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MONTHLY REVIEW ofCredit andBusinessConditions S e c o n d F e d e r a l F ederal R eserve B an k>N ew Y ork Excess reserves of all member banks of the country declined somewhat further in August, reaching $4,990,000,000 on August 27, the lowest figure since December, 1939. For the period since January 15, 1941, when the surplus amounted to $6,900,000,000, or virtually the same as at the peak of October, 1940, the movement of excess reserves has been chiefly influenced by the three factors— money in circulation, member bank reserve requirements, and Treasury transactions— indicated in the accompanying diagram. The aggregate drain on excess reserves resulting from these factors has been only partly counterbalanced by credits reaching member bank reserve accounts as a result of the continued gold inflow to this country, which has been at a much slower rate than in 1940. The volume of currency outstanding increased $200,000,000 further in the four weeks ended August 27 to reach a new high total approximately $1,350,000,000 above the amount outstanding on January 15. Thus, OF CO N SU M ER C R E D IT On August 21, 1941, the Board of Governors of the Federal Reserve System adopted Regulation W to carry out the Presi dent’s Executive Order of August 9, 1941, which declared the necessity for, and purpose of, regulation of consumer credit. Regulation W, most of the provisions of which become effective September 1, 1941, was prescribed with the general purpose of controlling the use of instalment credit fo r financing and refi nancing purchases of consumers7 durable goods, the production of which absorbs resources needed fo r National defense, in order (a) to facilitate the transfer of productive resources to defense industries, (b) to assist in curbing unwarranted price advances and profiteering which tend to result when the supply of such goods is curtailed without corresponding curtailment of demand, (c) to assist in restraining general inflationary tendencies, to support or supplement taxation imposed to re strain such tendencies, and to promote the accumulation of savings available fo r financing the defense program, (d) to aid in creating a backlog of demand fo r consumers} durable goods, and (e) to restrain the development of a consumer debt structure that would repress effective demand fo r goods and services in the post-defense period. There w ill be changes from time to time in Regulation W, particularly in the lis t of consumersr durable goods covered by the regulation, in the size of the minimum down payments required, and in the maximum length of time permitted fo r instalment contracts. Copies of Regulation W have been dis tributed widely and additional copies are available upon appli cation to this bank or its Buffalo Branch. Inquiries arising in this D istrict regarding the regulation should be addressed to this bank or its Buffalo Branch. D is tr ic t S eptem ber 1 ,1 9 4 1 M o n e y M a r k e t in A u g u st R E G U L A T IO N R e s e r v e nearly three fourths of the decline in excess reserves since early this year may be said to have been the result of the rise in currency outstanding. For the period since the outbreak of the war the increase in currency outstanding has now mounted to approximately $2,750,000,000. Of this amount, about two thirds has been in the form of coin and bills up to $20 denomination, the classes of money which are most affected by changes in the volume of business activity, and about one third has been in larger denomination currency. A further increase of nearly $100,000,000 occurred in the reserve requirements of member banks during August, accompanying expansion in certain types of their deposits, especially domestic interbank deposits and United States Government deposits. Since January the rise in reserve requirements has absorbed approximately $500,000,000 of excess reserves. The other principal absorption of excess reserves has resulted from changes in Treasury funds on deposit in the Reserve Banks and cash on hand in the Treasury, which in the aggregate have increased by a net amount of $700,000,000 since January. Treasury transactions withdrew about $900,000,000 of member bank reserve funds in the period between January 15 and the early Principal Factors Absorbing Excess Reserves of Member Banks 66 MONTHLY REVIEW, SEPTEMBER 1, 1941 part of July and since that time there has been a net disbursement of less than $200,000,000, as the diagram indicates. Treasury deposits in the Reserve Banks on August 27 remained at $772,000,000, as compared with $237,000,000 on January 15. Despite the large amounts being disbursed by the Treasury for National defense purposes (such expenditures as indicated by the Treas ury daily statement were $1,042,000,000 for the first 28 days of the month, as compared with $940,000,000 in July and $808,000,000 in June), Treasury deposits in the Reserve Banks have remained at a high level, because, in addition to revenue receipts, there have been large receipts from the sale of Treasury tax series notes and savings bonds. During the first 26 days of August, $596,000,000 of proceeds of tax note sales and $229,000,000 of proceeds of sales of savings bonds were entered in the Treasury daily statement, mostly having been credited to Treasury deposits in the Reserve Banks. A concurrent increase of $110,000,000 shown in the Treasury daily statement item “ Deposits in special depositaries account of sales of Government securities” between July 31 and August 26 indicates that some banks are using the “ book credit” method of making payment for tax anticipation notes purchased by them selves or their customers. At the time the Treasury notes of the tax series were initially offered, it was provided that qualified depositaries would be permitted to make payment for notes applied for on behalf of themselves or their customers by establishing credits on their books in favor of the Treasury, the underlying purpose being to provide a means by which banks, if they elected to do so by virtue of their reserve position or for other reasons, could retain on deposit funds invested in tax anticipation notes until the deposits were withdrawn by the Treasury, and not suffer an immediate loss of reserves. The availability of this means of payment should help to avoid disturbance to the money market such as might result if individual banks, not possessing any excess reserves or only the amounts desired by them, were forced to make imme diate cash payments to the Treasury at times when Treasury expenditures were proceeding at a rate below the rate of Treasury receipts. Reflecting