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MONTHLY REVIEW
o f C r e d it a n d B u s in e s s C o n d it io n s
Second
F e d e ra l
R e se rv e
FederalReserveBank,NewYork
M o n e y M a r k e t in A u g u s t
Themoneymarket continuedtoshowaconsiderable
degree of day-to-day stability during the past month.
The immediate influence of war developments appears
tohave diminished, andthe financing of the National
defenseprogramhasnotyetbecomeanimportantfactor
inthedemandformarket funds. Thesecuritymarkets
weretemporarilydepressedbytheintensificationof war
activitiesduringthesecondweekof themonth, but the
recession in prices was quite moderate and was due
largely to a temporary cessationof buying except at
decliningprices, ratherthantoanyconsiderablevolume
of selling. Lateinthemonthsecurityprices advanced
tothebestlevelsoftheJune-Augustrecovery.
Thetemporaryreductioninexcessreservesofmember
banks, whichwasnotedinthelatter part of July, was
extendedfurther inthefirst weekof August, but was
without apparent effect on the money market. The
upwardmovementofexcessreserveswasresumedduring
thelastthreeweeksofthemonth.Forall memberbanks
the volume of excess reserves on August 7 was
$550,000,000belowthepeakofJuly17, chieflyasaresult
ofasubstantialincreaseinTreasurydepositsinFederal
ReserveBanks. TheincreaseinTreasurydeposits was
duetocashpaymentsfortheTreasurybondissueofJuly
22andtheCommodityCredit Corporationnotesissued
onAugust 1, andtocollections of social security and
capital stock taxes, which combined substantially
exceededGovernmentdisbursementsduringthat period.
Inaddition,thevolumeofcurrencyincirculationshowed
thebeginningoftheseasonalriseduringthisperiod,and
wasaminorfactorinthereductioninbankreserves. In
thefollowingthreeweeks, memberbankexcessreserves
rose$160,000,000, despiteafurtherriseintheamountof
currencyincirculationtonewhighlevels.
Theprincipal factortendingtocausefurther expan
sioninmemberbankreserves duringrecent weekshas
beenthedisbursement of dollars derivedfromsales of
foreigngoldtotheUnitedStates andpassingthrough
foreign official accounts at the Reserve Banks. Gold
imports, while at aless rapidratethanintheperiod
fromthemiddleofMaytothemiddleofJuly, weresub
stantial duringAugust andincludedshipments froma
widevarietyofsources. Inaddition, moderateamounts
of goldwerereleasedfromearmarkedaccounts at this
bankandsoldtotheTreasury. Consequently, therise
inthiscountry’sgoldstockduringthepast monthcon
tinuedatanaveragerateof about$100,000,000aweek.
D is tric t
September 1, 1940
What may be asignificant change appears to have
developedduringthepast threemonths intherelation
betweenforeignsalesofgoldtotheTreasuryandforeign
official balancesat theReserveBanks. Duringthefirst
ninemonthsofthewarsuchsalesofgoldappeartohave
been related chiefly to current demands for dollar
exchangeandforeignofficial balancestendedtodecline.
During the more recent months, however, substantial
amounts of the proceeds of these sales of gold have
remainedindeposit accountsintheReserveBanksand
increasedthe total volume of suchdeposits to record
levels. As the accompanyingchart shows, the foreign
centralbankdepositsintheFederal ReserveBankshave
increasedfromlessthan$360,000,000onMay1, 1940, to
$888,000,000onAugust28, 1940. Andthisriseisnotthe
full measureof thegrowthinforeignofficial funds in
this country, as som
e foreign central banks maintain
deposit accountsincommercial bankshere, andforeign
governmentsalsohavedepositsinAmericanbanks.
The growthof foreign official funds in the United
States during the past three years has been closely
relatedtodevelopments inEurope, as the chart indi
cates. Thefirst material increaseoccurredaroundthe
time of the “Munich” crisis inSeptember, 1938, and
wasfollowedbyafurtherriseatthetimeoftheCzecho
slovakiancrisis inthe spring of 1939. The outbreak
of thewarwas followedbyafurther rapidaccumula
tionof foreigncentral bankbalanceshereinSeptember,
1939, thevolumeat that timerisingbyapproximately
$150,000,000tonearly$500,000,000. Agradualrecession
to around$360,000,000 inthe spring of 1940 ensued,
MILLIONS
OF DOLLARS
66
M O N T H L Y R E V I E W , S E P T E M B E R 1, 1940
chiefly as the result of payments on contracts for war
materials. The invasion of the Netherlands and Belgium
in May brought a renewed rise in foreign central bank
deposits in the Eeserve Banks, which has since been
rapidly extended.
The accumulation of official foreign deposits in this
country has been accomplished largely by shipments of
gold to the United States and its sale to the Treasury,
either immediately or after earmarking for a time at
this bank. In addition, governmental requisitioning of
American deposits and American securities, owned by
residents of several countries involved in the war, and
the sale of some p art of the securities, have involved
transfers of private foreign funds in this country to
official foreign deposits in the Eeserve Banks. Some
of these official deposits apparently have represented
funds accumulated by belligerents in anticipation of
payments for war materials or other supplies purchased
here, while some represent m onetary reserves of foreign
countries, which have been transferred to the United
States for safekeeping, and remain largely inactive.
P a rt of the large volume of foreign deposits now held
by the Eeserve Banks, of course, represents funds of
central banks of invaded countries, which have been
immobilized by the P resident’s Executive Order block
ing those countries’ funds which are on deposit in
the United States.
To the extent that foreign official funds have accumu
lated in deposit accounts in the Eeserve Banks, they
represent a partial offset to the unprecedented inflow
of gold which has occurred since the outbreak of the
war. In effect, they represent that p art of the proceeds
of gold sales to the Treasury which has not been paid
out into the market and thus added to the commercial
bank reserves of this country. The m ajor p art of the
proceeds of the gold inflow has moved into the banking
system, however, since the United States gold stock
has risen by more than $4,200,000,000 during the
past year, and the increase in foreign official funds on
deposit here has been something less than one seventh
of th at amount.
