m ature at the December
tax period, the net result of all operations was a reduction
of about $275,000,000 in the interest bearing debt out­
standing with the public during the month of September.
The two issues of December tax period bills floated in
the first part of September completed the issuance of a
total of $450,000,000 of bills m aturing between December
16 and 21, the redemption of which will serve to offset the
effect on the money m arket of income tax collections at
that time.
B il l s

and

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

No m aterial change occurred during September in
the m arket for bankers acceptances. Demand continued
active, but offerings of bills to dealers remained small,
and rates were unchanged.
The volume of acceptances outstanding declined an
additional $8,000,000 during August to $344,000,000,
but remained $36,000,000 above the total for a year pre­
vious. The decrease for the month occurred as a result
of a $9,000,000 decline in im port bills, and smaller reduc­
tions in the amount of bills based on goods stored in or
shipped between foreign countries and in bills arising
out of domestic shipments, partly offset by an increase
of about $4,000,000 in bills arising out of domestic ware­
house credits. About $263,000,000, or roughly 77 per
cent, of all bills outstanding at the end of August were
held by accepting institutions. Holdings by accepting
banks and bankers in the Second Federal Reserve Dis­
trict amounted to $198,000,000.




Banking investors continued to inquire actively for
commercial paper during September. Available supplies
of business notes, while in fairly sizable quantity, never­
theless remained considerably below the investment de­
mand. The prevailing rate for average grade prime 4
to 6 month commercial paper was unchanged at 1 per
cent. Outstanding paper reported by commercial paper
houses at the end of August amounted to $329,000,000,
the largest since December 1930. The August outstand­
ings were 1 per cent above a month ago and 60 per cent
higher than a year ago.
(Millions of dollars)
Type of acceptance

Aug. 31, 1936 July; 31,11937 Aug. 31, 1937
104
63
10
50
2

Domestic shipment....................................
Domestic warehouse credit.....................
Dollar exchange.......... . ............ ................
Based on goods stored in or shipped be­
tween foreign countries........................

143
71
11
54
2

134
71
10
58
2

79

71

69

308

Total.....................................................

352

344

S e c u r ity M a r k e ts

Continuing at an accelerated pace the recession of the
second half of August, the general average of stock prices
declined sharply in September. A fter the middle of the
month successive new lows for the year were reached,
and by the 25th, quotations for railroad and public utility
stocks were the lowest since the latter p art of 1935, and
prices of industrial stocks were the lowest since the early
p art of 1936, as the accompanying diagram indicates.
Between the middle of August and the end of September
the decline amounted to about 24 per cent in the case of
railroad stocks, 21 per cent in industrials, and 18 per cent
in public utilities.
In the period between the first p art of March and the
end of June the general average of stock prices had
dropped about 20 per cent, following which there was a
recovery of nearly two-thirds by the middle of August.
The weakness in the stock m arket since that time, how­
ever, has reduced the general level of prices 10 per cent
below the low point at the end of June, and made the total
decline since March about 28 per cent. A t the times of
greatest price weakness in September, the turnover of
PRICE INDEX

I N D U S T R IA L S / ^
. .
.A AM
\

ft

f PUB L IC

U T IL IT IE S

\

a

/*<•>
X —
-

,

......-

/

I

I

^

I

1935

i

<

'•mJ“R A ILR O A D S

............... 1 ...

1

1936

.

1 .........

. I

%
\

l ..........

1937

I ..

_

Movement o f Stock Prices (Standard Statistics Company daily
indexes as of W ednesdays; 1926 rz 100 per cent)

76

MONTHLY REVIEW, OCTOBER 1, 1937

stocks on the New York Exchange became somewhat
heavier, being between 2,300,000 and 2,600,000 shares
on three days, but otherwise the m arket was not much
more active than in other recent months.
D uring the first p a rt of September, corporation bond
prices generally moved lower in sym pathy with prices of
equities, as indicated by the fact that considerably larger
declines occurred in medium and lower grade issues than
in high grade issues. In this period, the average yield on
Baa issues rose from 5.03 to 5.30 per cent, while the yield
on Aaa issues went only from 3.28 to 3.31 per cent. A fter
September 13, high grade issues held fairly steady, and
for a time medium grade issues also recovered somewhat,
but subsequently a renewed decline occurred in this group
of bonds and toward the close of September they were
selling on an average yield basis of 5.48 per cent. This
represents the highest yield basis and the lowest average
price since November 1935.
N e w F in a n c in g

