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M ONTHLY

R E V IE W

of Credit and Business Conditions
S e c o n d

F e d e r a l

Federal R eserve Bank, New Y ork

M o n e y M a r k e t in A u g u st
Since the latter part of July there has been an acceler­
ated flow of gold to this country accompanying weakness
in the principal foreign exchanges. The weakness in the
exchanges appears to have been precipitated by a re­
newed inflow of capital from abroad, but an underlying
influence has been the continued heavy excess of mer­
chandise exports from this country over imports. Until
recently the effect of payments for our large balance of
merchandise exports on the foreign exchanges and gold
movements was considerably modified by the use of
foreign funds previously accumulated in this country.
The accompanying diagram shows cumulative figures
since the beginning of 1935 for the gold movement to
this country from abroad and for two of the principal
factors causing the gold inflow— the movement of capital
between this and other countries, and the excess of mer­
chandise exports from the United States over merchan­
dise imports. There are a number of other less important,
although substantial, factors, such as silver purchases
from foreign countries, tourist expenditures, and income
from foreign investments. The figures on the movement
of foreign capital to and from this country are shown
only through March, as subsequent data have not yet
been published.
As this diagram shows, the inflow of foreign capital
to the United States was the dominant factor causing
the heavy inflow of gold from the beginning of 1935 until
the autumn of last year. Merchandise exports and
imports had been roughly in balance, except for some
surplus of exports in the latter part of 1935 and some
surplus of imports in the early months of 1937. Since
the spring of last year, however, there has been a drastic
curtailment of merchandise imports to this country, ac­
companying the recession in business activity here, while
seasonal shipments of cotton, grain, and other com­
modities last autumn, added to an already relatively
high level of merchandise exports, carried the export
volume to the highest level in several years. By last
October the excess of exports over imports rose to a rate
in excess of $100,000,000 a month. About the same time
there was a reversal in the movement of foreign capital
to this country, apparently reflecting in part actual
withdrawals of foreign balances induced by rumors of
an impending further devaluation of the dollar, and in
part the use of foreign balances here to pay for the excess
of merchandise shipments from this country over im­




R e s e r v e

D is tr ic t
Septem ber 1, 1938

ports. The gold inflow halted, and for a short time at
the end of 1937 there was a small outflow of gold from
this country.
During the early months of this year merchandise
imports continued to decline, but there was a roughly
parallel decline in exports, partly seasonal in character,
so that the excess of exports over imports continued to
run around $100,000,000 a month, although recently there
has been a slight reduction from that figure. Payments
due this country on merchandise trade were largely
counterbalanced in the first quarter of the year and
apparently to a lesser extent also in the second quarter
by a reduction in the volume of foreign funds in this
country. But the principal foreign exchanges weakened
gradually against the dollar, and gold shipments to the
United States were resumed on a moderate scale.
In the past few weeks the renewed flight of foreign
capital to this country, together with payments for the
continued large merchandise export balance of this
country, has put heavy pressure on the principal foreign
exchanges and accelerated the flow of gold to the United
States. Gold imports and releases from earmark during
August have been in the neighborhood of $100,000,000,

Principal F a ctors C ausing Gold Inflow into the U nited S tates (C u m u ­
lative m ovem ents o f gold, foreign capital, and excess o f m erchan­
dise exports over im ports since January 1, 1 9 3 5 )

6
6

M O N T H L Y R E V I E W , S E P T E M B E R 1, 1938

and the total increase in the gold stock of this country,
including gold received from mines in this country and
other domestic sources, has been the largest for any
month since last September.
Largely because of payments by the Government for
incoming gold, excess reserves of member banks have
again turned upward, following the reduction between
July 13 and August 3, caused by an excess of Treasury
receipts over Treasury disbursements and the beginning
of the seasonal rise in the amount of currency in circula­
tion. In the two weeks ended August 24 there was a net
increase of $60,000,000 to $2,980,000,000.
M on e y R ates

Money market conditions remained generally easy
throughout the month of August. Treasury bill rates
declined after the first week of August and were lower
at the end of August than at the end of July. Other
principal money rates remained practically unchanged.
Money Rates in New York
Aug. 31, 1937 July 30, 1938 Aug. 30, 1938
Stock Exchange call loans.....................
Stock Exchange 90 day loans................
Prime commercial paper— 4 to 6 months
Bills—90 day unindorsed....... . .............
Customers’ rates on commercial loans
(Average rate of leading banks at
middle of month)............................
Average yield on Treasury notes (3-5
Average yield on Treasury bonds (more
than 8 years to maturity or call date).
Average rate on latest Treasury bill sale
91 day issue.........................................
117 day issue.......................................
Federal Reserve Bank of New York re­
discount rate.......................................
Federal Reserve Bank of New York
buying rate for 90 day indorsed bills. .

1
*1X
1

1

1

*IX
H

&

iV

*1X
H
it

1.67

1.63

1.63

1.54

0.70

0.74

6133
1
H

2.33

2.33

0.06

0.05

1

2.66

1
y2

* Nominal

M e m b e r B a n k C r e d it

There has been some evidence during the past month
of an upward tendency in the volume of bank credit.
Commercial loans in weekly reporting member banks
reached on August 3 the lowest point since early 1937,
but in the following three weeks showed a moderate
increase which apparently was partly seasonal in
character. The increase during this period occurred at
the reporting New York City banks and amounted to
$37,000,000. Loans to security brokers and dealers also
increased moderately, as did investments of the weekly
reporting banks. Apparently reflecting a strong invest­
ment demand for Government securities from other
sources, holdings of direct obligations of the Government
by the reporting banks increased only $65,000,000 dur­
ing the four weeks ended August 24, although net
sales of Treasury bills during that period amounted to
$200,000,000. On the other hand, holdings of Govern­
ment guaranteed securities increased slightly further,
despite the retirement of $50,000,000 of Home Owners’
Loan Corporation bonds, and there was also a small
increase in other investments. Altogether, the total loans
and investments of weekly reporting member banks
increased $123,000,000 at New York City banks, and
$157,000,000 at all reporting member banks, during the
four weeks ended August 24.