M ember B ank Credit
Changes in the loans and investments of weekly re
porting member banks during the four weeks ended
August 21 reflected chiefly purchases of Treasury bonds
on Ju ly 22 and Commodity Credit Corporation notes
on August 1. W hile the reporting banks acquired subMoney Rates in New York
Aug. 31, 1939 Ju ly 31, 1940 Aug. 30, 1940
Stock Exchange call loans.......................
Stock Exchange 90 day loans.................
Prim e commercial paper 4-6 m o n th s .. .
B ills — 90 day unindorsed.........................
Average y ie ld on Treasury notes (3-5
ye ars).......................................................
Average yield on Treasury bonds (not
callable w ith in 12 ye a rs).....................
Average rate on latest Treasury b ill sale
91 day issue............................................
Federal Reserve B ank of N ew Y o rk
discount ra te ...........................................
Federal Reserve B a n k of New Y o rk
buyin g rate fo r 90 day indorsed b ills
* Nominal
1
*ix
x
- a
5
1
1
*1H
XrY%
*1K
X r5
A
he
0 .6 4
0 .5 8
0.51
2 .3 0
2.29
2.27
0.076
0.004
0.028
1
1
1
M
X
X
stantial amounts of both issues, however, there are
indications that the Treasury bond issue, especially,
was rather widely distributed. In the week in which
$630,000,000 of these bonds were allotted, holdings of
Treasury bonds by the reporting banks increased less
than $200,000,000, but deposits held for other domestic
banks were reduced $220,000,000 in th at week, appar
ently reflecting substantial allotments of the bonds to
other banking institutions and their customers. In the
week ended August 7, in which the Commodity Credit
Corporation notes were issued, holdings of Government
guaranteed securities by all reporting banks increased
about $150,000,000, as compared with a total issue of
about $289,000,000. Demand deposits in the report
ing banks in that week showTed a substantial reduction,
p art of which may have reflected the purchase of part
of the note issue by large depositors of the reporting
banks.
Commercial and industrial loans in these banks, after
showing an unusually early increase during June and
the first part of July, subsequently have shown only ir
regular fluctuations during the weeks in which a sea
sonal expansion in such loans ordinarily gets under
way. Some further increase in the volume of business
loans has been reported by banks in other localities
in recent weeks, but in New York: City banks repayments
of such loans exceeded new loans by approximately
$22,000,000 in the four weeks ended August 21. Loans
on securities, after showing some small increase during
July, receded again in August, and in general remained
at about the lowest levels in many years.
G overnment S ecurities
D uring August prices of Treasury bonds fluctuated
narrowly at relatively high levels. The price range for
long term Treasury bonds amounted to only % of a point
and for intermediate term Treasury bonds to % of a
point. E arly in the month the average price of the long
term bonds advanced slightly further to reach a new re
covery peak on August 5 within 1% points of the y ear’s
high reached early in April. However, in the succeeding
period through August 14 prices weakened on news that
first Italy and then Germany were intensifying their war
efforts against the British, but after a short period of
hesitation these issues moved upw ard again to the best
levels since early in May. The movement of intermediate
term Treasury bonds was roughly similar, although they
did not break through their July highs.
Treasury note prices declined slightly in the middle
of the month but later advanced to above the July high.
The average yield on 3 to 5 year Treasury notes ended
the month at 0.51 per cent, as compared with a high of
0.60 per cent on August 13 and a low of 0.54 per cent in
the first part of July.
The average rates at which the new issues of Treasury
bills were sold advanced slightly during the past month.
The issue dated August 28 was awarded at an average
rate of 0.028 per cent, the highest level since the issue
dated June 26. Each of the weekly issues of bills was in
the amount of $100,000,000, of 91 day term, and replaced
similar m aturities.
Total allotments wTith respect to subscriptions to the
FEDERAL RESERVE BANK OF NEW YORK
offering of Commodity Credit Corporation % per cent
notes, dated August 1, 1940, and m aturing May 1, 1943,
amounted to $289,458,000 (of which $143,436,000 was
allotted in the Second D istrict). Total subscriptions
received amounted to $3,185,206,000.
C ommercial P aper and B ills
The amount of commercial paper received by dealers
for distribution in the open m arket during August con
tinued to be less than the investment demand. No change
was reported in rates. The choicest paper, which became
available in some volume during the first p art of the
month, was sold at % per cent, and the average run of
prime 4 to 6 month notes was sold at % and % per cent,
principally at % per cent. P aper outstanding through
commercial paper concerns reporting to this bank
amounted to $232,400,000 at the end of July. A month
ago outstandings totaled $224,100,000 and a year ago
$194,200,000.
Bankers acceptances continued to change hands in only
limited volume during August, and dealers’ rates
remained unchanged. A further decline of $18,000,000
for July in the total of outstanding bankers bills was
accounted for chiefly by a decrease in export bills.
Compared with a year ago, the drop of $48,000,000 was
attributable in large measure to a reduction in the
amount of bills based on goods stored in or shipped be
tween foreign countries.
S e c u rity M a rk e ts
The security markets continued very inactive during
August and price movements were again within narrow
limits. On the New York Stock Exchange, trading in
stocks declined to as low as 130,000 shares for a full day,
a new low since August, 1916. On most other days tu rn
over was between 200,000 and 300,000 shares. Movements
of the average level of stock prices were within a range
of 6 per cent from low to high, according to the Standard
Statistics Company daily index. The first twelve days of
the month witnessed a small, irregular advance in indus
trial shares to slightly higher levels than were reached
in June or July, but the intensification of aerial w arfare
over Great B ritain was followed by a moderate recession
in prices through August 16, from which there was a
recovery to mid-May levels. Bailroad stock prices also
advanced late in August to the best level since early May,
but public utility shares showed a small net decline for
the month.
Medium grade corporation bonds showed a small net
rise during August, according to Moody’s average of
Baa bonds. Some further extension of the June-July
advance occurred during the first few days of the month,
and after a decline in the middle of the month prices
moved up to a new recovery high on August 30. Rail
road bonds of this grade showed a net decline of about
% of a point between the end of July and the end of
August, while Baa industrial issues moved about 1%
points higher; public utility bonds of Baa grade were
steady.
H igh grade corporation bonds, however, registered a
further net recovery during August, although they, too,
67
were subject to some easing in the middle of the month.
At the close of August the average price of Moody’s Aaa
bonds was % of a point higher than at the end of July
and within 1 point of the record high reached in early
A pril of this year. High grade municipal bonds advanced
to new highs in the first week of August, but then reacted
moderately.