Total new security financing during September
amounted to approximately $400,000,000, but the con­
siderable increase over the August total reflected a large
block of short term State of New York notes which were
allotted to a group of banks, exchanges of securities by
several companies for those of other companies, and a
number of other issues offered privately or to stock­
holders of corporations. The amount of new securities
offered publicly in September was comparatively small
and actual sales of the securities offered to stockholders
were restricted by the unsettlem ent in the stock market.
Because of their size and relative importance, interest
centered to a considerable extent in three of the larger
issues of securities which were offered to stockholders for
subscription, namely $25,300,000 Allis-Chalmers M anu­
facturing Company 4 per cent convertible debentures,
$44,200,000 Pure Oil Company 5 per cent preferred
stock, and $48,000,000 Bethlehem Steel Corporation 3 y2
per cent convertible debentures. In general the weakness
in the stock m arket operated against the successful flota­
tion of such issues. The larger p art of the Allis-Chalmers
issue for which stockholders’ rights to subscribe expired
September 22, however, was taken by stockholders and
the remaining p art was reoffered by the underw riting
syndicate and rather quickly disposed o f; subsequently
market quotations have advanced above the issue price.
W ith respect to the Pure Oil Company issue it was
reported in the press th at stockholders took only about
2 per cent of the issue by the expiration date of the rights,
September 24, leaving a large amount to be reoffered by
the underw riting syndicate at some future date. Sub­
scriptions by stockholders to the Bethlehem Steel issue,
rights for which expire October 1, were also indicated
to have been slow. Furtherm ore, it was reported that
the receding stock m arket had caused the abandonment
or deferment of several prospective stock issues.
The investment demand for new short term, high grade
securities was generally indicated as being active, and in
fact the distribution of some longer term high grade
bonds proceeded satisfactorily, accompanying the general
steadiness in prices of outstanding high grade bonds.
The New York State $100,000,000 short term budget




V o lu m e
of N e w
C a p it a l Is s u e s ,
E x c lu d in g
R e f u n d in g
Is s u e s
( M o o d y ’s I n v e s t o r s S e r v i c e d a t a ; l a t e s t f i g u r e s a r e f o r A u g u s t )

notes which were allotted to a large number of banks and
banking houses included $50,000,000 of 6 month m aturity
being sold at 0.70 per cent and $50,000,000 of 7 month
m aturity at 0.75 per cent; these securities subsequently
advanced in the m arket to a yield basis of 0.50 per cent
and 0.55 per cent, respectively. Likewise, the $19,900,000
of Federal Interm ediate Credit Bank short term deben­
tures which were offered publicly were quickly oversub­
scribed and advanced to premium prices. An issue of
$8,500,000 of first mortgage 4 per cent 30 year bonds of
Ohio Edison Company which reached the m arket on
September 29 was satisfactorily floated and quotations
held around the issue price.
D uring recent months, a number of the new security
flotations have been at least in p art for the purpose of
raising capital for the creation of additional plant or
equipment and others have been for other new capital
purposes, such as the supplying of additional working
capital. In this connection, the accompanying diagram
shows the amount of new capital issues of corporations
and States and municipalities, other than those for re­
funding of outstanding securities, during each month of
the past three years compared with the monthly average
of previous years. The data are those of Moody's Invest­
ors Service, classifying the issues as productive, i.e.,
where the proceeds are used to finance the creation of
new facilities such as plant and equipment, or as non­
productive, which includes securities floated with a view
to repaym ent of bank loans, increases in working capital,
and other purposes such as the acquisition of existing
plants. The amount of new security issues for “ pro­
ductive” purposes has shown a slow and somewhat
irregular recovery from the low level of 1933, and in the
first eight months of 1937 averaged about $100,000,000 a
month. This is, however, considerably below the monthly
totals of between $250,000,000 and $300,000,000 of new
productive issues which the diagram indicates were
floated in the years 1924 to 1930, and the volume of such
issues has recently declined considerably, accompanying
unfavorable m arket conditions.