G

overnm ent

S e c u r it ie s

Prices of Treasury bonds advanced further in the
first half of August, and the average price of issues of
more than 8 year term to call date or maturity showed a
net rise of % point for the period. A t that time the
price of the 2 % per cent bonds of 1958-63, which were
issued last June, reached a new high of 102 16/32. In
the latter half of the month, prices developed somewhat
more irregularity, as buying demand lessened because
banks and other investors showed a tendency to await
an announcement from the Treasury concerning its
September quarterly financing plans before making
additional commitments. On August 29 and 30, there
was some decline in Treasury bond prices, as in other
bond and stock markets here, which was attributed to
increased tension over the European situation, and con­
sequently the average price of Treasury bonds closed the
month slightly lower than at the end of July.
In the Treasury note market, activity was induced by
buying interest in the December maturity, which is being
appraised by the market for its “ rights’ ’ value in ex­
change for new issues; a part of this buying was reported
to have represented switches out of the most recent issue
of Treasury bonds. Aside from the advance in the
December issue, other Treasury notes moved slightly
lower during August, and the average yield on 3 to 5
year maturities closed the month at 0.74 per cent, a rise
of 0.04 per cent from the end of July.
During August, five more Treasury bill issues of
$100,000,000 each were floated in successive weeks, in
replacement of weekly maturities of $50,000,000. Conse­
quently, the total outstanding volume of Treasury bills
rose to $1,300,000,000, as compared with the recent low
of $1,000,000,000 on July 20, and is now composed of
thirteen issues of $100,000,000 each, of approximately
3 month term, maturing between September 7 and
November 30. The average rate on the bill issue dated
August 3 rose to 0.062 per cent, but the average rates on
subsequent weeks’ sales were somewhat lower at 0.044
to 0.048 per cent.
C o m m e r c ia l P ap e r

and

B

il l s

The total amount of new commercial paper coming
into the open market continued to diminish during
August. There was some increase in the amount of paper
originating with concerns associated with the movement
of crops, but the increase was less than was expected by
the dealers. A t the same time, the investment inquiry
for open market paper remained active, as banking insti­
tutions continued to exert considerable effort to place
into active use their large holdings of surplus funds.
Some replacement of open market borrowings with
direct bank loans was also reported. The short supply
of and active demand for commercial paper, however, had
no material effect on rates; average grade prime 4 to 6
month paper continued to be sold primarily at % per cent,
although there were occasional transactions in less well
known paper at slightly higher levels, and in especially
choice paper at slightly lower levels. Commercial paper
dealers reported a total of $210,700,000 of paper out­
standing at the end of July, or about 6 per cent less than
June, and approximately 35 per cent less than a year ago.

FED ER AL RESERVE B A N K OF N E W Y O R K

Extreme quiet continued to prevail in the bill market
during August as a result of the small quantity of bank­
ers acceptances which came into dealers’ hands. No
change occurred in either the active investment demand
for bills or in the rates quoted. A t the end of July
bankers acceptances outstanding totaled $265,000,000, or
approximately the same amount as at the end of June,
but approximately 25 per cent less than a year ago; most
of the decline during the past year was caused by a
reduction of $65,000,000 in import bills.

67

M IL L IO N S
OF D O L L A R S

(Millions of dollars)
Type of acceptance

July 31, 1937 June 30, 1938 July 30, 1938

Import.....................................................
Export......................................................
Domestic shipment.................................
Domestic warehouse credit...................
Dollar exchange......................................
Based on goods stored in or shipped between foreign countries......................

143
71
11
54
2

79
63
9
49
1

78
63
10
50
1

71

63

63

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

352

264

265

F oreign E xchanges
During August there was an increased movement of
European funds into gold and dollars, induced by dis­
turbed political conditions abroad.
The decline of sterling against the dollar, which had
been in progress since June 15, was accelerated early
in August and the pound fell rapidly from $4.91% on
July 30 to $4.87% on August 13. At this level largescale gold arbitrage operations to New York took place
to absorb offerings of sterling against dollars, and the
currency held steady close to $4.88 for a week before
falling again at the month end to a new three year low
at $4.85%. In the London gold market the price of
gold at “ fixing” , rose from 141s 6d on July 30 to 142s
9d on August 13, declined thereafter for a time as the
fall in sterling was halted but rose sharply near the end
of the month to 143s 3%d, the highest level since May,
1935.
Turnover in the London gold market at the price
fixing time reached a larger volume than for any month
since the stabilization of the dollar in January, 1934, as
the accompanying diagram indicates. Approximately
$161,800,000 of gold was traded at “ fixing” for the
period August 1 to 29, and large amounts changed hands
in private dealings after “ fixing” . This gold turnover,
which represented principally the demand for gold for
hoarding purposes but partly arbitrage transactions and
some day-to-day speculation, considerably exceeded that
of June, 1937, when $108,600,000 in gold was traded at
the “ fixing” at the peak of the dehoarding movement,
and compares with a total of only $24,200,000 traded in
August, 1937. The turnover of gold on August 3, when
1,048 bars, valued at approximately $14,700,000 changed
hands at the “ fixing” , reached its highest level for any
single day, with one exception, since 1933.




