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Busin eview Covering financial, industrial and a g r i c u l t u r a l c o n d i t i o n s V ol. 26 Fourth Federal Reserve D istrict Federal Reserve Bank of Cleveland Cleveland, O hio, July 31, 1944 FINANCIAL Fifth War Loan The wide margin by which the fourth district exceeded its Fifth War Loan goal reflects credit upon organizations and individuals charged with the management of the Drive. Over $1,500,000,000 was raised as against a quota of slightly under $1,200,000,000. This 25 percent oversubscription compares favorably with national results. Developments during the Drive, however, demonstrated more clearly than ever the difficulty of effectively in sulating against the pressure of idle funds in the commer cial banking system, so long as the offerings include mar ketable securities eligible for commercial bank purchase in unlimited quantities following the Drive. Collectively, bankers recognize the danger of unrestric ted use of bank credit in war finance and approve in theory any reasonable measure designed to minimize in flationary trends. The practical application of such re strictions, however, against each one of a host of banking institutions engaged in a highly competitive business, has been accompanied by rather unsatisfactory developments. The problem of confining subscriptions to noncommer cial bank purchasers, in fact as well as in name, as the Treasury desired, became particularly acute during the most recent Drive. Of the six issues offered during the Drive, three were of such a nature as to be quite attractive to investors technically ineligible to subscribe. The % percent certificates of indebtedness appealed strongly to banks, partly because the yield on this elevenmonth paper was somewhat higher than that currently ob tainable on similar securities available in the open market, and partly because the due date (June 1, 1945) filled a gap in the maturity schedule of short-term securities which many banks endeavor to maintain. The three-year 1 % percent notes (due March 15, 1947) were attractive for similar reasons. Comparable securi ties commanded a premium in the open market, which reduced their yield somewhat below 1.25 percent. The eight-year 2 percent bonds offered at par to all eligible investors likewise appealed to commercial banks, especially because the 2’s offered in the Third Drive were only available at a half-point premium. In view of such pecuniary incentives and the fact that No. 7 banks are hard-pressed to keep funds invested, it was probably to be expected that devious ways and means of evading the spirit, if not the actual letter, of the cam paign would be evolved in one quarter or another. Ac tually this was accomplished in several ways. First to come to the attention of fiscal authorities was the sudden and sharp increase in subscriptions by dealers and brokers on and shortly after the date (June 26) when most of the offerings began to accrue interest. It had been estimated, in advance of the Fifth Drive, that legiti mate needs of brokers and dealers— for investment of their own idle funds, and for their genuine customers during the period between the Fifth and Sixth Drives— would be around $30,000,000 in the fourth district. Yet, within a very few days at the end of June, applications of brokers and dealers for various issues suddenly mounted to roughly $150,000,000. It became incumbent upon those charged with the responsibility of passing upon the validity of all bond subscriptions to investigate this extraordinary demand. That most of the securities requested in this buying wave did not represent investment of idle funds, or the desire to acquire securities to be sold to private investors fol lowing the close of the Drive, was revealed later by the fact that loans on securities to brokers and dealers made by reporting member banks in leading cities of the fourth district increased $124,000,000 in the week ended LOANS ON SECURITIES W E E K LY R E P O R T IN G FO U R TH MEMBER B A N K S D IS T R IC T 250 a. 200 < _J o O 150 l\ TO BR OKERS ' TO 1943 |L O TH E R S ^"^ 1 9 44 2 THE MONTHLY BUSINESS REVIEW June 28, as shown 011 the accompanying chart. Sub sequent developments clearly demonstrated that, in many cases, prompt resale in the open market at an expected premium was clearly intended, for very few applications which were returned to dealers because they were felt by the reserve bank to be speculative in character, and therefore in violation of Treasury policy, were resubmit ted with supporting evidence that such applications were bona fide purchases. In other cases, it wras later ascer tained that the applying broker or dealer was acting in conjunction with or on behalf of a commercial bank wish ing to obtain securities denied it while the Drive was on, without paying the premium to which similar offerings in previous drives rose as soon as trading began. Such attempts to acquire Fifth War Loan securities were comparatively easy to identify. Infractions of Treas ury regulations by individuals presented a more difficult problem. The condition statement of reporting member banks for the week ended June 28 showed an expansion of $110,000,000, or approximately 700 percent, in loans to others than brokers and dealers for the purpose of purchas ing securities. This sharp expansion in bank credit strongly suggested speculative security purchases by in dividuals and corporations, despite the Treasury’s request that loan applications for such purposes be scrutinized carefully by each potential lender and that the amount involved be limited to what could be repaid within six months. In some instances, subscribers arranged such loans on their own initiative to finance bond purchases for a quick turnover. In other instances, individual or corporate firm names were used merely as a shield for the acquisition of securities by banks at the close of the Drive. By the very nature of such applications, it is impossible to determine the volume of this activity. For the country as a whole, the dollar volume of war bond purchases described above was not large enough to affect final results substantially. Nevertheless, the presence of such subscriptions and the acquisition of large blocks of securities with