The full text on this page is automatically extracted from the file linked above and may contain errors and inconsistencies.
MONTHLY REVIEW o f C r e d it a n d B u s in e s s C o n d it io n s Second F ed e ra l Federal EeserveBank, NewYork M o n e y M a r k e t in S e p te m b e r There was only a small increase, during September, in the amount of bank credit in use, despite rising general business activity and the acceleration of National defense preparations. The use of bank credit in financing new plants and equipment, made necessary by defense orders, is expected to increase, however, with the adoption by the Government of a bankable form of contract relating to such orders and the passage of legislation perm itting the assignment of such contracts as security for bank loans. On September 25, the National Defense Advisory Commission announced that the Federal Reserve Sys tem, at the request of the Commission, had made a test survey of the amount of bank credit which might be available for use in expanding the production facilities of the nation. This survey, covering a representative number of banks in each Federal Reserve District, con firmed what had previously been assumed, namely, that the commercial banks of the country are eager to do their part in the National defense program, and stand ready with ample funds to further in any way they properly can the financing of defense measures. D uring the test period (two days) when the survey was made, only a numerically small portion of the nation’s banks could be reached, but the amount of credit which these banks indicated they m ight extend was at least $3,000,000,000, and returns from other banks which were not included in the survey w7ould have added to this total. P artly as a consequence of this survey, the National Defense Advisory Commission has felt able to state that, as soon as pending legislation has been passed to allow the form of contract developed by the Commission to be assigned as security for bank loans, m anufacturers needing to expand their plants or improve their equip ment, on account of the defense program, should have no trouble in obtaining funds for construction prom ptly and at low rates of interest through their usual bank ing connections. E arlier in the month, the Federal Loan A dm inistrator had announced that between June 25 and September 18 the Reconstruction Finance Corporation had made 112 loans and commitments, amounting to $559,000,000, to aid in the National defense program ; of this amount approximately $308,000,000 was made available to three Government corporations created to acquire reserve stocks of rubber, gasoline, and certain metals. The supply of money market funds increased further, R e se rv e D is tric t October 1 , 1 9 4 0 in September, and on September 25 excess reserves of all member banks amounted to $6,650,000,000, showing an increase of $320,000,000 since August 7. They re mained $230,000,000 below the peak of $6,880,000,000 reached on July 17, however, because of a net increase since that date of more than $500,000,000 in Treasury deposits in the Reserve Banks resulting from payments for new security issues on July 22 and August 1. One of the factors acting to restrain the rise in excess reserves, in the face of continued, though smaller, in creases in the gold stock of the United States in Septem ber, has been a continued rise in the amount of money in circulation. For many months the amount of money in circulation has been rising, both in actual volume and after adjustm ent for usual seasonal changes, and has reached a new high level, as the accompanying diagram indicates. Weekly changes in circulation have exceeded the usual rise in periods of seasonal expansion and have failed to show the usual drop in periods of seasonal con traction, or even in some weeks have increased at times when decreases are usual. The actual amount of cur rency in circulation (outside the Reserve Banks and the Treasury) on September 4 reached $8,092,000,000, at the culmination of the Labor Day demand, and on Septem ber 25 was only slightly less. This represents an increase of more than $800,000,000 since September, 1939, and a rise of about $2,650,000,000 since September, 1934. The rise in currency circulation during the past year appears Changes in Money in Circulation, Seasonally Adjusted MONTHLY REVIEW, OCTOBER 1, 1940 74 to have resulted from the increase in business activity, with the concurrent rise in payrolls and retail trade, as well as from an increase in idle holdings of currency. The current low level of money rates offers little incen tive to the prom pt depositing of idle currency, and conditions in foreign countries have probably induced the holding of substantial amounts of currency in this country or abroad by foreigners. A t periods of crisis in European conditions during the past two years, rather large amounts of United States currency were shipped abroad, but in recent months such shipments have been comparatively small. Another principal factor which has restrained the rise in excess reserves during the past two months, in the face of the continued mounting of the country’s gold stock, has been an increase of $118,000,000 in foreign deposits in the Reserve Banks since August 7. This represents largely the deposit in the Reserve Banks of the proceeds of sales of gold to the United States by foreign countries which have exceeded disbursements from such accounts for war and other purposes. On September 5 the item “ Foreign bank” deposits in the Federal Reserve B anks’ weekly statement of condition was changed to “ Foreign” deposits. It was announced that at the request of, and under authority granted to it by, the Secretary of the Treasury, the Federal Reserve Bank of New York, as fiscal agent of the United States, had opened accounts for certain foreign governments. The funds in these accounts previously had been held at this bank in the name of foreign central banks which were acting as fiscal agents for their respective govern ments. An increase of approximately $100,000,000 in the amount of reserves required to be held by all member banks, accompanying some increase in demand and inter bank deposits in these banks, has also been a sizable factor in restraining the growth of excess reserves since early August. Changes in excess reserves and the princi pal factors causing such changes from the July 17 high to the August 7 low and for the subsequent period are indicated in the following table. Effect on member bank reserve position (In millions of dollars) July 17 to Aug. 7 Aug. 7 to Sept. 25 Increase in gold stock...................... Change in Treasury cash, and de posits with F. R. Banks............... Increase in money in circulation. . . Increase in foreign deposits............. All other items— net......................... +312 +598 —722* — 57 — 93 — 17 +108** — 161 — 118 — 10 Change in member bank reserves. . . — 577 +417 Change in excess reserves................ — 550 +320 * Increase in cash and deposits ** Reduction in cash and deposits M ember B ank Credit Total loans and investments of reporting banks in 101 leading cities rose $104,000,000 further during the four weeks ended September 18, reaching a new high since October, 1929; of this increase $91,000,000 occurred at New York City banks. Commercial, industrial, and agri cultural loans rose $123,000,000 during this period, re flecting to a considerable extent term loan operations connected with refunding of outstanding securities. Loans to brokers and dealers in securities, includ ing United States Government security dealers, rose $27,000,000, probably owing largely to operations of the latter at a time when announcements of offerings of new Government security issues were expected by the market. Loans for miscellaneous purposes, not otherwise classi fied, also showed a further rise in the four weeks ended September 18. Direct United States Government security holdings were reduced $106,000,000, following the increase which occurred in Ju ly ; $62,000,000 of the decline, however, represented a drop in Treasury bill holdings, and $25,000,000 a decline in Treasury notes, with reductions reported both at New York City banks and at banks in other cities. Treasury bond holdings declined $19,000,000, as a reduction of $30,000,000 outside New York was only partly counterbalanced by a net increase of $11,000,000 in holdings of New York City banks. Holdings of Gov ernment guaranteed obligations were little changed, while holdings of m unicipal and corporate securities in creased moderately, owing entirely to a rise in New York City bank holdings. Adjusted demand deposits increased only slightly for the four week period ended September 18, but interbank deposits rose more than $300,000,000 to a new high, fol lowing the declines which occurred in the latter part of July when payments were being made for new Gov ernment securities. Money Rates in New York Sept. 30,1939 Aug. 31, 1940 Sept. 30,1940 Stock Exchange call loans...................... Stock Exchange 90 day loans................ Prime commercial paper 4-6 months... Bills—90 day unindorsed....................... Average yield on Treasury notes (3-5 years)........ ......................................... Average yield on Treasury bonds (not callable within 12 years).................... Average rate on latest Treasury bill sale 91 day issue......................................... Federal Reserve Bank of New York discount rate....................................... Federal Reserve Bank of New York buy ing rate for 90 day indorsed bills. . . 1 *1H V s -H *1H 1 X r* A 7/6 % We 0.45f 0.98 0.51 2.75 2.27 2.20 0.082 0.028 0.013 1 1 1 H X * Nominal t Change of +0.03 per cent from previous yields, due to dropping from the average the 1 per cent Treasury note issue of September 15, 1943 which ma tures within three years. G overnment S ecurities The Government securities m arket registered substan tial net advances for September, reflecting largely a strong price rise during the third week of the month. D uring the month, the average price of comparable long term Treasury bonds rose approximately % of a point to within % of a point of the 1940 high which was reached in A pril before the intensification of the war, and within % of a point of the record high for long term Treasury bonds which was reached in June, 1939. Inter mediate term Treasury bonds and Treasury notes also advanced in price during this period, and likewise ap proached previous highs. On September 25, the Treasury offered holders of $737,000,000 of 1% per cent Treasury notes, m aturing December 15, 1940, the privilege of exchanging them, par for par, for 2 per cent Treasury bonds m aturing June 15, 1955, but redeemable at the option of the Treasury on or after June 15, 1953. None FEDERAL RESERVE BANK OF NEW YORK S e c u rity M a rk e ts A firm undertone was evident in the security markets during much of September and presumably reflected the quickening tempo of domestic business as National defense orders began to be placed in larger volume. How ever, despite rising business activity, the security markets showed hesitancy around the middle of the month, on reports of increasingly violent German bombing raids on London, and again at the end of the month. The volume of trading on the New York Stock Exchange was at higher levels than in August, and on September 5 about 1,250,000 shares changed hands—the largest total since June 12. The average price of common stocks, as measured by the Standard Statistics Company 90 stock index, con tinued early in September the rise noted late in August, and on September 5 attained the highest level since May 13, having regained 62 per cent of the M ay-June de cline. Share prices weakened in following trading ses sions, in conjunction with intensified bombing of London, and reached the m onth’s low on September 12. Two days later the combined index started to move upward irregu larly and on September 23 approximately regained the level of September 5. The component groups in this index followed a course generally similar to the total, although rail shares continued to make a better than average show- PR ICE 1 p t ! ,90 t i Va « 1 STOCKS 4 A /A• »/ v' V* j 1 V > r\ I * i \; — ‘i />/r ' V^j. i \ W W i , 1» .il 1 1 > > ___________o f, ,\ v t-J 1 /k A i IJ w 1 1 / h* j ORPORATE BONDS 4 of the new issue of bonds was offered for cash subscrip tion. Subsequently, some irregularity developed in Gov ernment security prices, but closing prices