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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 t h Although output of a few major Twelfth District in dustries was lower in June than in May, most industries appear to have maintained or increased production, al lowing for customary seasonal changes. New residential building undertaken declined by less than the seasonal amount, and data covering the first three weeks of July indicate a substantial increase in that month. Industrial employment and payrolls advanced, on a seasonally ad justed basis, and retail sales were unchanged from the preceding month. The major industries in which produc tion was reduced were petroleum and copper. Prices of commodities tended to advance in late June and during the first three weeks of July, sharp increases occurring in quotations for a number of basic raw ma terials. Accompanying these price advances, fabricators and distributors in many lines became more active buyers than at any time since early last fall. Since that time, orders generally have been limited to immediate needs. Loans of district city banks for commercial and indus trial purposes increased in June and a portion of this in crease was retained during the first three weeks of July. These loans had declined considerably in the first five months of the year. Some part of the decline in earlier months represented repayment of loans with funds re ceived from liquidation of excess inventories that had been held by producers and distributors. I n d u str y Value of permits issued for residential building con tinued to increase in June, when this bank’s seasonally adjusted index advanced to 42 percent of the 1923-1925 average. At that level the index was slightly higher than in the preceding month and 20 percent higher than in June 1937. Data covering the first three weeks of July point to a substantial further increase in that period, part o f the advance being attributable to several permits issued in connection with a large multi-family housing project in Seattle. Even excepting that factor, however, a smaller than seasonal decline appears to have taken place in Twelfth District cities for which preliminary July data are available. The final index number for July, adjusted for seasonal variations, will probably be close to 50, or approximately as high as the 1929 monthly average. Output of lumber increased further in June. This bank's seasonally adjusted index advanced to 62 percent of the 1923-1925 average from 59 percent in May. The June rate o f output was 13 percent above the level of the past winter but was still about 35 percent lower than in June 1937. Volume of new orders received by district mills during the first half of 1938 was 24 percent lower than in the first half of 1937, but no tendency for new business to decline has been evident since last fall. A mod erate upturn in new orders in June and early July thus fol lowed an extended period of unusually light buying. The F E D E R A L R E SE R V E D IS T R IC T August 1} 1938 recent increase in demand appears to have come mainly from distributors' yards, since railroad and industrial buying and exports remain at the low levels of other recent months. Some increase in mill stocks of lumber is customary in the late spring and early summer, but this year volume of stocks was the same on June 30 as at the end of the two preceding months, and only 3 percent above the comparatively low levels of June 30, 1937. Retail stocks are reported to be smaller than a year ago. Domestic stocks of refined copper, which were higher in May than at any time in the past three years, declined slightly in June, owing partly to unusually active sales late in the month. The decrease reflected mainly a curtail ment in output, however, one of the largest Twelfth Dis trict copper producers having closed down entirely in mid-June. Marked increases in copper sales in late June and early July, accompanied by price advances, have ma terially improved the outlook for a resumption in opera tions at closed properties within a short period of time. Influenced by a large volume of goods carried over from last season, activity at fruit canneries in June and July was considerably lower than a year earlier. The pack of California canned apricots has now been practically completed and is reported to be much smaller than the record output of 5,553,000 cases in 1937. A material re duction in output of canned peaches is also expected, reflecting the unusually heavy carryover. On June 1 un sold stocks o f canned cling peaches held by California canners aggregated 4,930,000 cases, compared with 880,000 cases on the corresponding 1937 date. Total sales of cling peaches in the 12 months ending June 1, 1938 ap proximated 8,160,000 cases. Unsold stocks of other Cali fornia canned fruits, for which data are available, includ ing apricots, totaled 4,100,000 cases, compared with 900,000 cases a year ago. Carryover of canned salmon is also large. Unsold stocks of Alaska salmon amounted to 2,200,000 cases on June 30, a substantial increase