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MONTHLY REVIEW B U S IN E S S C O N D IT IO N S IN T H E T W E L F T H F E D E R A L R E S E R V E D IS T R IC T Federal Reserve Bank of San Francisco R e v ie w o f th e M o n t h Settlement of the maritime strike early in February was followed by a rapid expansion in water-borne commerce. By mid-March practically every available ship was in service and maritime shipments were at a higher level than in the period immediately pre ceding the strike. Notwithstanding the resumption of maritime shipments, rail traffic, which had been enlarged during November, December, and January by the diversion of shipments normally m oving by water, increased by almost the full seasonal amount in February. W ith the restoration of shipments by water and the release of cargoes held in Pacific Coast ports during the strike, there was a marked advance in industrial output, particularly at lumber and flour mills and at cane sugar refineries. These gains were only partly offset by decreases in pro duction resulting from labor disputes in several industries, including automobile assembly and air plane fabrication. Residential building activity de creased less than is customary in February, but the value of permits for private nonresidential building was sharply curtailed. Department store sales in creased less than is customary during February. Increased industrial output during February re sulted largely from a greater than seasonal expan sion in lumber production. This advance, which raised the seasonally adjusted index of lumber out put approximately 7 percent, resulted entirely from expansion in the Douglas fir region where produc tion was seriously curtailed during the period of the maritime workers’ strike. Follow ing the re sumption of maritime commerce in early February, production increased rapidly and in the second week of March was 47 percent larger than the January weekly average, and only about 8 percent smaller than the weekly average last October. L og shortages and limited shipping space checked fur ther expansion. Outside the Douglas fir region lum ber production, which, on a seasonally adjusted basis, had averaged about as high in November, December, and January as in 1929, advanced less than is customary in February. Resumption of maritime commerce also contrib uted directly to substantial gains in flour and sugar production in February. Reflecting expansion at seaboard mills, the seasonally adjusted index of wheat flour production increased 28 percent. The release of raw sugar from strike-bound vessels in San Francisco enabled local refineries to resume operations and by the middle of the month daily output had increased to pre-strike levels. Expansion in production during February was accompanied by an increase of 3 percent in indus April i, 19 37 trial employment, a development only partly at tributable to seasonal influences. Estimates indicate that about 424,000 workers were on the pay rolls of manufacturers in the three Pacific Coast states in February, a slightly larger figure than in the corre sponding month of 1929. Factory pay rolls advanced sharply last month but still were estimated to be 15 percent lower than in February 1929. During the past year, pay rolls have increased somewhat more rapidly than employment, a development reflecting increases in both working time and wage rates. New private construction activity continued to decline in February. The value of permits for stores, office buildings, service stations, and other private nonresidential buildings in twenty large cities was 40 percent smaller than in January and 48 percent smaller than the high figure for the recovery period recorded in October 1936. A small decline in resi dential building reflected entirely the smaller num ber of working days in February. The snow pack this winter has been heavy and irrigation water is expected to be adequate during the forthcoming crop season, a factor of major sig nificance in the outlook for agricultural production in the Twelfth District. W et, cold weather has de layed soil preparation and planting in some sections, and growth of forage on livestock ranges has been retarded. As a result of late rains, however, spring and summer range feed is expected to be plentiful. A creage— S p r in g S o w n C rops— T w e lfth (000 omitted) ,--------Acreage Harvested-------■> Average 1928-1932 1935 1936 Corn, A l l .......................... 269 234 246 1,368 2,225 Spring W h ea t.................. 1,894 Oats .................................. 682 856 814 Barley .............................. 1,430 1,566 1,389 Tame H a y ........................ 5,521 5,421 5,231 117 190 159 Grain Sorghum s.............. Beans ................................ 459 458 461 Rice .................................. 114 99 140 Potatoes............................ 