NeTvf F in a n c in g
During August, $198,000,000 of corporate and m uni
cipal new security issues were floated. The smaller
volume than in Ju ly was due chiefly to a decline in
corporate issues to $132,000,000, of which $46,000,000
represented funds to be used for new capital purposes.
M unicipal awards amounted to $66,000,000. Among
the influences which operated to reduce the volume of
new issues, the following have been mentioned: uncer
tainties regarding the outcome of the current phase of
the war, delay in the enactment of excess profits tax
and plant amortization legislation by the Congress, the
commitment by the Reconstruction Finance Corpora
tion for substantial loans to industry for National de
fense purposes, and the expectation that with the pas
sage of enabling legislation the Securities and Exchange
Commission would shorten, in some cases, the twenty
day waiting period heretofore required between regis
tration and offering of new security issues.
The two largest corporate issues offered during the
month were $25,000,000 Celanese Corporation of
America debentures and $22,150,000 Carolina, Clinchfield and Ohio Railway bonds, the latter the first m ajor
financing for a railroad since last April. Toward the
end of August, most of the securities m arketed during
the month were quoted either close to the offering prices
or at slight discounts. A t least $35,000,000 of new
corporate issues are known to have been sold privately
to insurance companies and are therefore included in
the above totals. Additional amounts of financing, in
the form of serial loans, were arranged with banks.
Short term municipal financing, excluded from the
$198,000,000 total, amounted to $100,000,000 and in
cluded $45,000,000 New York City 0.35 per cent revenue
bills and $26,000,000 Federal Interm ediate Credit Bank
0.75 per cent debentures.
Statements recently filed with regulatory authorities
indicate the following forthcoming issues: $29,000,000
Columbus and Southern Ohio Electric Company bonds,
$16,500,000 San Antonio Public Service Company bonds,
and $25,000,000 Dow Chemical Company securities. In
addition to these issues, which appear to be scheduled
for public offering, a number of sizable private sales
are reported to be in process of negotiation, including
$12,600,000 Iowa Electric Light and Power Company
bonds and $16,000,000 of San Diego Consolidated Gas
and Electric Company bonds.
Loan authorizations for National defense, made by
the Reconstruction Finance Corporation through Aug
ust 14 were reported to have aggregated $283,000,000, an
amount almost five times as large as the total of corpo
rate security issues for new capital purposes floated dur
ing the period July 1 to August 14.
68
MONTHLY REVIEW, SEPTEMBER 1, 1940
B u s i n e s s P r o f it s
Forthesecondquarterof 1940, thisbank’sseasonally
adjustedindexof thenet profits of 168 industrial and
mercantile corporations declinedrather sharply owing
mainlytoadecreaseinthenetprofitsof theautomotive
industryat atimewhenariseisusual. Reportednet
profits of many concerns, andespecially those of the
largest automobile manufacturer, werereducedduring
thisperiodbythesettingupofreservesinordertomake
provisionfor theincreasedrate of taxationapplicable
tothisyear’searningsundertheRevenueAct of 1940,
andalso to cover the contingency of additional taxes
beingleviedupon1940profits. Inaddition, industrial
production, after allowancefor seasonal changes, aver
agedslightlylower inthe secondquarter thaninthe
first.
Secondquarternet profitsineachyearbackto1937
for401industrial andmercantilecorporationsaresum
marizedintheaccompanyingtable. Intheaggregate,
net profits of these concerns were about 45 per cent
larger than in the corresponding period a year ago,
thoughtheystill remainedsome23 per cent less than
in1937. Withrespecttochangesamongtheindividual
companies, ananalysisindicatesthat 59percent of the
totalnumberhadhigherprofitsduringthesecondquarter
of this year thaninthe correspondingperiodayear
ago, andanadditional 9per cent, whichhadoperated
at aloss inthesecondquarter of last year, hadsom
e
netprofitsthisyear. However, 23percenthadsmaller
profitsthanayearago, andtherewerestill 9percent
of thetotal that reportedlosses.
Ofthevariousgroupsofcompanieslistedinthetable,
alarge number showedsizable gains inaggregate net
profitswhencomparedwiththesecondquarterof 1939.
Inaddition, the coal mining grouphadaggregate net
profits thisyearwhereaslast year’soperations hadre
sultedinanaggregatedeficit. Prominent amongthose
groups showing gains was the steel group, for which
secondquarterprofits, owingtotherelativelyhighlevel
of productionandtheconsequent loweringof per unit
costs, weresubstantiallylarger thanin1939. Export
business and to some extent orders for the rearma
ment programof this countrywere reflectedinsharp
gains among the aviation and machinery com
panies. Aggregate net profits of manufacturers of
paper andpaper products also increasedsubstantially
overlast year, asthecuttingoff of Scandinaviansup
plies resultedinanexpansionindemand. Bywayof
contrast, foreignrevenues of motionpicture companies
contractedbecause of the spreadof thewar, andnet
profitsof thisgroupdeclinedsomewhatfromlastyear’s
level. Other groups that hadsmaller net profits than
ayearbeforewereadvertising, printingandpublishing,
bakeryproducts, confectionery, andgoldmining.
Net profitsof 558industrial andmercantilecorpora
tionsreportingforthefirstsixmonthswere50percent
higher thanayear before, but were 16 per cent less
thaninthecorrespondingperiodof 1937. Withrespect
tothose concerns whichdonot generally report ona
quarterlybasis, thetextileandapparel, andretail trade
groups showedincreasesinprofits overthecomparable
periodof 1939, whilethe aggregate net profits of the
rubberandtiregroupweresomewhatlower. Compared
withthe first six months of 1937, the aviation, paper
andpaper products, cigar, andall the foodandfood
products groups showedhigher profits.
ClassI railroads reportedsecondquarternet income
(afterallcharges) amountingto$1,600,000, ascompared
withanaggregatedeficit inthesameperiodof 1939of
$47,200,000. For the first six months, the deficit of
the Class I railroads amountedto$12,000,000 as com
pared with a $90,000,000 deficit in 1939 and a
$180,000,000 deficit in1938. Net incomeof 68 public
utilities excludingtelephonecompanies, wasmoderately
larger for both the second quarter and the first six
months, thaninthecorresponding1939periods, andfor
the six months was also somewhat larger thaninthe
comparable periodof 1937. Net operating income of
telephone companies, bothfor the secondquarter and
thefirsthalfwaslargerthanin1937,1938, or1939.