of the month were not m aterially below the m onth’s highs. The September 11 issue of Treasury bills was awarded at a price which yielded 0.038 per cent, the culmination of a five week increase from the 0.004 per cent basis at which bills were sold on July 31 and August 7. The issue dated September 18 was awarded at 0.032 per cent and that of September 25 at 0.013 per cent. Treasury bill financing continued in the amount of $100,000,000 a week and replaced similar maturities. C ommercial P aper and B ills In the commercial paper m arket, the best grade com mercial paper, when available, continued to command a % per cent rate in September, and average grade prime paper of 4 to 6 month m aturity was again quoted at y 2 per cent for most of the volume and % per cent for the remainder. Some expansion in the amount of paper outstanding has occurred; commercial paper concerns reported a total of $244,700,000 of paper outstanding at the end of August, the largest amount in 27 months. The August 31, 1940, total was $13,000,000 higher than a month before and $44,000,000 above a year ago. The bill market remained extremely quiet during Sep tember. Dealers ’ offering rates remained largely nominal at unchanged levels. The volume of bankers bills out standing at the end of August totaled approximately $182,000,000, an amount about $6,000,000 smaller than in July and $53,000,000 less than a year previous. The decrease during the past year is largely accounted for by contractions of $30,000,000 and $16,000,000, respectively, in bills based on goods stored in or shipped between foreign countries and bills drawn to finance exports. 75 1 * I ..... I 493S [ I 193S 1 1340 -------- 1-------- 1-------- 1----- -vu Prices of Stocks and Baa Corporation Bonds (Standard Statistics Company 90 stock index and Moody's Investors Service average price of Baa bonds) ing, having recovered, at their high for the month, 87 per cent of the M ay-June decline. Prices of corporation bonds of the grade rated Baa by Moody’s Investors Service moved up to equal the y ear’s high on September 7. D uring the next seven trading sessions they were at slightly lower levels, but on September 23 medium grade bonds advanced to the highest prices since March, 1937. Quotations of high grade bonds moved within narrow limits, but some rising tendency was evident. On Sep tember 18, the average price of Moody’s Aaa bonds equaled the May high, and subsequently advanced fu r ther to a new record high. Prim e municipal bonds continued to show strength and also reached new alltime highs. The accompanying chart compares the recent recov eries which have occurred in prices of medium grade bonds and of stocks, two of the more volatile classes of corporation securities. In the case of Baa bonds, the loss which occurred during the May decline this year has been fully regained and near the end of September the average price stood at the highest level in three and one-half years. W ith respect to common stock prices, only about two thirds of the abrupt M ay-June decline had been recovered by the latter part of September, pN ew F in a n c in g Despite rising price tendencies in outstanding bonds, September, like August, showed a decline in the volume of corporate and municipal new security issues floated. The m onth’s total of $185,000,000 was the smallest for any month since September, 1939, immediately after the outbreak of the war. Although numerous reports have appeared of plans for plant expansion in connection with the National defense program, corporate financing amounted to only $120,000,000, of which approximately one half represented refunding operations. M unicipal awards totaled $65,000,000, or about the same as in August. Most of the corporate issues were well received by investors and toward the end of the month were quoted at premiums. About $23,000,000 of the corporate securities were 76 MONTHLY REVIEW, OCTOBER 1, 1940 QUARTER 1938 QUARTER 1939 QU19AR4TER 0 Monthly Average Volume of Domestic Corporate Security Issues for Refunding for New Onital (In minions of dollars; third quarter 1940 data preliminary) privately sold, including $11,000,000 W estern Massachu setts Companies notes and $10,000,000 Potomac Electric Power Company bonds. A large proportion of the corporate total was accounted for by the public offering of eight railroad equipment trust issues, six of which had been originally bought by the Reconstruction Finance Corporation and subsequently sold to a banking group. On September 11, public offering was made of the first corporate new security issues to be released by the Securities and Exchange Commission in less than twenty days after filing for registration, under the new legisla tion perm itting such action. The largest of these issues— $15,000,000 of Dow Chemical Company securities—the registration of which became effective in thirteen days, consisted of $7,500,000 of 2 % per cent debentures of 1950, priced at lO l1/? to yield 2.08 per cent, and $7,500,000 of 0.35 per cent to 2.05 per cent serial deben tures, m aturing1 from 1941-50 and priced at par for all maturities. The m onth’s largest issue, that of $30,000,000 Southern California Gas Company 3^/4 per cent first mortgage bonds of 1970, was offered to the public on September 25, priced at 103V2 to yield 3.07 per cent. Municipal awards included $9,700,000 City of Detroit, Michigan, 2%, 3*4, and 4 per cent refunding serial bonds m aturing from 1941-61, which were awarded at an interest cost of 2.9144 per cent and reoffered to yield 0.40 per cent to 2.98 per cent; also, $8,000,000 of New York City Housing Authority bonds. In addition to these long term issues, a number of short term obliga tions, aggregating $125,000,000, were sold. The accompanying diagram shows domestic corporate new security financing by quarters in recent years. The $190,000,000 monthly average for the third quarter of 1940 was only slightly greater than that for either of the first two quarters of the year, although the portion of the total representing new capital ($59 000.000) ex ceeded the volume of any similar period daring the last two years. G old M o v e m e n ts Shipments of gold to the United States continued to be received from a wide range of sources and in con siderable