256 260 260 D is t r ic t Indicated for Harvest-1937 247 2,430 757 1,353 5,322 184 516 147 288 According to the United States Department of Agriculture, somewhat larger acreage of most Twelfth District crops will be harvested this year than last. This forecast is based upon farmers’ in tentions to plant as of March 1, with allowance for ordinary abandonment. B a n k C r ed it Twelfth District banks met that part of the in crease in reserve requirements ordered by the Board of Governors of the Federal Reserve System to become effective March 1 without borrowing and without material liquidation of earning assets. Some adjustments were made by banks to meet this increase, which amounted to almost $60,000,000 14 April 1, 1937 FEDERAL RESERVE B A N K OF SAN FRANCISCO and which established a new level of about $410,000,000 for required reserves. These adjust ments were effected over a period of several weeks, however, and there were no sharp changes at the end of February. Country banks withdrew some of the idle balances they had carried with Twelfth District city correspondents, transferring them to the Federal Reserve Bank of San Francisco. Simi larly, city banks withdrew comparatively small amounts of balances from New York correspondents and deposited them in the Federal Reserve Bank of San Francisco. Although the amount of reserves that member banks are required to carry with the Federal R e serve Bank of San Francisco was increased 16% percent on March 1 by the Board’s order, the amount actually carried showed but a minor rise. Banks in the aggregate had been carrying reserves sufficiently in excess of the legal amounts to enable them to meet the new requirements with a large margin, and thus did not find it necessary to bring about an increase in their reserves through borrow ing or liquidating earning assets. Other influences which might have added to or reduced the supply of district bank reserves caused relatively little net change during February. Unusually small amounts of funds were furnished by the United States Treas ury, which, through disbursing more than it has collected in the Tw elfth District, has been the prin cipal source of additional reserves in recent years. Such amounts as did enter district banks during February because of Treasury disbursements in ex cess of local collections, as well as small amounts of currency redeposited in banks, were used in mak ing net payments of funds to other districts in con nection with commercial and financial transactions. In contrast with these minor fluctuations in dis trict member bank reserve balances during Febru ary, considerable expansion in reserves took place in the first seventeen days of March. Disbursements P rod u ction and E m ploym ent— Index numbers, 1923-1925 average=100 Industrial Production Manufactures (physical volume) L u m b e r ........................................ Refined Oils* ............................ Cement* ...................................... Meat* .......................................... Wheat Flour* ............................ Minerals (physical volume) Petroleum* ................................ Lead (U . S .)* * .......................... Silver (U. S .)* * ........................ Construction (value) Total Construction*}*.................. Urban Building Permits Residential .............................. Nonresidential ........................ Total (incl. alterations, e tc.). Public W orksf .......................... Miscellaneous Electric Power Production. . . . Factory Employment and Pay Rolls Pacific Coast Employment .............................. Pay Rolls .................................. California Employment .............................. Pay Rolls .................................. With Seasonal /—Adjustment -> ,— 1937— v 1936 Feb. Jan. Feb. — 73 — 102 114 134 111 95 79 — 87 105 114 _ _ 76 62 93 _ 68 Without Seasonal r~ Adjustment -> ,—1937—v 1936 Feb.. Jan. Feb. 53 154 91 48 154 94 58 156 77 95 114 88 88 87 89 64 100 _ _ _ 73 69 88 66 63 79 — — — — — — — — — — — — 32 81 49 157 34 45 37 158 19 41 30 290 199 197 179 182 182 164 113 96 112 94 101 78 103 88 100 83 92 72 126 110 125 109 108 86 115 104 111 99 99 81 *Daily average. ^Prepared by Board of Governors of the Federal Reserve System, flndexes are for three months ending with the month in dicated. by the United States Treasury between March 1 and March 17 supplied banks with additional amounts of funds, despite the fact that $21,000,000 was trans ferred from local banks to the Treasury because of income tax payments by individuals and businesses. Part of the net gain in reserves also resulted from return to this district of proceeds from sales of securities which were disposed of in eastern mar kets by banks and others. The increase in reserve balances between March 3 and March 17 was $47,000,000, and on the later date they totaled $520,000,000. This amount was by far the largest ever carried by member banks at the Federal R e serve Bank of San Francisco and included a con siderable amount in excess of legal requirements. W eekly reporting member banks continued to dispose of some of their investments during Febru ary, including Government direct and guaranteed obligations, state and municipal bonds, and cor porate securities. Some of the sales were no doubt in anticipation of the increase in reserve require ments, but it would appear that the selling also represented efforts to take advantage of a possible change in status of the bond market. Compre hensive statistics of country bank investments are not available currently, but other data indicate that some securities were sold by those banks immedi ately prior to and during the period of sharp de clines in bond prices in late February and the first half of March. Contrasting with the reduction in investments of city banks during February and early March, further increases in loans were recorded. The rise in loans since the first of this year has resulted from pur chases of commercial paper and acceptances and from advances in the “ all other” classification, gen erally considered to represent largely loans for busi ness and agricultural purposes. The expansion in “ all other” loans has included a considerable in crease in the volume of monthly instalment loans made to finance consumer purchases of automobiles and various forms of equipment. Distribution and Trade — Index numbers, 1923-1925 average=100 Retail Trade Department Store Sales (value)* Twelfth District ........................ California .................................... Los Angeles .......................... Bay Region ............................ San Francisco ...................... Oakland .................................. Pacific Northwest .................... S eattle...................................... Spokane .................................. Salt Lake City .......................... Department Store Stocks (value) f Furniture Store Sales (value) *$. Automobile Sales (number)* P assenger................................ Commercial ............................ Carloadings (number)* Merchandise and Misc.............. With Seasonal ,—Adjustment—s ,— 1937— N 1936 Feb. Jan. Feb. 96 103 99 106 103 118 72 80 58 77 68 84 98 105 101 108 105 118 73 80 59 69 67 88 86 93 85 101 99 109 63 69 53 72 65 79 — — — — — — 92 109 90 94 106 79 81 92 66 23 9 63 7 75 69 96 — Intercoastal Traffic (volume) Eastbound Westbound — Without Seasonal ,—Adjustment —N ,— 1937— N 1936 Feb. Jan. Feb. 81 88 87 89 89 94 57 63 46 61 66 75 80 88 86 89 88 92 54 61 41 52 61 73 73 79 75 85 85 88 50 55 42 57 63 71 112 108 149 100 96 143 76 91 58 74 88 57 67 76 55 21 7 10 0 67 61 87 — *Daily average. fA t end of month. $1929 average^ :100. 70 April 1, 1937 Developm ents in the Twelfth District Banking Structure— 1936 There was a further decline in the number of banks in operation in the Tw elfth District during 1936, but the total number of banking offices in creased. Both of these changes reflected consider able further growth of branch banking, almost en tirely among member banks. A t the end of the year, 323 Twelfth District banks were members of the Federal Reserve System while 329 district banks were not members. Both member and nonmember banks were fewer in number on that date than at any previous time since the Federal Reserve System was established in 1914. Although the number of banks in the district de clined further during 1936, assets continued to in crease and at the end of the year were larger than at any previous time. Member banks held almost 87 percent of total district bank assets on December 31, 1936, a proportion slightly higher than on any earlier date. declined from 694 to 652 during 1936, banking offices increased from 1,640 to 1,657 because of additional branches. Most of the 45 banks absorbed during the year continued to be operated as branches and, in addition, 25 new branch offices were established by member banks and two by nonmembers. The dis continuance of seven branches by banks operating extensive branch systems in California partially off set this increase. Discontinuance of certain branches during 1936 was not a new development in that year but continued a practice evident for some time. Prior to 1929, rapid growth in the number of branches in California resulted in establishment of some offices which later were found not to be profitable. A good many of those branches were closed or consolidated with others between 1929 and 1933 and, even in the period of expansion since 1933, some further con solidation of branches has taken place. Ordinarily, a branch is closed only when it has become evident that it cannot be operated profitably and when its closing will not weaken the competitive position of the parent bank. B r a n c h B a n k s i n O pe r a t io n — T w e l f t h D ist r ic t B r a n c h B a n k A ssets — T w e l f t h D is t r ic t (in thousands of dollars) State 15 M O N T H L Y REVIEW OF BUSINESS CONDITIONS -----Branches------------------ \ -Banks Operating— < -Operated by— NLocated Branches State Non- Outside State NonNat. Mem. Mem. Home Nat. Mem. Mem. Total B’ks B’ks B’ks Total B’ks B’ks B’ks City December 31, 1935 Ratio Branch Nonmember Bank Assets to Member t---- Branch Banks---- \ /^—Branch Banks—\A11 Bank Assets 1935 1936 1936 1935 1936 1935 Arizona .............. 