FEDERAL RESERVE BANK OF NEW YORK
F o r e ig n E x c h a n g e s

D uring the early p art of September, a renewal of
tension in Europe over the M editerranean situation in­
duced a flight of funds to the United States, which was
reflected in a weakening of quotations for foreign cur­
rencies in New York. Later, in the third week of the
month, some forced liquidation of American securities by
foreigners, and the conversion of the proceeds into
European currencies served to bring the decline in foreign
currencies to a halt.
The French franc was the currency most affected
by the M editerranean situation. D uring July and the
first part of August the franc had been moderately
firm following the covering of short positions immediately
after the establishment of the “ floating fran c” on July 1.
Throughout the last half of August, French capital
neither left nor returned to France on balance, as it
awaited the outcome of the fiscal reforms undertaken by
Finance M inister Bonnet. In September, however, the
international political tension stimulated a renewal of
pressure against the franc, which was accentuated by
discouragement over the prospects of French fiscal and
economic recovery when it was learned that the Treasury
had been required to borrow directly from the Bank of
France. The French stabilization fund was reported to
have been used at first to support the franc rate in the
face of this capital flight, but finally the currency was
allowed to fall from 13215/ 16 francs per pound sterling
to 146% francs which was reached on September 16.
From this level, a recovery to 144% was brought about in
the week following, and this level was sustained through
the rest of the month. In New York, the franc moved
from $0.0373% at the beginning of the month to
$0.0336% on September 16, and back to $0.0342% by
the month end.
The depreciation of the French franc, which at its
lowest quotation of $0.0336% in the course of trading on
September 16 approached the exchange value of the
Belgian currency awakened fears of Belgian losses from
French competition in foreign markets. These fears, and
the disturbed political situation in Belgium, accelerated
the rate of capital outflow from Belgium temporarily,
forcing the spot rate for the belga to the lower gold point
for the greater part of the month, and the forw ard rates
to a discount equivalent in three month contracts to 2%
per cent per annum. Toward the end of the month, how­
ever, the spot rate recovered to $0.1684 and the discount
in three month belgas to the equivalent of 1% per cent
per annum.
Sterling declined gradually during the first p art of
September, in continuation of the movement begun in
mid-August, and as a result of the political disturbances
in Europe in addition to those in the F ar East. Increas­
ing speculative selling of French francs against sterling
and some selling of American securities by those with
open speculative positions in English securities to sup­
port, however, halted this tendency. The pound reached a
low of $4.94% on September 10, from $4.96 °/16 on
September 1, and fluctuated within that narrow range for
the rest of the month. The cessation of Japanese engage­
ments of gold for shipment to the United States and the
arrival of one direct shipment in London removed a




77

source of strength for sterling in the New York market,
since p art of the proceeds of previous gold sales in the
United States were reported to have been used to p u r­
chase sterling, and the seasonal increase in British im­
ports from the United States also tended to strengthen
the dollar. The discount on three month sterling which,
at the equivalent of 1% per cent per annum at the begin­
ning of September, had more than compensated those
moving capital from London to New York for the differ­
ences in short term money rates between New York and
London narrowed to % per cent by gradual stages
through the month, and lessened the inducement for
British funds to be transferred to New York.
The Dutch guilder fell from $0.5515^ on September 1
to $0.5501 on September 10, and rose to $0.5530 on Sep­
tember 24, under the im pact of the same basic influences
affecting the pound, i.e., the flight of capital to New York
early in the month, and the sale of dollars to support open
positions in securities, plus Belgian and French specula­
tive purchases of guilders, during the last two weeks. The
Swiss franc fluctuated within a narrow range during the
month, while the F a r E astern exchanges remained pegged.
G o ld M o v e m e n t

The movement of gold to the United States during
September continued considerably below the June vol­
ume. Incoming shipments going directly into the gold
stock totaled $110,200,000. The chief source of imports
was Japan, from which country $40,700,000 was received
on the W est Coast, increasing the total of imports from
that country since March to $171,000,000. In addition,
$2,300,000 was received on the W est Coast from A ustralia
during September. A t New York, $32,900,000 was im­
ported from England, $13,900,000 from Canada, $13,600.000 from Belgium, $4,700,000 from India, and $2,100.000 from Colombia.
These imports, supplemented by approximately $18,300.000 of gold released from earmark for foreign account
and receipts from other sources, including newly mined
and scrap gold, resulted in an increase in the gold stock
during the month of about $175,000,000. The T reasury’s
daily statement of September 29 showed $1,202,600,000
of “ inactive gold” held in the general fund, a net
reduction of $132,300,000 from the end of August, reflect­
ing the transfer of $300,000,000 to the Reserve Banks on
September 13, partly offset by the m onth’s increase in the
gold stock detailed above.
C e n tra l B a n k R a te C h a n g es