number during September, but the total volume of imports declined further from the peak reached last June. Gold held under earmark at the Federal Reserve Banks for foreign account decreased about $40,000,000 during the month to a total of about $1,660,000,000 at the end of September. The gold stock of the United States increased about $330,000,000 during the month, approximately three-fourths the gain in August. As reported by the D epartm ent of Commerce, a total of $299,200,000 of gold was imported in the four weeks ended September 18. Of this amount, $191,800,000 came from Canada, $21,200,000 from Australia, $18,200,000 from Portugal, $15,200,000 from Nether lands Indies, $11,200,000 from Russia, $9,500,000 from Argentina, $8,500,000 from Mexico, $5,300,000 from the United Kingdom, $5,200,000 from Curacao, $4,000,000 from Japan, $3,500,000 from South Africa, $1,300,000 from ITong Kon<r. $1,200,000 from the Philippines, and $200,000 from British India. F o re ig n E x c h a n g e s Inasmuch as the New York m arket for sterling has now dwindled to negligible proportions and trading re mains suspended in the currencies of those European countries whose American assets are “ frozen” by Exe cutive Order, interest in the exchange market during the past month centered on the Western Hemisphere cur rencies, many of which showed rather substantia] fluctua tions. The discount on the Canadian dollar in the unofficial m arket widened substantially toward the middle of September, reaching a maximum of 17 Yo per cent on September 14. This weakness in Canadian exchange was largely the result of the repatriation of American funds through the free market, following the redem p tion of Canadian bond issues. Although the Canadian exchange regulations prohibit the repatriation of the proceeds of sales of Canadian securities held by non residents, the latter may sell in the unofficial market Canadian dollars, derived from their holdings of m atur ing issues payable in that currency. D uring the latter part of the month the pressure against the Canadian dollar diminished and the unofficial discount narrowed again and closed the month at 14 per cent. Substantial fluctuations occurred also in the rates for several Latin American currencies during September. Interest in these exchanges was stimulated by the action taken by the United States Congress in authorizing an increase of $500,000,000 in the lending power of the Export-Im port Bank for the purpose of assisting W est ern Hemisphere countries. The rate for the Mexican peso, which had held for about a month near $0.2006, was allowed to appreciate on September 21 and by September 24 had reached $0.2060. The rate subse quently showed a partial reaction, however, ending the month at about $0.2040. The discount on the Cuban peso, after widening somewhat to about 11% per cent on September 10, narrowed to 8 per cent a week later, apparently as a result of short covering induced by the expectation that a $50,000,000 loan, which had been authorized by the Cuban Government, would be made by the Export-Im port Bank. The discount at the end of the month was 8% per cent. The free rate for the Argen tina peso appreciated about 1 cent to $0.2365 in the first three weeks of September, but subsequently reacted tem porarily to as low as $0.2285 on September 14. This weakness appears to have been in anticipation of a pos FEDERAL RESERVE BANK OF NEW YORK 77 sible readjustm ent of the official Argentine rates for the PERCENT dollar. On September 18 the Argentine authorities tem porarily suspended the granting of prior exchange per mits for the im portation of American goods, for the announced reason of perm itting a careful examination of the relative merits and urgency of applications for such permits, but the suspension of permits was refjorted to have been term inated on September 26. Among the European exchanges, some resumption of commercial demand for the Swiss franc was evident in this market during the latter part of the month and the rate for Swiss exchange was perm itted to appreciate somewhat from $0.2279 to $0.2296. The free pound-dollar rate, which had appreciated during August to parity with the rate of $4.03V2 at which the British authorities make sterling available against dollars, advanced further to a high of $4.05 on September 25. Some “ free m arket” sterling, however, appears to have been supplied by the British authorities Seasonally Adjusted Indexes of Employment and Payrolls in New York State Factories (1925-27 averages IOO per cent) at the official rate to meet American demand, and by the end of the month unofficial quotations had returned to engine industries employment continued to expand, and only slightly above the level of the official rates. steel mills and foundries hired additional workers. The canning and preserving industry, which as a whole fol E m p lo y m e n t a n d P a y ro lls lows a different seasonal pattern from that of the plants The increases of 4 y 2 per cent in New York State fac in New York State, reported large additions to working tory employment and of 6V2 per cent in payrolls between forces, and seasonal factors also largely accounted for July and August were much larger than the gains ordi substantial increases in employment in the apparel indus narily expected at this time of year. As shown in the tries and in automobile m anufacturing. accompanying diagram, this bank’s seasonally adjusted indexes of New York State employment and payrolls have risen above the peak levels of 1937; employment has P ro d u c tio n a n d T ra d e In reflection of the continued stimulation to business advanced to the highest point since October, 1929, and the payrolls index is now higher than at any time since arising from National defense activities, prelim inary data May, 1930. D uring August, the airplane, shipbuilding, indicate that the levels of production and trade were firearms, and textile industries all increased their work maintained or advanced in September. Steel mill opera ing forces, reflecting the effect of Government defense tions averaged about 93 per cent of capacity during orders in those lines. W ith the start of the fall season, September, as compared with about 90 per cent in August. the im portant clothing