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M ONTHLY R E V IE W of Credit and Business Conditions Second Federal Reserve District October1,1941 FederalReserveBank, NewYork M on ey M a r k e t in S e p te m b e r Throughoutthemonthof September, themoneymar ketwasinfluencedtosomeextentbytheprospect of an increaseinrequiredreserves of member banks. When the increase inreserve requirements was actually an nounced, however, it appearedthat theactionhadbeen ratherfullydiscounted, at least forthepresent. Theannouncement of thechangeinreserverequire ments, whichwas madepubliconSeptember 24, stated thattheBoardof GovernorsoftheFederal ReserveSys tem,afterconsultationwiththeSecretaryof theTreas ury, had increased reserve requirements for member bankstothepresentstatutorylimit, effectiveNovember1, asafurtherstepintheGovernment’sprogramforcom batinginflation. Beginning onNovember 1, 1941, the newrequirementswillbeinaccordwiththepercentages specifiedinthefollowingtable,whichcomparesthemwith thereservepercentagesnowinforce. (Per cent of deposits) Classes of deposits and banks Present New requirements requirements On net demand deposits: Central Reserve City banks.......................................... Reserve City banks......................................................... “ Country” banks............................................................. On time deposits: All member banks........................................................... 22 % 17 H 12 5 *26 20 14 6 Onthebasisofthepresentfigureofabout$5,200,000,000ofexcessreservesheldbyallmemberbanks, andtheir present distribution, it isestimatedthat theincreasein requiredreserves, whichamountstoabout oneseventh, wouldresultinadeclineof about $1,200,000,000inex cessreserves. Theresultingdeclineinexcessreserves, to about $4,000,000,000, would, as the accompanying dia gramindicates, leaveexcessreservesconsiderablyhigher thantheywereimmediatelyafterthereservepercentage adjustmenteffectiveApril 16, 1938, notwithstandingthe fact thattheNovember1increasecancelsthereduction whichoccurredonthat date. Thehigherlevel of excess reserves, despitethehigherpercentages of requiredre serves, istobeexplainedprincipallybythelargeinflow of goldsince1938 (causingagreat increaseinmember bankreservebalances), whichforthewholeperiodhas beenonlypartlyoffsetbyalargeincreaseinmoneyin circulationsincethat time, andbygrowthof member bankreserve requirements accompanyingexpansionof deposits. Sincethebeginningof 1941, however, thegold inflowhasbeenretarded, and, asaresultof increasesin moneyincirculation,memberbankreserverequirements, and Treasury holdings of cash and deposits in the ReserveBanks, excess reserves haveshownadeclining tendencyduringthepastninemonths. TheNovember1increaseinrequirements, if applied tothepresent level anddistributionof excessreserves, wouldreduceCentral ReserveCitybankexcessreserves fromapproximately$2,400,000,000to$1,700,000,000, the excess of New York City banks declining from $1,800,000,000 to about $1,300,000,000, without taking intoaccountpossiblewithdrawalsoffundsbyout-of-town banks. At ReserveCitybanks, excessreserveswouldde cline from $1,850,000,000 to $1,500,000,000, and at countrybanksfromnearly$1,000,000,000to$800,000,000. Thus theNovember 1increaseinreserve requirements will, as the Board of Governors’ statement indicates, “leavethebanks as awholewithamplefunds tomeet allcreditneedsofthedefenseprogramandalllegitimate requirements of their customers.” A survey made re centlybytheBoardof Governors showedthat alarge majorityof thememberbankswill beabletomeet the increasedrequirements out of existing excess reserves andall but afewof theremainderbydrawingupona portion of their deposits with city correspondents. BILLIONS OF DOLLARS R eserve Position of AH M em ber B a n k s, Sh ow in g Required R eserves and E x cess R eserves to D ate, and E stim ated R equired R eserves after Increase in R eserve P ercentages E ffective N ovem b e r 1, 1 9 4 1 , B ased on P resen t A m o u n t o f R equirem ents 74 MONTHLY REVIEW, OCTOBER 1, 1941 Furthermore, theBoardhasannouncedthatpenaltiesfor deficient reserves, prior to December 1, 1941, will be baseduponreserve requirements ineffect October 31, 1941. Theincreaseinmemberbankreserverequirementsand thecontrol of consumer credit, whichbecameeffective September1, bothconstitutesteps, inthemonetaryand bankingfield,aimedatsupplementingothermeasuresin theover-all programof combatinginflationarydevelop ments. Theseotheranti-inflationarymeasuresincludethe programoffinancingasmuchaspossibleoftheGovern ment deficit bysales of Savings Bonds toindividuals, therebylimitingtheexpansionof depositswhichis in volved in commercial bank purchases of Government securities, theinstitutingof muchheavier taxes onin dividuals (both directly and indirectly) and oncor porations, andtheextensionof priorities, allocationsof materials, andpriceregulation. Theincreaseinreserve requirements tobe effective November 1 exhausts the existingstatutorypoweroftheBoardof Governorsover reserverequirements, andtheSecretaryof theTreasury andthe Chairmanof the Board of Governors jointly statedonSeptember 23 that “recommendations onthe questionof what additional powers, if any, over bank reservestheBoardshouldhaveduringthepresentemer gencyandwhat formthesepowers shouldtakewill be madewhenevertheTreasuryandtheBoard,afterfurther consultation, determinethat suchactionis necessaryto helpincombatinginflationarydevelopments.’9 seventrading sessions of the month, but expectations that actiontoraisereserverequirement percentagesfor memberbankswouldbetakenseemtohavehadadamp eningeffectonpricesofTreasurybonds, particularlythe intermediatetermissues, betweenSeptember10and23. However, on September 24, following the actual an nouncement of higher