funds obtained from the sale of previously-purchased securities, chiefly to banks, tended seriously to overstate the actual progress of the current Drive, thereby presumably discouraging many potential small subscribers from buying an extra $25 bond. More over, acquisition of Drive securities by some banks through these oblique methods imposed a deeply-felt penalty up on the many banks which adhered strictly to the Treasury’s request. Success of war loan drives should be measured, not only in terms of the total amount of money raised, but also in terms of the source of funds and the manner in which they are obtained. After a period of comparative inactivity which set in at the close of the Fourth War Loan Drive, investment accounts of commercial banks suddenly came to life as plans for the Fifth War Loan Drive were completed. Al though, with minor exceptions, banks were denied im mediate access to those securities offered in the Drive, within a seven-week period starting June 1, weekly re porting member banks increased their holdings of Treas ury obligations by more than 13 percent. In the fourth district, the following changes in holdings Current Financial Developments of Government securities by weekly reporting member banks occurred between June 1 and July 26: Treasury Bills ..................................................................... Increase $ 91,000,000 Certificates of Indebtedness .......................................... Increase 170,000,000 Treasury Notes ................................................................ Decrease 10,000,000 Treasury Bonds .................................................................Increase 66,000,000 Total Increase ........................................................................... $317,000,000 Since this development was nation-wide in scope, the possibility that any sizable share of these acquisitions resulted from an interbank shift must be ruled out. All re porting member banks combined increased their hold ings by well over $5 billions. The source of supply came from outside the commercial banking system. The increase in Treasury bill holdings was an expected and routine consequence of the war finance program. Re serve requirements diminished as qualified banks made extensive use of war loan deposit credit. Thus, funds were released for short-term investment in 91-day bills of which new offerings by the Treasury of $1,200,000,000 appeared every week. The origin of the $224,000,000 newly-acquired certifi cates and bonds, increasing such holdings by nearly ten percent, is not so easily explained, although it is apparent that these securities came largely from nonbank investors. Such pronounced liquidation by corporations and indi viduals, with no noticeable effect on prices, is only ex plainable when considered in conjunction with the sellers' interest in similar securities offered concurrently in the Fifth Drive. Latest reports indicate that subscriptions, exclusive of Series E bonds and Series C savings (tax) notes, totaled around $650,000,000 for the fourth dis trict. Eligible investors were able to absorb new se curities in such volume, after an intermission of only four months, chiefly because a substantial portion of their previously acquired holdings was shifted to commercial banks as delivery was taken on the new securities. The significant aspect of this financial relay system is that it tends to disguise and obscure the degree to which bank credit is being relied upon to finance the war. The exclusion of commercial banks during drives is only nomi nal. Insofar as basic inflationary influences are concerned, it is irrelevant whether the commercial banking system buys $5 billions of securities directly from the Treasury, as was permitted in the Second War Loan, or whether the $5 billions are purchased from temporary investors wish ing to clear the decks for a new offering. It is quite impossible to finance a military effort such as the present one entirely out of personal and busi ness savings and taxes. The use of bank credit in some degree is inevitable. In World War I, the extensive use of collateral loans, which enabled many subscribers to meet their quotas, tended to obscure the true picture by techni cally keeping the war issues out of the banks. The current effort to avoid that form of credit inflation is very com mendable, but there is danger in raising funds in un precedented volume needed to finance the war, but at the same time creating the impression that Government se curities are not finding their way into banks in con siderable volume. New Member Bank The Ottoville Bank Company, Ottovillc, Ohio THE MONTHLY BUSINESS REVIEW MANUFACTURING, MINING Manpower Consistent and persistent reports from indus try sources reflect the acute manpower short age responsible for production declines or inability to achieve set goals. Part of the continued emphasis on manpower shortage is to deter the movement of people from industry or from an essential occupation to what might be felt to be a more secure field of post-war em ployment. A more serious part, however, exists in actual shortage— particularly in foundries, steel mills, among skilled rubber workers, and in textile mills. Offsetting this is the remarkable manner in which production has been maintained—in no instance is the military seriously short of goals of production. This can be attributed to increased skill of workmen, improved management, and the smoother synchronization in the movement of parts, subassemblies, and materials. Effective July 1, the War Manpower Commission in troduced its priority referral system. This centralized em ployment through the United States Employment Service and was expected to channel workers to essential occupa tions and to emphasize further that workers could not move freely from occupation to occupation or job to job. It is still too early to appraise the success of this program, but it is generally believed to be achieving its purpose. One of the interesting outgrowths of the increased con trol by USES is that it permits the regional War Man power offices to coordinate their functions better with the War Production Board in the reconversion process. Un der the newly-established partial reconversion program (WPB— Nelson