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MONTHLY REVIEW
o f C r e d it a n d B u s in e s s C o n d it io n s
Second

F 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-




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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.