reserve requirements, Treasury bondquotations movedupmorethan*4 point, onthe average. Firmness was also in evidence later in the month, andthe groundlost inmid-September was re gained. As indicated by the movement of yields, prices of Treasurynotesdippedtotheirlowpoint forthemonth onthe 23rdbut recoveredsubsequentlyto showlittle changeforSeptember. Theyieldonthe%percenttax exemptnotesdueMarch15, 1945, afterfluctuatingonly slightlyinthefirsthalf of themonth, movedfrom0.34 percentonthe16thto0.40percentonthe23rd. Bythe endof themonththeyieldhadsettledbackto0.37per cent. Theyieldonthe % per cent taxable notes, due December15,1945, tracedasimilarpattern. Acceptedbidsonthefourweeklyissuesof taxable91 dayTreasurybills duringSeptemberweretenderedon interestbasesdecliningfrom0.090percentfortheissue datedSeptember3to0.037percent (thelowestratesince last February) fortheissuedatedSeptember24. Each oftheissueswasintheamountof$100,000,000; thefirst threereplacedmaturingissuesof$200,000,000each. Money Rates in New York M ember B a n k Credit Commercial, industrial, and agricultural loans of weekly reporting member banks in leading cities ex panded$206,000,000 further inthe four weeks ended September 24, andas some other types of loans also increased, total loans of the reporting banks rose $257,000,000. Total investment holdings of the banks, however, declined $244,000,000, owing to a drop of $265,000,000 inthe banks7holdings of Treasury bills whichaccompaniedareductionof $300,000,000 inthe outstandingvolumeof suchsecuritiesduringtheperiod underreview. As anet result of theriseinloansand reductioninsecurityholdings, thetotalvolumeofreport ingmemberbankcredit outstandingwaslittlechanged forthefourweeksendedSeptember24. Adjusted demand deposits of the reporting banks showednomaterial netchangeforthefourweeksended September24, andonSeptember 24were$154,000,000 belowthepeakreachedinthelatterpartofJuly. Domes ticinterbankdeposits rosesharply, reflectinginpart a movementofbankingfundstoNewYork. UnitedStates GovernmentdepositscontinuedtorisethroughSeptember 24, astheresultofthecreditingofsomeoftheproceeds of sales of Defense Savings Bonds and Treasury tax seriesnotes, butonSeptember25therewasasubstantial withdrawal by the TreasuryfromGovernment deposi tariesofproceedsoftheDefenseSavingsBondssales. G overnment Securities DuringthegreaterpartofSeptembertheGovernment securitymarketwasquiet, andtherewaslittlenetchange inpricesforthemonthasawhole. Bothtaxexemptand taxableTreasurybondsfluctuatednarrowlyinthefirst Sept. 30, 1940 Aug. 30, 1941 Sept. 30, 1941 Stock Exchange call loans....................... Stock Exchange 90 day loans................. Prime commercial paper— 4 to 6 months Bills— 90 day unindorsed......................... Average yield on Treasury notes (3-5 Average yield on Treasury bonds (not callable within 12 years) t ..................... Average rate on latest Treasury bill sale, 91 day issue................................... Federal Reserve Bank of New York discount rate.......................................... Federal Reserve Bank of New York buying rate for 90 day indorsed bills. . 1 *1H %> x 1 y2 h a 1 *1 H X A 0.45 0.31 2.20 1.96 1.97 0.013 0.114 0.037 1 1 1 Vl X 0.36J X * Nominal. f “ Tax exempt” issues only. t Change of + 0 .0 3 per cent from previous yields due to dropping from the average the 1 per cent Treasury note issue of September 15, 1944, which matures within three years. G o ld M o v e m e n ts ImportsofgoldintotheUnitedStatesduringSeptem berwereinsomewhatlargervolume, butthenetincrease inthegoldstockofabout$40,000,000wasapproximately thesameas inthethreeprecedingmonths. Goldheld under earmark for foreign account at the Federal Reserve Banks increasedabout $47,000,000 during the monthtoapproximately$2,023,000,000. InthefiveweeksendedSeptember24, theDepartment of Commercereportedthereceiptof $60,000,000of gold inthe following principal amounts: $38,600,000 from Canada, $5,700,000 fromRussia, $4,200,000 fromthe Philippines, $2,500,000fromColombia, $2,100,000from Australia, $1,600,000fromPeru, $1,400,000fromChile, $900,000fromMexico, and$700,000fromNicaragua. FEDERAL RESERVE BANK OF NEW YORK M e m b e r s h i p in t h e F e d e r a l R e s e r v e S y s t e m During September two additional State chartered banksandonemoretrustcompanyintheSecondFederal ReserveDistrictbecamemembersoftheFederal Reserve System,therebyincreasingtothirty-fourthenumberof institutions whichhavebecomemembers sincethefirst of thisyear. Excludingsavingsbanks, industrial banks, andprivatebanksintheSecondFederalReserveDistrict, noneof whicharenowmembersof theFederal Reserve System, although savings banks and industrial banks may under certain conditions become members, the present membership situation in this District, with respecttonumbersof memberandnonmemberbanks, is asfollows: Member Nonmember Total National banks.......................................... State banks and trust companies.......... 583 211 0 196 583 407 Total.................................................... 