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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 A l t h o u g h there was a slight dip in Twelfth District jfV.production and trade during February, business in this region appears to be marking time following a con siderable expansion in the second half of 1938. After the middle of last year, many industries found it necessary to increase production to meet current demand, since pre viously burdensome inventories of manufacturers and distributors had been pretty well cleared by that time. In addition, a modest rise in consumer demand appeared in the latter part of 1938, owing partly to increased em ployment and payrolls in industry and partly to increased Government expenditures in this district, as well as to other factors. The increase in demand for goods was par ticularly notable in the case of building materials, since private residential construction and public works rose considerably even though private investment in plant fa cilities continued in small volume. Greater demand was also evident in industries such as automobile assembly, automobile tires, motion pictures, apparel manufacture, and household furnishings. Gains in industrial operations and building were accompanied and followed by a rise in employment and in consumer income, which in turn tended to increase demand further. Throughout the pe riod since mid-1938, production seems to have been closely gauged to current consumption of goods by indi viduals and producers, and there has been little or no evi dence of advance buying which would result in accumu lation of heavy inventories by manufacturers or dis tributors. I n d u str y a n d T rade Expansion in new residential construction was an im portant factor in the recovery of district production and distribution during the second half o f 1938. Further sharp gains in this class o f building took place in January 1939, but in February the seasonally adjusted index of value of permits fell back to the December level when it was 52 percent of the 1923-1925 average, a figure slightly higher than in any other month of 1938. After declining for four consecutive months, value of nonresidential building per mits was practically unchanged in February and was about the same as a year earlier. Contracts awarded for public works decreased during the month. Somewhat more than two-thirds of the district output o f lumber is used in construction locally and elsewhere in the United States, the remainder going into box manu facture, to the railroad industry, to miscellaneous fabri cators, and to the foreign market. The expansion in new residential building last year consequently resulted in an upturn in new lumber orders received by district mills. A decline in new business became evident late in Decem ber, however, continuing irregularly through the first two months of 1939. On a daily average basis, new orders were about 30,000,000 feet in February, nearly 20 per April 1,1939 cent less than in December but about the same as in Feb ruary 1938. In the succeeding three weeks, however, new business advanced and in the week ending March 18, orders were larger than at any time since mid-December. Lumber production, changes in which usually lag behind new orders received by mills, advanced sharply in De cember and January after allowance for seasonal influ ences, but declined in February. Output of cement, which decreased sharply in Janu ary, did not expand by the full seasonal amount in Feb ruary. A large part of this curtailment of production reflects the temporary stoppage in cement pouring opera tions at Grand Coulee Dam. In the petroleum industry, daily average output of crude oil, which had been reduced to 622,000 barrels in January, remained unchanged in February. On the basis of preliminary figures, output appears to have advanced slightly in the first 18 days of March. Despite the curtail ment of output early in the year, total inventories have continued to increase, and on February 28 were higher than at any time since early 1933. In miscellaneous other industries output showed only small changes during February, after allowance for sea sonal influences. Activity at district aircraft plants con tinued at recent high levels, and steel, furniture, and pulp and paper production remained at about the levels of the preceding month. Small declines in automobile assem blies, rubber tire and tube production, copper mining and smelting operations, petroleum refining, and meat pack ing took place in February, while output of flour in creased moderately. In any o f these industries in which stocks are significant, there has been no evidence of in ventory accumulation in recent months except in the case of copper and petroleum. Shipments of goods by rail in the Twelfth District de clined considerably more than seasonally in January and again in February. These declines followed equally sharp advances in the last two months of 1938, and in February this