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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 SE R V E Federal Reserve Bank of San Francisco R e v ie w o f th e M o n th Value of department store sales in the Twelfth Dis trict, which had been well maintained throughout 1937, declined considerably during January, February, and March, after allowance for the usual seasonal changes. This decline indicates that the curtailment in consumer buying which was first evident last fall in decreased sales of automobiles, furniture, household appliances, and other durable goods involving a relatively large unit out lay, has now extended to the miscellaneous goods handled by department stores. Some of the decline in reported figures since January 1 has resulted from price reduc tions, and at least part of the decrease during March may be attributed to floods and unfavorable weather. The late date of Easter this year may also have affected the index, although an allowance has been made for that influence. Even recognizing these factors, however, it appears that some contraction in consumer buying of miscellaneous nondurable commodities has taken place during the past three months. This would be expected from continuance of the low levels of factory pay rolls, reflecting lower employment and reduced working periods as well as wage reductions, and from recent decreases in farm in come owing to lower prices than were received for farm products marketed last summer and spring. This appar ent reduction in consumer buying o f nondurable goods has become evident, as would be expected, several months after the drastic declines in industrial production and in buying of durable goods which started last summer. R E T A I L S A L E S —Twelfth District Number of new automobiles sold (1923-1925=100) without adjustment for seasonal variation; value of department store sales (1923-1925=100) and value of furniture store sales (1929=100) adjusted for seasonal variation. D IS T R IC T April 1,1938 Owing to the abrupt declines in business and prices last autumn, buying by retailers was curtailed much more rapidly than sales. Available data indicate that by the end of February this year retailers' inventories had been re duced substantially from the relatively large volumes that were reached in mid-1937, when considerable fur ther expansion in sales was anticipated. Some additional reduction in stocks was probably necessary at the end of February, and if the recent decline in value of sales points to a substantial curtailment of consumer buying of nondurable goods, still further readjustment in retailers’ inventories will be necessary in order to keep stocks in line with current sales. I ndustry Industrial output was practically unchanged in Febru ary from the relatively low level of the preceding month. In industries supplying construction materials and other commodities not produced for direct consumption, such as copper, foundry and machine shop products, and ma chinery, the sharp declines in output originating last summer appear to have been largely checked. Assembly of new automobiles, however, was further curtailed in February, reflecting the low level of district sales of both passenger cars and trucks. Operations in all these indus tries are currently at rates considerably lower than a year ago. Output of a number of the less durable goods includ ing food products and refined petroleum has recently been only moderately below 1937 levels. Except in the petroleum industry, it appears that to a considerable ex tent output has been adjusted to current sales volume and in many lines inventories of finished goods held by pro ducers have been reduced to small proportions. Changes in output in the immediate future will consequently de pend to a greater extent than in recent months upon the current movement o f goods into consumption. Production of lumber during February was unchanged from the January and December levels, after allowance for seasonal influences, and this bank’s adjusted index remained at 55 percent of the 1923-1925 average. Ship ments continued to exceed output, and gross mill stocks declined further from the peak reported on November 30. During the three month period in which stocks were being reduced, unfilled orders held by mills increased from 447,000,000 board feet to about 625,000,000 board feet. Mill prices on several lumber items declined slightly in February, but prices generally were firmer than in January. The upward tendency in sales of lumber during February is reported to have continued in March, and preliminary figures indicate a moderately greater than seasonal expansion in lumber output during that month. Residential building permits, which expanded sharply in January, did not continue the increase in February. 