794 196 990 75 influenceof adversenews fromtheEasternFront and theTreasuryproposal tolimit corporationprofits to 6 percentofinvestedcapital, andthe90stockaverageby September26hadrecededtotheSeptember10level. At theendofthemonththepriceaveragewasslightlylower thanatthebeginningandwas6percentbelowtheyear’s high. IndustrialsharesmadeastrongershowinginSep temberthaneitherrailorutilitystocks. Tradingactivity ontheNewYorkStockExchangefor themonthas a wholecontinuedtoberestricted,althoughononeday,the 25th,volumewastheheaviestsinceJuly22. Pricesof highest gradecorporatebonds, asmeasured byMoody’sindexofAaabonds, wereoffsomewhatinthe firsthalf of themonthbut subsequentlyrecoveredmost of thisdecline. Meanwhile, mediumgradebonds, rated BaabyMoody, showedanirregulardeclineof about % of apoint during September. Most of this downward movement wasaccountedfor bycontinuedweaknessin second-grade rail bonds, whichmay perhaps be asso ciatedwithdevelopmentsintherailroadwagesituation. AccordingtoStandard’spriceaverage, primemunicipal bondsweresteadyatlevelsslightlybelowtherecordhigh setAugust 6, last. Sharprisesinquotationsof foreign dollarbondswerereportedforthefirsthalfofSeptember. The largest gains were in bonds of German-occupied countriesandinJapanesebonds. Thus, of the‘*commercial’’ banksinthis District, 80 percentofthenumberarenowmembersof theFederal ReserveSystem;membershipofallNationalbanksinthe continental United States exclusive of Alaska is re quiredby the Federal Reserve Act while State banks andtrust companies may become members, subject to theirmeetingcertainconditions of membership, andin this latter groupnearly52 per cent of thenumber of Theawardtoagroupof lifeinsurancecompaniesof such institutions in this District are nowmembers, $90,000,000 American Telephone andTelegraphCom accountingforapproximately87percentoftheassetsof panyrefundingdebenturesonSeptember 29raisedthe all State banks and trust companies in the District. volume of corporate and municipal financing during eptemberto$201,000,000. Withoutthisissuethemonth’s Fromthe standpoint of total commercial bankassets, S total wouldhavebeenthesmallest inmorethanthree bankswhicharemembersoftheFederalReserveSystem y ears. Corporateflotationsamountedto$158,000,000, of accountforapproximately92percentoftheassetsofall w hichonly$26,000,000represented“newmoney”. The commercialbanksinthisDistrict. v o meofmunicipalfinancingcontinuedtodecline, asit The movement toward membership in the Federal halu s r thelast several months, andapproximatedthe ReserveSystemhasalsobeeninprogressinotherFederal lowefo s t vels reached since September, 1939, the first ReserveDistricts, andfor thefirst eight monthsof the monthole fthewar. yearthenumberofbanksbecomingmembersaggregated Detailsofthemajorflotationsareasfollows: 123. Therewere39 admissionsof newmembers inthe Telephone and Telegraph Company 2% ChicagoFederal ReserveDistrict, inwhichthenumber $90,000,000 American per cent debentures maturing in 1976, awarded at of nonmember commercial banks withsufficient capital 101.842 (or a net interest cost of about 2.66 per cent) ; for refunding purposes stocktomeet theminimumstatutoryrequirements for Railroad Company 3% per cent first mortgage FederalReservemembershipisbyfarthelargestof any 18,000,000 Eriebonds of 1971, awarded at a net interest cost o f Federal ReserveDistrict. TheNewYorkReserve Dis 3.19 per cent and reoffered at 10 2^ (yield o f tricthad31admissionsduringthesameperiod, andfor 3.125 per cent) for principal amounts up to $499,000 and at 101% (yield o f 3.15 per cent) for the other districts the number of banks that became amounts o f $500,000 and upward; for refunding membersvariedfrom1to12. purposes N ew S e c u r ity M a rk e ts StockpricesfluctuatedirregularlyduringSeptember. Noneofthepricemovementswaseitheroflongduration or of great extent. BetweenSeptember 2 and10 the Standard90 stockprice average declinedabout 2per cent, thenrecovered3percent inthenext sixtrading sessions. Anotherperiodof declinefollowed, underthe F in a n c in g 14,700,000 Saint Paul Union Depot Company first and refund ing mortgage 3% per cent bonds o f 1971, awarded at a net interest cost o f 3.06 per cent and re offered at 102% to yield 3.00 per cent; for re funding purposes 9,000,000 State Roads Commission of Maryland 1% to 2% per cent refunding bonds maturing from .1942 to 1956, awarded at a net interest cost o f 1.85 per cent and reoffered to yield from 0.30 to 2.00 per cent; for refunding purposes. 76 MONTHLY REVIEW, OCTOBER 1, 1941 September, when the unofficial discount narrowed to 10y4per cent, thesmallest sinceNovember, 1939. The discount subsequently widened, however, to 11% per cent onSeptember 23, as the seasonal tourist demand slackened; at theendof themonthit stoodat 11%per cent, asagainst 10%percent amonthearlier. Among the Latin American exchanges, the free rate for the Argentinepesocontinuedtoholdaround$0.2380until mid-September, whensome reaction developedandby theendofthemonththeratehadrecededto$0.2343, the lowestsincelastApril. Thisreactionmayhavebeendue, inpartatleast, toadeclineinthebuyingofpesos, under licensehere, tobeusedforthepurchaseinArgentinaof ItalianliretocoverremittancestoItaly. Somedemand fordollarsintheArgentinefreemarket, inanticipation of the payment of third quarter profits onAmerican direct investments inArgentinamay alsohavebeena factorinthereactioninthepesoduringthelatterpart of September. After holding at about $0.2750 during Temporaryfinancingtotaledanadditional$80,000,000 mostofthemonth,thefreeratefortheVenezuelanboli andincluded$35,000,000NewYorkCity0.25 percent vardeclinedto$0.2685onSeptember 26but endedthe revenuebillsmaturingNovember5,1941, and$29,000,000 month at $0.2700. The favorable outlook for Cuban Federal Intermediate Credit Bank% per cent consoli sugar exports, accompanying the recent increase in dateddebenturesmaturingJuly1, 1942whichweresold Americanimport quotas for Cubansugar, appears to belargelyresponsibleforsomefurtherimprovement in onaninterestbasisof0.40percent. theCubanpesoearlyinthismonth, whenthediscount Accordingtopublicannouncements, anumberof cor narrowedfrom% per cent to about % per cent, the porations areplanningtoissue securities toraisenew smallest in several years. capital, but onlyinafewcasesaresubstantial amounts theFarEast, themostsignificantforeignexchange involved. The DowChemical Companyhas offeredits deIvn elopmentwastheactiontakenbytheprincipal nonstockholders of recordSeptember26, 113,519 shares of Axis