Ap proxim ate D ollar V a lu e of G old Sold a t F ixin g T im e in London
M ark et (A u g u s t figure is for first 2 9 days of the m on th )

The premium on gold above the shipping parity to the
United States was eliminated on August 3 for the first
time since April 7 of the current year, following the
decline of the premium from Is % d on June 15 of this
year to l % d on July 30, and sizable amounts of gold
were shipped from London to New York during August.
Weakness in the French franc became pronounced
again in August, and the cross rate on London advanced
on August 9 to 178.92 francs per pound aa compared
with 178.15 on July 30. In New York, the franc reached
a new eleven year low of $0.0272% on August 13,
accompanying the decline in sterling during the first
half of the month. The franc-sterling cross rate was
maintained just under 179 francs to the pound until
August 19 when, following a statement of Premier
Daladier that the French Government was contemplat­
ing neither exchange control nor a further downward
revaluation of the currency, the outflow of capital from
France diminished in intensity. Premier Daladier’s
intention to modify the forty hour week in France,
expressed later in a radio address, was followed by
some further improvement in the position of the franc.
The franc closed the month at 178.33, in London and at
$0.0272% in New York.
Swiss exchange remained relatively unaffected and
after declining from $0.2292 on July 30 to $0.2287% on
August 6 firmed again to $0.2293% before weakening in
sympathy with sterling to $0.2279%. In terms of sterling
the Swiss franc appreciated from 21.46 to the pound on
July 30 to 21.28, and the Dutch guilder also appreciated
against sterling but to a lesser extent. Against the dollar,
however, the guilder declined from $0.5491% on July 30
to $0.5445 at the end of August. The Belgian currency,
which had been strong since the end of May, weakened
sharply on August 10 and remained under the gold point
of $0.1684% between August 12 and August 19 before
recovering to $0.1688 at the month end. Short sales
of sterling against belgas were reported to have provided
part of the strength for the currency during the previous

6
8

M O N T H L Y R E V I E W , S E P T E M B E R 1, 1938

six weeks, but when some of these positions in sterling
were covered, the belga fell temporarily to the gold
export level.
Among the non-European exchanges, the Canadian
dollar ruled at a discount of about % per cent for the
greater part of the month, before firming to % per cent
discount, but the Argentine free peso weakened from
$0.2620 at the end of July to $0.2570 in August. The
latter decline was partly associated with the suspension
of the Argentine Government’s plans to borrow at long
term in the New York market.
G old M o v e m e n ts
The dollar equivalent of the London gold price was
at or very close to the theoretical gold shipment point
to the United States throughout August and the move­
ment of gold from England to the United States was
resumed, in substantial volume, for the first time since
March and early April.
Preliminary figures for imports affecting the United
States gold stock in August indicate that receipts at
New York totaled $77,400,000, of which $61,100,000 came
from England, $13,500,000 from Canada, $2,100,000 from
Belgium, and $700,000 from Australia. On the West
Coast $5,800,000 was received from Japan, $1,200,000
from Australia, and $1,500,000 from Hong Kong. In
addition, there was a gain to the gold stock through the
release of $12,500,000 from foreign earmarked holdings
and through domestic receipts of newly mined and scrap
gold. As a result, the gold stock was increased by
approximately $120,000,000 during August.
Security M a rk e ts
Stock prices moved irregularly in August, generally
at quotations somewhat below those reached toward the
end of July on the upswing which began June 20. Near
the end of the first week of August, industrial shares
advanced to reach slightly higher quotations than on
July 25, while railroad and public utility shares, although
also firmer after the moderate recession of late July and
early August, remained below the July highs. The second
week of August witnessed a general downward reaction
in stock prices averaging about 7 per cent, but subse­
quently through the 25th there were net gains in all
classes of stocks. In the closing days of the month stock
prices again turned generally downward and reached
about the same quotations as in the second week of
August. A t the close of August, industrial stocks aver­
aged 6 per cent below their 1938 highs reached early in
the month, while railroad shares and public utility stocks
were 11 per cent below their highs which were reached
in July. Trading on the New York Stock Exchange was
considerably less active in August than in July. On no
day did the turnover exceed 1 % million shares, and for
the month averaged 870,000 shares per day, a decline of
820.000 shares from the July average, although con­
siderably larger than in May when sales averaged only
600.000 shares.
Domestic corporation bond prices held within a nar­
row range during August. High grade railroad bonds




recovered an additional 1 point of the April-June decline,
while high grade industrial and public utility issues
showed slight declines. Lower grade railroad issues de­
clined in the first half of the month but subsequently
recovered to within 1 point of the July recovery peak,
while other issues showed no material change.
N e w F in an cin g
New corporate security issues during the month of
August totaled about $315,000,000, an increase of about
72 per cent over July, some $20,000,000 more than in
June, and the largest amount since June, 1937. The
larger public offerings of the past month, which were
bonds or debentures of good investment grade, were well
received and quickly quoted in the market at premiums
ranging from small fractions to several points. Most of
the month’s corporate financing— a much greater propor­
tion than in the two preceding months— was for refinanc­
ing purposes, and only some $95,000,000, or 30 per cent
of the total, was intended for new capital uses. In June
and July, issues for new capital purposes had constituted
62 per cent of the total, or approximately the same
proportion as a year ago. Interest rates on new bond
issues continued near the lowest levels of recent years.
Although the volume of financing seems likely to decrease
in September, a number of large issues are being pre­
pared for marketing during the fall.
Corporate issues during August of $10,000,000 and
over were as follows:
$14,350,000
32.000.000
5.500.000
30.000.000
6.500.000
10.000.000
27,982,000