Order Number 4, effective August 15), civilian production can only be expanded with the pro nouncement of the regional War Manpower offices that such production will not interfere with the war effort. With the production of 7,217,232 net tons of steel ingots in June, the steel industry turned in a new all-time high with a total production of 45,061,874 net tons for the first half of 1944. The percentage capacity of the industry engaged in production has declined slight ly from a high of 98.5 percent early in June to 96.5 per cent in mid-July. The decline can be partially attributed to the hot weather, necessary repairs in equipment made during the period, and the manpower shortage. Produc tion of pig iron for June totaled 5,056,627 net tons. The number of furnaces in blast in the United States and Canada totaled 196 at the end of June, another all-time high for the industry. Steel plate production continues to hold at high levels and totaled 1,111,561 tons in June, compared with 1,132,000 tons in May and 1,056,100 tons in June 1943. Pro duction in this line for the first half year is also above the total for the same period last year. By reverse lendlease, Great Britain is to supply 10,000 tons of plates per month in the future. This additional tonnage, although small in comparison to our monthly output, will afford some relief to this market long hard-pressed by the de mands of war. The over-all production picture in steel for the first half of 1944 is excellent, despite many predictions of threatening decline in production rate due to acute man power shortages. Declines in the number employed in the steel industry have been partially offset by increased efficiency and by expanded production capacity. Steel 3 Lake Shipping Heavy shipment of ore down the lakes is building up stocks for next winter. Accumu lations of ore at furnaces and on Lake Erie docks as of July 1 totaled 26,655,414 tons, compared with 21,473,619 tons a month earlier and 26,098,245 tons a year ago. Consumption of Lake Superior ore continues at a high rate, 7,112,060 gross tons being smelted in June, compared with 6,939,998 tons in June 1943. For the year to July 1, total consumption was 44,290,230 tons, approximately 197,510 tons more than was consumed in the same period last year. Shipments of coal on the lakes continue at a high rate, totaling 7,293,162 net tons in June. The requirement that coal shipped west move on the lakes as largely as possible accounts for the record movement of 20,785,239 net tons during the first half of this year. Bituminous coal production in the fourth district totaled 20,502,000 net tons in June 1944, bring ing the total production for the district for the first half of the year to 130,073,000 net tons. National production during the same period totaled 321,000,000 tons, con siderably in excess of bituminous production for the same period of any previous year, despite complaints of man power shortages and high rates of absenteeism. The Solid Fuels Administration has scaled downward its predictions of an anticipated fuel deficit from 30,000,000 tons to 16,000,000 tons. Mine operators in this district predict ample production for domestic needs during the coming winter, with easing in supply after December 1. A factor in this record production of coal has been the production and marketing of low-grade coals which formerly would not have been used by industrial con sumers. An additional factor has been the rapid increase in strip mining and the mechanization of mines. In 1943, strip mining accounted for 11.9 percent of all bituminous coal mined, compared with 8.7 percent in 1938. The percentage of such operations in the fourth district is probably higher than national totals since, under the stimulus of war, many new fields have been opened in Ohio and Pennsylvania. Restrictions on the production of mechanical mining equipment were lifted last Octo ber and the mines are now receiving new and replace ment cutting and loading machines. One of the country’s largest mining machinery manufacturers reports a back log of orders that will keep production lines busy well through 1945. Coal Miscellaneous The china and pottery industry of the Manufacturing fourth district continues to report an in crease in demand for dinnerware along with a steady drop in production due to lack of skilled labor. One of the large manufacturers reports total ship ments for the first six months of this year to be 20 per cent under shipments for the same period last year. Raw materials are in plentiful supply and the shortage of natural gas which plagued the industry last winter is expected to be in more plentiful supply this coming win ter, with the completion of the new pipe line from Texas promised for October of this year. Paper and paperboard manufacturers continue to op erate under the same problems that have beset them for the past year— lack of adequate manpower and raw materials. Production has held at high levels, but the 4 THE MONTHLY BUSINESS REVIEW industry is operating on an uncomfortably small margin of stock, both in scrap paper and pulp. Construction Construction awards for the fourth district, as reported by the F. W. Dodge Corpora tion, totaled $11,948,000 in June. This is a decline of 18.3 percent from the total for the month previous. Resi dential construction accounted for $3,012,000 of the to tal awards for June. The Ohio In the March 31, 1944, issue of the MonthUnemployment ly Business Review it was stated that “UnFund in the employment in Ohio reached its wartime Post-War low (to date) last November, judging by Period reports of the number of individuals re ceiving compensation from the Ohio Bu reau of Unemployment Compensation. Since that time there has been a moderate increase in the number receiv ing benefits and the dollar amount of benefits paid out.” As of the end of July, this statement remained correct and the continuing low level of compensation payments has been an enabling faotor in the steady increase in the trust fund for payment of future benefits. The changing condition of this fund is portrayed in the accompanying chart which shows the contributions and interest in the fund, the benefit payments made, and the balance in the fund. It is primarily with the ability of the balance in