anksinShanghaiwhichhadtheeffectofvirtually commonstockthroughtransferablesubscriptionwarrants suspeb n ding all unrestricted trading in the Shanghai expiringOctober6, andtheWestinghouseElectricand open m ket. It was reported on September 8 that Manufacturing Company will offer 534,426 shares of branchesarin hinaof theAmerican, British, Dutch, and commonstocktoits stockholders of recordOctober 15, Chinese banC k to whomgeneral licenses have been throughrights whichwill expire onOctober 28. The grantedunders,ou rfreezingregulations, hadagreedto UnionPacificRailroadhasrequestedthat bidsbesub cooperate fully w ith the newly created Stabilization mittedonOctober8foranissueof$13,250,000of equip BoardofChina.Inlin ewiththispolicy,theChineseyuan menttrustcertificates. isnowquotedinShanghai at 511/32 centsand33/16 Asindicatedintheaccompanyingdiagram,corporate pence, thesameas the rates fixedbythe Stabilization financingaveragedabout $230,000,000 amonthduring Boardforcoverforlegitimatemerchandiseimportsfrom thethirdquarterof thisyear. Thevolumeof corporate theUnitedStatesandthesterlingarea. OnSeptember refundingsdeclinedtoalowlevel, but the$132,000,000 24theNewYorkmarket was advisedthat theReserve monthlyaveragefornewcapital flotationsexceededthat Bankof Indiahadchangedits buyingratefor dollars ofanyquartersincethesecondquarterof 1937. Chiefly fromtheequivalent of about $0.3030 per rupee, which responsible for this rise inthevolume of newcapital hadbeenineffect since April 2, tothe equivalent of financing was the flotationinAugust of $222,000,000 about $0.3035. The Reserve Bank’s selling rate for American Telephone and Telegraph Company deben dollars for spot delivery was also changed to the tures. equivalent of about $0.3010; sinceMay, 1940this rate hasbeen$0.3003. MILLIONS OF DOLLARS 4 0 0 ---------- M on th ly A v era g e V olu m e of D om estic Corporate Security Issu es for R efund in g and for N ew Capital (In m illions of d o llars; third quarter 1941 data prelim inary) F o r e ig n E x c h a n g e s During the past month interest in the NewYork marketforforeignexchangecontinuedtobecenteredin the Western Hemisphere currencies. The Canadian dollar, which had been in demand in the unofficial marketinrecentmonths, improvedfurtherduringearly C o m m o d it y P r ic e s Advancing prices again predominated in wholesale commoditymarkets during September, although, as in August, therateofrisewaslessrapidthaninthespring andearlysummer. Hearings onthe price control bill FEDERAL RESERVE BANK OF NEW YORK wereresumedaboutthemiddleofthemonthandavariety ofproposalswasofferedforcheckinggeneralpriceinfla tion. TheSecretaryof theTreasuryrecommendedthat part of thelargeGovernment holdingsof suchagricul tural commoditiesascotton, wheat, andcorn, besoldto haltpriceadvances. ThePriceAdministratoradvocated aselectivesystemof pricefixing, limitingtheestablish mentof priceceilingsto“75to100principal commodi tiesorfabricatedproductsofindustry.” InthelatterpartofSeptembersomereactionoccurred inthepricesofanumberof commoditiesnotunderceil ingregulations, especiallyfarmandfoodproducts. Large price gains recordedearlyinthemonthincottonand hogsweremoreorlessoffsetbysubsequent declines, al thoughwheatquotationsshowednetgainsofaroundfive centsforthemonth. Pricesof industrial rawmaterials, over whichceiling quotations have beenwidely estab lished, movedwithinnarrowrangesbut towardslightly higher levels. During September the Office of Price Administrationissuedschedulesof maximumpricesfor severaladditionalproducts, includingDouglasfirlumber, twotypesofcoke,wastepaper, andethylalcohol, thereby increasingtoover30thetotal numberof priceceilings effectiveas of October 1. Therewerealsorevisions in certain ceiling regulations, among which was the an nouncementofaplanwherebycottontextilepriceswould bechangedindirectrelationshiptotheaveragepriceof rawcottonin10Southernmarkets. AccordingtotheBureauof Labor Statistics weekly index, wholesalecommodityprices generallyhaverisen 22percent sincetheoutbreakof thewar, and18per cent withinthe last year. While all major categories of commodities have shownsome price advances over these periods, the degree of participation inthe gen eral risehasvariedgreatly, astheaccompanyingtable indicates. IncreasesfromAugust 26, 1939toSeptember 20, 1941rangedfrom6percent for metals andmetal productsto49percent forfarmproducts. Differences intheextent of priceadvancereflect, ontheonehand, earlyandeffectivemeasurestorestrainpricesof metals andothercommoditiesof critical importancetothede- fenseprogram. Ontheotherhand, several factorshave operatedtoincreasefarmandfoodprices; amongthese areexpandingconsumerdemandandthepassageinMay of legislationrequiringtheCommodityCredit Corpora tiontomakeloansonmajor1941cropsat85percentof parityprices. Advancesinpricesofimportedfoodshave beenduelargelytoatighteningshippingsituation. E m p lo y m e n t a n d P a y r o lls Employment inNewYorkStatefactories rose4per cent furtherinAugust, andpayrolls increased6%per cent. Thesegainswereduenot onlytocontinuedlargescale hiring at plants withdefense orders but also to expansion of working forces at firms manufacturing civilian goods. Women’s clothing and millinery con cerns madelarge seasonal additions toworkingforces, andmen’sclothingfirmscontinuedtooperateat ahigh level. All branchesof themetals andmachineryindus trialgroupemployedmoreworkersinAugust; shipyards andplants producingairplanes, firearms, andtool steel reported the largest gains. This bank’s seasonally adjustedindexes of employment andpayrolls inNew YorkStatefactories, whicharebasedondatareported by the State Department of Labor, continued their steadyrise,asisshownbytheaccompanyingdiagram;by August bothindexes hadadvancedfor 16 consecutive months. Factoryemploymenthasrisen42percentsince August, 1939, justpriortotheoutbreakofwar, whereas theincreaseinpayrollsoverthetwoyearperiodhasbeen 85percentorapproximatelytwiceasmuch,owingtothe combinationoflargerworkingforces, higherwagerates, andlongerworkinghours. Bothindexesarenowatthe highestlevelsonrecord;theemploymentindexinAugust was26%percentabovethe1929peak, andtheindexof payrollswas36percenthigher. FactoriesintheUnitedStatesasawholereportedin creasesof 1y2 percentinworkingforcesand3percent United States Bureau of Labor^Statistics Weekly Indexes of Wholesale Commodity Prices Index Percentage change Sept. 20, September 1941 compared with 20, 1941 (1926=100) Sept. 21, 1940 Aug. 26, 1939 Farm products............................................ Foods........................................................ Textile products......................................... Hides and leather products..................... Building materials..................................... Chemicals and allied products............... Housefurnishing goods.............................. Fuel and lighting materials..................... Metals and metal products..................... Miscellaneous............................................. 91.2 88.5 89.2 111.7 106.2 87.8 98.0 80.0 98.7 85.0 + 3 8 .8 + 2 4 .4 + 2 3 .9 + 1 2 .8 + 1 1 .6 + 1 4 .3 + 8.9 + 1 1 .3 + 3.6 + 1 1 .4 + 4 9 .3 + 3 2 .7 + 3 2 .3 + 2 0 .6 + 1 8 .4 + 1 8 .3 + 1 2 .6 + 9 .3 + 5.6 + 1 6 .3 All commodities..................................... 91.5 + 1 7 .8 + 2 2 .3 Raw materials............................................ Semimanufactured articles...................... Manufactured products........................... 89.8 90.1 92.8 + 2 8 .1 + 1 6 .3 + 1 3 .6 + 3 5 .6 + 2 1 .1 + 1 7 .0 77 Factory Employment and Payrolls in New Y ork State, Adjusted for Seasonal Variation and to Census Data (1925-27 a v e r a g e s 100 per cent) 78 MONTHLY REVIEW, OCTOBER 1, 1941 inwagepaymentsbetweenJulyandAugust. Inneither case were the gains so large as those experienced in DuringAugusttheindexofproductionandtradecom ordinaryyears, because of the exceptionally highrate putedat this bankrosetwopoints further to 113 per towhichindustrial activityhadalreadyrisenbyJuly. cent of estimatedlongtermtrend—withinstrikingdis Therewerefurtheremploymentincreasesintheaircraft, tanceof thehighest level reachedin1929. Inthetwo machine tool, andelectrical machinery industries, but y earperiodfromAugust, 1939 (themonthjust preced shipyards reported amuchsmaller gainthaninpre in gtheoutbreakof thewar) toAugust of thisyearthe cedingmonthsowingtoalabordisputeatanEast coast ind exadvanced27points. yard. Automobile factories laid off large numbers of T eriseinthegeneral indexinAugust reflectedpri workersduringAugustinconnectionwithmodelchange- marh ily arp(andprobablylargelytemporary) spurt overs, whileradiomaufacturersincreasedworkingforces inretailatsrh a mthealreadyhighlevel of July. As seasonally. Canneries, whose business has beenstimu indicatedbydethferoa companyingchart, thegroupindex latedbylargeGovernment purchases, addedevenmore measuringdistributcio ntoconsumeradvancedninepoints workersthanusual inAugust. Factoryemployment as over July. Departme t store sales increasedconsider awholewas23percentabovethelevel of August, 1940 ablymorethanusual n i n Augustandwereaboutathird andpayrollswere49percentgreater. larger thaninthe corresponding month of last year. Total civil nonagricultural employment intheUnited Combinedsalesof thetwomajormail orderhousesran States is estimatedby the Labor Department to have nearly50percent aheadof August, 1940, andsalesof risen 260,000 in August to a total of approximately variety andgrocery chainsystems were about 25 per 39,500,000persons. Alargepartoftheincreaseoccurred centgreater. Althoughretailsalesofnewpassengercars inmanufacturing industries, but wholesale andretail weresomewhathigherthaninthepreviousAugust, there trade establishments andconstructionfirms also made wasasharpdeclinefromJuly, owingtochangeoverto sizable additions to working forces. Compared with newmodels. Augustayearago,3,600,000morepersonswereemployed Reflectingthecontinuedimpetus of thedefensepro innonagricultural occupations. Thearmedforces (not gram,outputof producers’ durablegoodsadvancedinto included in the above estimates) totaled 1,950,000 in newhighgroundinAugust;theaircraft, machinery, and August, anincreaseof 1,400,000overAugust, 1940. other‘‘defense’’ industriesshowedfurthergains, andthe steelmillscontinuedtooperateatnearcapacity. Onthe otherhand, output of producers’ nondurablegoodsand o consumers’ durablegoodsdeclinedbetweenJulyand Preliminarydatafor Septemberindicateacontinua Afug st, seasonalfactorsconsidered.Productionofcotton tionof the highrate of business activity. Despite in andu wooltextileswassomewhatlowerthaninthepreced creasingconcernover actual andprospective shortages ingm onthanddeliveriesofsilktodomesticmillsfell off ofsteelscrap,thesteelmillscontinuedtooperatecloseto toonly t onetenthof theJulyratefollowingthe full ratedcapacity in September. Production of new zingaobfou silkstocksbytheOfficeof ProductionMan model automobilesrosesteadilyinSeptember, following fargeeem nt earlyinthemonth. Passengercaroutput was thechangeoverperiodinAugust, but, owingtoGovern sharpely educedinconnectionwiththe changeover to ment restrictions ontheoutput of passengercars, total productiorn of newmodels, andoperationsinthefurniassemblies wereconsiderablylower thaninSeptember, 1940. TheOfficeof ProductionManagement announced that December production of passenger cars has been setat48%percentlessthanoutputinDecember, 1940. Thisquota,togetherwiththe26%percentcutpreviously orderedfortheAugust-Novemberperiod, will result in anover-all curtailment for thefirst fivemonths of the 1942 model year of 32 per cent. Production