14.000.000
7,000,000
17.000.000
25.000.000
10.000.000
33.000.000

20.000.000
10.000.000
25.000.000

Hackensack Water Company refunding 3 ^ ’s of
1968, placed privately
Indianapolis Power and Light Company first mort­
gage 3% ’s of 1968 at par and
serial notes of 1939-48
Toledo Edison Company first mortgage 3 ^ ’s of
1968 at 101^ and
debenture 4's of 1948 at 100%
Public Service Electric and Gas Company first and
refunding mortgage 3% ’s of 1968 at 104%
New York Steam Corporation first mortgage 3 ^ ’s
of ^1963 at par, guaranteed by Consolidated
Edison Company
Ohio Oil Company debenture 3^4*s of 1953 and
serial notes of 1939-45, both placed privately
West Penn Power Company first mortgage 3*4’s
of 1968, by private sale
Phillips Petroleum Company convertible debenture
3 's of 1948 offered to stockholders at par
Crucible Steel Company of America debenture
4 % 's of 1948 at 99%
Commonwealth Edison Company first mortgage
SY2 ;s of 1968 at 103^ ($39,250,000 convertible
debenture Sy2 ’s of 1958 will be offered to stock­
holders in September)
Lone Star Gas Corporation convertible debenture
3y2 ’s of 1953 at 102
Gulf States Utilities Company first mortgage and
refunding 4 ’s of 1966 at 104
Consolidated Oil Corporation 12 year obligations
placed privately

Awards of long term municipal obligations in August
totaled about $50,000,000. Prominent among the tem­
porary municipal borrowings was a $30,000,000 issue of
New York City 0.35 per cent revenue bills, due Novem­
ber 1, 1938, which was sold to 26 banks.

69

FED ER AL RESERVE B A N K OF N E W Y O R K

B u s in e s s

P r o fits

Combined second quarter net profits, less deficits, of
265 industrial and mercantile companies whose earnings
are available on a quarterly basis back to 1932 showed a
decline of 70 per cent from the corresponding period
a year ago. Aggregate profits in the second quarter
were somewhat larger than in the first quarter, but the
rise appears to have been less than seasonal and conse­
quently this bank’s seasonally adjusted index of business
profits, shown in the accompanying diagram, declined
slightly further in consonance with the seasonally ad­
justed index of industrial production.
As was the case in the first quarter, the aviation com­
panies and the bakery products group showed gains in
profits during the second quarter as compared with a
year ago. Four groups of companies— automobile parts
and accessories, clothing and textiles, coal and coke, and
steel, continued to operate at a loss in the second quarter
of this year, and the railroad equipment group also sus­
tained a deficit in place of the net profit of the first
quarter. Aside from these deficits, the largest percentage
declines in profits between the second quarters of 1937
and 1938 were in the automobile, building supply, house­
hold equipment, and machinery and tool groups.
The accompanying table also shows earnings in the
first half year for 393 industrial and mercantile com­
panies whose earnings statements are available back to
1932. This list is more inclusive than the quarterly
compilation, having in addition to those concerns report­
ing quarterly, a number of corporations which make it a
practice to issue semiannual reports. The aggregate
profits shown by this group for the first six months of
1938 were 69 per cent below the total for the correspond­
ing period of last year and 23 per cent under the first
six months of 1934 when general business activity was at
a somewhat similar level. The same five groups of com­
panies that showed deficits for the second quarter of this
year registered deficits for the half year, as against net
profits a year ago, and the other large declines in profits
were the same as those reported for the second quarter.
The adverse comparison with the 1934 period was due
to deficits suffered by some groups this year and to sub­
stantial declines in profits in the automobile, advertising
and publishing, building supply, chemical and drug,
household equipment, retail trade, and cigar company
groups. A number of groups of companies, however,
showed sizable increases in profits over the 1934 level,
notably, electrical equipment, machinery and tools, mo­
tion pictures and amusements, and petroleum concerns.
Of the individual companies included in the table,
14.7 per cent of the total number for the second quarter,
and 13.5 per cent for the first six months, either increased
their profits, converted last year’s deficits into profits
this year, or reduced last year’s deficits. The remaining
companies, 85.3 per cent of the total for the second
quarter and 86.5 per cent for the first six months, either
had smaller profits than a year ago, suffered deficits this
year as against profits last year, or increased the size of
last year ’s losses. For the first half year, 39 per cent of
the companies tabulated reported deficits, as compared
with only 7 per cent last year.




-2 5

1928 1929

1930

1931

1932

1933 1934

1935

1936

1937

1938

Index o f Profits o f 1 6 7 Industrial and M ercantile Corporations,
A d ju ste d for Seasonal Variation ( 1 9 2 5 - 2 9
average = 1 0 0 per cen t)

The combined net deficit after all charges of Class I
railroads during the second quarter amounted to 75
million dollars. In the first quarter the deficit had
amounted to 106 million dollars, so that the deficit for
the half year reached 181 million dollars, or 56 million
more than in the first half of 1932 and 30 million more
than for the full year 1932, which was the previous low
(Net profits in millions of dollars)
Second quarter
Corporation group

1932

1934

Advertising, printing
and publishing. . .
1.9
2.8
Automobiles............
0.5 42.3
Automobile parts
and accessories . . . — 1.5
9.6
— 2.0 — 0.6
Bakery products . . .
7.2
4.8
Building supplies. . . — 3.1
1.9
Chemicals and drugs 11.6 25.5
Clothing and textiles — 3.5
0.3
Coal and coke........ — 0.6
0.5
Electrical equipment
0.1
8.1
Food products (excl.
bakery products).
18.3
19.4
Household equip­
ment.................... — 0.8
1.1
Machinery and tools — 2.4
3.5
Metals and mining
(excl. coal and
0.8
10.1
Motion pictures and
amusements........ — 6.3
1.7
Office equipment. . .
1.0
3.4
Paper and paper
0
0.8
Petroleum................
15.5
14.4
Railroad equipment. — 1.4
1.3
Retail trade............
—35.8 20.2
Tobacco (cigars)___
0.7
1.3
Miscellaneous.........
2.0
3.4
Total
/265 cos. 2nd quar. .
\393 cos. 1st half. . .