(Net profits in millions of dollars)
Second quarter
Corporation group
Advertising,printing
and publishing...
Automobiles............
Automobile parts
and accessories...
Aviation..................
Building supplies...
Chemicals and drugs
Containers (metal
and glass)............
Electrical equipment
Food products:
1937
1938
1939
First six months
1940
1937
1938
9.1
150.0
1939
1940
2.4
23.2
3.7
61.2
3.6
64.3
19.9 — 1.3
2.1
4.7
3.0
19.8
48.3 22.7
9.7
6.1
9.3
35.5
17.0
14.7
14.2
43.4
38.5 — 3.3
2.5
6.7
40.1
4.7
97.3
47.0
21.7
11.5
17.1
71.3
37.2
25.0
27.0
94.5
2.1
27.5
1.3
9.3
2.1
15.3
2.4
24.5
4.0
51.7
2.5
19.4
3.4
27.6
3.8
46.5
5.0
12.8
Beverages............
Confectionery---4.7
Other food
14.5
products..........
Household equip
4.8
ment ....................
Leather and shoes
Machinery and tools 18.9
Metal products—
4.1
miscellaneous. . . .
Mining:
Coal..................... — 1.0
12.8
6.4
Gold and silver...
20.0
Other mining. . . .
9.3
Motion pictures.. . .
7.0
Office equipment. . .
Paper and paper
8.1
products..............
47.0
Railroad equipment. 10.9
Retail trade............
Rubber and tires...
73.0
Steel........................
Textiles and apparel
0.5
Tobacco (cigars). ..
1.4
Miscellaneous.........
5.6
11.2
4.1
5.7
11.3
5.0
4.8
13.0
4.5
8.8
22.1
9.2
10.2
19.7
8.4
10.6
20.8
10.3
9.3
23.1
10.2
12.6
14.2
16.4
34.9
30.7
34.4
36.7
1.1
2.4
2.8
4.3
7.0
13.1
17.4
2.2
6.1 — 1.0
40.5
11.5
9.9
3.9
14.6
9.7
3.9
29.8
— 0.3
1.5
3.6
7.2
0.3 — 0.2 — 5.0 — 2.4
17.2 23.2
7.1
57.1
16.9
16.8
4.6
20.2
17.9 22.8
42.1
11.5
3.9
33.1
19.8 21.8
13.8
8.4
8.1
3.7
1.6
50.2
16.3
27.8
22.1
9.7
4.1
88.8
— 3.3 — 1.7
4.6
2.0
5.2
5.1
9.9
7.2
4.9
5.5
3.3
3.8
3.0
1.0
28.6
— 1.6
1.7
17.9
2.2
9.2
26.1
5.4
— 10.4
11.7
48.1
0.6
0
0.8
1.1
0.9
2.1
5.5
26.9
11.1 —
15.9
160.6
25.5
35.4
22.5
149.4
16.2
0.8
2.7
Total
401 cos. 2nd quar. 472.8 141.9 252.1 364.6
1,138.4
558 cos. 1st half..
0.5
4.0
100.4
1.9
16.2
2.9
— 16.8
— 7.1
0.9
— 0.2
—
7.6
6.7
125.2 149.0
18.4
4.6
62.8 109.5
3.6
17.6
29.5 33.0
13.5
16.1
25.1 98.8
11.6
7.5
1.2
1.6
1.9
3.0
364.2 635.2 955.2
137 Class I railroads,
net income..........
23.5 —74.3 —47.2
94 Telephone com
panies, net operat
ing income..........
58.6
52.8
60.7
61.9
118.9
102.8 117.3 124.4
68 Other public utili
ties, net income..
69.1
57.2
66.8
68.3
143.0
123.4 141.2 152.7
1.6
38.9 — 180.0 —90.0 — 12.0
— Deficit.
F o re ig n E x c h a n g e s
The NewYork free market for the pound sterling
seem
s to have virtually disappeared during the past
monthastheresult of theprogressivedryingupof the
FEDERAL RESERVE BANK OF NEW YORK
supply of sterling balances which had been held in
American accounts before the July restrictive British
regulations became effective on July 18. A fter ending
July at $3.83%, the pound rate continued to advance
irregularly during the first half of August under the
stimulus of a covering demand and touched a high of
$4.03% on August 16. The free rate had thus, for the
first time since October, 1939, reached parity with the
official rate at which the B ritish authorities supply
sterling against dollars. D uring the latter p art of the
month, the free rate for the pound fluctuated narrowly
around the official rates, holding within a range of $4.00$4.03%.
A t the beginning of the war, the B ritish inaugurated
exchange control and fixed official buying and selling
rates for the dollar, and at that time the New York
sterling rate became distinct from the London rate. The
free m arket in sterling was at first supplied prim arily by
withdrawals of existing foreign owned balances from
London and the proceeds of im ports into the sterling
area which were paid for in sterling which could not be
converted into other currencies through the official
London market. Sales of foreign held sterling securities,
no doubt, were also an im portant factor in the supply in
the free m arket during the early months of the war.
Despite a tem porary reaction to as low as $3.75 in
September, 1939, accompanying some downward revision
of the official buying rate for dollars, the free rate
fluctuated fairly close to the official level during the first
six months of the war, since foreigners were able to use
free-market sterling in paym ent for exports from the
sterling area. By means of new exchange regulations
imposed on March 8, 1940 (and somewhat reenforced on
June 8), the British authorities took steps to eliminate
this possibility and as a result of this reduction in the
demand for free-market sterling, together with the psy
chological reaction to the German m ilitary successes in
Europe, New York quotations for the pound dropped
to an all-time low of $3.00 on May 10. Subsequent restric
tions on the supply of unofficial sterling in this market,
however, particularly as the result of the regulations,
effective July 18, finally were instrum ental in strengthen
ing the free rate to a level more or less in line with the
official rates quoted by the Bank of England.
On August 21 a further measure was taken by the
British authorities, presumably for the purpose of
tightening the exchange control and preventing the
redemption of B ritish currency held in the occupied terri
tories of Europe. Subject to certain exemptions, British
bank notes may no longer be im ported into the United
Kingdom. Bank of England notes are now quoted in this
m arket at about $2.90.