of light trucks for nonmilitarypurposes for theperiodAugust throughNovemberhasbeenlimitedto91percentof the outputinthecorrespondingmonthsoflastyear. Cottontextilemills arereportedtohavemaintained operations at anextremelyhighrateinSeptember, al thoughthevolumeofsalesofgraygoodswassmall, owing totheunwillingness of mills tobookadditional orders anduncertaintiesoverpriceceilings. Aroundthemiddle of the monthloadings of railway freight reachedthe highest weeklytotal sincethefall of 1930, andelectric powerproductionandoutputof crudepetroleumroseto newrecordlevels. P r o d u c t io n a n d T r a d e in A u g u s t P r o d u c tio n a n d T r a d e 1927 1928 1929 1930 1931 1932 1933 1 93 4 1935 193 6 1937 1938 1939 1 9 4 0 1941 Index o f D istribu tion to C onsum er (F ed eral R eserve B ank o f N ew Y o rk index, expressed as a percentage o f estim ated long term trend, and ad ju sted for seasonal variation ) FEDERAL RESERVE BANK OF NEW YORK 79 ture industry increasedless thanusual over the rela Although almost all classifications have shown in creasesinvolumeduringthepast year, therehas been tivelyhighJulylevel. ashift inthe relative importance of various types of constructionworkowingtothenatureofdefenserequire ments. Forexample, awardsforresidentialbuildingand public works projects haveaccountedfor smaller per centagesofallcontractsawardedsofarthisyearthanin thecorrespondingperiodof1940. Ontheotherhand,the proportionsofallcontractswhichhavebeenawardedfor utilities construction (particularly electric power and lightprojectsandairports) andfornonresidentialbuildinghaveshownincreases. Withinthenonresidentialbuildinggroup,widechanges intherelativeimportanceof various types of building haveoccurred, as isshownintheaccompanyingchart. While the dollar value of awards for public purpose building showedlittle net change betweenthe first 8 monthsof1940andthecomparableperiodof1941, other nonresidential buildingawards werealmost four times aslarge. FromJanuarythroughAugust of 1940public purposebuildingaccountedfor thelargest singleshare of nonresidential building (39 per cent); commercial andmanufacturingbuilding eachamountedtoalittle under onethirdof the grouptotal. Inthefirst eight monthsofthisyear, however, awardsforpublicpurpose andcommercial buildinghaveeachrepresentedonlyone fifthof all nonresidential buildingcontracts, whilefac toryconstruction (nearlyhalf of whichwas accounted for by Government contracts) has made up approxi mately 50 per cent of the total. Government defense awardsprimarilyaccountfortheincreaseinthemiscel laneousclassificationfrom4to10percent of thetotal. Asaresultof theheavydemandonbuildingsupplies, causedbythedefenseprogram,anordergrantingpriori tiesoncriticalmaterialsforcertaintypesofprivateresi dential building indefense areas andfor Government housingprojects for workers indefenseindustries was (Adjusted for seasonal variations and estimated long term trend; series reported in dollars are also adjusted for price changes) 1941 1940 August June July August Index of Production and Trade....................... Production of: Producers’ durable goods....................... Producers’ nondurable goods................. 93 110 lllp 113p 93r 97r 123 121 126p 121p 131p 117p Consumers’ durable goods..................... Consumers’ nondurable goods............... 73 94 104 105 103p 105p 96p 104p Primary distribution.................................... Distribution to consumer........................... 90 98r 104 104 105p 107p 105p ll6p Industrial Production Steel................................................................. Automobiles................................................... Bituminous coal............................................ Crude petroleum........................................... Electric power............................................... Cotton consumption.................................... Wool consumptionr.................................... Shoes............................................................... Meat packing................................................ Tobacco products......................................... 112 56 96r 86 100 lllr 109 lOlr 97 89 126r 131 125 87 113 149r 196 133 105 99 126r 150 130 86 112 155r 179 133p 106 96 125 104 ll7 p 90p 115p 152 I64p 119p 110 97 Manufacturing Employment Employment.................................................. Man-hours of employment......................... 97r 93r 116 119 120 122 119p 121p Construction Residential building contracts................... Nonresidential building and engineering contracts..................................................... 60 67 73 82 75 88 93 137 Primary Distribution Ry. freight car loadings, mdse, and misc. Ry. freight car loadings, other.................. Exports........................................................... Imports........................................................... 85 94 113 80 103 117 103 94 103 116 114p 91p 103 114 Distribution to Consumer Department store sales (U.S.)................... Grocery chain store sales............................ Variety chain store sales............................. Mail order house sales................................. New passenger car sales r ........................... 96 99 106 103 80 99 99 108r 108 118 108 99 108 111 104r 125 103p 126 131 90p Velocity of Deposits* Velocity of demand deposits, outside New York City (1919-25 average = 100)----Velocity of demand deposits, New York City (1919-25 average = 100)............... 53 60 57 61 23 27 26 27 Cost of Living and Wages* Cost of living (1935-39 average = 1 0 0 )... Wage rates (1926 average = 100)............. 