2.2

1937

3.4
88.5

First six months
1938

1932

4.8
1.6

1.9
23.1

1934

4.5
71.0

1937

6.8
149.4

1938

3.3
26.9

19.5 — 1.3 — 12.1 21.2
2.4 — 2.7 — 0.6
0.8
14.1
5.4
5.8
9.2
10.3
1.0 — 4.3
4.7
48.7
19.3
32.5
53.3
0.2 — 0.6 — 15.5
2.8
0.6 — 0.7 — 1.6
2.1
2.9
9.1
12.4
25.8

53.7 — 3.9
1.3
4.3
9.2
10.2
22.2
3.4
91.6
41.5
9.7 — 8.1
0.4 — 1.7
48.5
19.2

22.3

21.0

45.6

46.8

47.5

45.9

0.2 — 3.2
2.2 — 10.4

15.5
4.7

29.2
29.1

8.7
8.2

24.3

9.8 —

1.5

27.1

65.6

31.2

6.9
5.1

4.5 —
3.5

4.6
3.0

12.2
6.3

28.8
10.0

18.9
7.4

1.7
11.8

1.8
0.9
0.5
2.2
4.8
2.8
45.8 28.1
16.7 30.5 93.0
60.2
8.3 — 0.9 — 4.5 — 1.0
18.9 — 1.0
3.0 22.4 34.4
15 6
68.6 — 9.9 — 68.0
15.3 140.6 — 15.'1
1.3
0.8
0.8
1.8
1.3
1.3
5.4
4.4
1.8
0.6
13.4
3.3

175.8 406.0 122.0

—

1.8 368.8 909.4

282.5

141 Class I Railroads,
net income.......... —70.5 — 7.9

23.5 —74.9 —125.3 —23.2

91 Telephone com­
panies, net oper­
ating income.......

49.4

58.6

52.8

*

118.9

102.8

55.2

69.3

57.4

142.3 118.8 142.3

122.0

64 Other public utili­
ties, net income...
* Not available.

*
65.5

— Deficit.

96.9

38.9 — 181.3

M O N T H L Y R E V I E W , S E P T E M B E R 1 , 1938

70

year for railroad earnings. Latest available data for
individual railroads indicate that only seven of the
47 companies which have annual operating revenues
above 25 millions had any net income, after depreciation
charges, in the first five months of this year. Net operat­
ing income of 91 large telephone companies and net
income of 64 other public utilities were somewhat smaller
than last year, both for the second quarter and the first
six months.
B u ild in g
After declining 40 per cent in the previous month, the
daily average rate of building and engineering contracts
awarded in the New York and Northern New Jersey area
advanced 26 per cent from June to July. Residential
building contracts showed a further increase of 21 per
cent, and there were marked gains in contracts for com­
mercial and industrial buildings and for public utility
construction projects. Contracts for buildings for public
purposes, however, were about half as large as in June,
r
and there was a small decline in public works awards.
The July contract total was 16 per cent below a year ago,
owing primarily to a reduction of 63 per cent in heavy
engineering construction. Residential building contracts,
however, were 70 per cent above July, 1937, and non­
residential building projects also compared favorably
with last year.
In the 37 States covered by the F. W . Dodge Corpora­
tion the daily rate at which construction contracts were
awarded was little changed from June to July. Residen­
tial building contracts rose 7 per cent, while nonresi­
dential contracts declined 8 per cent, and heavy engineer­
ing work was in virtually the same volume as a month
r
earlier. Compared with July, 1937, total contracts were
23 per cent lower, as reductions of 46 per cent in non­
residential contracts and 19 per cent in heavy engineer­
ing construction were only partially offset by a 13 per
cent increase in residential building.
During the first half of August the daily rate of con­
struction awards in the 37 States declined about 16 per
cent, or somewhat more than is usual at this time of year.
All types of construction participated in the decline,
nonresidential contracts showing the largest reduction.
PERCENT




P E R CE N T

P rodu ction and T ra d e
Information thus far available indicates that there
was a further rise in business activity during August,
although probably of lesser extent than in July. Stimu­
lated by an increased flow of new orders, steel mills
continued a gradual expansion of output, and operations
averaged somewhat more than 40 per cent of capacity as
compared with 33% per cent in July and 28% per cent
in June. There was also a further rise in electric power
generation, and bituminous coal mining was seasonally
higher. However, it appears that cotton mill operations
leveled out following the considerable rise in July. Sales
of cotton goods ran well below production until late in
the month when the volume of business expanded accom­
panying a firmer market for raw cotton. The volume of
freight carried by railroads was not greatly changed
between July and August. Automobile production con­
tinued a seasonal decline, although sales of cars, both
new and used, were reported to have been maintained
unexpectedly well. It was indicated that volume pro­
duction of new models will begin even earlier than in
the last few years. Department store trade, however,
appears to have increased by less than the usual seasonal
amount during the first three weeks of August.
After showing little change during the preceding two
months, the general level of production and trade ad­
vanced substantially in July. Some of the principal
developments of the month are illustrated in the accom­
panying diagram which shows seasonally adjusted
monthly indexes of steel production, cotton consump­
tion, electric power generation, and copper output. Steel
production was up sharply despite a usual tendency to
decline between June and July. Pig iron and bituminous
coal, which are allied with steel, were also produced in
r
larger quantities than in June. There was a 12 per cent
T
increase in cotton mill operations following a sudden
spurt in sales, and other branches of the textile industry
also were more active. Electric power generation, which
on a seasonally adjusted basis had risen moderately in
May and June, recovered further in July, ostensibly
reflecting a rather general tendency for industrial activ­
ity to increase. Among industries which curtailed operaPERCENT'

