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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.