the fund to cope with the military and industrial demobilization that we are presently concerned. Final responsibility of the Ohio fund to the recently en acted “Servicemen’s Readjustment Act of 1944” (the GI Bill of Rights) has not been definitely determined at this writing. Ohio is at present operating under the 1943 amendment to the Ohio Unemployment Compensation Law, which included discharged veterans of the armed services in terms of their status at entry into the armed forces, except that they do not serve the customary two-weeks’ waiting period. According to the 1943 Annual Report, State Advisory Council, Ohio Bureau of Unemployment Compensation, the number of workers, the amount of payroll covered by unemployment compensation, and the net benefit payments for the years 1939-1943 were as follows: Year 193 194 194 1942 194 9 0 1 3 Annual Payroll of Number of Covered Workers Workers Covered (in billions (in millions) of dollars) 1.3 2 .0 1.5 2.3 1.8 3.1 2.0 4.0 2.1 (estimate) 5.0 Net Benefit Payments (in millions of dollars) 23.7 24.6 12.1 14.4 1.5 Although the expansion of employment and payrolls in dicated in the table resulted in increased contributions to the unemployment insurance fund during a time when unemployment compensation payments were decreasing rapidly, the potential liabilities of the unemployment insurance system have increased drastically because of the great number of persons covered and upward revisions of the amount and duration of benefit payments. The balance available for benefits in the Ohio fund at the end of 1939 amounted to $132,000,000; in 1940, to $162,000,000; in 1941, to $227,000,000; in 1942, to $272,000,000; and in 1943, to $339,000,000. The funds available at the end of June 1944 amounted to $379,000,000 and were large enough to pay an average week ly benefit of $15 (actual average payment to June 1944 “total unemployment” beneficiaries was $14.89) for the maximum period of 18 weeks to 66.8 percent of the average number of 2.1 million workers covered during 1943. The corresponding figure for the United States is approximately 61 percent. Funds available for bene fit payments in Ohio at the end of June 1944 were ap proximately 15 times higher than the amount paid out in the year of largest benefit payments. Benefit payments during 1940, the high year in the five-year history in the State, were made to some 262,000 people. This was approximately 17.5 percent of the workers covered by the Law in that year. With this figure as a starting point, consideration might well be given to the increase from 1939 to 1943 of 800,000 workers covered by the Law— much of which can be attributed to what might be regarded as temporary war employment; the more than 500,000 Ohio members of the armed services, many of whom have job protection which will cause displacement of present workers; and the great number of women and over-age male workers who may secure some benefit from the fund in the recon version period. This statement of the problem is over simplified but only tends to emphasize that the imponder ables in estimating the unemployment burden to the fund are of such magnitude as to discourage anything but the most general estimates. An attempt at an appraisal will be made, however, in an early issue of the Monthly Business Review. At the present time, it seems safe to say that the unemployment compensation funds of Ohio are capable of covering any probable demands placed upon them. Much will depend on the nature of demobil ization and the rapidity and skill with which we meet the reconversion challenge. TRADE Retail Despite reduced stocks of many types of merchan dise, lack of adequate personnel, and the curtail ment of many services to which shoppers had become accustomed, dollar sales at fourth district department stores during the first half of this year were the largest for any similar period on record. With salary and wage payments at a very high level, consumers bought an un precedented volume of women’s wear and yard goods. Sales of the latter were up 16 percent from the first half of 1943, and women’s ready-to-wear and accessories departments sold seven percent more merchandise. In contrast to these gains, sales of men’s and boys’ ap- THE MONTHLY BUSINESS REVIEW parel and housefurnishings were slightly smaller com pared with those of the first six months of 1943. Total store sales were up four percent from last year and 14 percent from January-June 1942. Basement store de partments reported a year-to-year increase of only one percent, indicating that the tendency to purchase higherpriced merchandise was continuing. Sales in Akron were slightly smaller during the first half of this year compared with the same period of 1943, and Cleveland sales were at the level of a year ago. Stores in all other reporting centers of the fourth dis trict experienced year-to-year increases, ranging up to 14 percent in Wheeling. Canton, Springfield, and Erie sales were only slightly larger this year than last, while sales in Cincinnati and Pittsburgh were up six percent, Toledo nine percent, and Columbus eleven percent. The composition of January-June department store sales, as shown on the accompanying chart, has changed during the past several years. While the importance of sales transacted by certain divisions of stores in this dis trict remained practically the same, that of others was altered considerably. The greatest change occurred in women’s wear sales. Whereas these accounted for a littlQ over one-third of total business during the first six months of 1941, the proportion had increased to 42.5 percent during the early part of this year. It is clearly evident that the greater number of women among the wage-earning group than ever before were using a good part of their new-found purchasing power to satisfy per sonal desires. In contrast, the importance of housefur nishings sales declined from 24.4 percent to approxi mately 18 percent. One of the principal factors contribut ing to this difference between the women’s apparel and homefurnishings departments was the availability of mer chandise. Stores generally found it less difficult to ob tain clothing and other textile products than articles for the home. As a result, their apparel departments were usually better