Following reductions from 6 to 5 per cent in July and
to 4 per cent in August, the Bank of France lowered its
official discount rate to 3% per cent effective Septem­
ber 3. A t the same time the rate for 30 day advances on
short term Government securities was reduced from 4 to
3i/2 per cent and the rate for 3 month advances from
5 to 4% per cent.
The reduction on July 15 in the Bank of Ja p a n ’s rate
of discount from 3.65 to 3.285 per cent, reported in the
August 1 Monthly Review, was for bills with Govern­
ment bonds as collateral rather than for commercial bills,
the rate for which has remained at the 3.285 per cent
rate established on A pril 7,1936. Effective September 21,

MONTHLY REVIEW, OCTOBER 1, 1937

78

the rate of discount for bills with Government bonds as
collateral was further lowered to 2.92 per cent, and the
rate for overdrafts in current account was simultaneously
reduced from 4.38 to 4.02 per cent.
B u ild in g

The August total of building and engineering contracts
in the 37 States covered by the F. W. Dodge Corporation
report showed a reduction of approximately 11 per cent
from the preceding month. As is indicated in the table
below, the largest declines occurred in factory building
and in public utility construction, both of which classi­
fications had shown unusually large advances in June and
July. Residential building also showed some decline from
July to August.
As compared with a year ago, residential building in
August was 27 per cent lower, representing the first year
to year decline that has occurred in this type of building
since December 1934. This decrease may be largely
explained by the fact that the residential figures for
August 1936 included an unusual volume of public
projects, amounting to nearly $32,000,000, whereas such
projects were less than $1,000,000 in August 1937. W ith
the exception of public works, all other m ajor classes of
construction contracts were larger in August of this year
than a year ago.
Percentage Change in Average Daily Contracts
37 States
August 1937
compared with

at a considerably lower level than all other construction.
During the elapsed portion of 1937, construction activity
has been m aintained at a rate substantially above that of
the depression years, but there has been a definite levelling
out during the past year, both in residential building and
in other construction.
E m p lo y m e n t a n d P a y r o lls

N .Y. and Northern N.J.
August 1937
compared with

July 1937

Aug. 1936

July 1937

Aug. 1936

Building
Residential....................................
Commercial and factory.............
Public purpose*............................
All building................................

— 9
— 23
— 1
— 13

— 27
+83
+15
+ 5

+12
+ 41
+88
+43

—42
+79
+59
+ 2

Engineering
Public Works................................
Public Utilities..............................
All engineering.........................

+20
— 37
— 8

— 17
+75
0

+11
— 74
— 53

— 26
— 4
— 18

All Construction..................

— 11

+ 4

— 13

— 6

* Includes educational, hospital, public, religious and memorial, and social and
recreational building.

Data for the first three weeks of September indicate a
continued decline in construction activity. The daily
rate of total construction awards was approximately
25 per cent below the August average, and contraseasonal
decreases occurred in each of the m ajor classifications.
Compared with the corresponding period in 1936, total
contracts were 20 per cent lower. Residential building
was down 27 per cent and heavy engineering work was
30 per cent lower, while other nonresidential building
showed an increase of 3 per cent.
The accompanying diagram indicates the course of
residential building and all other construction in the
37 States from 1921 to date. The lines represent this
bank’s indexes of building and engineering contracts,
adjusted for seasonal variation and for estimated changes
in construction costs; the indexes are expressed as per­
centages of the estimated long term trend and somewhat
smoothed by the use of three month moving averages.
D uring the period of expanding building activity up to
1926 residential building exceeded other types of con­
struction rather consistently, but since 1928 the situa­
tion has been reversed and residential building has been




In d e x e s o f R e s id e n t ia l B u ild in g a n d O t h e r C o n s t r u c t io n ( F . W . D o d g e
C o r p o r a t io n d a t a fo r 3 7 S t a t e s , a d ju s t e d f o r s e a s o n a l v a r ia t io n ,
e s tim a t e d p ric e c h a n g e s , a n d lo n g t e rm g r o w t h )