the substantial cash resources of the Treas ury at the present time and with funds continuing to flow into Treasury deposits at the Reserve Banks through cash payments for tax anticipation notes and savings bonds, the Treasury on August 29 sold only $100,000,000 of Treasury bills to be issued September 3, on which date a $200,000,000 issue of Treasury bills matures. M e m b e r B a n k C r e d it Further expansion of reporting member bank loans and investments— to the extent of nearly $400,000,000— occurred during the four weeks ended August 20. Since the end of August, 1939 the aggregate expansion in reporting member bank credit has amounted to approxi mately $6,600,000,000. Commercial, industrial, and agri cultural loans rose an additional $169,000,000 in the four week period to reach a total about $2,200,000,000 above the August, 1939 level. Total United States Gov ernment security holdings showed no net change for the four week period, but reporting bank holdings of other types of securities rose $195,000,000, reflecting purchases of new issues of State and municipal securi ties. About one half of the August expansion in com mercial loans occurred at New York City banks and more than three fourths of the rise in holdings of securities other than United States Government obliga tions took place in New York. Adjusted demand deposits of the reporting banks rose to a new high level of $24,544,000,000 on July 30, but in the following week showed a decline which was not fully offset by increases in the two weeks ended August 20. Time deposits, domestic interbank deposits, and United States Government deposits all tended some what higher during the four weeks ended August 20. M oney Rates in New York Aug. 31, 1940 July 31, 1941 Aug. 30, 1941 Stock Exchange call loans....................... Stock Exchange 90 day loans................. Prime commercial paper 4-6 months. .. Bills— 90 day unindorsed......................... Average yield on Treasury notes (3-5 Average yield on Treasury bonds (not callable within 1 2 years) f .................... Average rate on latest Treasury bill sale, 91 day issue.................................... Federal Reserve Bank of New York discount rate........................................... Federal Reserve Bank of New York buying rate for 90 day indorsed b ills .. ^Nominal. 1 1 XrY i A 7 1 *1H X A 7 X A 7 0.31 0 .51 0 .3 3 2.27 1.96 1.96 0.028 0.094 0.114 1 1 1 X f “ Tax exempt” issues only. G o v e r n m e n t S e c u r it ie s The uptrend in prices of United States Government securities, which has been the prevailing tendency since last February, was interrupted by a downward reaction in the early part of August, but substantial recoveries later occurred. The average quotation for four long term tax exempt Treasury bonds dropped 1 % points between July 30 and August 12, but % point of this loss was regained by the 15th and further recovery was shown late in the month, so that the net loss for August as a whole was very slight. The three taxable Treasury issues likewise declined from peak levels early in the month and the subsequent recoveries were not so strong as in the case of the tax exempt issues. The average yield on 3 to 5 year tax exempt Treasury notes fluctuated narrowly around 0.33 per cent during August, showing little net change for the month as a whole. On the other hand, the average yield on the tax able % per cent National Defense note issues moved up 0.03 per cent from the beginning of August to the 11th, subsequently declining 0.07 per cent to 0.59 per cent, the lowest average yield so far recorded on these issues. Accepted bids on the four weekly issues of taxable Treasury bills during August were tendered on an inter est basis averaging between 0.106 and 0.116 per cent. Each of the issues was in the amount of $100,000,000 and each replaced similar maturities. B usiness Profits Despite the record level of industrial production, net profits of large industrial corporations, as measured by 67 FEDERAL RESERVE BANK OF NEW YORK the figures of 167 companies which report profits quar terly, declined 6 per cent between the first and second quarters of this year. Second quarter profits were restricted by higher labor and material costs and par ticularly by increased provision for taxes, as many com panies in this group made deductions from their second quarter net earnings for estimated tax liabilities (at the higher rates incorporated in the current tax bill) applicable to the first, as well as the second quarter. Estimates reallocating taxes reported by corporations during both the first and second quarters indicate that if taxes had been uniformly applied against their respec tive quarters, net profits of leading corporations would have risen somewhat between the two quarterly periods, but by less than the average for past years. For a broader list of 376 industrial and mercantile cor porations, as summarized in the accompanying table, net profits during the second quarter were about one-fourth larger than a year before but were slightly smaller than in the second quarter of 1937 when the level of business activity was well below that of the second quarter of 1941. Net profits of 511 industrial and mercantile corpora tions reporting for the first six months of this year were about 22 per cent above those for the corresponding period last year and were slightly higher than in the first half of 1937. Year-to-year changes in first half earnings of the individual groups listed in the table were varied. The largest percentage gains were made by the following groups of companies: textiles, rubber and tires, heating and plumbing supplies, coal mining, steel and iron, and railroad equipment. The paper and paper products, chemical, automobile, petroleum, metal and glass container, and beverage groups recorded smaller gains, in all cases less than 10 per cent. In contrast, the gold and silver mining, bakery products, and advertising, printing, and publishing groups reported smaller profits than in the first half of 1940. With respect to the impact of Federal taxes on earn ings, it is interesting to note that for a group of 89 com panies, which reported complete profit and loss data, gross sales in the first half of 1941 were 36 per cent larger than a year earlier, cost of goods sold, including State and local taxes, rose 31 per cent, and net profits before Fed eral taxes were 79 per cent higher. The total of deduc tions for Federal income and excess profit taxes and reserves for additional taxes was equal to 54 per cent of net profits before taxes, as against 26 per cent a year before. After deduction of taxes these companies re ported a gain of only 12 per cent in net profits. Class I railroads as a group reported second quarter net income (after all charges) of $103,000,000. This compares with a profit of $3,000,000 a year ago, and a profit of $24,000,000 in the 1937 second quarter. For the first six months, the Class I railroads as a group had net income after fixed charges for the second time in ten years; the total was $170,000,000, apparently the largest amount for any comparable period since 1930. Net oper ating income (before taxes) of large telephone com panies in both the second quarter and first six months reached the highest levels for any similar periods on record. Net income of other public utilities showed gains of only minor proportions during both periods. (Net profits in millions of dollars) Second quarter First six months Corporation group 1937 Advertising, printing, and publishing........... 