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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 Federal Reserve Bank of San Francisco R e v ie w o f th e M o n th I n d u stry a n d T rade As in the preceding two months, business activity dur ing June fluctuated narrowly with little net change. In dustrial output and employment were approximately as large as in April and May. Factory pay rolls advanced considerably, however, reflecting increases in wage rates received by workers from mid-May to mid-June. A de cline in retail trade, as measured by department store sales, was only of seasonal proportions, while measures of the movement of goods showed little concerted change. New private building, which decreased in May, was cur tailed further in June, while public construction increased. Production of lumber and petroleum, two of the most important district products, was larger in June than in the preceding month. Notwithstanding the increase in out put of lumber during June, sales declined and the large amounts of unfilled orders accumulated last winter de creased further. Some decline in prices also has been reported. The fruit and vegetable canning industry was seasonally active in June. Plants in California were prin cipally engaged in packing apricots and cherries, and cherries, berries, and peas in the Pacific Northwest. Judg ing from estimates of available supplies of raw materials and from trade comments, it is probable that the district pack of both apricots and peas will be considerably larger than last year, while some decline in the cherry pack is indicated. The aircraft and paper and pulp industries, PER CENT INDUSTRIAL EM PLOYM ENT A N D PAY ROLLS Pacific Coast States Monthly indexes adjusted for seasonal variation. (1923-1925 average=100) which are comparatively new but rapidly expanding dis trict industries, continued as active as in the preceding several months. Output in the rubber tire and steel in dustries declined somewhat. Industrial employment increased seasonally both in California and in the Pacific Northwest. This bank’s ad F E D E R A L R E S E R V E D IS T R IC T August 1,1937 justed index of pay rolls, however, advanced sharply from 104 percent of the 1923-1925 base in May to 109 percent in June. This advance was accounted for in large part by increases in wage rates in most lumber mills in the Pacific Northwest. The volume of new private building and construction projects undertaken, after having increased rapidly for several months, declined in May and June. The sharp in crease in construction costs during last winter and spring has been an important factor tending to check a continued expansion of residential construction. This bank’s seasonPER CENT RESIDENTIAL BUILDING PERMITS Monthly index of value of permits issued in 18 district cities, adjusted for seasonal variation. (1923-1925 average-= 100) ally adjusted index of the value of residential permits is sued in 18 cities was 35 percent of the 1923-1925 average in June, compared with 40 percent in May and 45 percent in April. Figures for the first 23 days of July indicate that it will decline further in that month. Activities of operative or speculative builders have been particularly affected during the past two or three months. Sales of completed houses at prices originally set for them have been slow recently, and in some instances, particularly in southern California, asking prices have been reduced. Permits for nonresidential private building (unadjusted for seasonal), although giving some evidence of a decline in value during May and June, continue at nearly un changed levels. A further indication that private non residential construction has not been expanding rapidly during recent months is afforded by the value of con tracts awarded for the construction of industrial plants and installation of industrial equipment. Awards were lower during June than in other recent months, but rose to the highest monthly total of the year in July, entirely because of the letting of one unusually large contract. Building permits and contracts measure only the new work to be undertaken, of course, and construction ac tually under way in June continued at a high level. Changes in the volume of industrial production and private building during the past ten months have taken 30 August 1, 1937 FEDERAL RESERVE B A N K OF SAN FRANCISCO place during a period of relative stability in retail trade. This bank’s seasonally adjusted index of department store sales has fluctuated between 95 and 98 percent of the 1923-1925 average since last September, except in Decem ber and March when the index was considerably higher. Furniture store sales have increased almost continuously during this period, although the adjusted index in June, at 92 percent of the 1923-1925 average, was no higher than the figure reached in August 1936. Sales of new passenger automobiles increased considerably during the spring as is usual in those months, but were moderately lower in June 1937, than in June 1936. ing a farm value of approximately $38,000,000 last year. In addition, they received another $10,000,000 for the cottonseed harvested. This year 888,000 acres were under cultivation on July 1, the most extensive acreage ever planted in the Twelfth District. The large acreage in crease was chiefly due to the planting of additional land to cotton in the San Joaquin valley in California, where acreage under cultivation was 70 percent larger than on July 1, 1936. This important cotton growing area pro duced over two-thirds of the total district output last year. Weather conditions have not been so favorable for the early growth of cotton in Arizona and California this