PERCENT

FE D ER AL RESER VE B A N K OF N E W Y O R K

tions further during July, the production and refining of
nonferrous metals was conspicuous. Copper output de­
clined 22 per cent to the lowest level since the first part
of 1935, and production of lead also was sharply reduced;
a reduction in zinc output, however, was largely of a
seasonal nature. Automobile assemblies also contracted
in July as the season for the introduction of new models
approached, but tire production rose contrary to the
usual experience.
There was a moderate gain in the distribution of goods
by railway during July, and the volume of retail trade
appears to have declined slightly less than usual. Depart­
ment store sales in this district were reduced seasonally,
but for the country as a whole the drop was somewhat
smaller than in other years, and this was true also for
chain stores other than grocery. Mail order sales and
sales of grocery chains were approximately unchanged
between June and July after seasonal adjustment.
(Adjusted for seasonal variations, for estimated long term trend,
and where necessary for price changes)
1937

1938

July
Industrial Production

Motor trucks.............................................
Crude petroleum.......................................
Electric power...........................................
Cotton consumption.................................
Wool consumption....................................
Meat packing............................................
Tobacco products......................................
Machine tool orders*................................
jEmployment
Employment, manufacturing, U. S.........
Employee hours, manufacturing, U. S. . .
Construction

Residential building contracts. . . . . . . . . .
Nonresidential building and engineering
contracts................................................

Prim ary Distribution

Car loadings, merchandise and misc.......
Car loadings, other...................................
Exports......................................................
Distribution to Consumer

Department store sales, U. S .. .. ............
Department store sales, 2nd District. . . .
Chain grocery sales...................................
Other chain store sales.............................
Mail order house sales..............................
New passenger car registrations..............

Money Payments

May

113
121
98
116
87
96
97
113
93r
116
69
95
59
169
104
94

June

July

36
58
35
46
61
83
84
70
58
105
80
87
54
61

36
50
31
46
62
81
85p
74
75
88
78
82
50
61

48
42 p
30
51
66p
86p
87 p
91
85p
105
81
86
54
89

79
63

77
62

79p
65p

35

30

31

39

72

63

47

47

88
95
89
104

69
61
90
59

69
63
85
67

70
68
84
64

90
88
90
101
100
99r

76r
74r
101
86
90
43

80
78r
100
88
86
39

81
77
98 p
94 p
87p
42p

64
38

57
34

59
39

56p
35p

Bank debits, outside New York City.. ..
Bank debits, New York City...................
Velocity of demand deposits, outside
New York City**..................................
Velocity of demand deposits, New York
City**....................................................

69

61

60

61

48

38

42

40

General price level J..................................
Cost of living J...........................................
Composite index of wagesf......................

163
151
110

152
148
lllr

152
149
111

154p
149p
IlOp

p Preliminary.

r Revised.
*Not adjusted for price changes.
**1919-1925 average = 100. $1913 average = 100; not adjusted for trend.
fl926 average = 100; not adjusted for trend.

F oreign T ra d e
Merchandise exports from the United States in July
amounted to $228,000,000, or 15 per cent below the July,
1937 figure, and imports valued at $141,000,000 showed a
decline of 47 per cent from last year. The excess of




71

exports of $87,000,000, although somewhat smaller than
the average for the preceding months of this year, com­
pares with an export balance of only $3,000,000 in July,
1937. After allowing for price changes and the usual
seasonal variations, the aggregate quantity of foreign
merchandise trade appeared to have declined somewhat
further from June to July; as compared with a year ago,
a decline of 4 per cent was indicated in the volume of
exports, and a reduction of about one-third in the
quantity of imports.
Agricultural exports showed an increase in value over
July, 1937 of 66 per cent, while nonagricultural exports
declined 26 per cent, thus extending the tendencies ex­
hibited by these two main groups during recent months.
Nearly all leading individual exports of agricultural
origin, with the exception of tobacco, were larger in
quantity and value than a year ago, although shipments
of crude foodstuffs, chiefly grains, continued to be the
principal factor. Foreign takings of American cotton
were 45 per cent greater in volume, but the increase in
the value of cotton, shipments was held to 12 per cent
by the decline in prices during the past year. Exports
of the majority of nonagricultural products, on the other
hand, were smaller in quantity and value than in July,
1937; the principal exceptions were aircraft, certain in­
dustrial machinery, and refined petroleum products.
All the major classifications of imports in July con­
tinued smaller than a year ago, the largest relative
decline occurring in the semimanufactures group, in­
cluding notably such items as tin, nickel, copper, lumber
products, leather, and cut diamonds. Among the crude
materials, imports of wool, rubber, and hides and skins
showed decreases in value of approximately 70 per cent,
while receipts of pulpwood, tobacco, and uncut diamonds
were larger in both volume and value than in July, 1937.
Raw silk imports increased slightly in quantity but
declined in value, due to lower silk prices this year.
Receipts of foreign grains remained negligible, and im­
ports of cocoa, although larger in amount, decreased
substantially in value. Coffee and cheese imports, on the
other hand, were larger in quantity and value than a
year ago.
C o m m o d ity Prices
Owing mainly to declines in prices of agricultural
products during the first half of August, Moody’s index
of 15 actively traded commodities on August 15 was at a
level about 5 per cent below the high point reached
toward the end of July. During the remainder of the
month, however, there was an irregular recovery in grain
and cotton prices, accompanying announcements by the
Government of subsidy and loan programs, so that the
net loss in Moody’s index was reduced to about 3 per cent
for the month as a whole.
The cash quotation for the Number 1 grade of wheat at
Minneapolis declined 12% cents during the first half of
August to 71 cents a bushel, the lowest level since October,
1933. The bulk of this loss occurred after the release of
the Government August 1 crop estimates, which placed
1938 wheat production at 956,000,000 bushels, or some
20,000,000 bushels above trade expectations. During the