4 .2 Airplane manufacturing 2 .3 A utom obiles................... 88.3 Automobile parts and accessories................. 17.1 Building supplies........... 14.3 Chemicals....................... 44.1 Containers (metal and glass) 2 .1 Drugs and cosmetics, including s o a p ........... 1 1 . 0 Electrical equipm ent... 2 7.5 Food products: 5 .4 Beverages................... 1 1 . 0 Confectionery............ 4 .7 Other food products. 14.2 Heating and plumbing. 5 .0 Household equipment. . 4 .3 Leather and shoes......... Machinery and tools.. . 17'.9 Metal products— misc.. 3 .6 Mining: — 0 .8 4 .6 Gold and s ilv e r ......... 5 .3 Other m ining............. 17.6 Motion pictures and films.. 6 .1 Office equipm ent........... 6 .1 Paper and paper products. 7 .5 Petroleum ....................... 47.1 Railroad equipment . . . 14.1 Retail tra d e ................... Rubber and tires........... Steel and iron................. 70 ‘. 8 Textiles and apparel. . . T obacco (cig a rs)........... 0A Miscellaneous................. 1 .0 Total 376 companies 2nd quar. 456.8 511 companies, 1st half , 1940 1941 1937 3 .5 13.8 63.7 2 .9 14.5 73.0 4 .3 149.4 42.3 2 .9 32.7 30.6 8 4.2 4 .0 — 4 .4 1.3 14.9 9 .9 39.3 2 .4 38.7 2 .5 8 1.3 3 .8 4 1 .3 28.1 82.9 4 .1 9 .6 9 .5 10.9 24.3 16.0 28.6 2 9.8 51.9 2 1.0 2 0 .1 2 8.4 46.1 3 4.4 55.4 5 .8 10.4 4 .1 4 .7 1 2 .1 3 .8 13.1 5 .2 17.2 4 .7 3 .3 9 .2 18.8 9 .2 3 4.2 8 .4 17.5 6 .3 3 7.8 8 .4 10.3 18.8 8 .4 3 0.4 — 1 .1 8 .8 2 1.2 10 .0 8 .5 2 2.7 11.3 3 9.7 8 .4 1 3.0 5 .1 3 6.3 7 .5 1938 2 .6 4 .8 2 2.4 — 1 .2 3 .3 2 0 .1 12 .1 0 1 .0 4 .5 15.6 3.1 2 .4 4 .3 — 0 .2 1 2 *.0 — 3 .2 2 .4 4 .0 7 .6 3 .0 3 .4 0 .8 2 .3 3 .8 3 .5 10.4 2 .7 4 .0 20.4 12 .6 15’.0 4 .0 1.3 4 .3 3 .2 11.7 4 .4 6 .0 2 6.2 6 .3 8 .1 7 .6 37.8 13.1 — 10^5 4 7 ’. 8 68!4 1 .2 28.5 — 1 .5 0 .5 — 0 .3 0'.8 o'.s 2 .5 3 .4 8 .8 1938 1940 5 .3 6 .8 7 .9 2 3.6 25.4 147.6 6 .2 0 .6 — 1 .1 11 .2 — 0 .3 3 2.5 2 1 .1 3 5.5 4 .4 9 .7 3 .8 2 6.6 5.1 —4 .6 — 0 .4 2 .5 43.1 17.9 37.9 17.5 14.1 14.0 3 8.6 18.4 2 6.0 14.3 15 4 24.7 12.5 7 .5 8 .8 14.3 4 .0 16.5 161.3 1 0 0 .8 107.0 2 9.4 — 1.3 18.4 2 1.5 9 .1 18.6 2 .7 12.7 21.5 145.5 — 17.31! 9 7.0 13.0 7 .6 — 7 .0 0 .7 0 .8 1.5 — 1.3 3 .0 1 .4 1941 6 .7 3 0 .8 152.5 4 .7 3 8.9 12 .1 28.1 2 0 .0 12.4 16.7 113.5 2 9 .7 2 3 .0 2 5.0 161.3 15.4 1 .4 3 .8 145.0 356.3 441.5 358.0 903.2 1,094.7 137 Class I railroads, net in co m e ................. 23.5 — 74.3 97 Telephone companies, net operating income. . . 58.6 52.8 62.0 7 3.6 63 other public utilities, net in co m e ................. 66.3 55.5 65.4 6 6.4 2 . 8 103.2 38.9 — 180.0 — 9 .1 170.0 118.9 1 0 2 .8 124.6 144.4 137.0 118.2 146.0 146.8 — Deficit Security M a rk e ts Following the flurry in July, activity in the stock mar ket slackened during August and stock price averages showed a predominance of declines for the month as a whole. Between July 28 and August 15 Standard’s 90 stock index dropped 4 per cent to a point about midway between the year’s high and low. Minor fluctuations at slightly higher levels characterized the remainder of the month. Price movements of domestic corporate bonds were limited during August. Moody’s average price of Aaa bonds was up about % point for the month as a whole. Medium grade bonds continued their uptrend early in the month and the average price computed for Baa bonds by Moody’s attained a new high on August 5. However, the price average subsequently receded some what and showed a net loss of about a half point for the month. A new record high was set by prime grade municipal bonds on August 6, according to Standard’s price average, although these bonds also moved slightly lower later in the month. The average yield on high grade municipal bonds on August 27 was only 0.08 per cent higher than that for the five longest term tax ex- MONTHLY REVIEW, SEPTEMBER 1, 1941 68 empt Treasury bonds. The spread between the yields on these investment media has been narrowing perceptibly since March. N e w F inancing Owing chiefly to the offering to stockholders of $234,000,000 American Telephone and Telegraph Com pany convertible debentures, the aggregate of new corpo rate and municipal financing during August rose to $431,000,000, the highest figure since December, 1940. This same issue helped to raise the corporate total to $395,000,000 and the corporate new capital portion to $296,000,000, the largest amount of “ new money” ob tained by corporations through security flotations in any month in more than eleven years. Quotations for the American Telephone and Telegraph Company 4‘ rights’ ’ evidenced a favorable reception for the new issue. Details of the principal issues included in the above totals are as follows: $234,000,000 40,000,000 American Telephone and Telegraph Company 3 per cent debentures maturing September 1, 1956; convertible into stock on the basis of $140 a share; offered at par to stockholders through transferable warrants expiring August 29—in the ratio of $100 principal amount fo r each eight shares of capital stock held; fo r new capital purposes Standard Oil Company of California securities, consisting of $25,000,000 of 2 % per cent deben tures of 1966, priced at 102% to yield 2.61 per cent and $15,000,000 of 1.05 to 2.20 per cent serial notes maturing from 1946 to 1955, priced at 9 9 % ; $15,000,000 fo r new capital purposes 37.000.000 Peoples Gas, L ig h t and Coke Company first mort gage 3 and 3% per cent bonds of 1956 and 1966; sold privately; fo r refunding purposes 33.000.000 Wisconsin Power and L ig h t Company securities, consisting of $30,000,000 of 3 % per cent bonds of 1971, awarded at 105.5897 and reoffered at 106% to yield 2.905 per cent, and $3,000,000 serial notes, sold p rivately; fo r refunding purposes Atchison, Topeka and Santa F e Railway 1% per c e n t e q u ip m e n t t r u s t certificates m a t u r in g f r o m 1942 t o 1951, a w a r d e d a t 100.434 a n d T e o ffe r e d t o y i e l d 0.25 t o 1.875 per c e n t ; f o r n e w c a p i t a l purposes. 