18 A pril 1, 1938 FEDERAL RESERVE B A N K OF SAN FRANCISCO Complete figures for March are not yet available, but when reported they are likely to reflect special influences of floods and unfavorable weather, and the record for that month will not necessarily be a test of plans for resi dential building during the next few months. While sig nificant measures of early developments in residential building may not become apparent for several more months, applications for credit at Twelfth District banks for use in modernizing or repairing properties and for new construction have shown a substantial increase since passage of amendments to the National Housing Act on February 3. A g r ic u l t u r e prices which have averaged 13 percent above those of a year ago. Weather conditions have been much more favorable to sheep and wool producers in this district during the past winter than in the winter of 1936-1937, and losses of animals as well as feeding costs have been lower. Prices received for both lambs and wool also have been considerably lower, however, and production costs other than feed have been somewhat higher. Prices now being paid growers for wool are about 40 percent lower than in the comparable period last year and are the lowest since 1933. Lamb prices are down approximately 15 percent from a year ago. C r e d it A plentiful supply of irrigation water during the 1938 crop growing season was assured by widespread and almost continuous storms during February and the first three weeks of March. Severe flood and some wind dam age was reported in various localities, particularly in central and southern California, but, in contrast with February a year ago, crop damage from frosts was negligible. Reports from farmers indicate that acreage planted to most of the principal district grain and field crops will not differ greatly this year from last. Some reduction is planned in acreage of crops that are bringing particularly low returns, including beans, potatoes, and rice. The most notable reduction will occur in cotton acreage in Arizona and California which, according to the allotments set under the Agricultural Adjustment Act of 1938, is ex pected to be around 578,000 acres, compared with 895,000 acres harvested last year, 576,000 acres in 1936, and an annual average of 408,000 acres during the five years 1928-1932. Income of district orange growers during the first four months of the current marketing year (November through February) was approximately 15 percent smaller than income during the comparable period last year. Shipments for the season through February were 23 percent larger, while prices averaged some 30 percent lower than a year ago. Cash returns to lemon growers have been slightly under those received in the first four months of the 1936-1937 marketing season, reduced shipments having more than offset the influence of higher Production and Employment— Index numbers, 1923*1925 daily average— 100 ^ wjthout Seasonal r — Adjustment f—1938—N Industrial Production FebManufactures (physical volume) L u m b e r .............................................. 55 Refined oils ..................................... — Cement .............................................. 73 M eat ................................................... 115 W heat f l o u r ..................................... 118 Minerals (physical volume) P e tr o le u m ......................................... — Lead ( U . S . ) * ................................ 67 Silver ( U . S . ) * ............................................ Construction (value) Urban residential building permits in 18 cities.................... 27 Public works contracts............... — Miscellaneous Electric power p r o d u c tio n .... 196 Jan- —* 1937 Feb* Seasonal r-Adjustm ent (—1938—> Feb- 1937 Jan- Feb- 55 — 80 116 109 75 — 102 114 122 44 157 65 — 118 41 161 56 — 109 59 153 91 — 122 — 69 96 — 70 94 111 69 .. 108 70 97 89 72 102 32 — 38 — 25 487 25 132 34 157 196 199 179 181 182 Distribution and TradeIndex numbers, 1923-1925 average=100 Retail Trade Department store sales (value)* Twelfth District ........................... California ......................................... Los A n g e le s ................................ Bay Region ............................... San Francisco............................. Oakland ....................................... Pacific N o r t h w e s t ........................ S e a t t le ........................................... Spokane ....................................... Salt Lake C ity ............................... Department store stocks (value) f Furniture store sales (value)* $ . . Furniture store stocks (value) f$ Automobile sales (num ber)* Passenger .................................... Commercial ................................ Carloadings (num ber)* Merchandise and misc................ With Seasonal —Adjustm entt— 1938— X 1937 Feb. Jan. Feb. Without Seasonal -A dju stm en t—■\ f— 1938— N 1937 Feb. Jan. Feb. 90 96 88 101 98 109 69 77 56 76 66 69 77 93 99 91 107 104 114 73 80 57 73 68 76 78 100 108 103 111 108 123 74 85 58 81 68 84 76 76 81 78 85 84 87 55 61 45 60 64 62 73 77 83 78 88 87 89 55 61 40 55 62 63 74 84 92 91 93 93 99 59 66 47 64 66 75 72 — — 64 57 137 66 60 122 115 110 173 — — — — — — — 77 94 59 82 95 65 90 105 70 65 78 50 65 79 47 75 87 59 49 39 84 52 43 80 23 9 70 44 34 76 51 45 72 21 8 63 Intercoastal Traffic (volume) * Prepared by Board of Governors of the Federal Reserve System. N o te : Series on employment and pay rolls, usually published in this table, are in process of revision. Adjusted demand deposits of district city banks during the four weeks ending March 23 continued the moderate decline in evidence since last summer and averaged ap proximately 7 percent lower than in the comparable period last year. These deposits fluctuated widely during the four weeks, declining sharply in late February and the first few days of March, and subsequently recovering to a level in mid-March only slightly lower than a month earlier. The sharp but temporary reduction in adjusted demand deposits took place entirely at banks in Los An geles and San Francisco. It reflected withdrawals from demand deposit accounts prior to the first Monday in March, which is the date for assessment of personal property in California for purposes of local taxation. Each year it is customary for business concerns and indi viduals to draw down their demand deposit accounts at this period. Funds are transferred temporarily out of the State, invested in tax exempt Government securities maturing within a few weeks, or transferred to time accounts. Moderate reductions in the volume of demand deposits during recent months have been accompanied by reduced use of this smaller volume of deposits. The lower rate of turnover of deposits corresponds with the reduced level of general business activity, including lower pay rolls, Eastbound ....................................... Westbound .................................... *Daily average. fAt end of month. $1929 averages 100. lower payments for raw, semi-manufactured, and fin ished commodities, lower retail sales value, lower value of securities transactions, and the like. The average rate of turnover of demand deposits in the principal cities of the district during the first 12 weeks of 1938 has been 9 percent lower than in the corresponding period of 1937. Changes in Twelfth District Banks— 1937 The principal structural change in Twelfth District banking during 1937 was the further reduction in num ber of banks, accompanied by growth in the number of banking offices because of extension of branch banking. Growth in number of branches reflected both consolida tions of banks and opening of new offices. The number of banks in operation declined from 652 at the beginning of the year to 601 on December 31, 1937, but the total number of banking offices increased from 1657 to 1666. O f these, 291 banks having 1303 offices were members of the Federal Reserve System. These member banks held 87.6 percent of district banking assets at the end of 1937, compared with 86.8 percent a year earlier. Consolidations of banks explain almost entirely the net decrease of 51 in number of banks during the year. No suspensions occurred in 1937, but one licensed bank went into voluntary liquidation. (One bank which was B ranch B an k s O p e r a t io n — T in w elfth D is t r ic t Banks Operating r - Branches ------- Branches---------\ t— Operated by—\ r ~ Located State NonState N onIn Outside Nat. M em .M em . Nat. M em .M em . Home Home Bks. Total Bks. Bks. Bks. City City The number of branches operated by Twelfth District banks increased from 1005 to 1065 during 1937, a net growth of 60. Practically all of this expansion took place in banks which were operating branches at the be ginning of the year, although one former unit bank also acquired a branch office during 1937. Most of the 56 banks consolidated or absorbed during 1937 were located outside of reserve cities, the majority being taken over and converted into branches by large banks having their head offices in reserve cities. In addition to the acquisi tion of offices through absorption of existing banks, 21 new branches were established. Seven branch offices were discontinued during 1937. Two of these resulted from an exchange of branches for the purpose of elimi nating duplicate facilities. That is, two branch bank sys tems in Idaho had each been operating offices in two towns. Since one banking office was considered adequate in each town, the competing offices were merged leav ing one branch serving each community. The number of branches increased during 