bank's adjusted index of freight-car loadings was still slightly higher than in October last year. Rail ship ments of merchandise and miscellaneous goods in Feb ruary remained considerably higher than in October, the decline in total freight-car loadings during the past two months having come largely in shipments of industrial products. After increasing considerably in the late fall and early winter, aggregate industrial employment in the three Pa cific Coast states remained unchanged in January and February, after allowance for seasonal influences. In the Pacific Northwest the number of wage earners employed in mills and factories was 8 percent higher in February than a year earlier, principally reflecting greater activity in the lumber industry, while in California industrial em ployment was slightly lower than in February 1938. Pay- 18 FEDERAL RESERVE B A N K OF SAN FRANCISCO rolls declined moderately from mid-January to mid-February, owing principally to a considerable reduction in Washington. In the aggregate, however, wage payments were 7 percent higher than in February last year, pri marily because workers are now employed more nearly on a full-time basis. Judging from available information, retail sales de creased in February after allowance for seasonal influ ences. For the third successive month this bank’s adjusted index of the value of district department store sales de clined slightly. Apparel and furniture store sales were also lower than in the preceding month, while the num ber o f new automobiles sold decreased although some ex pansion is usual in February. Considering customary seasonal adjustments, inventories o f department stores remained unchanged in February at the levels of the past four months. A g r ic u l t u r e Two years o f record output o f farm products accom panied by reduced domestic and foreign market demand, continue to exert a depressing influence upon farm in come in this district. Substantial purchases of a number of farm commodities have been made by the Federal Gov ernment for distribution to persons on relief. The Gov ernment and cooperative marketing associations have diverted large tonnages into by-products or into other uses where they do not compete in the ordinary channels o f trade. Despite these and other aids, and despite heavy marketings in ordinary commercial channels— shipments o f several crops were of record size the past season— stocks of many farm products in the district remain bur densome. As a result o f these conditions prices paid farmers for their products have continued at low levels. After declin- Production and Employment— Index numbers, 1923-1925 average=100 With Seasonal r ~ Adjustment —\ r— 1939---- V 1938 Industrial Production* Manufactures (physical volume) L u m b e r ................................................ Refined oils ....................................... Cement ................................................ M eat ..................................................... W heat f l o u r ....................................... Minerals (physical volume) P e tr o le u m ........................................... Lead (U . S .) t .................................. Silver ( U . S .) t ............................... Construction (value) Residential Building Perm itsî Tw elfth D istrict........................... Southern California............... Northern California............... Oregon ....................................... W ashington ............................. Intermountain states............ Public works contracts................. Miscellaneous Electric power production.......... Factory Employment and Payrolls§ Employment Pacific C oast....................................... California ....................................... Oregon ............................................ W ashington .................................. Payrolls Pacific C oast....................................... California ....................................... Oregon ............................................ Washington .................................. Feb. Jan. Feb. 75 — . 86 . 112 , 126 88 — 107 116 121 55 — 73 116 118 . Without Seasonal /— Adjustment - n , — 1939— X 1938 Feb. Jan. Feb. 59 150 76 — 126 62 160 75 — 121 44 157 65 — 118 ing sharply in late 1937 and tending lower during much of 1938, prices turned upward in November and Decem ber of last year. The moderate advances in that period, however, have been largely offset by declines during Jan uary and February, and in March 1939 prices of district farm products averaged 7 percent lower than in March 1938. Cash income received by farmers in the Twelfth District has fluctuated in recent months with these price changes. Small gains took place in November and De cember, but they were largely offset by declines during the first two months of 1939 and in February farm cash receipts were approximately 6 percent lower than a year earlier. Although it is too early to estimate probable