20.000.000 In addition to the $431,000,000 of long term financing, a total of $192,000,000 of short term obligations was sold. Included in this category were $100,000,000 New York State 0.20 per cent tax anticipation notes maturing in March, 1942; $55,000,000 City of New York 0.25 per cent revenue bills due in October, 1941; and approxi mately $26,500,000 Federal Intermediate Credit Bank 0.625 per cent consolidated debentures, maturing in March and June, 1942, sold on bases of 0.30 and 0.40 per cent, respectively. Among the larger issues reported to be in preparation for future offering are $94,000,000 American Telephone and Telegraph Company refunding debentures, $50,000,000 to $100,000,000 of refunding bonds of the Pacific Gas and Electric Company, about $70,000,000 Florida Power and Light Company refunding bonds, notes, and preferred stock, and $20,000,000 Tomasini Bridge Rev enue bonds. Foreign E xch anges Such unrestricted trading as still exists in the New York foreign exchange market continues to be limited primarily to the Western Hemisphere currencies, many of which showed some strength during the past month. Stimulated by the summer tourist demand, the unofficial discount on the Canadian dollar narrowed gradually to reach 10 9/16 per cent on August 27, the best rate since November, 1939. The free rate for the Venezuelan bolivar, after declining to a low of $0.2650 on August 8 in continuation of the reaction which began on July 29, turned upward during the remainder of the month to close August at about $0.2750, but remained considerably below the rate of $0.2900 prevailing on July 28. The Argentine, Uruguayan, and Cuban pesos also showed a firmer tendency during August, the discount on the Cuban peso narrowing to slightly less than 1 per cent toward the end of the month. With respect to the Continental European exchanges, unrestricted trading in which has been suspended since the freezing of most European accounts here, Swedish kronor continued to be quoted here at about $0.2386, or at about the same rate which prevailed prior to the freezing of Swedish accounts on June 14. Sales are only made, of course, to cover those transactions which are permitted under American and Swedish regulations. In the Far East, the Shanghai open market rate for the Chinese yuan, in terms of the United States dollar, depre ciated from 5 7/32 cents on August 4 to 4 % cents (nominal) on August 21, the lowest level since May, 1940. This decline apparently reflected to a large extent the covering of short term dollar positions taken prior to, and in anticipation of, the “ blocking” of Japanese and Chinese funds in the United States on July 26. By the end of the month the rate had improved to 4 % cents. In terms of sterling, the Chinese yuan was quoted in the Shanghai open market at 2 % pence on August 28. On the basis of this quotation, the dollar-sterling cross rate in Shanghai was $4.04%, as compared with the New York unofficial sterling rate of $4.031/£. While the relatively lower unofficial rate in New York would seem to be likely to create a Far Eastern demand for sterling here, the available supply of unofficial sterling in New York is too limited to provide an active market. On August 18 the Stabilization Board of China was reported to have fixed a rate of 5 11/32 United States cents for the Chinese yuan. This rate which is to be distinguished from the open market rate in Shanghai, will apparently apply to exchange granted for legitimate imports from the United States. In addition, sterling reportedly will be provided at a rate of 3 3/16 pence for legitimate imports from the sterling area. G o ld M o v e m e n ts August imports of gold into the United States con tinued in small volume, and the increase in the gold stock of about $45,000,000 was approximately the same as in the two previous months. Gold held under earmark for foreign account at the Federal Reserve Banks increased about $30,000,000 during the month to approximately $1,975,000,000. 69 FEDERAL RESERVE BANK OF NEW YORK In the four weeks ended August 20, the Department of Commerce reported the receipt of $38,600,000 of gold, in the following principal amounts: $14,200,000 from Canada, $6,800,000 from Australia, $3,700,000 from the Philippines, $3,400,000 from Russia, $2,200,000 from Colombia, $2,000,000 from India, $1,800,000 from British Malaya, and $700,000 from Hong Kong. B u ild ing According to data prepared by the F. W . Dodge Cor poration covering 37 Eastern States, construction con tracts were awarded during July at a daily rate 45 per cent above the average for the corresponding month of 1940, and, with one exception in 1930, were at the highest rate for any month since July, 1929. Government con tracts for defense construction accounted for 42 per cent of total awards in the month and were approximately three times as large as in July of last year when the defense program was getting under way. Awards other than for Government defense construction showed an increase of only 5 per cent over the year earlier level. All major types of construction showed marked in creases over July of 1940. The gains amounted to 59 per cent for nonresidential building awards, 27 per cent for heavy engineering projects, and 46 per cent for resi dential building. As indicated in the accompanying chart, residential building contract awards have recently been running approximately 50 per cent above the level prevailing in the spring of 1940. Although both private and public residential building have increased substantially over the past three years, the gain in the latter has been rela tively larger. The increase in 1939 in public residential construction resulted from operations of the United States Housing Authority, while the rise which began toward the end of 1940 has been associated with the defense program. Contract awards for public residential building in the first seven months of 1941 accounted for about one quarter of all residential building, compared with 12 per cent in the corresponding period of 1940. During the first seven months of this year about two thirds of the Government contracts for residential build ing connected with the defense program were for one and two-family dwellings for workers in defense indus tries ; the remainder were primarily for military barracks. According to data prepared by the Division of Defense Housing Coordination, as of August 2 funds had been