1937 in all states of the district except Idaho, the largest propor tionate increases occurring in Washington and Oregon. The increase in total number of branch offices in the Twelfth District took place entirely at national banks, the number operated by both state member banks and nonmember banks showing a decline. The decrease in branches of state banks resulted partly from the acquisi tion by a national bank in California of branches pre viously operated by an affiliated state bank and partly from conversion of a branch operating state member bank in Washington into a national institution. December 31, 1936 Arizona ......... California . . . . Idaho ............. Nevada ......... Oregon ......... U t a h ............... W ashington . Totals ........... . 3 37 6 2 4 4 8 2 10 4 2 2 3 5 64 28 3 36 6 2 10 4 0 8 1 0 0 0 1 10 1 19 1 0 2 1 2 26 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 0 241 0 1 11 1 14 B r a n c h B a n k A s s e t s — T w e l f t h D is t r ic t (Figures as of December 31. Assets in thousands of dollars) 22 598 32 7 38 9 31 State 156 56 268 737 Oregon ............ U t a h .................. W ashington . . Totals ............. 65 1 19 1 0 2 2 2 24 20 858 684 31 16 10 10 65 63 12 9 65 62 0 134 13 0 0 0 1 4 40 2 0 2 3 2 1 242 0 1 11 1 15 23 616 31 9 54 11 50 27 29 148 53 271 794 1,065 864 not licensed on December 31, 1936 and therefore not counted in the number of operating banks on that date was also placed in liquidation in 1937.) The organiza tion of two new banks in California and the licensing of four banks in the State of Nevada partly offset these decreases. Granting of licenses to the four banks in Nevada disposed of all remaining Twelfth District banks that did not receive licenses following the banking holi day in 1933. Ratio Branch Nonmember Bank Assets to r'Branch Banks-^ All Bank Assets 1936 1937 1936 1937 44,608 ........... 3,356,598 , 64,080 26,034 217,928 Utah ................... . 52,608 W ashington . 296,121 57,795 3,321,123 66,155 31,654 235,126 56,237 315,098 3,887 366,157 3,467 0 2,547 1,519 3,912 4,416 385,146 3,452 0 2,696 2,065 4,337 77.7 84.0 63.2 75.4 70.5 33.1 52.9 88.7 85.3 65.9 85.0 75.9 34.8 56.9 Twelfth 4,083,188 381,489 402,112 78.1 80.1 California 793 1,005 M ember Banks— 1936 1937 t-----Branch December 31, 1937 Arizona ........... California . . . . Idaho ............... Nevada ........... 19 M O N T H L Y R EVIEW OF BUSINESS CONDITIONS April 1, 1938 D istrict. 4,057,977 The proportion of total district bank assets held by branch banking institutions continued to grow during 1937, and at the year-end branch operating banks re ported 80 percent of district bank assets, compared with 78 percent a year earlier. The ratio of branch bank assets to total bank assets increased in all states of the Twelfth District and at the close of 1937 the proportions ranged from 35 percent in Utah to 89 percent in that part of Arizona located in the Twelfth District. Branch operat ing member banks held 91 percent of all branch bank assets on December 31, 1937. B a n k s i n O p e r a t i o n — T w e l f t h D is t r i c t (Figures as of December 31. Assets in thousands of dollars) State ,------------------- M ember Banks--------------------- -n Number Assets 1936 1937 1936 1937 t ------------- Nonn lember Number 1936 1937 Banks------------Assets 1937 1936 Number 1936 1937 — All Banks------------------------ >> Assets 1936 1937 A r i z o n a ...................... California ................. Idaho .......................... Nevada ...................... Oregon ...................... Utah .......................... W ashington ............. 6 123 30 5 43 32 83 5 117 30 5 33 32 69 53,158 3,911,014 86,403 28,936 270,455 133,212 449,705 60,100 3,866,437 89,412 34,610 272,775 136,158 448,001 3 121 23 3 50 27 103 3 117 22 4 44 27 93 9,242 522,564 20,517 5,586 42,343 30,380 117,079 10,007 478,100 16,175 2,635 40,469 31,579 112,937 9 244 53 8 93 59 186 8 234 52 9 77 59 162 62,400 4,433,578 106,920 34,522 312,798 163,592 566,784 70,107 4,344,5 37 105,587 37,245 313,244 167,737 560,938 Twelfth District 322 291 4,932,883 4,907,493 330 310 747,711 691,902 652 601 5,680,594 5,599,395 20 FEDERAL RESERVE B A N K OF SAN FRANCISCO A pril 1, 1938 S u m m a ry o f N a tio n a l B u sin e ss C o n d it io n s Prepared by the Board of Governors of the Federal Reserve System o l u m e of manufacturing production showed little change from January to February, while output of minerals declined further. Awards for residential building increased somewhat in February and rose considerably in the first half of March. V P IN D U S T R IA L P R O D U C T IO N Index of physical volume of production, adjusted for seasonal variation, 1923-1925 average=100. By months, January 1934 to February 1938. E 1934 1935 1936 1937 1938 F R E I G H T -C