A small gain occurred between m id-July and midAugust in the number of employees engaged in m anu­
facturing and nonm anufacturing industries reporting to
the United States Departm ent of Labor but the gain was
somewhat less than usual for the time of year. Compared
with August 1936 it is estimated that 1,500,000 more
persons were at work and weekly payrolls were substan­
tially higher.
In factory employment the August increase raised the
Bureau of Labor Statistics unadjusted index to approxi­
mately the figure reached in May, which was the highest
point since November 1929. The rise in employment
between July and August, however, was less marked than
in most years, although factory payrolls showed about
the usual seasonal increase. D uring August there was a
further gain in the number of employees at steel mills,
while employment at automobile factories showed a con­
siderable decline, reflecting reduced operations preceding
changes in models. A net decline in the num ber of work­
ers employed in the nonm anufacturing industries was
largely accounted for by seasonal reduction of forces in
retail establishments.
As a result of seasonal increases from July, both em­
ployment and payrolls at New York State factories were
higher in August than at any time since the spring of
1930. Employment was 13 per cent and payrolls 23 per
cent higher than a year ago, according to the State
Departm ent of Labor indexes.
C o m m o d it y P r ic e s

Prices of the principal wholesale commodities moved
irregularly during the first part of September, and in
general tended downward in the latter part of the month,
reflecting in large part reductions in the prices of several
im portant metals. Moody’s index of 15 actively traded

79

FEDERAL RESERVE BANK OF NEW YORK

products at the end of September was about 5 per cent
lower than at the end of August and at a new low for
the year.
The price of scrap steel at Pittsburgh declined $4.50
during September to $17.75 a ton, the lowest price this
year and $6.00 a ton below the high reached in March.
Following a decline in the price of copper for sale abroad,
the domestic price of copper was lowered near the end
of the month from 14 cents to a range of 12% to 13 cents
a pound; the last previous change was in A pril when the
price receded from 17 cents to 14 cents. The prices of
lead, zinc, and tin also declined in the latter part of
September.
In the agricultural commodities, the price of cotton
continued the downward movement which has been in
progress since early in April. The spot quotation for
middling cotton at New York reached 8.46 cents a pound
on September 30, the lowest level since May 1933, slightly
more than % a cent below the end of August, and about
6% cents below the March high. Rather sizable losses for
the month also occurred in the prices of raw silk and sugar.
On the other hand, grain prices showed small net gains
for the month. The average price of steers rose to $15.13
a hundredweight on September 27, a new high since
December 1928, and subsequently receded very little.
The average price of hogs moved irregularly in Septem­
ber, and closed at $11.97 a hundredweight, somewhat
above the price at the end of August, but well below the
recent high reached in the early part of August.

PER C EN T

showed an increase in August, but after allowing for
differences in number of working days and seasonal
factors, the rate of cotton textile output showed a further
recession. Rayon production also was reduced. The vol­
ume of machine tool orders was maintained at approxi­
mately the level of the preceding month.
(Adjusted for seasonal variations and usual year to year growth)
1936
Aug.




June

July

Aug.

86
101
70
58
84

95
94
117
63
99

110
113
121
73
97

113
115
125
77
92

98
102

96
112

103
116

140
129

Metals

P r o d u c tio n

The general level of industrial production declined in
September, following some advance in the preceding
month. Steel mill operations, as shown in the accompany­
ing diagram, were reduced sharply in the week including
Labor Day, and after a tem porary partial recovery to 80
per cent of capacity, there was a decline to an estimated
74 per cent, approximately 16 points lower than in the
spring. Steel orders were reported to have risen some­
what during September but it was indicated that the
backlogs against which operations had been carried on
during the summer were much reduced by the end of
August. There was also a decline, of a seasonal nature, in
automobile assemblies in September, as m anufacturers
shifted production to 1938 models. Cotton textile mill
activity appears to have slackened somewhat further, and
electric power production, which ordinarily increases in
September, was little changed. Bituminous coal output
showed a seasonal advance in the first p art of the month.
An increase in the general level of industrial produc­
tion in August, after allowance for seasonal factors, was
indicated by the index of the Board of Governors of the
Federal Reserve System. The adjusted index rose from
114 per cent of the 1923-25 average in June and July to
117 in August. A year ago the index was 108. A m ajor
factor in the rise was a much smaller decline in automo­
bile production than in other recent years; in addition
there were gains in output of steel and pig iron,
and lead production and livestock slaughterings were
practically unchanged, although recessions are ordinarily
expected at this time of the year. There were increases
of a seasonal character in bituminous coal output and
electric power generation. Mill consumption of cotton

1937

Automobiles
Passenger cars...............................................
Motor trucks.................................................
Fuels
Bituminous coal............................................
Anthracite coal..............................................
Petroleum, crude..........................................
Petroleum products......................................
Electric power...............................................