72

M O N T H L Y R E V I E W , S E P T E M B E R 1, 1938

remainder of the month cash wheat moved, irregularly
higher to 73% cents, as compared with 83% cents at the
end of July. This recovery was in part accounted for in
trade circles by the increased benefit payments offered
farmers cooperating with the 1939 Government wheat
program, and by the reduction in the acreage limit on
next year’s crop. Under the 1938 wheat program comply­
ing farmers were offered 12 cents a bushel on their allot­
ment, while next year payments of 26 to 30 cents a bushel
will be made. The program is designed to limit 1939
acreage to 55,000,000 acres, which compares with 81,000,000 acres seeded this year. Further support to wheat
prices was offered by the announcement of a Government
subsidy program to facilitate the export of 100,000,000
bushels of surplus wheat during the current crop year.
Cash corn at Chicago also reached a low point toward
the middle of the month, at 51 cents a bushel, but later
recovered to close August at 53% cents, compared with
57% cents a month earlier. The Government loan rate
on corn, announced toward the end of August, was placed
at 57 cents a bushel, or 7 cents above the rate on the 1937
crop. Cotton prices showed a generally similar movement
during the month. The spot quotation at New York
declined to 8.25 cents a pound on August 13, but subse­
quently advanced to 8.46 cents, or 26 points below the
end of July. The announcement on August 27 by the
Commodity Credit Corporation of the Government loan
program on the 1938 cotton crop, placed the loan rate
at 8.30 cents a pound for the middling % inch grade,
with a range from 5.30 cents to 10.75 cents on other
grades.
With respect to other principal wholesale commodities,
rather substantial losses occurred in livestock prices,
while there were gains during the month in the prices
of hides and raw sugar. Raw silk declined as low as
$1.71% a pound during the course of the month, but
closed at $1.78%, slightly below a month ago.
Further net gains were shown in scrap steel prices
during August. The quotation at Pittsburgh rose 25
cents further to $15.50 a ton, or $4.75 above the low
reached last May, while at Chicago scrap steel advanced
$1.00 a ton to $13.75. No material changes occurred in
prices of nonferrous metals during August.
E m p lo y m e n t and P ayrolls
Although ordinarily a moderate decline occurs from
June to July, the volume of employment outside agri­
culture was little changed this year, according to the
estimates of the United States Department of Labor. In
manufacturing establishments, working forces were
augmented by about 40,000 persons, as against a usual
decline of approximately the same proportions, and pay­
rolls were also contraseasonally larger. The gain in
factory employment was offset by reductions in non­
manufacturing industries, mainly retail trade and min­
ing. In retail trade, however, a decrease in employment
is usual in July, and the decline this year appears to
have been smaller than in other recent years.
Among individual manufacturing industries, the chief
gains in employment occurred in canning, shoe, textile,
and men’s clothing plants. The most pronounced reduc­
tions occurred in factories producing machinery, auto­




mobiles, and women’s clothing. In comparison with July,
1937, factory employment was 25 per cent lower and pay­
rolls 33 per cent lower.
In New York State also, manufacturing employment
and payrolls showed an increase from June to July,
contrary to the usual experience. Working forces were
up about 1 per cent and wage disbursements about 2 per
cent. There were sharp gains, mainly of a seasonal
nature, in the number of workers engaged in canning
and preserving establishments, and in the men’s clothing
and fur industries. In comparison with a year ago,
however, there were declines of 18 per cent in factory
employment and 24 per cent in payrolls.
D ep a rtm en t Store T ra d e
Total sales of the reporting department stores in this
district during the first three weeks in August were
about 12 per cent lower than in the corresponding period
of 1937, and it appears that trade underwent consid­
erably less than the usual seasonal rise from the July
level.
July sales of the reporting department stores in this
district totaled 13.4 per cent less than last year; after
adjustment for differences in number of shopping days,
the decline in average daily sales from a year ago was
about the same as in June, although a smaller decline
had been indicated by reports for the early part of July.
Total sales of the leading apparel stores in this district
were 17 per cent lower than last year; average daily sales
showed about the same decrease from last year as in June.
Stocks of merchandise on hand in the department
stores, at retail valuation, were 12.4 per cent lower at
the end of July, 1938, than at the end of July, 1937.
Percentage
change
July, 1938
compared with
July, 1937

Locality
New York and Brooklyn.............................
Buffalo............................................................
Rochester.......................................................
Syracuse.........................................................
Northern New Jersey...................................
Bridgeport....................................................
Elsewhere.......................................................
Northern New York State.......................
Southern New York State.......................
Central New York State.........................
Hudson River Valley District.................
Westchester and Stamford.......................
Niagara Falls.............................................

Net
sales
—13.2
— 19.8
— 4 .9
— 1 3 .9
— 1 5 .8
— 1 6 .3

— 12.1
— 12.7
— 11.5
— 1 9 .6
— 4.9
— 14.3
— 16.4

Per cent of
accounts
outstanding
June 30
collected in
July

Stock
on hand
end of
month

1937

1938

— 13.1
— 8.5
— 8.5
— 7.3
— 14.1
— 9.2
— 3.7

47.8
47.1
55.0
40.7
41.0
40.8
36.7

46.2
42.5
50.4
36.4
38.4
38.2
33.1

All department stoves...........................