season as last. A g r ic u l t u r e Weather conditions during June and early July were favorable for the development of crops. Widespread and unusually heavy rainfall benefited the important wheat crop in the Pacific Northwest, but damaged the cherry crop in some localities. Livestock ranges improved dur ing June in all states of the district except Idaho, and on July 1 were in as good or better condition than on that date in most recent years. District farm income (including government benefit payments) expanded seasonally in May and for the first five months of the year is estimated at $355,074,000. Dur ing the comparable period last year, farm income aggre gated $291,405,000. This gain, together with current crop prospects and prices, indicates the likelihood of a mate rially larger district farm income for the year as a whole than in 1936. Marketings in the last seven months of the year account for approximately two-thirds of total income, however, so the final results may be affected substantially by price changes and by conditions affecting the volume and quality of agricultural products marketed during the remainder of the year. G r a in a n d F C ie l d T rops, A w e l fth creage a n d D P r o d u c t io n — is t r ic t (in thousands) t— Acreage— \ Barley ( b u . ) ............ , . Corn ( b u . ) ................ Oats (b u .)................ . . Wheat ( b u . ) ............ . . Beans (b a g s)............ . . Cotton (bales).......... , . Hay ( t o n s ) .............. Hops ( l b s .) .............. Potatoes (b u .).......... . . Rice (b u .).................. Sugar beets (tons) . . . . 1936 1937 1 ,3 8 9 24 6 814 5 ,3 4 8 461 5 78 1 ,4 2 9 253 750 5 ,4 4 8 516 888 5 ,3 0 8 35 301 1 54 241 32 260 140 227 r ........... Production Average Indicated 1928-1932 4 0 ,5 7 0 8 ,0 8 0 2 4 ,6 4 8 1 0 8 ,8 7 4 4 ,9 4 4 328 1 1 ,8 4 4 2 8 ,0 1 1 4 5 ,3 6 7 7 ,4 4 2 1 ,9 3 0 1936 4 1 ,1 1 6 7 ,1 7 8 3 0 ,2 6 1 1 1 0 ,2 1 5 5 ,3 8 1 610 1 1 ,9 4 5 2 3 ,3 1 0 5 2 ,9 8 1 9 ,5 4 8 3 ,0 9 4 1937 4 0 ,6 8 9 7 ,5 8 7 2 6 ,8 8 2 1 1 4 ,2 0 9 6 ,2 9 7 -------1 1 ,6 1 3 4 4 ,7 2 0 6 1 ,1 1 7 1 0 ,4 7 2 2 ,9 4 1 Source: United States Department of Agriculture. The wheat crop, which has accounted for about eight percent of the total farm income of the district during recent years, was estimated on July 1 at 114,209,000 bushels, compared with 110,215,000 bushels harvested last year. In addition to securing a larger crop, farmers are likely to receive higher prices for wheat than a year ago. The average farm price for wheat in the Pacific Northwest is now substantially higher than it was last year at this time. Furthermore, foreign demand has al ways been an important factor in Pacific Northwest wheat markets and, if the current relationship between domestic and foreign prices continues, a substantial pro portion of this season’s crop may be exported. Cotton growers in Arizona and California planted 578,000 acres and produced 610,000 bales of cotton hav D e c id u o u s F r u it P r o d u c t io n — T w e lfth D is t r ic t (in thousands of tons) Average Indicated 1928-1932 1935 1936 1937 1 ,3 2 0 227 50 1 ,9 2 4 1 ,1 6 1 345 418 572 375 1 97 395 1 28 226 12 35 1 ,2 1 6 216 48 2 ,1 9 4 1 ,2 4 8 3 75 571 429 288 141 368 117 298 9 52 1 ,0 7 4 248 62 1 ,7 1 4 918 324 472 516 337 179 460 135 1 84 8 42 1 ,1 7 9 285 47 2 ,2 1 9 1 ,3 4 3 356 520 527 344 1 83 476 116 224 15 56 ........................ ........................ ........................ ........................ ........................ Table .......................... ........................ ........................ ........................ C lingstone................ ........................ Freestone.................. ......................... ........................ ........................ ........................ ........................ ........................ *California only. Source : United States Department of Agriculture. Acreage and production estimates of several important district crops, as of July 1, have recently become avail able. These estimates indicate that the output of wheat, rice, cotton, hops, beans, and potatoes probably will be larger than last year. Production forecasts of other grain and field crops approximate the harvests of last year. The California grape crop is expected to amount to around 2,219,000 tons. This estimate is 30 percent above output in 1936 and 15 percent larger than average an nual production during the five year (1928-1932) period. All the other deciduous fruit and nut crops except cherries and plums are expected to be larger than last year. P rod u ction and E m ploym ent— Index numbers, 1923-1925 average=100 Industrial Production Manufactures (physical volume) Lumber ........................................ Refined O ils * .............................. Cement* ...................................... Meat* .......................................... Wheat Flour* ............................ Minerals (physical volume) Petroleum* .................................. Lead (U . S .) * J ................................ Construction (value) Urban residential building permits in 18 cities.................... Public Works Contracts*.......... Miscellaneous Electric Power Production........ Factory Employment and Pay Rolls Pacific Coast E m ploym ent................................ Pay R o lls ...................................... California Em ploym ent................................ Pay R o l l s .................................... With Seasonal /-Adjustment ,— 1937— V 1936 June May June 89 86 — — — 109 1 22 11 4 1 18 113 124 107 1 13 1 03 — — — 76 69 75 Without Seasonal r- Adjustment -> ,—1937—\ 1936 June May June 107 161 124 100 1 59 124 100 1 09 90 101 99 75 88 70 — — 90 153 122 __ 35 40 30 — — — 35 122 46 107 30 12 0 192 194 178 205 198 191 119 109 118 104 107 87 1 18 110 116 105 1 07 88 132 1 22 132 12 0 1 18 1 29 1 23 1 28 120 1 16 99 99 * Daily average. $Prepared by Board of Governors of the Federal Reserve System. August 1, 1937 M O N T H L Y R EVIEW OF BUSINESS CONDITIONS B a n k C r e d it During the five weeks ending July 21, total earning assets of district city banks declined substantially, reduc tions being reported in both loans and securities. This decline was accompanied by a considerable shrinkage in total deposits, exclusive of interbank deposits. The decrease in total investments was a continuation of the downward trend in evidence since last December, and in the aggregate these earning assets were lower in mid-July than at any time since September 1935. The decline during the five weeks ending July 21 took place principally in direct obligations of the United States. This item had increased sharply in the week ending June 16, which included the date of the mid-June Treasury financ ing, the increase at that time temporarily interrupting the steady decline in holdings of these securities reported since mid-February. Further slight declines were also reported in government guaranteed obligations and in other securities. 31 000,000 in mid-June. Reflecting the large volume of loan able funds available at district banks during that entire period, prevailing over-the-counter loan rates were low. During the recent period of decline in loans, low rates have also prevailed, indicating that the reduction in out standing loans has been the result of factors other than the cost of funds to bank customers. An indication of the trend of over-the-counter loan rates is given in the accom panying chart. During the first six months of 1937 these rates have been, if anything, slightly lower than in 1936, and no upward tendency was evident from mid-June to mid-July. The decline in over-the-counter loan rates since mid1933 to the comparatively low level reported during recent months reflects the large volume of excess reserves ac quired by district banks. The amount of reserves which member banks are required to maintain against their out standing deposits has been doubled in the past year. Nevertheless, during the first two weeks of July, excess reserves averaged $49,700,000 or 12 percent of the re quirement for city banks and $10,400,000 or 22 percent of required reserves for country banks. These funds, to gether with balances maintained with correspondents out side the district in excess of operating needs, will support a substantial further expansion in district member bank credit. S e c u r it ie s M a r k e t s 1929 1930 1931 1932 1933 1934 1935 1936 1937 INTEREST RATES CH A R G E D BY SAN FRANCISCO BANKS Weighted averages of mid-month figures. The reduction in loans, on the other hand, constituted a reversal of the trend apparent during the preceding five months, when total loans of reporting member banks had increased from $966,000,000 in mid-January to $1,024,Distribution and Trade— Index numbers, 1923-1925 average=100 Retail Trade Department Store Sales (value)* Twelfth D istrict.......................... California .................................... Los A n g e le s............................ Bay R e g io n .............................. San Francisco.......................... Oakland .................................. Pacific N orth w est...................... Seattle ...................................... Spokane .................................... Salt Lake C i t y ............................ Department Store Stocks (value) t Furniture Store Sales (v a lu e )* !.. Automobile Sales (number)* Total ............................................ Passenger ................................ Commercial ............................ Carloadings (number)* Merchandise and Misc................ O th e r ............................................ Intercoastal Traffic (volume) Total ................................................ Eastbound.................................... Westbound .................................. *Daily average. fA t end of month. With Seasonal /—Adjustment—\ ,— 1937— N 1936 June May June Without Seasonal /—Adjustment — ,— 1937— N 1936 June May June 97 103 97 108 105 118 76 85 64 79 72 92 97 104 97 109 107 117 75 82 62 88 71 92 94 102 95 109 106 119 72 79 61 76 64 86 86 90 84 95 92 102 70 78 57 71 69 89 93 98 89 105 102 117 74 81 57 96 73 83 84 90 83 96 93 104 66 73 54 68 62 83 — — — — — — — — — 174 164 282 157 145 273 181 172 271 95 108 80 91 102 79 81 98 62 101 111 90 93 96 89 87 101 69 81 58 149 84 67 133 79 66 117 77 54 155 82 63 145 75 61 122 $1929 averages 100. The decline in prices of bonds and stocks of Pacific Coast corporations, in evidence since early in the spring, slackened during June, and some revival took place in the flotation of new securities. In early July, prices of local corporate securities increased slightly and new issues were more numerous. Yields on corporation bonds, although somewhat high er than in late 1936, are still relatively low. Nearly all high-grade issues are selling at prices which yield less than four percent, and even the more speculative issues yield less than six percent. These conditions indicate that funds for sound corporate expansion programs should not be difficult to obtain. Yields on district municipal bonds increased by more than one-half of one percent during the first four months of the year, but declines since April have cancelled about a third of that rise. Yields on these securities currently are lower than at any time on record except for the last four months of 1936 