Swiss exchange appeared to have continued in demand
throughout the greater p art of August. On August 12
the rate for the Swiss franc was allowed to appreciate
from $0.2274 to about $0.2279, near which level it has
subsequently remained. The Canadian dollar, which
showed a firm tendency in the m arket during June and
July, held steady during most of the past month at a
discount of around 13 per cent.
Among the L atin American exchanges, the Cuban peso
weakened somewhat in terms of the dollar during the
69
past month and the Mexican peso, which firmed to about
$0.2030 in July, moved irregularly lower to about $0.2006
at the end of August.
G o ld M o v e m e n ts
Im ports of gold into the United States declined further
during August from the peak reached in June, but still
continued in substantial volume. Gold held under ear
m ark for foreign account at the Federal Reserve Banks
decreased about $60,000,000 during the month to a total
of about $1,700,000,000 at the end of August. The gold
stock of the United States increased about $450,000,000
during the month.
As reported by the D epartm ent of Commerce, a total of
$320,500,000 of gold was im ported in the four weeks
ended August 21. Of this amount, $213,100,000 came
from Canada, $50,600,000 from the United Kingdom,
$11,500,000 from Portugal, $10,100,000 from South
Africa, $8,300,000 from Colombia, $4,600,000 from
Brazil, $4,300,000 from the Netherlands Indies,
$3,600,000 from Sweden, $3,200,000 from Mexico,
$2,900,000 from the Philippines, $2,700,000 from Hong
Kong, $700,000 from Peru, and $700,000 from British
India.
C e n tra l B a n k R a te C h a n g e s
According to a recently published report, the Reserve
Bank of New Zealand lowered its discount rate from
3 per cent to 2 per cent on May 27. The higher rate
had been in force since September 6, 1939.
E m p lo y m e n t a n d P a y ro lls
D uring July, working forces and payrolls of New York
State factories rose somewhat above the June levels, con
trary to the usual seasonal tendency. F urth er employ
ment increases were reported in the shipbuilding, air
craft, metal working, and machinery industries, which
have been particularly stimulated by w ar and National
defense orders, and m anufacturers of textiles and m en’s
clothing also employed more workers than in June. The
largest gain occurred at the seasonally active canning
and preserving plants which, as usual, more than doubled
their working forces between June and July. W omen’s
apparel firms, however, continued their seasonal layoffs.
Compared with July, 1939, total factory employment was
10% per cent greater and payrolls were 14% per cent
larger.
In the country as a whole, it is estimated th at over
130,000 more persons were at work in nonagricultural
pursuits than in June, and th at over 1,000,000 more
persons were employed in such occupations than in July,
1939. The largest employment gains occurred in Federal,
State, and local governments, in building construction,
and in transportation and other public utilities. However,
retail trade establishments, as usual, curtailed their work
ing forces considerably during July.
There was little change in factory employment between
70
MONTHLY REVIEW, SEPTEMBER 1, 1940
June and July, and payrolls decreased slightly although
the decline was not so great as is usual at this time of
year. Stim ulated in varying degrees by the war and the
National defense program, employment increases
occurred in the aircraft, shipbuilding, engine, and
machine tool industries, as well as in plants producing
iron and steel, shoes, cotton and woolen textiles, and
m en’s clothing. Other concerns which added to their
working forces in Ju ly were canning factories, radio
m anufacturing plants, slaughter houses, and book and
job printing establishments. All these gains, however,
were practically offset by the large seasonal layoffs at
automobile plants and women’s clothing factories. Total
factory employment was 6% per cent above the level of
a year before, and payrolls were 14 per cent greater.
P ro d u c tio n a n d T ra d e
From early indications—with allowance for the usual
seasonal influences—it appears that general business
activity during August remained close to the level pre
vailing in June and July. Steel mill operations averaged
around 90 per cent of capacity, reaching 91% per cent
during the final week, compared with an average of
about 87% per cent for the month of July. The con
tinued rise in steel mill activity this summer has resulted
in a record rate of output for this time of year, as is
shown in the accompanying diagram. Automobile assem
blies reached the low for the year in the early p art of
August, subsequently increasing each week as produc
tion of 1941 models gained momentum. Electric power
production was higher than in July, while railway
freight traffic was little changed. Cotton mill activ
ity appears to have been well m aintained, and although
sales fell below output during the first half of the
month, they subsequently expanded, particularly in print
cloths. From prelim inary figures it appears that depart
ment store sales showed more than the usual seasonal
advance during August.
Despite further acceleration of operations in indus
tries stimulated by the war and by National defense
preparations, the general level of business activity ap
pears to have been little changed between June and
THOUSANDS OF
GROSS TONS
July, following the upturn of the two previous months.
This bank’s broad index of production and trade, sea
sonally adjusted, was 91 per cent of estimated long term
trend in both June and July, compared with 88 in May,
87 in April, and 84 in July, 1939. Among the subordi
nate group indexes, pronounced gains occurred in the
production of producers’ goods. A number of im portant
war materials are included in this index. Some reduction
was indicated in the flow of goods in prim ary trade
channels, in consumers’ goods industries, and in retail
trade.
(A djusted fo r seasonal va riations and estim ated long te rm tre n d ;
series reported in dollars are also adjusted fo r price changes)
1939
J u ly
M ay
June
J u ly
84
88
91p
91p
69
96
80
93
86p
94p
9 lp
97 p
Consumers’ durable goods......................
Consumers’ nondurable goods...............
58
93
70
95
7Op
97 p
67p
95 p
P rim a ry d is trib u tio n ....................................
D is trib u tio n to consum er...........................
79
89
85
92
90 p
96 p
88p
93p
76
66
83r
88
93
105
116
112r
93
88
86
85
99
91
98
99
88
90
101
94
110
81
93
88
99p
102
97
95 p
102
99
118
74
99p
83 p
98p
109
IlO p
99p
97
89
88
82
92
86
93
87
94p
87 p
Index of Production and Trade
P roduction of:
Producers’ durable goods.......................
Producers’ nondurable goods.................
Industrial Production
Autom obiles r ............................................
B itu m in o u s coal............................................
Crude p e tro le u m ...........................................
E le ctric p o w e r...............................................