35,773 California .......... 3,032,664 Idaho ................. 43,411 Nevada .............. 17,944 Oregon .............., 185,398 Utah .................. 49,278 Washington . . . ., 259,540 44,608 3,356,598 64,080 26,034 217,928 52,608 296,121 3,620 355,322 2,941 0 1,197 1,214 3,691 3,887 366,157 3,467 0 2,547 1,519 3,912 77.2 8 3.6 51.0 64.1 69.1 32.8 52.9 77.7 84.0 63.2 75.4 70.5 33.1 52.9 Twelfth District. 3,624,008 4,057,977 367,985 381,489 77.6 78.1 . 3 39 5 9 ., 3 Utah ........... 4 Washington . . . 8 2 11 3 2 2 3 5 0 8 1 0 0 0 1 1 20 1 0 1 1 2 19 798 26 7 42 10 44 15 615 10 7 41 9 37 0 136 14 0 0 0 5 4 47 2 0 1 1 2 19 553 26 6 31 9 30 . 64 28 10 26 946 734 155 57 674 California Reduction in the number of both member and nonmember banks during 1936 resulted principally from the absorption of institutions in smaller cen ters by banks having their head offices in district reserve cities. In only one instance did a merger of reserve city banks take place. In all, 28 member and 17 nonmember banks in the Twelfth Federal Re serve District were taken over by city banks during the year. The number of banks was also decreased by the voluntary liquidation of two nonmembers, but there were no failures of banks in the Twelfth District during 1936. Changes were not all in the direction of reducing the number of banks since four new state charters were issued during the year, two in W ashington, one in Oregon, and one in Cali fornia. None of these four banks became members of the Federal Reserve System. During the year, one state bank withdrew from membership and two others became members, but these changes did not affect the number of banks in operation. Although the number of Twelfth District banks .. December 31, 1936 . 3 . .. . .38 .. 6 2 Oregon 4 Utah ........... . . . 4 Washington . . . 8 2 10 4 2 2 3 5 0 9 1 0 0 0 1 1 19 1 0 2 1 2 22 839 32 8 49 10 45 18 657 16 8 47 9 38 0 137 14 0 0 0 5 4 45 2 0 2 1 2 22 598 32 7 38 9 31 . 65 28 11 26 1,005 793 156 56 737 California During 1936 the number of branches increased in all states in the district except Utah. The largest expansion was in California with a net increase of 41 branch offices. All of this net increase represented branches acquired outside the home office city. Con siderable expansion in branch banking also took place in Oregon and Idaho, entirely through the absorption of banks in smaller centers by banks hav ing their head offices in Portland or in Boise or Lewiston. Growth in the number of branches re sulted entirely from mergers with existing banks in all states of the district except in California, where 27 new offices were authorized, and in Arizona, where three new branch offices were established. L ic e n s e d B a n k s i n O p e r a t io n — T w e l f t h D is t r ic t /—... Number 1935 State 6 Arizona ........................ 139 California .................... Idaho .......................... ........ 33 6 Nevada ........................ 50 Oregon ........................ 32 Utah ............................ 84 Washington ................ 1936 6 123 30 5 44 32 83 . . . . 350 323 Twelfth District ........ (Figures as of December 31. Assets in thousands) .------- Nonmember Banks----------- \ Member Banks% Assets Number Assets $ 1935 42,799 3,550,334 69,962 23,155 234,633 125,812 389,316 $4,436,011 1936 53,158 3,911,014 86,403 28,936 270,455 133,212 449,705 1935 3 132 27 4 47 27 104 1936 3 121 23 3 48 27 104 $4,932,883 344 329 $ $ 1935 8,219 502,588 20,841 4,850 35,590 28,154 108,119 $708,361 $ 1936 9,242 522,564 20,517 5,586 42,343 30,380 117,079 $747,711 ------Number 1935 9 271 60 10 97 59 188 1936 9 244 53 8 92 59 187 694 652 — All Banks —---------------Assets $ 1935 51,018 4,052,922 90,803 28,005 270,223 153,966 497,435 $5,144,372 $ 1936 62,400 4,433,578 106,920 34,522 312,798 163,592 566,784 $5,680,594 16 April 1, 1937 FEDERAL RESERVE B A N K OF SAN FRANCISCO N a tio n a l S u m m a ry o f B u sin e ss C o n d it io n s Prepared by the Board of Governors of the Federal Reserve System of production, employment, and trade increased more than season ally in February and wholesale prices of industrial commodities continued to advance. V o lu m e P IN DU STRIAL PRODUCTION Index of physical volume of production, adjusted for seasonal variation, 1923-1925 average=100. By