allocated for 110,000 family dwelling units, of which 78,000 had been placed under contract and 26,000 had been completed. Private funds are also helping to solve the problem of housing shortages, as a large portion of recent private construction has been in areas where available housing is inadequate as a result of unusual concentration of defense workers. "With the exception of residential building, the daily rates of awards for most types of construction in New York and Northern New Jersey during July were below the levels prevailing a year before. Awards of all classes were off 10 per cent owing primarily to a decrease in the volume of heavy engineering projects. Awards for factory buildings, which had shown a marked increase 1935 1936 1937 1938 1939 1940 1941 D a ily A v e ra g e V alue o f R esid ential B u ildin g C on tra cts A w ard ed in 3 7 S ta tes (F . W . D od g e C orp oration d a ta ; six m onth m o v in g a vera g es o f m o n th ly season a lly a d ju ste d d ata) during the first half of this year, in July fell below the comparable month of 1940. On the other hand, resi dential building was almost one-third higher. E m p lo y m e n t and P ayrolls New York State factory employment rose 2 per cent further between June and July, and payrolls increased 2 per cent, whereas ordinarily both tend to decline at this time of year. Again the largest gains in employment were concentrated in defense industries. Of the 10,000 additional workers hired during the month by firms re porting to the State Department of Labor, 7,000 were employed by metal and machinery factories. Substantial increases in employment, of a seasonal nature, were also reported by shoe plants and manufacturers of food, although in the latter case the rise was less pronounced than usual. Employment in New York State factories during July is estimated to have approached 1,600,000, approximately equal to the March, 1920 peak, 15 per cent above the October, 1929 figure, and a third higher than in July of last year. Average weekly payrolls exceeded $50,000,000, a gain of 57 per cent over July, 1940, and substantially above the 1920 and 1929 peaks. According to the Bureau of Labor Statistics, factory employment in the United States as a whole rose 2 per cent and payrolls increased somewhat less than % per cent during July. The largest gains in working forces were reported by firms engaged on defense orders, par ticularly those in the shipbuilding and aircraft indus tries. Employment in automobile manufacturing plants declined, though less than usual, while canneries, in response to seasonal influences, added substantially to working forces. Employment in manufacturing as a whole in July was 26 per cent above the year earlier level and payrolls were 55 per cent greater. In the two years between July, 1939 and July, 1941, factory employment in the United States expanded 35 per cent. Three fourths of this gain resulted from the increase in working forces at plants manufacturing durable goods. The number of persons employed in the MONTHLY REVIEW, SEPTEMBER 1, 1941 70 August, 1940. Late inthemonthdefense officials an nouncedthat passenger car productionfor the period AugustthroughNovemberwillbecut26^2P©rcentfrom theoutputinthecorrespondingperiodof 1940. Onthis basis, approximately817,000carswouldbeproduceddur ing the four monthperiod. The rate of curtailment after November will beprogressively greater andwill dependontheavailabilityofmaterial suppliesandupon the ability of the industry to transfer employees to defensework. Thecurtailment programfor thewhole model yearof 1942mayinvolveacut of asmuchas50 per cent, as comparedwiththe originally announced reductionof around20per cent. Norestrictions were placeduponproductionoftrucksorbuses, andthePriori tiesDivisionof theO.P. M.announcedahighpriority rating(A-3) toaidmanufacturersofmediumandheavy vehicles of these types in obtaining scarce materials promptly. Truckproductionrecentlyhasbeenrunning approximately 60 per cent aheadof last year andhas beenaccounting for about a fifth of total automobile production. Judgingfrompreliminarydatanowathand,business Accordingtotradecomments, cottontextilemillscon activity in August appears to have held close to the tinuedrecordoperationsduringAugust. Therewasan advancedlevel reachedinJuly. Thesteel mills again active demand for cotton gray goods, but sales were operated within a fewpercentage points of capacity restrictedbytheunwillingness of mills toaddtotheir duringAugust. EarlyinthemonththeOfficeofProduc orderbacklogs. Electricpowerproductionrosefurther tionManagementissuedanorderplacingsteel inall its inAugust andtheoutputofbituminouscoal appearsto formsunderfullprioritycontrol, defensedemandsbeing haveincreasedsomewhatmorethanusual. Loadingsof put “uncompromisingly aheadof non-defense needs.” railwayfreightduringthefirstthreeweeksofthemonth Recentadditionstosteelmill capacityandplansforfur weremaintainedataboutthesamerateasinJuly. ther expansion were reported during August. The J AmericanIronandSteel Instituteestimatedthatinthe OwingtoPthecontinuedpreTssureof d fensedemands, first six months of 1941 annual capacity increased resistance totheusual summer contrace t io nwas shown approximately2milliontonstoover86milliontonsand inmany lines of business activity in Ju ly, and this the Office of ProductionManagement announced that b a n k ’s s e a s o n a lly a d ju s t e d in d e x o f p r o d u c t io ndtrade various steel producers hadsubmittedproposals which advancedto111percent of estimatedlongtneram nd. wouldaddover 12milliontons moretothecountry’s Thisfigurecompareswith110inJuneand91intrJeu ly, annual ingot capacity. 