district output of farm products in the coming season with any degree of finality, current prospects indicate that if any reduction from the levels of the preceding two years oc curs it is likely to be small. Unless conditions change materially between now and harvest time, output of tree fruits will be of near-record volume again this season. Only a slight curtailment in total acreage planted to grains, field crops, and truck crops has been reported by growers. Subnormal precipitation has resulted in some shortage of soil moisture, but this has been largely con fined to the interior valleys of California. As a result, output may be curtailed locally this season but no serious and widespread reduction is anticipated at this early date. Frost damage to crops had been negligible as late as midMarch. While irrigation water will be less ample than last year unless snow packs are increased by unusually large amounts in the next few weeks, no serious shortage is foreseen at this time. During the three months period from March 15 to June 15 California producers usually market 1,100,000 to 1,200,000 early lambs, valued in excess of $5,000,000. Eastern and mid-western markets purchase about 40 per cent of these lambs, while the remaining 60 percent are consumed locally. The number of early California lambs produced this year approached the record of 1938. Weather conditions were excellent during lambing and Distribution and Trade■ Index numbers, 1923-1925 average=100 With Seasonal *—Adjustment—\ . . . . . . — — 70 86 — 67 96 94 94 71 86 111 69 104 52 62 40 27 28 78 63 71 57 39 34 81 32 39 21 21 18 49 — 47 54 43 26 23 36 157 48 56 45 18 26 33 249 29 34 22 20 22 23 487 — — . 211 208 197 194 192 181 . 97 . 107 . 91 . 78 97 107 91 81 95 108 76 92 104 82 73 91 102 80 73 91 105 70 71 . 97 105 93 83 88 100 75 70 90 102 80 69 88 98 78 70 84 98 65 63 95 104 . 92 77 * Daily average. tPrepared by Board of Governors of the Federal Reserve System. ¿Includes figures from 197 cities and Los Angeles County, unincorporated. § Excluding fruit and vegetable canning. A p r il 1, 1939 Retail Trade Department store sales (value)* Twelfth D istrict................................ California ............................................ Los A n g e le s .................................. Bay Region .................................. San Francisco ............................. Oakland ......................................... Pacific N o r th w e s t........................... S e a t t le .............................................. Salt Lake C ity .................................. Department store stocks (value) t . Furniture store sales (value)* $ . . . Furniture store stocks (v alue)t í . Automobile sales (number)* 1939—> Feb. Jan. 1938 Feb. Without Seasonal /— Adjustment— \ ,— 1939— s 1938 Feb. Jan. Feb. . 93 . 99 . 89 . 108 . 105 . 118 . 72 . 81 . 72 . 65 . 70 . 69 94 99 93 105 102 113 74 84 69 66 81 69 90 96 88 101 98 109 69 77 76 66 68 76 78 84 78 91 90 95 56 64 57 63 63 66 77 83 79 86 85 88 56 64 52 60 67 65 76 81 78 85 84 87 55 61 60 64 62 72 — — — — — — — — — 74 69 131 84 80 132 64 57 137 . Merchandise and misc................... O t h e r ..................................................... . Intercoastal Traffic (volume) . Eastbound ......................................... . Westbound ......................................... . 80 94 62 89 96 82 79 93 59 67 78 53 70 79 59 65 78 50 60 52 86 59 51 87 49 39 84 53 46 78 59 53 78 44 34 76 *Daily average. $1929 average = 100. Passenger ....................................... Commercial .................................. Carloadings (number)* fA t end of month. April 1, 1939 19 M O N T H L Y R EVIEW OF BUSINESS CONDITIONS losses of animals during the past winter were light. Lack of green feed because of subnormal rainfall in February and March retarded the growth of lambs, however, and forced growers to use supplemental feed freely. This is expected to reduce the percentage of lambs that will be finished on California ranges for slaughter. As a result it will probably be necessary to finish the bulk of the California lambs for slaughter in local or mid-western feed lots, with consequent reduction in incomes of local producers. The number of early spring lambs produced in Arizona, Idaho, Oregon, and Washington is not greatly different from last year, and ewes and lambs are in good condition. The past winter has been mild, and prospects for spring ranges are good. As sheep shearing progressed in early shearing areas of the district, a considerable volume of sales of 1939 clip wool was reported. Prices received by growers have been somewhat higher than those received a year ago, but are 25 to 30 percent lower than the high levels prevailing in the first quarter of 1937. B a n k in g and C h a n g e s in T w e lfth D is tr ic t B a n k s — 1 9 3 8 Continuing the trend in evidence since 1921, the num ber of banks in the Twelfth Federal Reserve District declined in 1938 and at the year-end 