— 13.4

— 12.4

45.8

43.3

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

— 17.4

— 11.8

43.9

41.4

Department Store Sales and Stocks, Second Federal Reserve District
(1923-25 average = 100)
1937

1938

July

May

June

July

Sales, unadjusted...........................................
Sales, seasonally adjusted.............................

71
99

81
84

85
89

62
88

Stocks, unadjusted....................................
Stocks, seasonally adjusted..........................

78
89

84
82

75
79

69
79

FEDERAL RESERVE BANK OF NEW YORK
MONTHLY REVIEW, SEPTEMBER 1, 1938

Business Conditions in the United States
(Summarized by the Board of Governors of the Federal Reserve System)
J T T STRIAL activity increased in July, when there is usually a consider­
NDJ
decline, and rose somewhat further in the first three weeks of August.

F able

P r o d u c t io n

Index N u m b er o f Production o f M an u factu res
and M in erals Combined, A d ju sted for Seasonal
V ariation ( 1 9 2 3 - 2 5 average = 1 00 per cen t)

Volume of industrial production increased from 77 per cent of the 19231925 average in June to 83 per cent in July, according to the Board’s index
which is adjusted for changes in the number of working days and for usual
seasonal variations. Steel output rose sharply, lumber production also increased,
and output of cement and glass was maintained. Automobile production
declined somewhat further. In the first three weeks of August activity at
steel mills was at a rate of around 40 per cent of capacity as compared with
an average of 35 per cent in July, while in the automobile industry there
was more than the usual seasonal reduction in output as producers closed plants
somewhat earlier than in other recent years to prepare for the shift to new
model production.
At textile mills activity in July showed a further rise, marked increases
being reported in mill consumption of cotton and wool and in shipments of
rayon yarn. Shoe production also increased substantially, following a decline
in June.
Bituminous coal production advanced somewhat in July, and output of
crude petroleum was at a much higher rate, reflecting chiefly a return to
production on a six day week basis in Texas. Anthracite production decreased
sharply following a considerable volume of output during May and June.
Value of construction contracts awarded in 37 eastern States showed
little change from June to July, according to figures of the F. W. Dodge
Corporation. Contracts for residential building continued to increase, and
there was an increase also in commercial building, reflecting the award of a
contract for a large office building. Factory construction remained at a low
level and declines were reported in most other types of construction.
E mploym ent

V a lu e o f C onstruction C ontracts Aw arded (Th ree
m onth m ovin g averages o f F . W . D odge Cor­
poration data for 3 7 S ta tes, ad ju sted for
seasonal variation)

Factory employment and payrolls, which usually decline at this season,
increased somewhat from the middle of June to the middle of July. There
were substantial increases in the number employed at textile mills, clothing
establishments, and shoe factories, and at railroad repair shops there was a
slight increase. In the machinery and automobile industries employment
declined somewhat further. In nonmanufacturing industries the principal
changes in employment were a decrease at mines and an increase on the
railroads.
A g r ic u l t u r e

PER C ENT

A domestic cotton crop of 12,000,000 bales was indicated on August 1,
according to the Department of Agriculture. Last season the crop was
19.000.000 bales and, with world consumption of American cotton about
11.000.000 bales, the carryover increased sharply to 13,500,000 bales. The
wheat crop was forecast at 956,000,000 bushels, as compared with 874,000,000
bushels harvested last year and usual domestic consumption of about 670,000,000
bushels. Production estimates for most other major crops were slightly under
the large harvests of a year ago. Preliminary estimates by the Department of
Agriculture indicate that cash farm income, including Government payments,
will total $7,500,000,000 for the calendar year 1938, a decline of 12 per cent
from last year, which was the highest since 1929.
D is t r ib u t io n

G roup Price Indexes of B ureau o f Labor S tatistics
(1 9 2 6 = 1 00 per cen t)

In July department store sales declined by less than the usual seasonal
amount, while sales at variety stores and mail order houses decreased seasonally.
Retail sales of automobiles increased somewhat, although there is ordinarily
a decline in July. In the first half of August sales at department stores showed
less than the usual seasonal rise.
Freight car loadings increased from June to July, reflecting chiefly larger
shipments of grain, coal, and miscellaneous freight.
C o m m o d ity P r i c e s

BILLIONS
OF DOLLARS

Prices of grains, cotton, livestock, and meats were lower in the third week
of August than in the middle of July, while prices of most industrial commodies were unchanged. Steel scrap advanced further in July, then declined
somewhat in the first half of August. Cotton grey goods also declined in the
early part of August, while prices of copper and rubber were maintained,
following increases in the latter part of July.
B a n k C r e d it

Member Bank Reserves and Related Items
(Latest figures are for August 17)




Excess reserves of member banks declined by about $230,000,000 in the
five weeks ended August 17 to a total of $2,930,000,000, following a steady
growth from the middle of April to a peak on July 13. The decline in reserves
was largely the result of an increase in Treasury deposits with the Reserve
Banks, reflecting receipts from weekly Treasury bill offerings in excess of
maturities and a sale of Reconstruction Finance Corporation notes. Most of
the decrease in excess reserves was at city banks.
Following substantial declines since the autumn of last year, commercial
loans and brokers loans at reporting member banks in 101 leading cities
increased somewhat during the first half of August. Member banks in leading
cities added about $170,000,000 to their holdings of investments in the middle
of July, mainly United States Government guaranteed obligations, but there­
after their holdings showed little change.