1 9 4 0 . S e a s o n a l fa c t o r s c o n s i d e r e d , t h e m o s t m a r k d In connectionwith the shift to production of new gains overJuneoccurredintheproductionof durabele models, automobile productionwas materially reduced g s, bothintheproducers’ andconsumers’ categories. inAugust. It wasreported, however, thatmanyplants ood teel mill operationscontinuedtorunat ahighrate completedthechangeoverinrecordtimethisyear, andit inSJ uly, despite growingconcernintheindustry over is estimatedthat output wasmorethandoublethat of actua l or potential shortages of steel scrap and pig iron, andotherdurablegoodsindustriesvitallyaffected bythedefenseprogram,suchasaircraft, machinery, and shipbuilding, showedstill further gains. Theprospect of material shortages andforthcomingcurtailment pro 8 grams spurred activity in consumers’ durable goods industries. Activity in nondurable goods industries was little changedfromJune, seasonalfactorsconsidered,butwas 6 substantially higher thaninJuly, 1940. The rate of mill consumptionof cottonwasslightlyhigherinJuly than in June, although in most years a pronounced declineoccurs. Duringthecropyear endedJuly 31, 1941 mill con sumptionof cottonexceededthat intheprevious peak 2 year (endedJuly31, 1937) bymorethan20percent, astheaccompanyingdiagramindicates. Wool consump tion, ontheotherhand, appearstohavebeensomewhat 0 lower thaninJune, althoughmorethanhalf againas largeasinJuly, 1940. Asreflectedinthefiguresforrail- manufacture of ironandsteel and nonferrous metals andtheir products increasedover 50 per cent during the period; automobile, foundry and machine shop, andelectrical apparatus firms increasedtheir working forces bytwothirds or more. Machinetool companies morethandoubledthenumberof theirworkersduring the two year period, shipbuilding firms tripled the number of theirs, and aircraft plants had a fivefold increase. Thoughemployment innondurable goods industries increasedbetweenJuly, 1939andJuly, 1941, thegains were generally of smaller magnitude. Employment in rubber manufacturing rose about 40 per cent; inthe textile andchemical industries the increases amounted to 16 and25 per cent, respectively. Paper mills and printing establishments employed 12 per cent more workers, andmanufacturers of foodproducts increased workingforcestotheextentof 7percent. P r o d u c tio n and T rade roduction and M IL L IO N S OF BA L ES fO 4 Mill Consumption o f Cotton (Crop years ended July 31) rade in u ly FEDERAL RESERVE BANK OF NEW YORK wayfreight carloadings, seasonallyadjusted, therate of flowof goodsthroughprimarydistributionchannels was about unchangedfromJune toJuly. Retail trademade afavorableshowinginJuly, con sideringtheusualmidsummerslackness. Salesofdepart mentstoresandmail orderhouseswereoff considerably less thanseasonally, while about the expecteddecline occurredinthecaseof varietychainstoresales. Retail sales of automobiles, although lower than in June, reachedthelargest volumeforanyJulysince1929. (Adjusted for seasonal variations and estimated long term trend; series reported in dollars are also adjusted for price changes) 1941 1940 July May June July Index of Production and Trade....................... Production of: Producers’ durable goods........................ Producers’ nondurable goods................. 91 109 IlOp lllp 90r 97r 121 119 124p 121p 129p 122p Consumers’ durable goods...................... Consumers’ nondurable goods............... 68 96r 95 105 104p 106p 108p 105p Primary distribution.................................... Distribution to consumer............................ 89 93r 106 107 104p 104p 104p 106p Industrial Production Steel r............................................................... Automobiles................................................... Bituminous coal............................................ Crude petroleum........................................... Electric power............................................... Cotton consumption.................................... Wool consumptionr...................................... Shoes................................................................ Meat packing................................................. Tobacco products.......................................... 114 78 98r 86 99 113 103 103r 97 89 127 121 122 86 111 148 198 126 112 100 131 131 125 87 113p 152 196 133p 105 99 133 150 117p 85 v 115p 167 182p 132p 106 96 Man-hours of employment......................... 95r 89 112 115 116 119 120p 121p Construction Residential building contracts................... Nonresidential building and engineering contracts..................................................... 55 59 67 73 71 94 88 93 Primary Distribution Ry. freight car loadings, mdse, and misc. Ry. freight car loadings, other..................... Exports............................................................ Imports........................................................... 84 95 108 81 102 117 117 96 103 117 103 94 103 116 Distribution to Consumer Department store sales (U.S.)................... Grocery chain store sales............................ Variety chain store sales............................. Mail order house sales................................. New passenger car salesr............................ 91 96 95 94 88 102 99 110 112 131 99 99 109 108p 118 108 98p 108 lllp 100 Velocity of Deposits* Velocity of demand deposits, outside New York City (1919-25 average — 100) . . Velocity of demand deposits, New York City (1919-25 average = 100).............. 53 58 60 57 24 25 27 26 Cost o f Living and Wages* Cost of living (1935-39 average = 1 0 0 )... Wage rates (1926 average = 100)............ 104 114 107 120 108 122 109p 123p Manufacturing Employment .. p Preliminary. r Revised; in the cases of steel, wool, and new passenger car sales, the series have been revised. * Not adjusted for trend. C o m m o d it y P r ic e s Advancing price tendencies inwholesale commodity markets were less pronouncedduring August thanin immediately preceding months. The Office of Price Administrationwas active inplacingprice ceilings on awidevarietyof products; importedcommodities, that hadshownmarkedpriceincreases accompanyingfears of inadequatesupplies, wereparticularly theobject of control measures inAugust. Price advances, however, continuedtooccur amongmany domestic commodities onwhichmaximumpricelevelswerenotinforce. 71 The Bureau of Labor Statistics weekly index of wholesale commodityprices rose about one andahalf per cent between July 26 and August 23 to a new highlevel since 1930; for the two year period since the war began, this index has shown an increase of 20 per cent. All the major commodity groups have participated to greater or less extent in the general advancesinceAugust, 1939, althoughpronouncedgains inthepricesof rawmaterials, especiallyfarmproducts, havebeenaleadingfactor. Owinginsomemeasuretouncertaintyregardingthe outcome of agricultural legislation, farmprices fluctu atedirregularlyinAugust but asagroupshowedonly small net changes for the month. Following the an nouncement earlyinAugust of theCommodity Credit Corporationloanratefor the 1941 cottoncrop, arate substantiallybelowprevailingmarket quotations, cotton prices declined somewhat, but subsequently developed renewed strength. On August 8 the Department of Agriculture publishedits first estimate of this year’s cotton crop as 10,817,000 bales, which would be the smallestharvestsince1935. Theaveragepriceof cotton in10 Southernmarkets showedanet rise of nearlya cent for themonth, closingat 16.71 cents apoundon August30. Inspiteoffavorableweatherforharvesting thespringwheatcropandlargesupplies, wheat