84
93r
87
89
95

87
100
96
91
97

87
64
96
94
97

86 p
70p
100p

Textiles and Leather Products
Cotton consumption....................................
Wool consumption........................................
Silk consumption..........................................
Rayon production........................................
Shoes................................................................

108
117r
85
95
114r

116
114
78
104
115

113
96
64
108
116

108
109p
66
95
105p

Foods and Tobacco Products
Meat packing.................................................
Wheat flour....................................................
Sugar meltings..................... .........................
Tobacco products..........................................

96
102
88
89

76
86
84
82

69
88
124
95

77
80
118
93

62
84
70
81
120

55
67
81
80
171

59
65
77
85
169

58

99p

Miscellaneous

Newsprint paper...........................................
Machine tools................................................
p Preliminary.

88
165

r Revised.

I n d e x e s o f B u s in e s s A c t i v it y

D uring the first half of September, departm ent store
sales in the M etropolitan area of New York showed an
increase from the August level a t least as large as the
customary seasonal movement. Railway freight car load­
ings also were seasonally higher.
In August, however, there appears to have been some
recession in general business activity and the distribution
of goods. D epartm ent store sales in the country as a

80

MONTHLY REVIEW. OCTOBER 1. 1937

whole and in this district were moderately higher than in than last year. Sales of the leading apparel stores were
August 1936, but the gains from July to August did not 2.3 per cent lower than a year ago, a smaller recession
fully measure up to the usual seasonal changes. Mer­ than in the previous month.
chandise and miscellaneous freight car loadings were
Per cent of
little changed from the July level, but a contraseasonal
accounts
Percentage
recession occurred in the movement of bulk commodities.
outstanding
change
August 1937
July 31
Mail order house sales were lower than in July and chain
compared with
collected in
August 1936
August
store sales also declined. A decrease of about the usual
proportions occurred in the volume of check transactions
Stock
outside New York City, while in New York City the
on hand
Locality
Net
end of
recession was greater than usual. On the other hand,
1936
1937
registrations of new passenger cars in August are esti­ New York........................................................... +sales month 41 .0 41.6
6 .6
+ 1 6 .5
mated at 312,600 units, a decrease of only 45,000 cars Buffalo................................................................. — 0 .7 + 1 4 .4 51.2 44.6
+ 1 8 .0
1.4
from the July figure, which is considerably less than the Rochester............................................................ + 2 .2 + 1 4 .4 46.6 45.3
Syracuse..............................................................
35.3
Northern New Jersey......................................
36.4
+ 6 .4
37.6
decline in that month of most recent years. The volume of Bridgeport........................................................... + 0 .2 + 2 1 .2 40.8 37.0
38.9
+
+ 8 .6
advertising was larger than in July, and sales of new Elsewhere............................................................ — 1.3 + 0 .1 33.8 32.4
Northern New York State......................... — 11.0
ordinary life insurance policies declined somewhat less Southern New York State.......................... — 4 .8
Central New York State............................. — 1.4
than usual.
Hudson River Valley District................... — 0 .5
Capital District.............................................
Westchester and Stamford.........................
Niagara Falls.................................................

(Adjusted for seasonal variations, for usual year to year growth,
and where necessary for price changes)
1936

+ 2 .8
0.
— 4 .8

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

Aug.

June

July

72
77
64
89

76
87
87
108

75
88
89 p
lOlp

74
83

Distribution to Consumer
Department store sales, U .S .....................
Department store sales, 2nd D ist.............
Chain grocery sales......................................
Other chain store sales................................
Mail order house sales.................................
Advertising.....................................................
New passenger car registrations...............
Gasoline consumption.................................