from the unusually small carryover of 200,000 cases last year. Available informa tion indicates that the pack of Alaska salmon through the first three weeks of July was somewhat lower than a year ago, although it is too early in the season to determine final output. Little significant change took place in output of other manufacturing industries during June. Available infor mation indicates that production of furniture, automo biles, rubber tires, and wheat flour showed about the usual seasonal changes from May, while meat and steel production and activity at motion picture studios in creased moderately. Operations at aircraft factories con tinued at capacity with several of the larger producers announcing programs for expansion of their productive facilities within the immediate future. Factory employment in Pacific Coast states, exclud ing employment in the canning industry, was unchanged from mid-May to mid-June, although a small decline is 34 FEDERAL RESERVE B A N K OF SAN FRANCISCO customary at this time of the year. As a result, this bank's adjusted index advanced to 93 percent of the 1923-1925 average from 92 in the preceding two months. In March, the index was 95, and in June 1937 it was 113. Payrolls also advanced during June, after allowance for seasonal influences, reflecting gains in California and WashingPER CENT F A C T O R Y E M P LO YM E N T A N D PAYROLLS Pacific Coast States Indexes of number employed and payrolls, adjusted tor seasonal varia tion, 1923-1925 average=100. By months, January 1929 to June 1938. (Fruit and vegetable canning industry excluded) ton. The adjusted index of factory payrolls has shown marked stability since last winter, and in June was only one point lower than in February. Compared with June last year, however, the index showed a decline of 21 percent. ^ r lR A D E This bank’s seasonally adjusted index of the value of department store sales for June was 90 percent of the 1923-1925 average. Marked stability has characterized the level of these sales since February. Inventories of department stores declined seasonally during June and at the end of the month were 11 percent lower in value than a year earlier. New automobile registrations increased by the full sea sonal amount in June but were 52 percent lower than in the comparable month last year. Value of sales of district wholesalers declined as is usual in June, and was 17 percent lower than a year ago. Inventories of reporting wholesalers were 10 percent be low the levels of June 1937. Inventories have been re duced considerably since the beginning of this year when the same group of wholesalers was carrying stock having a value of 12 percent more than a year earlier. A g r ic u l t u r e Weather continued to favor farm operations during June and July. Marketings of early grains, cherries, apri cots, plums, peaches, cantaloups, and spring vegetables increased seasonally. Cash farm income received during June was lower than a year ago by about the same pro portion as in earlier months this year. Income received during this calendar year through June, according to pre liminary information, was $367,063,000, compared with $447,638,000 received during the first half of 1937. Production of the principal deciduous fruit and nut crops is expected to be smaller this season than in 1937, but well above the average of recent years. Estimates indi cate that only the pear, prune, and cherry crops will ex ceed last year's production. Large decreases from a year ago are indicated for apricots, almonds, and walnuts. Reports from growers indicate that the 1938 wheat, August 1, 1938 tame hay, and sugar beet crops will be larger than 1937 harvests, while production of cotton, rice, potatoes, beans, and other field crops will be smaller than last year. The reduced output of most of these crops is attributed partly to the low prices prevailing at the time of seeding, and partly to abandonment of acreage because of damage from floods and heavy rains during the spring months. Returns to apple growers in the Pacific Northwest, according to preliminary production data, should be better this season than last when apples sold at extremely low prices. The total United States crop is expected to be 36 percent smaller than in 1937, but output in Oregon, Washington, and Idaho will be slightly larger. O f the total domestic apple crop, 30 percent will be harvested in the Pacific Northwest this season, compared with 19 per cent last year and a long-term average of 27 percent. Sugar beet acreage of the district was estimated on July 1 to be 28 percent larger than acreage harvested in 1937. Growers expect to harvest a record crop of 3,564,000 tons of sugar beets from 292,000 acres, which should return to them over $20,000,000. Output in California is expected to be 20 percent larger than in 1937, while an increase of 50 percent in Idaho is forecast, and an increase of 5 percent is indicated for Utah. California will pro duce about 60 percent of the crop grown in the district this year, while Idaho will account for 25 percent and Utah the remaining 