stocked and customers disposed of their increased earnings in clothing, furs, jewelry, and accessories, when they could not obtain other types of merchandise that were less plentiful. Then, too, many consumers were reluctant to buy some articles for the home because of their inferior quality. The ratio of men’s and boys’ wear sales to total showed only a small decline— from 10.6 percent in 1941 to 9.6 percent this year— despite the inroads that the armed forces have made on the stores’ male customers. Ap COMPOSITION OF DEPARTMENT STORE SALES Fourth District January-June MAIN STORE: Women's and Misses Apparel and Accessories Men's and Boys' Wear Housefurnishings Piece Goods Small Wares and Miscellaneous BASEMENT STORE 1941 1942 1943 1944 5 parently this loss of business was offset to a large de gree by the increased purchasing power of many war workers. Although piece goods sales accounted for only slightly less than three percent of total dollar volume, their importance has increased steadily since 1941, as shortages or deterioration in quality prompted some women to make their own clothing. Total sales last month were up one percent from June a year ago. This small increase, compared with the year-to-year gain of 19 percent reported for May, resulted from the fact that sales were unusually large in June last year prior to the date that the first coupon for shoe rationing became invalid. At that time, prac tically all clothing departments experienced a mild buy ing wave, the effects of which were reflected especially in the decreases in business experienced by all shoe de partments last month. Sales of men’s and boys’ shoes were down 46 percent from June 1943, women’s and children’s 22 percent, and basement shoe departments 28 percent. Inventories carried by fourth district merchants were reduced one percent during June. This decrease was considerably less than usual for that month and, as a re sult, the seasonally adjusted stocks index advanced 13 points to 159 percent of the 1935-39 average, after de clining somewhat the three previous months. This was the highest point in the adjusted index since last August and represents a gain of ten percent over June 30, 1943. Wholesale The Department of Commerce reports that sales of automotive supplies, meats, farm sup plies, and paints were substantially larger this June than last. The gains experienced by firms selling furniture, clothing, jewelry, and groceries were smaller, while sales of drugs, electrical goods, hardware products, and tobac co were down compared with those of June 1943. For all reporting wholesalers in the district, the gain in sales over last year was two percent. Wholesalers’ inventories were reduced slightly during June, but at month-end were still 14 percent greater than those of June 30, 1943. AGRICULTURE District Crop Conditions According to July estimates, 1944 crop production in the fourth district may again rise to record proportions, although dry weather following the date of forecast may make it necessary to revise the estimates downward. All of the major crops of the district excepting hay and potatoes were reported likely to exceed last year’s production. The wheat and oats crop estimates were especially out standing, compared with last year’s subnormal production and the 1933-42 average. In Ohio the soybean acreage was reported to be one percent above 1943, as compared with a three percent decrease for the Nation as a whole. Reporters through out the State regarded the soybean prospects as fav orable, but qualified their reports by noting that much depends upon August weather. This year’s soybean acreage in Ohio (1,513,000 acres) compared with the 1933-42 average (616,000 acres) depicts pointedly the increased importance of this crop. Corn, wheat, and oats harvests are expected to exceed their 1943 levels in Ohio, whereas hay production is predicted to be slightly under last year. 6 THE MONTHLY BUSINESS REVIEW Reports from Kentucky as of the middle of July in dicate that the entire State has been hard hit by drouth. Early corn was said to have been badly damaged and the later crop, which was in tassel stage, was in an ex tremely vulnerable condition. Bluegrass pastures were declared to be burned to a crisp. Tobacco, on the other hand, was reported to be withstanding the dry weather fairly well. Difficulties experienced early in the sea son in setting and resetting tobacco have resulted in a number of poor stands and some observers close to the situation believe this year’s acreage is smaller than last year’s despite the additional quotas allowed growers. Corn conditions in Pennsylvania as of July were spot ty; some fields had been laid by, and others were just being planted. Much of the crop is weedy and in danger of early fall frosts. Wheat improved in Pennsylvania throughout the season and heads filled exceptionally well. Early plantings of oats made excellent growth although generally the stands were thin and varied. Fruit in the northwest counties made good growth during June but the drop was heavy owing to excessive rainfall. Peaches generally set well and some orchards required heavy thinning. Growers are expecting a large crop of good quality. The outlook for grapes in the Erie belt is prom ising. This year’s grape crop in Pennsylvania is ex pected to be 36 percent over last year and 17 percent over the 1933-42 average. Frazier-Lemkc Farm Debt Moratorium Act To consider bankruptcy among farmers when farm incomes are at record-high levels may appear somewhat ill-timed from the point of view of general inter est in the subject. Nevertheless, should it become nec essary for the agricultural economy to adjust itself to pos sible lower price and income levels, a discussion of dis tress credit conditions should not wait until they are an actuality. The Frazier-Lemke Farm Debt Moratorium Law, which is distress credit legislation, has been ex tended by Congress until March 4, 1946. Thus, all loans vvhich are outstanding to farmers today, or which may be extended to farmers before March 4, 1946, may be con sidered for Frazier-Lemke bankruptcy proceedings. This is true regardless of the amount of debt, the type of lender, the kind of security, or the purpose for which the funds are obtained. In essence, the