and the first two months of 1937. Prices of local stocks declined somewhat more than 15 percent from mid-March to late June. In early July, however, prices advanced slightly and the volume of trad ing also increased. Margin accounts continued to increase early in the period of declining prices, and at the end of April were 20 percent higher than at the end of Decem ber 1936. A small decline took place in May and June. Most of the public utility refinancing induced by the low interest rates of the past few years was completed in 1936. Consequently, new issues were smaller in volume during the first six months of this year than in the first half of last year. Market weakness also influenced the decline subsequent to April. The financing of industrial firms through issues of both stocks and bonds has been somewhat heavier this year than last, however, and the proceeds have been used for new capital purposes to a greater extent than was the case in 1936. 32 August 1, 193! FEDERAL RESERVE B A N K OF SAN FRANCISCO N a tio n a l S u m m a r y o f B u s in e s s C o n d it io n s Prepared by the Board of Governors of the Federal Reserve System A c t i v i t y in most manufacturing industries and at mines continued in June a the May level, with allowance for seasonal influences, but the total output wa: decreased by labor difficulties in steel mills. In July, production at these mill increased. P r o d u c t io n IN DU STRIAL PRODUCTION Index of physical volume of production, adjusted for seasonal variation, 1923-1925 average=100. By months, January 1929 to June 1937. A DEPARTM EN T STORE SALES Indexes of value of sales, 1923-1925 average = 100. By months, January 1929 to June 1937. a n d E m p l o y m e n t Volume of industrial output, as measured by the Board’s seasonally adjuste< index, was 115 percent of the 1923-1925 average in June as compared with 111 percent maintained in the preceding three months. The decrease was largely accounted for by the decline in steel production. Automobile production decline« seasonally and lumber output showed little change. There was considerable reduc tion in activity at shoe factories and at sugar refineries, while textile productioi was close to the level of other recent months. At mines, output continued in abou the same volume as in May. Value of construction contracts awarded, which had declined in May, increase( considerably in June, according to figures of the F. W. Dodge Corporation. Then was a marked rise in contracts for public projects, and awards for private build ing increased somewhat, reflecting chiefly a larger volume of contracts for facto ries and for apartments. Factory employment and pay rolls declined more than seasonally from th middle of May to the middle of June, largely as a result of strikes in the iron an< steel industry. In most other manufacturing industries and also in nonmanufactur ing lines changes in employment were chiefly of a seasonal nature. g r ic u l t u r e The July 1 cotton report of the Department of Agriculture showed an acreag of 34,192,000, which is larger than in any year since 1933, but considerably smalle than the average of 41,424,000 acres for the five years 1928-1932. Reports on othe major crops indicate that production will be larger than last season and abou equal to the average for 1928-1932. D is t r ib u t io n Distribution of commodities to consumers was maintained in June at the leve of other recent months, with allowance for seasonal influences. Department stor sales showed a seasonal decline and there was little change in mail-order business Sales at variety stores increased somewhat. Department store trade in the mid western industrial area in June and in the first half of the year showed large increases over a year ago than did sales in other parts of the country. Freight car loadings declined somewhat further in June, reflecting largely ; decrease in shipments of miscellaneous freight. W 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 July 17. h o l e s a l e C o m m o d it y B a n k BILLIONSOFDOLLARS Wednesday figures for reporting member banks in 101 leading cities. September 5,1934 to July 21,1937. C r e d it In the four-week period ending July 21 the volume of excess reserves of mem ber banks increased from $810,000,000 to $870,000,000, owing principally to decline in the amount of required reserves resulting from a decrease in deposit at member banks in leading cities. Commercial loans of reporting member banks continued to increase, both i: New York City and in other leading cities, during the five weeks ending July 21 There was a substantial decline in adjusted demand deposits, mostly at New Yor City banks. This decline corresponded to decreases in holdings of United State Government obligations, following increases at the time of new treasury not issues at the middle of June, and in holdings of other securities. Loans to broker and dealers in securities, which increased in June, declined during the first thre weeks of July. M M EMBER BANK CREDIT P r ic e s The general level of wholesale commodity prices, which had declined gradu ally from the beginning of April to the middle of June, advanced somewhat afte that time. Prices of hogs and pork rose considerably and grain prices advance during most of the period. Steel scrap prices increased sharply and prices of tir zinc, and hides also advanced, while cotton goods and rubber continued downwarc In the past week, prices for grains declined and cotton prices also moved lowei o n e y R a t e s Open-market rates on treasury bills and yields on treasury notes and bond declined in July to the lowest levels since March.
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