91
84
72
96
93
77
95r
94

91
85
62
97
98
80
96
98

90
82
64
97
94
79
95p
103

89
80
62
91
87
82
lllp

65
39

66
36

64p
38

64p
33p

+ 1 6 .3

40.3

40.3

— 2 .3

+ 6 .2

34.9

37.1

Aug.

Primary Distribution
Car loadings, merchandise and misc........
Car loadings, other......................................
Exports...........................................................
Imports...........................................................

+ 5 .3

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

1937

General Business Activity
Bank debits, outside New York C ity.. . .
Bank debits, New York City.....................
Velocity of demand deposits, outside New
York C ity...................................................
Velocity of demand deposits, New York
C ity..............................................................
New life insurance sales..............................
Employment, manufacturing, U. S..........
Employee hours, manufacturing, U. S. . .
Residential building contracts...................
Nonresidential building and engineering
contracts.....................................................
New corporations formed in N. Y . State.
General price level*......................................
Composite index of wages*........................
Cost of living*...............................................
p Preliminary.

r Revised.

68

68

69

70

45
72
95
88
53

43
75
103
94
35

48
69p
104
93p
35

44
71p
104p
93p
33

65
69

65
63

72
62

68
63

156
194
146

162
207
151

163
208
151

163p
208p
152p

W h o le s a le T r a d e

In August total sales of reporting wholesale firms aver­
aged about 1 per cent higher than last year, following the
decline reported for July. Cotton goods concerns showed
the largest increase in sales since last February, the
jewelry firms reported the most substantial increase in
three months, and the m en’s clothing, shoe, stationery,
and paper concerns all reported more favorable year to
year comparisons than in July. Wholesale drug sales,
data for which are collected and reported upon by the
Departm ent of Commerce, showed an increase of about
11 per cent over last year, following a decline in the
previous month. On the other hand, yardage sales of
rayon and silk goods were below the previous year for
the first time in twelve months, and sales of the diamond
concerns recorded the smallest advance since May of last
year. The hardware firms, moreover, reported the first
year to year decrease in sales since January 1936, and the
grocery concerns showed the first m aterial reduction since
that month.

* 1913 average = 100; not adjusted for trend.
Percentage
change
August 1937
compared with
August 1936

D e p a rtm e n t S tore T ra d e

D uring the first half of September, sales of the report­
ing departm ent stores in the M etropolitan area of New
York were 3 per cent larger than in the corresponding
period a year ago, and at least the usual increase from
the August level was indicated.
In August total sales of the reporting departm ent stores
in this district were 5.3 per cent higher than last year, a
somewhat larger advance than in July. The New York
and Brooklyn, and N orthern New Jersey departm ent
stores recorded moderate increases in sales over last year,
and small advances in sales were reported by the Roches­
ter, Syracuse, Bridgeport, and Capital D istrict stores.
Sales of the W estchester and Stam ford departm ent stores
were unchanged from August 1936, and in stores in the
remaining localities in this district sales were smaller




Commodity

Net
sales

Groceries............................................................. — 4 .1
Men’s clothing................................................... + 5 .5
Cotton goods...................................................... + 7 .4
Rayon and silk goods...................................... — 8 .1 *
Shoes.................................................................... — 12.7
Drugs and drug sundries................................ + 1 0 .9 * *
Hardware..........................................................
— 0 .4
Stationery........................................................... — 1.7
Paper.................................................................... + 1 5 .3
Diamonds............................................................ + 9 .1
Jewelry..............................................................
+ 1 0 .4
Weighted average............................

+ 0 .9

Stock
end of
month
+ 1 8 .5
+ 8 .0 *
+ 9 .2 * *
+ 4 1 .1

Per cent of
accounts
outstanding
July 31
collected in
August

1936

1937

89.2
44.8
42.6
64.4
36.7

88.4
44.6
43.8
51.8
34.3

44.6

44.0

58.8
+ 3 1 .3
+ 1 1 .9

J 22.3
58.6

J

50.7
18.3
56.2

* Quantity figures reported by the National Federation of Textiles, Incorporated,
not included in weighted average for total wholesale trade.
**Reported by Department of Commerce.