Frazier-Lemke Act attaches additional conditions to every loan con tract which lenders have with their farmer-borrowers. Under present circumstances, it is highly important that these provisions be understood. Although the debt moratorium statute applies to all types of farm debts, its greatest significance has always been, and is at present, in the field of farm real estate indebtedness. Currently, farm land prices in the fourth district have reached a point in their upward trend where it becomes imperative that all who borrow or lend on farm real estate do so with a full awareness of the stipu lations of the Frazier-Lemke Law. A slump in farm in come of a magnitude sufficient to impair the meeting of farm debts would undoubtedly be the signal for wide spread resort to the Law’s debt moratorium provisions. The major arguments which led to the Congressional extension of the Law for another two years were (1) that there still are several thousand farmers in the drouth areas of the United States who need the benefits of a debt moratorium, and that (2) by forcing conservative loans, inflated land prices may be avoided. Opponents to the extension of the Law maintained, on the other hand, that it simply adds to the factors causing higher farm land prices by assuring farmers a means of relief if they cannot meet their payments. In today’s farm real estate market, it is possible to find indications of the validity of both points of view. This situation, coupled with the current high prices and rapid turnover of farms, makes a thorough understanding of the Frazier-Lemke Act a pru dent necessity for buyers and sellers and even middlemen in the farm real estate market. The following outline of the major provisions of the Act has been prepared in the hope that it may serve as basis for further and more detailed study of the Law and its implications. The Frazier-Lemke Farm Debt Moratorium Act is simply one subsection (19th) of the Agricultural Section of the General Bankruptcy Act (11 USCA 203). The pre ceding 18 subsections provide that any farmer who is insolvent or unable to pay his debts as they come due may file a debtor’s petition with the conciliation commis sioner of his county. In this petition, which immediately stops all court action against him, the farmer proposes a composition (scaling down or otherwise revising the terms and security) and extension of his debts. As soon as the conciliation commissioner has a list of all the farmer’s debts, he calls the creditors together and attempts to obtain their agreement on the program of settlement offered by the farmer. If an agreement is reached with a majority in number and amount of creditors, upon con firmation by the Court it becomes binding and the farmer proceeds to work out his financial difficulties according to the stipulated plan. However, if the farmer fails to obtain a satisfactory agreement with his creditors, then under the 19th sub section of the Act [11 USCA 203 (s)], he may amend his petition by asking to be adjudged a bankrupt under the terms of the Frazier-Lemke Law. The bankruptcy referee (the conciliation commissioner) then appoints appraisers who determine the market value of the debtor’s property excluding certain items which are specifically exempted by State law. The property remaining after the with drawal of exemptions is ordered by the referee to remain in the possession of the debtor subject to all existing mortgages, liens, pledges, or encumbrances. When the above conditions have been met, the Court stops all pro ceedings against the debtor for a period of three years. During this time the debtor is permitted to retain posses sion of the property, under the supervision and control of the Court, provided he pays a reasonable rental fixed by the Court. This rental is used, first, for the payment of taxes and vipkeep, and the remainder is distributed among the creditors as their interests may appear. The Court may also require the debtor to make quarterly, semi annual, or annual payments on the principal of the debt. At the end of three years, or at any time before, the debtor may pay into the Court the full amount of the appraisal of the property less the amount paid on the principal, if any. This cancels the farmer-debtor’s obliga tions and he is no longer bankrupt. If the debtor fails to comply, however, with any of the conditions set forth in the Farm Debt Moratorium Law, or if he is unable to re finance himself or otherwise pay his obligations at the THE MONTHLY BUSINESS REVIEW end of three years, the Court may order the appointment of a trustee and the property sold or otherwise disposed of. 7 Wholesale and Retail Trade (1941 compared with 1943) Percentage Incrca.se or Decrease SALES STOCKS SALES first 6 June 1944 months Debits to Individual Accounts I line "1944 A kron............. 190,641 R u tle r............. 20,545 "C anton........... 102,795 C in cin n ati. . . 730,023 Cleveland. . . . 1,566,363 Columbus. . . . . 346,660 Covington29,362 N ewport. . . 154,308 D av to n ........... E rie ................. 76,640 F ran k lin ......... 6,409 Greensburg. . . 13,230 Ham ilton . . . . 24.601 5,737 Hom estead. . . 34,461 Lexington. . . . L im a............... 30,016 9,544 L orain............. Mansfield. . . . 25,433 M iddletown. . 22,613 Oil C ity ......... 17,091 P ittsb u rg h . . . . 1,532,412 P o rtsm o u th . . 12,956 S h a ro n ............ 19,617 Springfield . . . 34,363 Steubenville. . 14,955 297,838 Toledo............ W arren ........... 29,218 W heeling. . . . 50.651 Youngstown. . 98.373 Zanesville. . . . 14.153 5,511,008 T o ta l.......... (Thousands of Dollars) % change Jan .-Ju n e from 1943 1944 + 6 .9 1,075,990 + 4 2 .1 105,315 + 3 6 .1 488,295 + 2 6 .0 3,670,603 7,838,454 + 2 9 .6 + 2 5 .8 1,932,005 + 2 7 .2 + 6 .7 + 2 3 .2 + 2 0 .0 + 18.3 + 2 7 .7 + 18.6 + 3 1 .4 + 3 0 .9 + 3 0 .8 + 3 9 .9 + 6 .0 + 7 .6 + 10.5 + 2 2 .0 + 2 6 .9 + 5 .2 + 18.3 + 2 3 .3 + 19.4 + 2 4 .4 + 16.9 + 0 .6 + 20.4 148,789 873,724 389,754 36,647 73,271 122,782 29,521 240,851 160,667 52,716 123,945 122.474 92,083 8,030,395 67,897 102,286 196,042 80,941 1,596,661 145,170 250,608 511,466 76,468 28,635,820 Jan .