17 fewer banks were in operation than at the end of 1937. The reduction in number of banks came about entirely as a result of con solidations, there having been no bank failures or volun tary liquidations in this district during the year. Many of the institutions taken over during 1938 were continued in operation as branches of the banks with which they were consolidated. A number of branch offices were discontinued during the year, however, and, since only one new bank and only five de novo branch offices were established, the total number of banking offices in the district declined from 1666 to 1656. NUMBER OF BANKING OFFICES 2500 C r e d it Total loans and investments of district reporting mem ber banks declined considerably in the four weeks ending March 22. Holdings of United States Government obli gations were lower than at any time since the Treasury quarterly financing operations last December. Invest ments in other securities also decreased and loans for commercial, industrial, and agricultural purposes con tinued the decline in evidence since late last fall. Adjusted demand deposits declined during the four week period while time deposits remained about unchanged. Member bank reserve balances, which were lower in late February than at any time since early 1937 except for a brief period last spring, increased moderately dur ing the first three weeks of March. Despite first quarter Federal income tax receipts of about $36,000,000 during the first 22 days of the month, United States Treasury collections were exceeded by disbursements in the dis trict during that period. These net disbursements added to local member bank reserve balances. In addition, local banks and their customers received net payments from other sections of the country and a return of currency from circulation took place during the first three weeks of March. Excess reserves of district member banks increased during the first half of March to a daily average of $111,300,000. This increase reflected the small advance in member bank reserve balances and a reduction in de posits against which the banks are required to maintain reserves. During February, excess reserves averaged $100,000,000, the lowest level for any month since the reduction in reserve requirements effective April 16, 1938. 1921 1922 1923 1924 1925 1926 1927 1928 1929 1930 1931 1932 1933 1934 1935 1936 1937 1938 N U M B E R O F B A N K I N G O F F IC E S — Twelfth District Figures as of end of each year. O f the 1656 offices at the end of 1938, 521 were unit banks having no branch offices, 64 were head offices of banks operating branches, and 1,071 were branch offices. The combined number of unit banks and head offices of branch operating banks was smaller than at any time since 1903, whereas the number of branch offices was larger than at any previous time. Branch banking has been developed to a considerably greater extent in the Twelfth District than in other parts of the United States. Almost a third of the 3,407 branches operated by banks in the United States at the end of 1937 were located in this district. Since 1933, statewide branch banking has been permitted in all seven states of the dis trict and at least one widespread branch system is now in operation in each of these states. O f the 149 cities in the district having a population of 5,000 or more at the time of the Census of 1930, 140 were served by one or more branch banks at the end of 1938. In addition, of course, 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 (Figures as of December 31. Assets in thousands of dollars) ,------------------- ÎMember Banks--------------------Number Assets 1937 1938 State 1937 1938 5 60,100 63,725 A r iz o n a .......................... ......... 5 3,866,437 C aliforn ia...................... 117 117 4,013,286 Idaho ............................. 30 89,412 89,251 30 5 5 34,610 35,173 N e v a d a ........................... O r e g o n ........................... 33 272,775 282,174 35 U t a h ............................... 32 33 136,158 145,991 W a s h in g to n ................. 69 63 448,001 457,757 Twelfth D istrict.......... . . . 291 288 4,907,493 5,087,357 , ------------- Nonr nember Banks------------- s Number Assets 1937 1938 1937 1938 3 3 10,007 10,567 118 113 478,100 461,887 22 22 16,175 14,795 4 4 2,635 2,645 44 42 40,469 40,446 27 26 31,579 63,056 93 87 112,937 115,375 Number 1937 1938 8 8 235 230 52 52 9 9 77 77 59 59 162 150 311 602 297 691,902 708,771 585 — A ll Banks-----------------------Assets 1937 1938 70,107 74,292 4,344,537 4,475,173 105,587 104,046 37,245 37,818 313,244 322,620 167,737 209,047 560,938 573,132 5,599,395 5,796,128 20 many smaller communities were served by branches of metropolitan banks, in many instances these branches pro viding the only banking facilities in their communities. Extension of branch banking in the Twelfth District during 1938 took place mainly in the State of Washing ton. During the year, 13 Washington banks were acquired by others and 11 of those banks were operated as branches 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 (in thousands of dollars) Ratio Branch M ember Nonmember Bank A ssets to f----- Branch Banks— N ¿'--Branch Banks-^ A ll Bank Assets State 1937 1938 1937 1938 1937 1938 Arizona ................. 