FEDERAL RESERVE

BANK

OF N E W

YORK

MONTHLY REVIEW, OCTOBER 1, 1937
B u sin ess C o n d it io n s in th e U n it e d S ta te s
(Summarized by the Board o f Governors o f the Federal Reserve System)
In August industrial activity advanced from the level o f the two preceding
months and on a seasonally adjusted basis was close to the volume o f last
spring. Early reports for September indicate a decline in steel output and
a seasonal decrease in the production o f automobiles.
P r o d u c t io n

In d e x N u m b e r o f P r o d u c t io n o f M a n u f a c t u r e s
a n d M in e r a l s C o m b in e d , A d j u s t e d fo r S e a s o n a l
V a r ia t io n (1 9 2 3 - 2 5 a v e ra g e = 1 0 0 p e r c e n t)

P a y r o lls , W it h o u t A d j u s t m e n t fo r S e a s o n a l
V a r ia t io n (1 9 2 3 -2 5 a v e ra g e = 1 0 0 p e r c e n t)

a n d

E m p l o y m e n t

Volume o f industrial production, as measured by the B oard’s seasonally
adjusted index, was 117 per cent o f the 1923-1925 average in August as
compared with a level o f 114 per cent in June and July and 118 per cent during
the spring. Steel production rose slightly further and was close to the high
level prevailing before strikes curtailed output in June. Automobile produc­
tion was maintained in considerably larger volume than is usual in the month
preceding the shift to new model production. Lumber output declined, follow­
ing a period o f increase. In the nondurable goods industries output increased
in August, reflecting chiefly increases at cotton and woolen textile mills,
following considerable declines in the preceding month. Activity at meat
packing establishments increased somewhat from an extremely low level. Shoe
production showed less than the usual seasonal rise. At mines, output o f
coal increased less than seasonally, while crude petroleum production continued
to expand.
Value o f construction contracts awarded, as reported by the F. W . Dodge
Corporation, declined somewhat in August and the first half o f September.
Awards for private residential building showed little change and were in about
the same volume as in the corresponding period o f 1936, while publicly
financed residential building declined and was in considerably smaller volume
than last year.
Factory employment, which had increased in July, showed less than a
seasonal rise in August. Factory payrolls increased by about the usual sea­
sonal amount. The number employed at steel mills increased somewhat further,
while at automobile factories, railroad repair shops, and sawmills employment
declined. In the textile industries employment in the production o f fabrics
decreased somewhat, while employment in the production o f wearing apparel
increased. Changes in employment in most other manufacturing industries
were small.
A g r ic u l t u r e

Department o f Agriculture crop estimates based on September 1 conditions
were about the same as the estimates a month earlier, except for an increase
in cotton and a decrease in corn. Output o f leading crops is substantially
larger than last season. Supplies o f livestock and meats are expected by the
Department o f Agriculture to continue smaller than last year.
D is t r ib u t io n

Mail order sales and sales at department stores showed somewhat less
than the usual seasonal increase from July to August. Freight car loadings
continued at the level o f the previous month.
C o m m o d it y

E x c e ss R e se rve s of M e m b e r B a n k s (L a te st
fig u r e s a re fo r S e p te m b e r 2 2 )

P r ic e s

Cotton prices declined considerably further from the middle o f August
to the third week of September and there were smaller decreases in cotton
goods, silk, hides, steel scrap, copper scrap, and lumber. Prices o f livestock
and livestock products, after some decline in the latter part o f August and
the first week o f September, advanced sharply in the middle o f September.
B a n k

C r e d it

Excess reserves o f member banks increased in the five week period ended
September 22 from $800,000,000 to $1,000,000,000 as the result o f a release
o f gold by the Treasury from its inactive account. The bulk o f the increase
in excess reserves went to New York City banks and on September 22 these
banks had excess reserves o f $350,000,000, Chicago banks had $50,000,000,
and banks elsewhere $600,000,000.
Commercial loans at reporting member banks in 101 leading cities, reflect­
ing in part seasonal demands, continued to increase substantially during the
four weeks ended September 15, both in New York City and outside. Holdings
o f United States Government obligations and of other securities showed a
further decrease, with the result that total loans and investments declined
somewhat.
M

Member Bank Reserves and Related Items
(Latest figures are for September 22)




o n e y

R a t e s

Rates on 9 month Treasury bills declined from 0.71 per cent early in
September to 0.44 jjer cent later in the month, and average yields on long
term Treasury notes declined from about 1% per cent to below 1 y2 per cent.