104 114 108 122 109 123 IlOp p Preliminary. r Revised; in the cases of wool and new passenger car sales, the series have been revised. * Not adjusted for trend. M ILLIO N S o r D O LLARS B u ild in g DuringAugustthedailyrateof constructioncontract awardsfor37EasternStatesrose83percentabovethe figureforAugust, 1940tothehighestlevelinanymonth coveredbytheF. W. DodgeCorporationrecordswhich beganin1925. Awardsforresidential buildingwerethe largest since April, 1929, andnonresidential building contractswereawardedatthehighestrateonrecord. Contract awards for defense purposes havebeenac countingforanincreasingproportionof newconstruc tionprojects. Alittleoverhalfofthecontractsincluded inthetotalsforAugust wereGovernment awards con nectedwiththedefenseprogram. Thiscompareswith42 per cent for suchawards inJuly and22 per cent in Augustoflastyear. Nonresidential Building Contracts Awarded in 37 States During First Eight Months of 1940 and 1941, Classified by M ajor Groups (Based on F. W . Dodge Corporation data) MONTHLY REVIEW, OCTOBER 1, 1941 80 announcedonSeptember19bytheOfficeof Production Fromweeklyreports gatheredfromasmallerlist of Management. Prioritiesunderthis orderarescheduled stores, it appears that the gains over ayear previous for approximately 200,000 privately financeddwelling were largest early in August and thereafter receded units and 100,000 units financed by the Government, graduallythroughtheremainderof themonthandinto whichtogetherareequaltomorethanhalf theestimated September. Anaccelerationof salesagainoccurredin numberofnewnonfarmdwellingunitsprovidedin1940 thelatter part of September inanticipationof excise for the entire country. Inthe nonresidential building taxeseffectiveOctober 1, but forthemonthasawhole fieldthe Supply Priorities andAllocations Boardhas salesfailedtoshowasmuchexpansionoverAugust as takenthepositionthattheexpansionofprojectsfornon usuallyoccurs, althoughitisestimatedthataveragedaily defense purposes is undesirable if they require large salesexceededthoseofSeptemberoflastyearbyapproxi amountsofmaterialsneededinthedefenseprogram. mately13percent. InNewYorkandNorthernNewJerseythedailyrate hemostsubstantialincreasesinsalesbetweenAugust, ofconstructioncontractawardsduringAugustwasabout 19T 0andAugustofthisyearoccurredinsalesofhosiery, one-thirdabovethe correspondingmonthof last year. un4 d ear, furs andfur-trimmedcoats, homefurnish Ofthemajorclassifications, awardsforresidentialbuild ingse,raw n dhouseholdappliances. ing,whichmadeupalittleoverhalfofallawards,showed the largest year-to-year increase, amounting to40 per Retail stocksof merchandiseonhandinthereporting cent. Awards for nonresidential buildingwereupone departmentstoresattheendofAugustwere26percent third, whileheavyengineeringprojects wereabout un higherthanat theendof August, 1940, andwerealso considerablylargerthanat theendof Julydespitethe changed. h ighrate of sales inAugust. Returns fromalimited Ofthecontractsincludedinthemonth’stotalforNew nu berofdepartmentstoresinthisDistrictindicatethat YorkandNorthernNewJersey, only14percentrepre outm s t ding orders for merchandise purchasedby the sentedGovernmentcontractsfordefensepurposes. This storesa,nb tnotyetdelivered, wereovertwiceaslargeas compareswith46and18percent, respectively, forJune thoseofu A ugust31, 1940. andJuly. Percentage changes from a year ago D e p a r tm e n t S to re T r a d e Asinothersectionsof thecountry, retail tradeinthe SecondFederalReserveDistrictwasexceptionallyactive duringAugust. Salesof departmentstoresreportingto thisbank,onanaveragedailybasis, wereapproximately one-thirdlargerthaninAugust of last yearandabout 25 per cent greater thaninJuly, as indicatedonthe accompanyingchart. Whilemoderateincreasesinsales characteristically occur betweenJuly andAugust, the month-to-monthadvance this year was the largest re cordedsincethisbankbeganitsworkofcollectingdepart mentstoresalesfiguresmorethantwentyyearsago. PER CEN T Net sales Stock on hand end of month Department stores August, 1941 Jan. through August, 1941 August, 1941 +26 +30 +29 +38 + 43 +22 + 23 + 32 + 29 +40 +38 + 41 + 12 +16 +15 +23 +27 + 13 +15 +20 +1 6 +23 + 27 +23 +25 +25 +23 + 47 + 39 +2 2 New York City (includes Brooklyn). . . Northern New Jersey............................... Newark.................................................... Westchester and Fairfield Counties. . . . Lower Hudson River Valley................... Poughkeepsie.......................................... Upper Hudson River Valley................... Central New York State......................... Northern New York State....................... Southern New York State....................... Binghamton .......................................... Western New York State........................ Niagara Falls.......................................... — +4 4 +43 +6 0 +38 +45 +37 +30 — +35 — +35 +34 +36 — — +23 +23 +23 +34 + 21 + 27 +13 +15 — +25 +27 +21 +24 — All department stores........................... +30 +15 +26 Apparel stores............................................. + 39 +12 + 29 Indexes of Department Store Sales and Stocks, Second Federal Reserve District (1923-25 average=100) 1941 1940 Sales (average daily), unadjusted................. Sales (average daily), seasonally adjusted.. Stocks, unadjusted............................................ Stocks, seasonally adjusted............................. Index o f Dollar Volume o f Sales o f Reporting Department Stores in Second Federal Reserve District, not Adjusted for Seasonal Variation (1923-25 average= 1 0 0 per cent) r Revised August August June July 76 101 98 102 81 114 101 134 85 90 83 96 98 103 79r 83r FE D E R A L RESERVE B A N K OF N E W Y O R K MONTHLY REVIEW, OCTOBER 1, 1941 Business Conditions in the United States (Summarized by the Board o f Governors o f the Federal Eeserve System) I N D U STRIAL activity increased further in August and the first half o f September, and commodity prices continued to advance. Distribution o f commodities to consumers expanded considerably. Index o f P h ysical V o lu m e o f Industrial Produc tion, A d ju ste d for Seasonal Variation ( 1 9 3 5 -1 9 3 9 a v e r a g e ^ 1 OO per cen t) Index o f Total Loadings of R evenue F reight, A d ju ste d for Seasonal Variation ( 1 9 3 5 -1 9 3 9 a v e r a g e = 1 0 0 per c e n t; m iscellaneous, coal, and all other car loadings expressed in term s o f points in total index) U . S . B ureau o f Labor S tatistics Indexes o f W h o lesa le P rices, B ased on 12 F o odstuffs and 16 Industrial M aterials (A u g u s t, 1 9 3 9 = 1 0 0 per cen t) CENT pen CENT TFtEASURY 'HONOS j ^ < * \A v A , r 'W jk , k J TREASURY NOTES I V T“ ' ’W v \i /* v js TREASlJRY BILLS • * v . - 1935 1936 1937 1938 1939 1940 M oney Rates in New Y ork City 1941 P roduction In August industrial output increased somewhat more than seasonally and the B oard’s adjusted index advanced from 160 to 161 per cent o f the 1935-39 average. There were sharp further advances in activity in the machinery, air craft, shipbuilding, and railroad equipment industries. Lumber production also increased, while furniture production, which had been unusually large in July, showed less than the customary seasonal rise in August. Output o f steel and nonferrous metals continued at near-capacity rates. In the automobile industry output o f finished cars declined sharply as plants were closed during the changeover to new model production and output in factories producing bodies and parts also was reduced considerably. In the first half of September automobile assemblies increased as production o f new models was begun but from now on, owing to Government restriction on passen ger car production, output will be considerably below that during the previous model year. In most nondurable goods industries production in August continued around the high levels reached earlier this year. A t cotton mills activity declined slightly from the record level reached in July, while at woolen mills there was some increase. Rayon output continued at peak levels. In the silk industry operations were curtailed sharply, as the Government requisitioned all supplies o f raw silk, and deliveries o f silk to mills declined from 28,000 bales in July to 2,000 in August. Rubber consumption also decreased, owing to a Government curtailment program. Shoe production, which had been unusually large, increased less than seasonally in August, and output o f manufactured food products and chemicals showed seasonal increases from the high levels prevailing in June and July. A t mines coal production in August, as in other recent months, was unusually large for the season, and output o f crude petroleum rose to a record level o f 4,000,000 barrels daily in the latter part o f the month. Iron ore ship ments down the Lakes amounted to 11,500,000 tons, the largest monthly total on record. Value o f construction contract awards showed a further sharp increase in August and was about four-fifths larger than a year ago, according to F. W. Dodge Corporation reports. The rise from July was substantial for all general types o f construction but was most pronounced for publicly financed projects. Awards for residential building continued to increase. D istribution Sales o f general merchandise rose sharply in August and wTere at an extremely high level for this time o f year. The B oard’s seasonally adjusted index o f department store sales advanced to 133 per cent o f the 1923-25 average as compared with 115 in July and an average o f 103 in the first half o f this year. In the early part o f September department store sales declined from the peak reached in the latter part o f August. Railroad freight car loadings in August were maintained in the large volume reached in June and July. Coal shipments increased, following some reduction in July, while loadings o f grain, which had been large since last spring, declined. Commodity P rices Wholesale prices o f most groups o f commodities continued to advance from the middle o f August to the middle o f September. Prices o f grains, other food stuffs, and cotton showed large increases and there were advances also in prices of a number o f industrial commodities not covered by Federal price ceilings. Fragmentary data available indicate that retail prices of foods and other commodities rose further during this period. A griculture The outlook for agricultural production in 1941 showed little change during August. Crop prospects were reduced slightly by drought but aggregate crop production is expected to be two per cent larger than last year and the largest for any year except 1937. Total marketings o f livestock and livestock products will probably be the largest on record. Preliminary estimates o f the Depart ment o f Agriculture indicate that cash farm income, including Government payments, will be about $10,700,000,000, compared with $9,120,000,000 in 1940. B ank Credit Commercial loans at reporting member banks in 101 cities continued to rise substantially during the four weeks ended September 10. Bank holdings o f United States Government securities showed little net change, while holdings o f other securities increased somewhat at New York City banks. As a result o f the expansion in loans and investments bank deposits continued to increase. U nited States Government Security M arket Prices o f Treasury bonds increased in the latter part o f August but subse quently declined somewhat in the first part o f September. On September 15, the partially tax exempt 2% per cent 1960-65 bonds were yielding 2.06 per cent compared with the record low yield o f 2.02 per cent. Yields on Treasury notes showTed little change in the period.