and millinery industries reported In anticipation of an increasing demand for steel and substantial gains, but New York State canneries reported steel products, steel consuming industries were reported their usual large August layoffs. Compared with August, to be seeking to cover requirements for some months 1939, total factory employment was 11 per cent greater ahead. Automobile assemblies mounted rapidly through and payrolls were 15 per cent larger. out September as volume production of 1941 models got In the country as a whole about 430,000 more persons under way. Heavy mill sales of cotton goods were re were engaged in nonagricultural pursuits in August ported during the month, and mill operations were than in July. The Bureau of Labor Statistics now esti stepped up. Allowing for seasonal factors, railway mates that approximately 36,000,000 workers are engaged freight traffic and electric power production were appar in such occupations—the largest number so employed ently well m aintained in September, and, according to since October, 1937. Much of the increase occurred in prelim inary figures, departm ent store sales appear to m anufacturing establishments which added over 300,000 have shown about the usual seasonal advance from workers between the middle of July and the middle of August, which, for the time of year, was an exceptionally August. Other large gains were reported in construction active month. work and Federal, State, and local government service, The index of production and trade of this bank, ad while there was a seasonal decline in retail trade. justed for seasonal variations and expressed in per cent The increases in factory employment and payrolls for of estimated long term trend, rose from 91 in July to the country as a whole were much larger than usual in 93 in August. In August a year ago. prior to the August. Factory employment rose 4 per cent and pay outbreak of the war and the ensuing four m onths’ rolls advanced i y 2 per cent to new highs for the year. spurt in business activity, the index was 86. The current Compared with August, 1939, employment was i y 2 per upturn, which began from a level of 87 in April, carried cent greater, and payrolls were 1 5 ^ per cent larger. The the index in August to within 2 points of the December, employment gains in August were widespread; 75 of 1939, peak. August was marked by well maintained or accelerated the 90 industries surveyed reported increased working forces. In the aircraft, shipbuilding, machine tool, and rates of operation in industries directly affected by the 78 MONTHLY REVIEW, OCTOBER 1, 1940 PER CENT from July. In each of these types of retail outlet, there has been a more or less steady rise since the early p art of 1938. (Adjusted for seasonal variations and estimated long term trend; series reported in dollars are also adjusted for price changes) 1939 Aug. June July 86 92 91p 93p Production of: Producers’ durable goods...................... Producers’ nondurable goods................ 72 93 86 95 91p 97p 94p 99p Consumers’ durable goods.................... Consumers’ nondurable goods.............. 62 95 70 97 64p 95p 67p 94p Primary distribution................................. Distribution to consumer......................... 80 91 90 96 89p 92p 90p 96p 83r 73 86r 64 94 106 117 l llr 95 95 110 93 93 88 100 102 97 96 102 99 118 79 95 86 99p 109 no 102p 97 89 115 57 97p 84p 101p 115 115p lOOp 97 89 89 85 93 87 94 89 96p 92p 54 48 55 60 57 54 71 75 79 80 92 71 85 93 114 82 83 95 108 81 84 94 113 80 88 99 96 98 58 89 97 102 100 92 89 96 95 94 82 97 99p 106 103 60p Index of Production and Trade ..................... Industrial Production Index of New Orders Booked by Massachusetts Manufacturers;, Adjusted for Seasonal Variation (Associated Industries of Massachusetts data; 1926 a v e rage s 100 per cent) National defense program. In addition to airplane, ship building, and machinery plants, in which operations have been on a more or less steady upgrade for a year or more, steel and textile mills were increasingly active, and contract awards for construction work, as in July, ran roughly one-third above the level of a year ago. While production of nonferrous metals was not substantially changed from July, high rates of consumption of copper, zinc, and lead resulted in considerable reductions in available stocks. As the accompanying chart indicates, new orders received by m anufacturers apparently reached a level which compares favorably with the rate of in coming business in early 1937 and also in the fall of 1939. A marked expansion in retail trade also contributed substantially to the August rise in the production and trade index. Departm ent store, mail order house, and variety chain store sales, shown on a seasonally adjusted basis in the second diagram, all registered large gains Automobiles r.............................................. Bituminous coal......................................... Crude petroleum........................................ Electric power............................................ Cotton consumption.................................. Wool consumption..................................... Meat packing............................................. Tobacco products...................................... Manufacturing Employment Employment............................................... Man-hours of employment....................... Construction Residential building contracts.................. Nonresidential building and engineering Prim ary Distribution Ry. freight car loadings, mdse, and misc. . Ry. freight car loadings, other................. Distribution to Consumer Department store sales (U. S.)................ Grocery chain store sales.......................... Variety chain store sales r ........................ Mail order house sales............................... New passenger car sales............................ Velocity of demand deposits, outside New York City (1919-25 average=100)----Velocity of demand deposits, New York City (1919-25 average=100)................ Cost of living (1935-39 average=100)r.. Wage rates (1926 average=100).............. p Preliminary Seasonally Adjusted Indexes of Sales of Mail Order Houses, Depart ment Stores, and Variety Chains (1 9 35 -3 9 a v e ra g e s 100 per cent) Aug. Velocity of Deposits* Cost of Living and Wages* PER C E N T 1940 r Revised 58 54 53 53 30 24 24 23 102 111 104 115 104 114p 104 * Not adjusted for trend F o re ig n T ra d e Total merchandise exports from the United States during August reached $350,000,000, an amount which exceeded that of the previous month by $33,000,000 (or 10 per cent) and was approximately equal to the high level of June, just prior to the virtual closing of the continental European m arkets to American trade. Gen eral imports, on the other hand, contrary to the usual tendency to show some gain at this season of the year, were down $12,000,000 (or 5 per cent) to $220,000,000 in August. Compared with August, 1939, exports in creased 39 per cent in value and imports were 25 per cent higher. The excess of exports in August— $130,000,000—was considerably above that of either the previous month or of August, 1939, and was about equal to the large export balances early this year. The gain over Ju ly in exports was due in considerable measure to increased shipments abroad of aircraft, 79 FEDERAL RESERVE BANK OF NEW YORK especially to Great Britain, and of wholly and partly m anufactured iron and steel products, metal-working machinery, copper, and other nonferrous metals; most of these exports were from two to three times as large as in August, 1939. However, exports of agricultural products, especially raw cotton, showed heavy reductions from both the previous month and a year ago. Shipments abroad of cotton, the bulk of which was sent to Great Britain, were less than one-third the volume of August, 1939. Exports of firearms and explosives were much smaller than in July, but remained far above the figures of a year ago. Among the imports, declines from the previous month were concentrated largely in uncut diamonds, burlap, expressed vegetable oils, and coffee. Sugar imports were somewhat smaller than in either the previous month or August, 1939. Substantial increases over July occurred in receipts of tin, furs, copper, crude rubber, and raw silk. Compared with August of last year, two or threefold increases were registered in im ports of such strategic materials as crude rubber, tin, ferromanganese, and nickel. 62 11 62 46 62 60 104 146 B u ild in g Reflecting in large p art projects associated in one way or another with the National defense program, the total value of construction contract awards during August in the 37 States covered by the F. W. Dodge Cor poration survey was one-third above August, 1939 and the largest for any month since June, 1930. On a daily average basis, however, awards declined 4 per cent from July. D uring the past two months stimulation afforded by defense projects has been most apparent in nonresiden tial building. Contracts in this classification in August were 64 per cent above the daily rate for the same month last year. Awards for industrial building showed an exceptionally large increase over August, 1939, but those for commercial and miscellaneous nonresidential build ing also made im portant gains. The daily rate of non residential building awards in August this year was 21 per cent below the high July level, because of a decline in publicly financed projects, but private nonresidential building awards increased 9 per cent over July. Awards for heavy engineering construction in August were 19 per cent above the year earlier level and, owing to gains in the public works category, were 11 per cent larger than in July of this year. Contract awards for residential building, which for the past five months have been at a higher daily average rate than at any time since 1929, were 16 per cent above those for August, 1939, but were only slightly larger than in July. Contrasting with the showing in the 37 States, the 36 92 55 Percentage Changes in Average Daily Construction Contract Awards Dollar value in millions Exports* Commodity Imports** Av. for yrs. Sept., 1937Aug., 1938 Total and Sept., 1939Aug. 1940 Sept., 193SAug., 1939 (incl.) Commodity Av. foryrs. Sept., 1937Total Aug., 1938 Sept., 1939and Aug., 1940 Sept., 1938(incl.) Aug., 1939 Crude rubber. . . . Coffee.................. Silk...................... Sugar................... Newsprint paper. Tin....................... Woodpulp............ Wool.................... Undressed furs... Liquors (incl. wines).............. Copper................. Inedible expressed oils................... Hides and skins.. Diamonds............ Burlap................. Ferro-alloys........ Nickel.................. Fertilizer.............. Cocoa................... Bananas.............. Raw cotton....... Iron and steel semimanufactures Aircraft................. Chemicals. . .......... Metal-working machinery.......... Electrical machinery.......... Lubricating oil.. . . Copper (ingots, plates, etc.)....... Coal (anth.andbit.) Crude petroleum.. Agricultural machinery......... Gasoline and other motor fuel......... Motor trucks........ Cotton manufactures. . . Explosives and firearms............. Iron and steel advanced mfrs... Passenger automobiles....... Tobacco................. Wheat and wheat flour................... Corn....................... 343 241 246 219 153 77 134 Total 20 exports 2,416 1,880 Total 20 imports 1,578 1,201 All other exports 1,513 1,026 All other imports 951 923 3,929 2,906 All imports... 2,529 2,124 All exports. . . $2,110,000,000 in the corresponding period of 1938-39. The varying effects of the war on this country’s leading exports and imports (arranged according to their values for the September, 1939-August, 1940 period), are indi cated in the accompanying table by comparisons with the averages for the two corresponding years immedi ately preceding the war. Among the exports, aircraft and other war materials shifted from relatively low to high ranks, while exports of automobiles, crude and refined petroleum products, and of agricultural products other than raw cotton declined to comparatively unim portant positions. In general, imports of basic raw materials, especially nonferrous metals, have shown large increases during the war period. 