57,795 61,389 4,416 4,672 88.7 88.9 California ............ 3,321,123 3,486,133 385,146 399,244 85.3 86.8 Idaho ...................... 66,155 66,797 3,452 3,780 65.9 67.8 Nevada ................. 31,654 32,275 0 — 85.0 85.3 235,126 243,904 2,696 2,908 75.9 76.5 O r e g o n ................... Utah ........................ 56,237 41,994 2,065 2,986 34.8 21.5 W ashington ____ 315,098 333,316 4,337 4,380 56.9 58.9 Twelfth A p ril 1, 1939 FEDERAL RESERVE B A N K OF SAN FRANCISCO District. 4,083,188 4,265,808 402,112 417,970 80.1 80.8 after the consolidations. No de novo branches were estab lished in Washington in 1938, but one new branch office was established in Arizona and another in Utah during the year. In Arizona, this was the only change affecting the number of branches. In Utah, establishment of a de novo branch in 1938 was accompanied by discontinuance at about the same time of a branch of another bank that had previously been operated in the same town. In Idaho, Nevada, and Oregon, no change in the number of banks in operation occurred during the year, and no branch offi ces were established or discontinued. In California, where branch banking has been devel oped more widely than in any other State of the Union, the tendency among branch systems in 1938 was toward consolidating existing positions rather than toward fur ther extension of branches. Ten branch offices, six of them in cities in which the head offices of the parent banks were located, w’ere discontinued in 1938. Five banks were absorbed during the year but these consolidations resulted in the establishment of only two additional branch offices. Opening o f de novo branches was restricted to three, one of which was in the head office city o f the parent bank. As a result of these several changes, the number of branches in operation in California declined by five during 1938, the reduction coming entirely in cities in which the head offices of the branch systems are located. Banks operating branches accounted for 80.8 percent of total district banking assets on December 31, 1938, a slightly larger proportion than a year earlier when they accounted for 80.1 percent of the total. This increase took place despite the fact that one large bank in Utah which had previously operated a single branch discontinued its additional office in 1938, and thus returned to the “ non branch” category. The assets of that bank were conse quently excluded from the total for banks having branches on December 31,1938. The reduction from 602 to 585 in the total number of banks in the Twelfth District in 1938 came principally in banks which were not members of the Federal Reserve System. The number of nonmember banks declined from 311 to 297 during the year, while the number of member banks declined from 291 to 288. The net decrease of three member banks reflected a decline of seven because of con solidations, offset in part by entrance into the Federal Re serve System of four state banks formerly not members. The net reduction of 14 in number of nonmembers re flected the shift of four banks to the member bank cate gory and the consolidation of 11 nonmember banks, partly offset by opening of one new nonmember bank in AberB r a n c h 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 Banks Operating -------- Branches-------N o. State N onof Nat. Mem. M em . Bks. Total1Bks . Bks. Bks. -B ran ch es- Operated b y -Located— State N on- In Outside N at.M em . M em . Hom e Home Total Bks. Bks. Bks. City City Dec. 31, 1937 Arizona . . . 8 California . 235 52 9 Nevada . . . Oregon . . . 77 Utah 59 W ashington 162 3 36 6 2 4 5 9 2 10 4 2 2 3 6 0 7 1 0 0 0 1 1 19 1 0 2 2 2 24 857 31 10 65 12 65 20 684 16 10 63 9 62 0 134 13 0 0 0 1 4 39 2 0 2 3 2 1 242 0 1 11 1 15 23 615 31 9 54 11 50 602 65 29 9 27 1,064 864 148 52 271 793 Dec. 31, 1938 8 Arizona . . . California . 230 Idaho . . . . 52 9 Nevada . . . Oregon . . . 77 59 Utah .......... W ashington 150 3 35 6 2 4 5 9 2 10 4 2 2 2 6 0 7 1 0 0 0 1 1 18 1 0 2 3 2 25 852 31 10 65 12 76 21 683 16 10 63 8 73 0 129 13 0 0 0 1 4 40 2 0 2 4 2 1 237 0 1 11 1 15 24 615 31 9 54 11 61 585 64 28 9 27 1,071 874 143 54 266 805 Totals .... Totals . . . . deen, Washington. O f the 11 nonmember banks absorbed during the year, six were consolidated with member banks. These developments contributed to a further small increase in the proportion o f total district banking assets held by member banks from 87.6 percent at the end of 1937 to 87.8 percent at the end of 1938. M O N T H L Y Supplement R E V I E W April 1, 1939 Federal Reserve Bank o f San Francisco 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 industrial activity