quota tions showedsubstantial gains for the month. Spring wheatinMinneapolisrose6^ centsto$1.06^abushel duringAugust. Cornwas relativelysteadyandother grains werefirm. Late inAugust hogquotations rose sharplytoanewhighsince1937; theclosingpricein ChicagoonAugust 30was$11.63ahundredweight, up 44centsfor themonth. Partlyowingtopurchases by theSurplusMarketingAdministration, lardandcotton seedoil alsodisplayedconsiderablestrength. As aresult of thepriceceilings placedonanumber of import commodities during August, import prices asawholeweresomewhat belowthehighlevels of the preceding month. On August 3 the Office of Price AdministrationandCivilianSupplyannouncedasched uleof maximumquotations onrawsilkabout 50cents apoundlowerthanthepeakpricesreachedbeforethe freezingof Japaneseassets inthis country. Following anadvanceinrawsugarquotationsinNewYorkfrom 3.65to3.80cents apound, anofficial ceilingpricewas set at 3.50 cents a pound, effective as of August 14. Maximumpriceswerealsoannouncedfor tinandbur lap, the latter of which was 20 per cent belowthe prevailing level. The prices of coffee, cocoa, and of “free” rubber were about unchangedfor the month. Cooperatingtospeeduptheaccumulationof arubber reserveinthiscountry, theInternational RubberRegu lationCommitteeraisedtheexportquotaforthefourth quarter of 1941from100 per cent to120 per cent of basicquotas. Lumberwasplacedunder mandatorycontrol bythe Priorities Divisionof theOfficeof ProductionManage ment, andtheOfficeof PriceAdministrationandCivil ian Supply established ceilings for Southern pine lumber, following an eighteen year peak in average wholesale prices of lumber reached early in August. Maximumprices were also announced on additional MONTHLY REVIEW, SEPTEMBER 1, 1941 72 cottontextileitemsandonrayongraygoods. OnAugust departmental classificationshavebeentabulatedforthe 27 aschedule was publishedof suggested4‘fair maxi first sevenmonthsof thisyearandtheresultsaresum mum’’ retail pricesforgasolineinfortyEasterncities. marizedintheaccompanyingchart intheformof per Themetal markets generallyheldsteadythroughout centage changes over 1940 for selected departmental August. All private purchases of copper werelimited groupings. Aggregate sales for this list of storeswere to12centsapound, althoughtheMetalsReserveCom 10percentlargerinthefirst sevenmonthsof thisyear pany may purchase highcost copper above this level. thaninthecorrespondingperiodof 1940, andsalesin Ceiling prices onscrap copper were issuedat 2 to 4 creaseswereshowninpracticallyallmajordepartments. cents under the 12 cents per poundmaximumonnew Large gains were commonin housefurnishing lines— copper. ThePrioritiesDivisionof theOfficeof Produc furniture, floorcoverings, electrical appliances, andlin tionManagementplacedpigiron, all formsof steel, and ensanddomestics (includingtowels, sheetings, blankets, copperunderfull prioritiescontrol. etc.)—andinmostcaseshavewidenedconsiderablysince themiddleof theyear. Salesincreasesinclothingde partmentsandintoilet articlesanddrugsweresmaller thanthegaininaggregatesales. Piecegoods (dressand DuringthethreeweeksendedAugust23, salesof the coatgoodsofvariousfabrics) weresoldinsmallervolume reportingdepartment stores intheSecondFederal Ee thaninthefirstsevenmonthsoflastyear. serve District were about 40 per cent greater thanin Retail stocksof merchandiseonhandinthereporting thecorrespondingweeks of 1940. Theunusuallylarge department stores at theendof Julywere19percent increaseis traceabletoanumber of special factors, in higherthanayearbefore, andafurther advanceof 6 additiontothe basic influence of expanding consumer pointsoverJunewasindicatedinthisbank’sseasonally justed index of department store stocks. Returns incomes and the accompanying tendency to purchase fard malimitednumberof departmentstoresinthisDis more expensive types of merchandise. The threatened tro t indicate that outstanding orders for merchandise silk shortage resulted in exceptionally large sales of puic r c asedbythestoresbutnotyetdeliveredweretwice hosiery, silkunderwear, andsilkyardgoods. Sales of aslah r g ttheendofJulyasthoseofayearago. Yearhousefurnishings, including furniture, electrical appli to-yeareia n reases of similar proportions were reported ances, floorcoverings, andlinens, werealsosubstantially alsoforthc e endofMayandtheendofJune. aheadof last year, owing in part to expectations of furtherpriceadvancesanddifficultiesinobtainingsuch items. Salesof fursandfur-trimmedcoats, asinJuly, were at unusually highlevels, tosome extent at least reflectingtheprospectiveexcisetaxonfurs. AlargegaininsaleswasalsoreportedforJuly; total salesof thereportingdepartment storesinthisDistrict were 22 per cent higher thaninJuly, 1940, andthis bank’s seasonally adjusted index of department store salesadvanced12pointsoverJuneto114percentofthe 1923-25 average, the highest level in over ten years. Reports fromagroupof thelarger stores onsalesby D e p a r tm e n t S to r e T r a d e Percentage changes from a year ago Net sales Stock on hand end of month Department stores New York City (includes Brooklyn). . . . Northern New Jersey................................ Westchester and Fairfield Counties. . . . Lower Hudson River Valley................... Poughkeepsie.......................................... Upper Hudson River Valley................... Central New York State.......................... Mohawk River Valley.......................... M A JO R E L E C T R IC A L A P P L IA N C E S y ///Z /:////? /////? ///7 /? ////// Northern New York State....................... Southern New York State....................... Binghamton............................................. L IN E N S & D O M E S T IC S m zZ m & zrtw A li# F L O O R C O V E R IN G S Western New York State........................ F U R N IT U R E W 7 7 ///////////A * H O U SEW A RES D R A P E R I E S , C U R T A IN S , 8. U P H O L S T E R Y : i • //////////////////////A 4Q Z 'z / Y///Z////////J,///A™ ■ j S IL V E R W A R E 8. J E W E L R Y T O IL E T A R T IC L E S 8. D R U G S P IE C E GOODS Niagara Falls.......................................... \ W /h 1« 3 W/. W OM EN’S & C H IL D R E N ’S C L O T H IN G i i i i i i i j ; : ' i ' ! : \ i i ! : ! 7//yyj/M *\ y/M p | M EN ’S & B O Y S ’ C L O T H IN G i ( A L L D EPA RTM EN TS m 5% 5 m • ! * 453s' " + 1 0 % l i +20% July, 1941 +22 +21 +22 +28 +33 +15 +18 +25 +23 +14 +22 +18 +11 +13 +13 +20 +25 +12 +14 +18 +14 +20 +25 +20 +20 +14 +13 +20 +17 +14 — . +28 + 29 +34 +24 + 31 +2 1 +18 +23 — +31 +38 +29 — — +20 +20 +30 +18 +24 + 9 +13 +15 — +19 +19 +21 +20 All department stores........................... +22 +13 +19 Apparel stores............................................. +2 2 +10 +15 1940 425% 1941 July May June July Sales (average daily), unadjusted................. Sales (average daily), seasonally adjusted.. 