C o tto n co nsum ption....................................
W ool consum ption........................................
M e at p ackin g .................................................
Tobacco products r ......................................
Manufacturing Employment
E m p lo y m e n t..................................................
M an-hours of e m plo ym e nt.........................
Construction
R esidential b u ild in g co ntra cts...................
N onresidential b u ild in g and engineering
43
46
48
55
52
53
54
71
78
79
87
75
81
91
100
71
85
93
114
82
83
95
106p
82p
Distribution to Consumer
D epartm ent store sales (U .S .)...................
Grocery chain store sales............................
V a rie ty chain store sales.............................
M a il order house sales.................................
New passenger car sales r .........................
85
93
100
95
66
85
96
96
98
75
89
97
102
100
92
89p
96p
98p
94
82p
Velocity of Deposits*
V e lo city of demand deposits, outside New
Y o rk C ity (1919-25 avera g e =10 0 ). . . .
V e lo city of demand deposits, New Y o rk
C ity (1919-25 average— 100)................
58
58
54
53
31
27
24
24
Cost of Living and Wages*
Cost of liv in g (1926 a vera g e = 10 0 )........
I. Wage rates (1926 a v e ra g e = 10 0 )...............
82
111
83
114
83 p
114p
83 p
114p
P rim ary Distribution
R y. fre ig h t car loadings, mdse, and misc.
R y . fre ig h t car loadings, o th e r..................
p Prel im in a ry .
Daily Average Steel Ingot Production (August, 1940, estimated)
1940
r Revised.
* N o t adjusted fo r trend.
F o re ig n T ra d e
Accompanying the elimination of France, in addition
to other blockaded areas of continental Europe, as a
foreign outlet for American products, total merchandise
exports from the United States declined during Ju ly ;
the value of exports at $317,000,000 was $33,000,000, or
nearly 10 per cent, below the comparatively high level
of June. Increased exports from this country to the
United Kingdom during July appear to have partly
compensated for the loss of the French market. (United
FEDERAL RESERVE BANK OF NEW YORK
States shipments to France in the part of June prior
to its capitulation amounted to $47,000,000.) Moreover,
“ general” imports, valued at $232,000,000, exceeded the
June figure by $21,000,000 or 10 per cent. The export
balance was thus reduced from $139,000,000 in June to
$85,000,000 in July, the latter figure being the smallest
excess of exports for any month since last November,
although substantially larger than that of July a
year ago.
The value of both exports and imports was about 38
per cent higher than in July, 1939. F or the eleven
months since the European war began (SeptemberJuly) exports from the United States amounted to
$3,666,000,000, or 36 percent more than in the com
parable 1938-39 period; for the same period imports,
valued at $2,405,000,000, showed a 23 per cent rise.
A decline of $32,000,000, or 15 per cent, from June
to July in the value of exports of finished m anufactures
accounted for almost the entire reduction in total domes
tic exports between these two months. On the other
hand, increases in exports of wholly and partly finished
m anufactures over July, 1939 were prim arily respon
sible for the year-to-year gain in the aggregate, as the
accompanying table indicates. Substantial decreases
from the previous month were reported in exports of
aircraft and war materials generally, as well as in metal
working machinery, but all of these were far larger
than a year ago. E xport shipments of copper (reflect
ing sizable Japanese takings), of iron and steel products,
and of industrial chemicals were larger than in either
the previous month or July, 1939, while exports of re
fined petroleum products, automobiles, and semimanu
factures of aluminum were smaller. Among the crude
materials, exports of cotton and coal were somewhat less
than in June, but continued well above a year ago.
W hile exports of m anufactured foodstuffs were gener
ally smaller than last year, such items as lard, and
canned fish and dairy products showed large gains over
both the previous month and July, 1939. Exports of
corn and also of woodpulp were larger than in June
and wTere many times the small amounts of a year ago.
Owing to an unusually large volume of imports going
into customs warehouses during July, imports for con
sumption (on which the analysis by groups and indi
vidual commodities is based) were valued at $14,000,000
less than “ general’’ imports for that month. Neverthe
less, imports for consumption, valued at $218,000,000,
were $12,000,000 larger than in June and $47,000,000
(In m illions of dollars)
Change in value of
Value Ju ly, 1940 |
E xp o rts* Im p o rts * *
t E x p o rts *
J u ly, i94 0
compared w ith
Im p o rts * *
J u ly , 1940
compared w ith
June,
1940
Ju ly,
1939
June,
1940
J u ly ,
1939
Crude m a te ria ls...................
C rude foodstuffs..................
M anufactured foo d stu ffs...
Sem im anufactures...............
Finished m anufactures. . . .
3 2.0
7 .7
12.7
7 5.5
184.4
85.2
24.9
2 2.6
45.4
3 9.7
— 1.6
+ 1.2
+ 1.4
— 0 .8
— 32.3
+ 2 .3
+ 3 .0
— 2 .3
+ 2 9 .6
+ 5 3 .0
+ 1 4 .7
+ 1.3
— 8 .7
+ 0 .3
+ 4 .8
+ 3 5 .2
+ 3 .2
— 5 .2
+ 8 .5
+ 5 .7
T o ta l..........................
312.3
217.8
— 32.1
+ 8 5 .6
+ 1 2 .4
+ 4 7 .4
^Domestic exports only.
**Imports for consumption.
71
more than in July of last year. Reflecting in some
measure expansion in industrial demand as well as the
effort to accumulate reserves, imports of such foreign
produced raw materials as uncut diamonds, silk, and
rubber showed exceptionally large increases over both
the previous month and a year ago; wool receipts,
although somewhat smaller than in June, also registered
a substantial gain over July, 1939. Among wholly and
partly m anufactured goods, imports of burlap, works
of art, and inedible expressed oils showed especially
large increases, and receipts of newsprint paper, tin,
and nickel also registered considerable advances over a
year ago. Im ports of most crude foodstuffs, especially
cocoa, were larger than in either the previous month or
July, 1939; on the other hand, imports of liquors, which
were unusually large in June, edible vegetable oils, and
sugar showed reductions from the previous month.