A R L O A D I N G S Index of total loadings of revenue freight, adjusted for seasonal variation, 1923-1925 average=100. By months, January 1934 to February 1938. r o d u c t io n The Board’s seasonally adjusted index of industrial production, which includes both manufacturing and mining, was 79 percent of the 1923-1925 average in Feb ruary as compared with 80 percent in January. The decline in the total index was accounted for chiefly by a reduction in output of minerals, particularly of crude petroleum. Steel ingot production showed about the usual seasonal increase and averaged 32 percent of capacity in February. Automobile production decreased slightly further, and output of plate glass continued to decline. Lumber produc tion rose seasonally. In the first three weeks of March activity at steel mills and automobile factories was at about the same average rate as in February. In the nondurable goods industries there were moderate increases in output in February at textile mills and shoe factories, where production has recently been at low levels, while at meat-packing establishments activity declined. Value of construction contracts awarded, as reported by the F. W. Dodge Corporation, showed a sharp decline from January to February, reflecting chiefly a marked reduction in awards for publicly-financed projects. Contracts for resi dential building increased moderately. In the first half of March there was a con siderable further increase reported for residential building and awards for other construction also increased. m ploym ent Factory employment and pay rolls increased by somewhat less than the usual seasonal amount between the middle of January and the middle of February. The Board’s seasonally adjusted index of factory employment was at 83 percent of the 1923-1925 average in February as compared with 84 in January. In the du rable goods industries decreases were general in February, though not so large as in preceding months. Employment in nondurable goods industries increased some what following a period of rapid decline. Employment in trade, at mines, on the railroads, and in the construction and public utility industries decreased somewhat from the January level. D is t r ib u t io n Value of department store sales, as measured by the Board’s seasonally ad justed index, declined from 90 percent of the 1923-1925 average in January to 88 percent in February, and in the first three weeks of March there was a further decrease. Sales at variety stores and mail order houses in February showed some what less than the usual seasonal increase. Freight-car loadings decreased further in February, reflecting chiefly reduced shipments of coal and grain, and showed a seasonal increase in the first two weeks of March. The current level of car loadings is about 25 percent less than a year ago. C o m m o d it y P 1934 1935 1936 1S37 1938 W H O L E S A L E P R IC E S Index compiled by the United States Bureau of Labor Statistics, 1926*100. By weeks, 1934 to week ending March 19, 1938. r ic e s The general level of wholesale commodity prices, as measured by the Bureau of Labor Statistics’ index, showed little change from the middle of February to the third week of March. There were seasonal increases in prices of livestock and meats, while prices of such basic commodities as wheat, cotton, rubber, zinc, and bituminous coal declined. Ban k C r e d it Excess reserves of member banks increased during the first three weeks of March to over $1,500,000,000, the highest level since last April. The bulk of the increase occurred at New York City banks, which in the third week of the month held over $700,000,000 of excess reserves. During February and the first half of March, there was little net change in deposits and in total loans and investments at reporting member banks in 101 leading cities. Holdings of United States Government obligations declined at banks in New York but increased in Chicago. Commercial loans, which had de creased sharply in the four preceding months, showed a further moderate decline. M E X C E S S R ESER VES OF M E M B E R B AN K S Wednesday figures of estimated excess reserves for all member banks and for selected New York City banks, January 3, 1934, to March 16, 1938. oney R ates a n d B ond Y ie l d s Conditions in the short term money market continued easy in March. Rates on Treasury bills were slightly lower and prime commercial paper was quoted at a range of from ^ to 1 percent as against the flat 1 percent rate which had prevailed since a year ago. Yields on Treasury bonds and notes, after declining for the past six months, advanced slightly around the middle of March. Yields on corporate bonds also advanced in March, reflecting principally declines in prices of railroad bonds.
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