67 94 95 99 98 102 81 114 Stocks, unadjusted............................................ Stocks, seasonally adjusted............................. 70r 81r 88 86 85 90 83 96 +30% P ercentage C hanges in Certain C lasses o f D epartm en t Store Trade and in T otal Sales o f R eporting D epartm en t Stores in Second Federal R eserve D istrict, F ir s t Seven M on th s of 1941 Com pared w ith Corresponding Period o f 1 9 4 0 Jan.through July, 1941 Indexes of Department Store Sales and Stocks, Second Federal Reserve District (1923-25 average = 100) i +15% July, 1941 rRevised FE D ER A L RESERVE B A N K OF N E W Y O R K MONTHLY REVIEW, SEPTEMBER 1, 1941 Business Conditions in the United States Index o f P h ysical V o lu m e o f Industrial P ro du ction, A d ju ste d for Seasonal Variation ( 1 9 3 5 - 1 9 3 9 a v e r a g e s 1 0 0 per cen t) Indexes o f V a lu e of D epartm en t Store Sales and S tock s, A d ju ste d for Seasonal Variation ( 1 9 2 3 -1 9 2 5 a v e r a g e s 1 0 0 per cen t) Indexes o f W h olesa le Prices Compiled b y U nited S tates Bureau o f Labor Statistics ( 1 9 2 6 a v e r a g e = 1 0 0 per cen t) (Summarized by the Board o f Governors of the Federal Reserve System) I N D U STRIAL activity in July and the first half o f August was maintained at the high level reached in June. Wholesale commodity prices advanced further and distribution o f commodities to consumers was in exceptionally large volume. P roduction Volume o f industrial output showed little change from June to July. Reductions in activity at automobile factories and steel mills were largely offset in the total by further increases in the machinery, aircraft, shipbuilding, and lumber industries. The B oard’s adjusted index, which includes allowance for a considerable decline at this season, advanced from 157 to 162 per cent of the 1935-1939 average. Steel production, which in June had been at about 98 per cent o f capacity, declined to 96 per cent in July, owing in part to holiday shutdowns at some mills. In the first half o f August steel output was again at about 98 per cent o f capacity. Automobile production in July declined less than usual but in the first half of August there was a sharp reduction as most plants were closed to prepare for the shift to new model production. Activity in the nonferrous metals industries continued at a high rate. Early in August copper, pig iron, and all forms of steel were placed under complete mandatory priority control as it became evident that actual demand for these metals could not be fully met. In the wool, cotton, and rayon textile industries and at shoe factories activity in July was maintained at or near the peak levels o f other recent months and production o f chemicals rose further. Output o f manufactured foods increased less than seasonally from the high level reached in June. Coal production declined slightly in July but as in June was unusually large for this time o f year. Crude petroleum production was maintained at about the high rate that had prevailed in the previous two months. Value of construction contract awards in July increased further to a level more than two-fifths higher than a year ago, according to F. W. Dodge Corporation reports. The rise reflected chiefly a continued increase in con tracts for public construction, mostly defense projects. Private residential building contracts increased somewhat, although there is usually some decline at this season, while awards for other private building declined further from earlier high levels. D istribution Sales at department stores and in rural areas declined by much less than the usual seasonal amount in July and variety store sales increased further. In the first half o f August department store sales rose sharply. Total loadings o f revenue freight in July and early August showed little change from the advanced level reached in June. Grain shipments, which had been larger than usual in May and June, increased less than seasonally and loadings o f coal declined somewhat. Commodity P rices The general index of wholesale prices advanced about 2 per cent further from the middle of July to the middle o f August, reflecting sharp increases in prices o f a number o f agricultural and industrial commodities. Federal action to limit price increases was extended to additional basic materials, including burlap, silk, rayon fabrics, rubber, and sugar, and in the early part o f August prices of these commodities in domestic markets showed little change or were reduced. On the other hand, prices for paper-board, automo bile tires, and cotton yarns and gray goods were advanced with Federal approval; prices o f textile products not under Federal control continued to rise; and there were considerable increases in prices o f lumber, other building materials, and chemicals. On August 16 it was announced that for Southern pine maximum prices somewhat below recent high levels would become effec tive on September 5. A griculture Agricultural production in 1941 may exceed that in any previous year, according to indications on August 1, and carryovers o f major crops are unusually large. Crops of wheat and other leading foodstuffs are expected to be exceptionally large, while substantial declines in production are indi cated for the major export crops— cotton and tobacco. Although the cotton crop is estimated at 10,600,000 running bales, or 1,800,000 bales less than last season, total supplies o f cotton will be about the same owing to a larger carryover on August 1. Marketings o f livestock and livestock products, except hogs, will be substantially above last year. B ank Credit Total loans and investments at reporting banks in 101 leading cities rose further during the five weeks ended August 13. Commercial loans continued to increase substantially, while holdings o f United States Government obliga tions showed little change. Bank deposits remained at a high level. Wednesday Figures for Reporting Member Banks in 101 Leading Cities (Latest figures are for August 13) U nited States Government S ecurity P rices After advancing to the highest levels on record, prices of both taxable and partially tax exempt Treasury bonds declined somewhat in the first part of August. On August 15 the partially tax exempt 2 % per cent 1960-65 bonds yielded 2.06 per cent, compared with the all-time low o f 2.02 per cent on July 29. Yields on Treasury notes showed little change in the period.
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