B u ild in g
Owing especially to a large volume of awards arising
from the defense program , total construction contracts
placed during July in the 37 States included in the
F. W. Dodge Corporation survey were at the highest
level for that month since 1929. Construction awards
in July for publicly financed work constituted the largest
proportion of the total for any month this year—slightly
over 50 per cent. The daily rate of all contract awards
was 23 per cent above that of the previous month and
exceeded the July, 1939 figure by 38 per cent. The in
crease during Ju ly offset the effect of less favorable
year-to-year comparisons in the early months of 1940,
and brought the total for the first seven months of this
year to a level slightly higher than in the correspond
ing 1939 period.
All of the m ajor construction categories during July
contributed in some measure to the gains in the aggre
gate except contracts for public purpose buildings, which,
while 12 per cent larger than in June, showed a slight
decline from July a year ago. A threefold increase was
recorded in the industrial type of construction over both
the previous month and July, 1939, and commercial
building awards showed advances over those months of
21 per cent and 91 per cent, respectively owing almost
entirely to defense projects. Contracts for heavy engin
eering projects, reflecting especially Federal contracts for
construction work on airports at a number of different
points, were 22 per cent higher than in either the previous
month or July, 1939. In addition, there was a small
increase over the June average in residential building
awards, contrary to the usual declining tendency between
these two months, and contracts for this type of construc
tion were 34 per cent higher than in July of last year.
In New York and N orthern New Jersey, the daily
average rate of contract awards in July showed an in
crease of 17 per cent over the previous month and of
16 per cent over the comparatively low level in July
of last year; the volume, however, was 7 per cent less
than in July of 1938. Owing to the awarding of sizable
contracts for subway construction and for the elimina
tion of railroad grade crossings in M etropolitan New
York, contracts during July for public utility construc
tion in the New York and Northern New Jersey area
72
M O N T H L Y R E V I E W , S E P T E M B E R 1, 1940
showed large gains relative to both the previous month
and July, 1939. Awards for commercial, industrial, and
residential buildings also registered considerable ad
vances, but contracts for public purpose building and
public works projects were smaller. For the first seven
months of 1940 total contract awards were 18 per cent
below the level in the comparable 1939 period. W ith the
exception of commercial and industrial building, awards
for which were 25 per cent higher than in the first
seven months of 1939, all the principal construction
classifications showed unfavorable comparisons with the
corresponding period of last year.
F or the first two weeks of August the daily average
rate of construction contract awards in the 37 States
declined 2 per cent from July, but were one-third larger
than in the corresponding period of August, 1939.
C o m m o d ity P ric e s
Leading wholesale commodity m arkets were character
ized by mixed price movements during August, and
the net changes in prices for the month as a whole were
mostly small. The Bureau of Labor Statistics daily index
of 28 basic commodities drifted lower during the first
half of the month, to a point only 5% per cent above the
average for the prew ar month of August, 1939, but the
index subsequently recovered to the level prevailing in
the middle of July.
Reflecting the effect of a large supply of wheat in this
country and Canada, as well as the uncertain outlook
for foreign demand, wheat quotations in the middle of
August dropped to the lowest levels since last summer.
Subsequently, however, as a large volume of the new
wheat crop moved into the Government loan stocks,
wheat prices regained a considerable p art of the previous
losses. The cash quotation for spring wheat in Minnea
polis at 72% cents a bushel showed a decline for the month
of 5% cents, however. Accompanying reports early in
the month of unfavorable weather and indications of a
limited amount going into the “ free” market, corn prices
were firm; the closing cash quotation at 64% cents a
bushel showed little net change from the end of July.
On August 22 sugar was down to 2.61 cents a pound—
the lowest quotation since December, 1934—but the price
later recovered to 2.73 cents, apparently in response to
the eight month extension of world quota certificates and
announcement by the Departm ent of A griculture on
August 26 of a reduction in the im port quotas. Iiog
quotations continued to advance throughout most of the
month and at $7.18 a hundredweight showed a gain of
$1.08 from the end of Ju ly ; steers were up $1.55 for the
month and at $11.38 a hundredweight on August 27 were
the highest since the fall of 1937.
The loss of export markets continued to be a m ajor
factor in the decline in cotton prices during August.
Despite the announcement of a sharp reduction in the
carryover and an estimate of lower production for this
year, the average spot quotation at 10 Southern markets
decreased 66 points to 9.40 cents a pound. V irtually no
change occurred in silk prices during the month, but
wool tops rose 5% cents to $1.04 a pound, reflecting
prospective purchases of piece goods for the Army. On
the other hand, the price of rubber receded.
Some strength in the metal markets became apparent
about the middle of August. Following a decline early
in the month in the domestic copper price, customs
smelters advanced their price on August 20 to 11 cents a
pound, equal to th at quoted by prim ary producers.
Despite estimated Japanese purchases amounting to
40,000 tons, however, the export price lagged at the low
level of 9.90 cents a pound from August 7 through the
remainder of the month. On August 14 the price of zinc
was increased to 6.50 cents a pound, the first advance
since June 3; the supply was reported to be the lowest
in four years. Reductions early in the month in the price
of lead were virtually canceled by an advance on August
21 to 4.90 cents a pound. Tin declined to 50.55 cents a
pound on August 23, but subsequently recovered a small
part of the loss. Scrap steel at Pittsburgh showed a net
advance of 25 cents to $18.75 a ton.
D e p a rtm e n t S to re T ra d e
F or the three weeks ended August 24, total sales of
the reporting departm ent stores in this D istrict were
about 11 per cent higher than in the corresponding 1939
period, owing in p art to an unusually large gain in the
third week. In th at week the cool weather stimulated
sales of fall merchandise, and a more active demand for
home furnishings also was reported. The daily rate of
sales for these three weeks of August showed more than
the usual seasonal advance from July.
In July total sales of the reporting departm ent stores
in this D istrict were about 8 per cent higher than in
July, 1939, and the daily rate of sales showed some
what less than the customary seasonal decline from the
June level.
Percentage
% , change
' J u ly , 1940
compared w ith
J u ly, 1939
Per cent of
accounts
outstanding
June 30
collected in J u ly
L o c a lity
N et
sales
New Y o rk and B ro o k ly n ................................
Stock
on hand
end of
m onth
1939
1940
+ 0 .6
+ 3 .7
+ 7 .6
+ 1 0 .4
+ 6 .7
+ 2 .1
+ 0 .9
46.9
45.1
55.4
37.0
38.6
3 8.4
33.2
47.9
44.4
53.2
37.9
3 4.4
39.4
33.1
N orthe rn N ew Y o rk S ta te ..........................