-Ju n e 1943 991,796 82,700 427,028 3,402,452 6,585,285 1,681,224 % change from 1943 + 8.5 + 2 7 .3 + 14.3 + 7.9 + 19.0 + 14.9 133,799 820,665 343,796 29,695 61,220 117,832 26,501 209,722 140,796 40,371 100,914 117.588 93,747 7,198.739 58,275 86,485 181,896 74,741 1,394,069 140,683 226.624 470.968 75,150 25,314,761 + 11.2 + 6.5 + 13.4 + 2 3 .4 + 19.7 + 4 .2 + 11.4 + 14.8 + 14.1 + 3 0 .6 + 22.8 + 4 .2 — 1.8 + 11.6 + 16.5 + 18.3 + 7.8 + 8.3 + 14.5 + 3 .2 + 10.6 + 8 .6 + 1.8 + 13.1 D E P A R T M E N T STORES (97) — 2 A k ro n .............................................. — 3 — 3 C an to n ............................................ + 1 ■1 - 1 2 - I- 6 C incinnati...................................... -0— 1 C leveland....................................... -0+ 8 +20 C olum bus....................................... + 3 +11 E rie.................................................. -0+ 3 + 8 P ittsb u rg h ..................................... + 14 + 6 + 4 — 3 a Springfield..................................... + 2 + 16 T oledo............................................. + 4 + 9 + 27 + 14 W heeling........................................ + 9 a Y oungstow n.................................. + 6 + 9 — 5 O ther C ities.................................. — S + 8 D istric t........................................... 10 + 4 + 1 W EA R IN G A PPA R EL (16) C an to n ............................................ + 10 + 2 — 4 C incinnati...................................... —10 + 19 — 7 C leveland....................................... + 5 +35 P ittsb u rg h ..................................... + 27 + 19 — 4 — 4 — 11 O ther C ities.................................. + 13 D istrict........................................... — 4 + 5 F U R N IT U R E (78) — 24 + 13 C an to n ............................................ + 2 — 18 — 4 — 9 C incinnati...................................... — 28 — 7 C leveland....................................... — 1 —21 Colum bus....................................... + 4 + I —26 a D ay to n ........................................... — 29 — 31 - 0P ittsb u rg h ..................................... + 3 — 17 — 8 — 4 T oledo............................................. — 6 — 6 O ther C ities.................................. — 3 —20 — 1 — 4 D istrict........................................... C H A IN STORES* Drugs— D istrict (S ).................... + 1 Groceries— D istrict ( 4 ) ............. + 6 + W H OLESALE TR A D E** + 34 +25 + 5 Autom otive Supplies (1 0 )......... — 29 — 3 Beer (6 )......................................... + 4 Clothing and Furnishings (3). a 12 — 6 Confectionery (3 )....................... 11 — 1 12 Drugs and Drug Sundries (8) . 8 — 2 — 7 + 15 Electrical Goods (1 3 )................. +20 Fresh Fruits and Vegetables (9). — 13 — 5 a Furniture & House Furnishings (3). + 13 a + 17 G rocery G roup (4 0 )...................................... 8 + 1 — 2 — 4 + 3 T otal H ardw are G roup (2 9 )...................... — 2 — 5 General H ardware (8 ).............................. + '3 + 15 — 15 Industrial Supplies ( 9 )............................ — 13 +30 + 13 — 5 Plum bing & H eating Supplies (12) . . . . a Jewelry (4 )....................................................... + 6 + 3 — 18 Lum ber and Building M aterials ( 4 ) ......... — 3 — 3 Machinery, Equip. & Sup. (exc. Elect.) (5) + 14 +89 + 35 +22 M eats and M eat Products ( 4 ) .................... M etals (3 )......................................................... - 0a + 18 + 18 Paints and Varnishes (5 ).............................. + 17 Paper and its Products ( 6 ).......................... + 16 — 1 — 7 + 9 Tobacco and its Products (17).................... +20 Miscellaneous (12)......................................... 10 + 8 + 14 D istrict— All Wholesale T rade ( 1 8 7 ) .... + 2 + 5 * Per individual unit operated. ** Wholesale data compiled by U. S. D epartm ent of Commerce, Bureau of the Census. a N ot available. Figures in parentheses indicate number of firms reporting sales. + + + + + + + Fourth District Business Statistics (000 om itted) Fourth D istrict Unless June % change Jan.-June Otherwise Specified 1944 From 1943 1944 Bank Debits— 24 citie s............. ?5,411,000 +20 28,120,000 Savings Deposits— end of month: 39 Banks O. and W. Pa...........81,025,732 + 19 Life Insurance Sales: Ohio and P a .............................. $ 97,053 + 16 563,637 Retail Sales: 38,424 Dept. Stores— 97 firm s........... $ 227,348 + 1 W earing A pparel— 16 firm s...? 1,698 — 4 11,244 3,071 — 1 Furniture— 78 firm s..................3 16,400 Building C ontracts— T o tal. . . . $ 11,948 — 49 75,332 3,012 ” — Residential 3 — 56 19,758 Commercial Failures—157 Liabilities...................................3 906 + 16 45 Commercial Failures— N um ber. 8 + 14 Production: 5,057 31,482 Pig Iron U. S...............N et tons + 5 Steel Ingot— U. S........ N et tons 7,217 45,062 + 2 Bituminous Coal— O., W. Pa., E. Ky..........................N et tons 20,502 +66 120,073 Cem ent— O., W. Pa., W. Va. ..............................................Bbls. 472a — 55 2,311b Elec. Power— O., Pa. Ky. 14,975b ........................ Thous. K.W .H. 2,968a + 8 10,816b Petroleum — O., Pa., K y .. . Bbls. 2,316a + 1 c — 11 c Shoes ................................. Pairs Bituminous Coal Shipm ents: +59 20,785 Lake Erie P o rts ...........N et tons 7,293 a M ay b January-M ay. c Confidential. % change from 1943 + 13 + 15 Fourth District Business Indexes + 4 + 5 — 4 — 47 — 60 (1935-39 = 100) — 45 — 59 + 4 + 3 + 13 — 52 + 9 -0 — 1 +41 June Bank Debits (24 cities)..................................... Commercial Failures (N u m b e r)...................... ” (L iabilities) ................... Sales— Life Insurance (O. and P a .) ............... ” — Wholesale Drugs (8 firm s)................ ” — ” D ry G oods......................... ” — ” Groceries (40 firm s)........ ” — ” H ardw are (29 firms) . . . . ” — ” All (77 firm s)................... ” — Chain Drugs (5 firm s)*........................ ” — Chain Groceries (4 firm s).................. Building C ontracts (T o ta l).............................. ” 39 (R esidential)................... Production— Coal (O., W. Pa., E. K y .). . . . — Cem ent (0 .. W. Pa., E. Ky.)** ” — Electric Power (0 ., Pa., Ky.)** — Petroleum (0 ., Pa., K y.)**. . . . ” — Shoes............................................... Per individual unit operated. May. N ot available. 