continued I ntheFebruary usual rise, and retail trade increased at the January rate, without showing less than seasonally. In the first three weeks of March, however, industrial activity and trade showed seasonal increases. Commodity prices continued to show little change. P r o d u c t io n I N D U S T R I A 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 1939. FACTO RY EM PLOYM ENT Index of number employed, adjusted for seasonal var iation, 1923-1925 average— 100. By months, January 1934 to February 1939. MILLIONS OF DOLLARS MILLIONS OF DOLLARS Volume of industrial production was at about the same rate in February as in the two previous months, although usually there is an increase, and the Board’s seasonally adjusted index declined further to 98 percent of the 1923-1925 average. In the steel industry activity did not show the usual seasonal advance. Pig iron production increased, but new orders for steel were in limited volume and ingot production remained at about 54 percent of capacity throughout the month. There was some decline in automobile assemblies, following a period of considerable in crease. Output of lumber and plate glass continued to decrease in February, while cement production, which had been curtailed in January, increased considerably. In the first three weeks of March steel production increased to about 56 percent of capacity and automobile output was also in somewhat larger volume. Textile production in February was at about the same rate as in January. At cotton and woolen mills activity increased somewhat but at silk mills there was a marked decline. Output of shoes and tobacco products continued at high levels. In the meat-packing industry activity declined further and there was also a decrease in activity at sugar refineries. Bituminous coal production was maintained in February, and crude petroleum output likewise continued in substantial volume. Anthracite output declined in Feb ruary, and in March was reduced further as mine owners and workers agreed on a curtailment program. Value of construction contracts awarded declined in February, according to F. W . Dodge Corporation figures, owing principally to a further decrease in awards for publicly-financed work. Contracts for privately-financed residential building increased further, while awards for private nonresidential building remained at the low level of other recent months. E m ploym ent Factory employment and payrolls increased somewhat less than is usual between the middle of January and the middle of February. Changes in nonmanufacturing lines were largely of a seasonal nature. D is t r ib u t io n Department store sales were in about the same volume in February as in Jan uary, although some increase is usual, and sales at variety stores increased less than seasonally, while mail order sales rose by slightly more than the seasonal amount. In the early part of March department store sales increased. Freight-car loadings declined somewhat from January to February, reflecting for the most part reduced shipments of grains, forest products, and miscellaneous freight. C o m m o d i t y P r ic e s C O N S T R U C T IO N C O N T R A C T S A W A R D E D Three-month moving averages of F . W . Dodge Corporation data for value of contracts awarded in 37 Eastern States, adjusted for seasonal variation. Latest figures based on data for January and February and estimate for March. Wholesale commodity prices were generally maintained with little change dur ing February and the first three weeks of March. As is usual at this season prices of livestock and meats increased while dairy products declined. Silk prices ad vanced considerably in this period. In the early part of March current prices of pig iron and of semi-finished and finished steel were reaffirmed for the second quarter of this year. B a n k C r e d it Investments in United States Government obligations by New York City banks increased considerably in February and the first half of March. In this period mem ber banks reduced their holdings of Treasury notes and increased their bonds, reflecting in part exchanges of notes for new bond issues on March 15. Excess re serves of member banks continued somewhat below the high level of $3,600,000,000 reached at the end of January, fluctuating largely in accordance with changes in Treasury balances at the Federal Reserve banks. M o n e y R ates M O N E Y R A T E S IN N E W Y O R K C IT Y For weeks ending January 6, 1934 to March 18, 1939. Average yields on United States Government securities declined to new record low levels from February 27 to March 10, following the announcement by the Treasury that no cash would be raised in the March financing. Yields rose slightly after the middle of March accompanying renewed tension in Europe. New issues of 91-day Treasury bills continued to sell on practically a no-yield basis during March. Other open market rates continued unchanged.
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