Southern New Y o rk S ta te ..........................
C entral N ew Y o rk S ta te .............................
Hudson R iv e r V a lle y D is t r ic t...................
Westchester and S ta m fo rd .........................
N iagara F a lls .................................................
+ 7 .1
+• 8 .0
+ 1 3 .2
+ 1 7 .1
+ 9 .1
+ 1 1 .1
+ 6 .3
+ 0 .4
+ 6 .0
+ 1 0 .9
+ 5 .6
+ 0 .3
+ 1 1 .3
A ll departm ent stores..............................
+ 8 .1
+ 2 .3
43.9
42.9
A pparel stores............................................
+ 5 .9
— 6 .5
4 2.4
4 3.4
N o rthe rn New Jersey......................................
Indexes o f D epartm ent Store Sales and Stocks, Second Federal Reserve D is tric t
(1923-25 average == 100)
1939
1940
J u ly
M ay
June
J u ly
Sales (average d a ily ), una d justed .................
Sales (average d a ily ), seasonally a d ju s te d ..
63
89
85
88
89
92
67
94
Stocks, u nadjusted............................................
Stocks, seasonally a d ju s te d ............................
67
77
79
77
74
78
68
79
FEDERAL RESERVE
BANK
OF N E W
YORK
M O N T H L Y R E V I E W , S E P T E M B E R 1, 1940
Business Conditions in the U nited States
(Summarized by the Board o f Governors of the Federal Reserve System)
OLUME o f industrial output was steady during July and the first half of
August, after a rapid expansion in May and June. Employment continued
to increase. Reflecting mainly awards for National defense projects, construc
tion contracts rose to the highest level in ten years. Prices o f basic commodi
ties declined somewhat further.
V
P roduction
Index of Physical Volume of Industrial Produc
tion, Adjusted for Seasonal Variation (19351939 averages 100 per cent)
m il l io n s o f ~o o l l a r s
500
1934
1935
1936
1937
f938
1939
1940
Value of Construction Contracts Awarded
(Three month moving averages of F. W . Dodge
Corporation data for 37 States, adjusted
for seasonal variation)
100
100
90
A a
Foec
{£ &
%
j
90
^ ---- .
4
-V
n
FAR!
PRODUiSTS
r s
'V
1934
1935
1936 '
1937
1938
n
N
'v J v
r
1939
1940
Indexes of Wholesale Prices Compiled by United
States Bureau of Labor Statistics (1926
average= 1 0 0 per cent)
In July the B oard’s revised index o f industrial production stood at 121
per cent o f the 1935-39 average, according to preliminary data. This is the
same as in June and 17 points above the level prevailing a year ago before the
outbreak of war. In most lines activity was maintained at the levels reached
in June or increased further.
Steel production in July was at about 85 per cent o f capacity and in the
first half o f August there was an increase to about 90 per cent. Production o f
pig iron and coke and output o f nonferrous metals were also in large volume.
In the machinery, shipbuilding, and aircraft industries, where new orders had
been large during the first half o f the year and a considerable backlog of
unfilled orders had accumulated, activity was maintained at high levels in
July, although ordinarily there are declines at this season. Lumber production
declined sharply early in July but has subsequently increased accompanying
a considerable rise in new orders.
In the automobile industry output declined sharply in July and the first
half o f August as plants were closed to prepare for the shift to new model
production. The decline was greater than at this season in other recent years,
reflecting the fact that production had been at high levels during the first half
o f 1940 and large stocks had accumulated. These stocks were reduced con
siderably in July as production was curtailed and retail sales continued large.
Textile production increased considerably further in July, reflecting chiefly
a marked rise in activity at woolen mills where output is still below the levels
o f a year ago. Production o f cotton and rayon textiles was maintained in
July and was in larger volume than last summer, while activity at silk mills
increased somewhat from the exceptionally low level reached in June. Shoe
production increased seasonally, while output of manufactured foods, which
in June had been unusually large for that time o f year, showed less than the
customary increase in July.
Coal production has risen further and shipments o f iron ore down the
Lakes have continued at near-capacity rates. Petroleum production has been
curtailed sharply, however, reflecting partly a continued high level o f stocks
o f petroleum products.
Value o f new construction work undertaken increased sharply in July,
owing mainly to a further rise in public construction, and was at the highest
level in the past decade, according to reports o f the F. W. Dodge Corporation
and the Federal Reserve Bank o f San Francisco. Awards for both residential
and nonresidential private building increased somewhat, although some decline
is usual at this season.
D istribution
Distribution of commodities to consumers was sustained in July at about
the levels prevailing in the first half o f the year. Sales at department stores
declined more than seasonally, while sales at variety stores showed little change,
although a decline is usual in July.
Total freight car loadings increased seasonally in July. Shipments o f
grain showed a considerable rise and loadings of coal and coke continued to
advance, while shipments of miscellaneous freight, which include most manu
factured products, declined by somewhat more than the usual seasonal amount.
Com m od ity P rices
Prices o f basic commodities declined somewhat further from the middle
of July to the middle o f August, with decreases chiefly in prices o f commodi
ties influenced by foreign supplies, such as lead, rubber, cocoa, and coffee.
Prices o f steel scrap and zinc, on the other hand, advanced somewhat in this
period.
A griculture
Prospects for most crops showed little change in July, according to the
Department o f Agriculture. Production this year is expected to approximate
the 1929-38 average and, considering carryovers, supplies o f most crops will
be large. Conditions for wheat and oats improved during July, while the corn
crop showed some deterioration. A cotton crop o f 11,429,000 bales was indi
cated for this season as compared with 11,817,000 bales last season.
B a n k Credit
Member Bank Reserves and Related Items
(Latest figures are for August 7)
Total loans and investments at reporting member banks in 101 leading
cities increased substantially during the five weeks ended August 14, owing
mainly to purchases of direct and guaranteed securities newly issued by the
United States Government. Sale o f these securities caused a large increase in
Treasury balances with the Federal Reserve Banks. As a result o f this tempo
rary development, excess reserves declined by $450,000,000 in this period despite
an increase o f over $500,000,000 in monetary gold stock.
@FedFRASER