189 101 112 111 90 104 75 79 110 77 74 115 77 75 77 53 100 80 47 265 138 133 131 128 105 76 73 65 163 137 90 120 108 61 75 33 44 60 57 60 54 51 47 40 37 33 32 30 29 45 39 34 29 19 15 37 25 29 37 States August, 1940 compared with N.Y.andNorthern N.J. August, 1940 compared with July, 1940 Aug., 1939 July, 1940 Aug., 1939 ♦Domestic exports only. ♦♦Imports for consumption. F or the first year of the European war (September, 1939-August, 1940, inclusive) aggregate domestic exports from this country amounted to $3,929,000,000, which was $1,025,000,000 more than the total in the correspond ing months of 1938-39, and exceeded the value for any comparable period since 1929-30. Im ports for domestic consumption during the twelve months since the war began amounted to $2,529,000,000, compared with Building Residential.................................. Commercial................................. + 1 — 32 —26 — 7 — 10 + 16 + 31 +267 + 13 + 33 +17 — 56 — 1 + 6 0 — 21 — 16 +384 — 14 — 8 Public works............................... Public utilities............................ All engineering....................... +29 — 36 +11 + 21 + 12 + 19 — 9 —86 —44 — 68 +246 — 64 All construction...................... — 4 + 28 — 13 — 29 Public purpose^.......................... All building............................. Engineering ♦Includes educational, hospital, public, religious and memorial, and social and recreational building. 80 MONTHLY REVIEW, OCTOBER 1, 1940 daily average rate of construction contract awards in New York and Northern New Jersey during August declined rather sharply—29 per cent—as compared with the corresponding month last year, although large yearto-year increases were reported in the industrial build ing and public utilities groups. As compared with July, the daily rate of total awards in this area declined 13 per cent, owing to a drop of 44 per cent in contracts for heavy engineering construction. Residential building contracts in August were 21 per cent less than a year previous but increased 17 per cent over July. D uring the first two weeks of September the daily average rate of construction contract awards in the 37 States was slightly higher than in August, owing to an increase of 16 per cent in residential building. Non residential building and heavy engineering projects de clined 4 per cent and 9 per cent, respectively. Awards of all classes ran 17 per cent above the corresponding period of last year, as gains in residential and nonresi dential building exceeded a decline in heavy engineering construction. C o m m o d ity P ric e s Commodity prices displayed a strengthening tendency during September—especially near the end of the month —reflecting in part no doubt the influence on industrial raw material prices of enlarged demands for National defense preparations and the effect on agricultural prices of various Government loans. The Bureau of Labor Statistics daily index of 28 basic commodities was up about 2 per cent for the month as a whole, reaching the highest level since early in July. The movement of a relatively large volume of wheat into the Government loan stock during September ap parently outweighed the effect of the publication by both the Canadian and United States Governments of increased wheat crop estimates, and domestic wheat quotations advanced to the highest levels in about three months. Spring wheat at 83% cents a bushel in Minne apolis was 9 Ys cents higher than at the end of August, and winter wheat in Kansas City increased 6Y> cents during the month to 79% cents a bushel. Corn fluctu ated irregularly around the level prevailing at the end of August. Sugar prices rose to 2.75 cents a pound from 2.66 cents at the end of August, apparently reflect ing the opinion that further legislation limiting sugar supplies will be passed before Congress adjourns. Quo tations for hogs, on the other hand, reacted downward from the comparatively high levels of a month ago, virtually canceling the rise occurring during August. Owing to the apparent tendency of cotton growers to withhold their late crop this year from the “ free m arket” , combined with the effect of accelerated domestic consumption, cotton prices in the latter part of September reversed the downward tendencies prevailing since the middle of June. The average spot price for cotton in 10 Southern markets at 9.24 cents a pound at the end of September was down only 19 points from August 31, while both the spot and December future quotations in New York were up somewhat for the month. Wool prices continued to advance throughout September, and wool tops at $1.19 a pound were 15 cents higher than at the end of August. Prices of silk fluctuated irregularly, but closed the month wTith little net change. Metal markets as a whole continued to show the strength apparent since the middle of August. Scrap steel at $20.50 a ton in Pittsburgh was up $1.75 during September. Zinc quotations, reflecting especially reports of low stocks, were advanced twice during the month from an initial price of 6Y2 cents a pound to 7 % cents at the end of September—the highest price for this metal since September, 1937. Lead prices wTere increased from 4.90 to 5 cents a pound, and the price of domestic copper was advanced 1 cent to 12 cents a pound. Tin was fractionally higher than at the end of August. D e p a rtm e n t S to re T ra d e For the three weeks ended September 21, total sales of the reporting departm ent stores in this D istrict were about 6 per cent higher than in the corresponding 1939 period, and the daily rate of sales for this portion of September showed nearly all of the customary seasonal increase over the unusually large August sales. Total August sales of the reporting departm ent stores in this D istrict were about 14 per cent higher than in August, 1939, the most favorable year-to-year compari son in a number of months, and the daily rate of sales showed considerably more than the usual seasonal ad vance from the July average, reaching the highest level since 1931. Sales of the leading apparel stores in this District were 16 per cent higher than last year, the largest year-to-year percentage increase in nearly four years. Percentage change August, 1940 compared with August, 1939 Per cent of accounts out standing July 31 collected in August Locality Net sales Stock on hand end of month 1939 1940 + + + + + + — 42.9 41.8 54.4 37.7 35.6 38.3 31.0 42.9 41.1 52.0 37.3 31.1 39.8 32.3 3.4 3.5 4.9 6.6 7.2 2.7 2.5 Northern New York State....................... Southern New York State........................ Central New York State.. . ..................... Hudson River Valley District.................. Westchester and Stamford....................... Niagara Falls............................................. +12.6 + 9.9 +16.3 +25.9 + 16.9 +28.1 +17.1 +12.3 +18.8 +27.4 +14.9 + 6.9 +17.0 All department stores............................ +14.1 + 3.9 40.8 39.3 Apparel stores........................................ + 16.0 — 4.6 37.0 37.4 Indexes of Department Store Sales and Stocks,, Second Federal Reserve District (1923-25 average ==100) 1939 1940 August June July August Sales (average daily), unadjusted................ Sales (average daily), seasonally adjusted.. 67 90 89 92 67 94 76 101 Stocks, unadjusted......................................... Stocks, seasonally adjusted........................... 74 78 74 78 68 79 76 80 FED E R AL RESERVE B A N K OF N E W Y O R K MONTHLY REVIEW, OCTOBER 1, 1940 Business Conditions in the U nited States (Summarized by the Board of Governors o f the Federal Reserve System) r 5 5 ^ 3 > ) Index of Physical Volume of Industrial Produc tion, Adjusted for Seasonal Variation (19351939 average=100 per cent) Index of Number of Factory Workers Employed, Adjusted for Seasonal Variation (19231925 averages 100 per cent) T)RO D U CTIO N and employment in August showed a further rise from the * level maintained in June and July and distribution to consumers also increased. Prices o f industrial materials were somewhat higher in the middle o f September than a month earlier. I ndustrial P roduction The Federal Reserve index o f industrial production is estimated at 123 in August as compared with 121 in June and July and 111, the low point for the year, in April. This rise has reflected chiefly the direct and indirect effects o f the defense program on industries producing durable goods and textiles. Steel production rose further in August as new orders for steel continued in large volume, and for the month as a whole mills operated at 90 per cent of capacity. Following a temporary decline over the Labor Day week, the rate o f output advanced to 93 per cent o f capacity in the third week o f September. In most branches o f the machinery industries activity showed a continued expansion in August and there were further sharp increases in shipbuilding and the manufacture o f aircraft. With the growth in production o f finished durable goods, consumption o f nonferrous metals advanced to the highest levels since last winter. Output o f automobiles was in small volume in August owing to the seasonal changeover to 1941 model cars. The low point in production was reached early in August; there was a gradual rise later in that month followed by a sharp advance in the first two weeks o f September as most companies began volume production on new models. Lumber production, which had declined in July, rose considerably in August. Textile mill activity continued to increase in August and was at the highest level since last January. Cotton consumption advanced considerably further and silk deliveries rose from the small volume o f recent months. Activity at wool textile mills increased seasonally, following a sharp rise in July, while at rayon mills activity showed a less than seasonal increase but continued at a high level. Mining o f bituminous coal in August was maintained in large volume for the season, while production o f anthracite declined. Output o f crude petroleum declined somewhat further. Value o f new construction work undertaken in August was at about the same level as in July, according to reports o f the F. W. Dodge Corporation and the Federal Reserve Bank o f San Francisco. The volume o f contracts for public projects continued unusually large and the amount o f new private work started was larger than in July. Residential building was at the highest level in recent years, on a seasonally adjusted basis, reflecting further increases in both private and public contracts. D istribution Distribution o f commodities to consumers increased considerably from July to August. Sales at department stores and by mail order houses showed a sharp rise and there was a less than seasonal decline in variety store sales. In the early part o f September department store sales continued to increase. Freight car loadings advanced from July to August when little change is usual. Shipments o f coal and miscellaneous freight increased while loadings o f grain showed more than a seasonal decline. Value of Construction Contracts Awarded (Three month moving averages of F. W . Dodge Cor poration data for 37 States, adjusted for seasonal variation) Commodity P rices P rices o f several industrial materials, including copper, zinc, steel scrap, lumber, hides, and print cloth, advanced somewhat from the middle o f August to the middle o f September and, owing partly to seasonal developments, prices o f foodstuffs were also higher. Prices o f most other commodities showed little change in this period, although some paper items were reduced and several new models o f automobiles were announced at advanced prices. A griculture Production prospects for most major crops increased during August, accord ing to the Department o f Agriculture. On the basis o f September 1 condi tions the cotton crop was estimated at 12,772,000 bales, about 1,340,000 bales more than was indicated at the beginning o f August. Preliminary estimates by the Department indicate that cash farm income, including Government pay ments, will be about $8,900,000,000 for the calendar year 1940 as compared with $8,540,000,000 last year. B ank Credit Commercial loans increased somewhat at banks in New York City and in 100 other leading cities during the four weeks ended September 11, while their holdings o f investments showed little change. Indexes of Value of Department Store Sales and Stocks, Adjusted for Seasonal Variation (1923-1925 average=100 per cent) U nited S tates Government Security P rices United States Government security prices increased in the last half o f August and the first week in September and were steady in the second week in September.
@FedFRASER