months, January 1929 to February 1937. W HOLESALE PRICES Index compiled by the United States Bureau of Labor Statistics, 1926=100. By months, 1929 to 1931; by weeks, 1932 to date. Latest figure is for week ending March 20. r o d u c t io n E a n d m plo y m e n t The Board’s index of industrial production, which makes allowance for changes in the number of working days and for usual seasonal variations, was 116 percent of the 1923-1925 average in February as compared with 114 in January and an average of 115 in the last quarter of 1936. At steel mills activity continued to increase in February and the first three weeks of March and, although the growth was somewhat less than seasonal, output currently is about the peak level reached in the summer of 1929. Automobile production, while fluctuating considerably with strikes at important plants, has been larger for the year to date than in the corresponding period last year. Output of plate glass in February showed a sharp rise from the low level of the two preceding months when strikes curtailed production. At textile mills and shoe factories activity continued at a high level, while output at meat packing establishments declined somewhat further. Mineral production increased, re flecting chiefly greater output of coal and a further rise in crude petroleum production. Value of construction contracts awarded this year, according to the F. W. Dodge Corporation, has been considerably larger than a year ago, reflecting an increased volume of private residential building and other types of private construction, while the volume of publicly-financed work has been smaller. Factory employment and pay rolls increased from the middle of January to the middle of February by more than the usual seasonal amount. The num ber employed in the machinery industries increased considerably and there were smaller increases at automobile and plate glass factories. In the nondurable goods industries as a group there was a seasonal rise in employment. D is t r ib u t io n Department store sales increased from January to February and the Board’s seasonally adjusted index advanced from 93 to 95 percent of the 1923-1925 average. Sales at variety stores also increased more than seasonally, while mail order sales, largely in rural areas, showed less expansion than is usual at this time of year. Total freight carloadings increased in February and the first half of March, owing in part to seasonal influences. C M ON EY RATES IN NEW YORK Minimum rate on rediscounts for and advances to member banks by Federal Reserve Bank, and weekly prevail ing rates on prime commercial paper, 4 to 6 months, and prime bankers’ acceptances, 90 days. For weeks ending January 3,1931, to March 27,1937. 1933 1934 1935 1936 1937 M EMBER BANK RESERVE BALANCES Wednesday figures of total member bank reserve balances at Federal Reserve banks, with estimates of re quired reserves, January 6, 1932, to March 24,1937. r ic e s B a n k C r e d it On March 1, when the first half of the recent increase in reserve require ments went into effect, excess reserves of member banks declined from $2,100,000,000 to about $1,300,000,000. In the next three weeks, which included the March tax collection period, excess reserves showed moderate fluctuations around the new level. In connection with the increase in reserve requirements there were some withdrawals of bankers’ balances from city banks but prac tically no borrowing by member banks from the reserve banks. Holdings of United States Government obligations at reporting member banks in leading cities declined by $280,000,000 in the four weeks ending March 17, a part of the decline reflecting large maturities of Treasury bills. Com mercial loans increased further at reporting banks and on March 17 were above last year’s high level reached on December 30. Loans to brokers and dealers in securities increased sharply. M 1932 P o m m o d it y The general level of wholesale commodity prices advanced from the middle of February to the third week of March, reflecting principally further sub stantial increases in the prices of industrial materials. Prices of iron and steel, nonferrous metals, lumber, cotton, rubber, and hides advanced considerably and there were also increases in the prices of cotton goods, paper, and furniture. Wheat prices have advanced in recent weeks following a decline in the latter part of February. o n ey R ates Since the beginning of March the rate on 90-day bankers’ acceptances ad vanced from i5e of 1 percent to of 1 percent and commercial paper rose from a flat percent to a range of between ¿4 and 1 percent. Bond yields, which until recently had been near the extreme low point reached last December, advanced by between *4 and ^ percent and on March 24 were at about the levels prevailing early in 1936.
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