1944 244 12 11 115 161 a 153 228 179 162 156 49 163 57 195 105 82 June June 1943 1942 171 203 10 56 9 37 99 79 124 162 179 140 124 152 229 233 154 179 165 143 151 141 97 469 88 336 98 156 128 187 181 162 103 98 92 110 June June 1941 1940 110 14/ 62 61 60 24 92 101 97 110 93 117 103 113 125 180 106 132 114 123 111 121 152 211 281 246 109 140 171 137 119 144 95 104 87 101 THE MONTHLY BUSINESS REVIEW 8 Sum m ary of N ational Business Conditions Bv the Board of Governors of the Federal Reserve System in d u s t r ia l Employment and production at factories continued to decline slightly in June; output of minerals was maintained in record volume. Retail trade and commodity prices showed little change in June and the early part of July. Industrial production p r o d u c t io n Federal Reserve indexes. Groups are expressed in terms of points in the total index. Monthly figures, latest shown are for June 1944. DEPARTM ENT S TO R E S A L E S AND STOCKS ■1/'1 1 i \ 1 \ \ iL f \ j \ A- ft / x-' 1937 1938 1939 1940 19*1 1948 1943 1944 Federal Reserve indexes. Monthly figures, latest shown are for June for sales, and May for stocks. MEMBER BANKS IN LEADING CITIES The Board’s seasonally adjusted index of industrial production was 235 per cent of the 1935-39 average in June as compared with 237 in May and 243 in the first quarter. Steel production declined 4 per cent from the rate in May, reflecting partly manpower shortages. Output of nonferrous metals dropped 8 per cent, largely owing to the continued planned curtailment of aluminum and magnesium produc tion. The lifting on July 15 of some of the restrictions on use of these metals was the initial step in a program to prepare for limited reconversion to peacetime output. Activity in the machinery and transportation equipment industries in June was main tained at the level of the preceding month. Increasing emphasis was reported on output of heavy artillery and artillery shells and of tanks. Lum ber production con tinued to decline and was approximately 10 per cent below June 1943. Production of nondurable goods was maintained in June. Meat-packing activity declined further from the exceptionally high level in the first quarter, but output of most other food products continued to rise seasonally. Refinery output of gaso line advanced further and reached the earlier record level of Decem ber 1941. Activity in cotton textile mills and in the chemical and rubber industries showed little change in June. Mine production of metals and coal was maintained in large volume and crude petroleum production continued to rise to new record levels. Distribution Department store sales declined more than seasonally in June, following a considerable increase in May, and the Board’s index was 175 per cent of the 1935-39 average as compared with 183 in May and an average of 177 in the first four months of this year. Value of sales in the first half of 1944 was 7 per cent greater than in the first half of 1943. In the early part of July sales were 9 per cent larger than a year ago. Railroad freight carloadings showed little change in June and the first three weeks of July after allowance for seasonal movements. Commodity prices Legislation extending Federal price controls for one year was enacted June 30; certain restrictive provisions were relaxed, especially those relating to prices of cotton products. Prices of most commodities in wholesale and retail markets have recently shown little change. Agriculture W ell over a billion bushels of wheat and almost 3 billion bushels of corn were in prospect on July 1. This is an improvement over June 1 prospects and aggre gate crop production in 1944 may be about the same as in 1943 and larger than any year prior to 1942. The number of chickens raised this year was 19 per cent smaller than last year; the spring pig crop was 24 per cent smaller and the fall crop may be a third smaller than in 1943. Marketings of cattle, however, have been normal in relation ship to the numbers and unless marketings are increased during the rest of this year no material reduction of the large numbers of cattle on farms will occur. Bank credit eminent and interbank deposits and collection items. Government securities include direct and guaranteed issues. Wednesday figures, latest shown are for July 12, 1944. MEMBER BANK RESERVES Breakdown between required and excess reserves partly estimated. Wednesday figures, latest shown are for July 19, 1944. As payments for securities purchased during the Fifth Drive transferred funds from private deposits to reserve-exempt Government accounts, the average level of required reserves at all member banks declined by close to VA billion dollars. Reserve balances were reduced by about 800 million dollars and excess reserves rose by around 400 million. Reserve funds were absorbed through declines in R e serve Bank holdings of Government securities, by a moderate increase in currency, and by temporary increases in Treasury deposits at the Reserve Banks. Over the four weeks ending July 12, money in circulation rose by 230 million dollars, which is a smaller rate of growth than prevailed in recent months, reflecting the influence of the war loan drive. During the Fifth Drive, between June 14 and July 12, Government security holdings at reporting member banks in 101 leading cities increased by 4.7 billion dollars. Additions to bank holdings resulted from purchases of securities from in vestors who were adjusting their positions prior to subscriptions during the drive, from increased purchases of Treasury bills, and from subscriptions to new securities in limited amounts. Loans for purchasing and carrying Government securities increased by 1.8 billion dollars over the Fifth W ar Loan, an increase larger than that of any other drive. O f the total amount advanced by banks in 101 cities, loans to brokers and dealers accounted for 500 million and loans to others for 1.3 billion. Accompanying purchases of securities during the Fifth Drive, adjusted demand deposits declined bv 4.7 billion dollars Pt banks in 101 cities. Government deposits at these same banks increased bv 10.5 billion dollars. The difference reflected the effect of the increase in bank loans and investments.
@FedFRASER