15 percent. Sugar beet production in California will be larger than in any other State of the Union this year, exceeding output in Colorado which has previously been the leading sugar beet producing State. It is estimated that 568,000 acres of cotton were under cultivation in Arizona and California on July 1, com pared with 923,000 acres on July 1, 1937. Although this year's cotton acreage in the two States is 39 percent less than a year ago, it is 41 percent larger than the 19271936 average. Reduction in acreage in this district ex ceeded the 22 percent decline for the United States as a whole. Major causes of the sharp reduction, both in Ari- Production and Employment— Index numbers, 1923-1925 average=100 With Seasonal Adjustment —> ,— 1938— N 1937 June May June /— Industrial Production.* Manufactures (physical volum e) L u m b e r .......................................... Refined o i l s ................................... Cement .......................................... W heat flour ................................. Minerals (physical volume) P e t r o le u m ..................................... Lead (U . S . ) t ............................. Construction (value) Urban residential building permits in 18 cities.................. Public works contracts............. Miscellaneous Electric power p roduction......... 62 59 — — — 84 119 118 97 115 117 109 122 114 96 — — — 64 60 70 42 41 35 — ■— 193 Without Seasonal Adjustment — 1938— \ 1937 June M ay June f— 72 142 96 68 155 102 109 161 124 — — — 104 103 100 102 65 104 59 101 72 — 42 354 47 133 35 141 182 197 207 186 211 93 105 76 79 92 104 77 74 113 126 100 94 93 105 79 79 93 104 79 77 115 126 104 97 87 100 74 65 86 99 74 64 110 118 107 94 90 102 79 70 89 101 79 69 114 120 114 101 Factory Employment and Payrolls# Employment Pacific Coast ............................... California ..................................... Oregon .......................................... W ashington ................................. Payrolls Pacific C oast................................. California ..................................... Oregon .......................................... W ashington ................................. *Daily average. t Prepared by Board of Governors of the Federal Reserve System. ^Excluding fruit and vegetable canning. August 1, 1938 M O N T H L Y REVIEW OF BUSINESS CONDITIONS zona and California as well as in other cotton growing regions of the United States, include the cotton curtail ment program of the Agricultural Adjustment Adminis tration, relatively low cotton prices received for last year's crop, and difficulties in securing stands because of un favorable weather conditions. Livestock and ranges continued in good to excellent condition during June. Feed and stock water on district ranges are now ample, and feed crop prospects indicate larger supplies during the remainder of this year than in 1937. Prices of feeds have been and, according to the present outlook, will continue to be at a lower level than in the fall and winter of 1937. C r e d it Following the decline of the preceding five months, total loans of district city banks increased slightly during June and the first three weeks of July. The decline during the spring months reflected principally a reduction in advances for commercial, industrial, and agricultural pur poses. In June, however, loans of this class increased and, despite some reduction in the following three weeks, were slightly higher in mid-July than in late May and early June. In addition, loans on real estate have continued the moderate expansion in evidence since March, and loans to brokers and dealers in securities have advanced from the low levels prevailing from late March through midJune. Investments also increased, the expansion taking place in holdings of securities of states, counties, and other administrative areas, and of private corporations. Adjusted demand deposits continued to expand and in mid-July were higher than at any time since last Decem ber. Time deposits declined further. The decline in loans for commercial, industrial, and agricultural purposes last winter and spring reflected a variety of factors. Loans of this type are customarily lower in the first half of the year than in the second half. This reduction, most of which comes immediately after the first of each year, corresponds with a seasonally lower level of business activity as a whole, particularly of indus- Distribution and Trade— Index numbers, 1923-1925 average=100 With Seasonal Without Seasonal ,— Adjustment—\ r—Adjustment—s — 1938— x 1937 June -May June r -1 9 3 8 -^ Retail Trade Department store sales (value)* Twelfth D istrict.......................... California ..................................... Los A n geles............................... Bay R eg ion ............................... San F rancisco.......................... Oakland ................................... Pacific N orthw est........................ S e a t t le ....................................... Salt Lake C ity ............................. Department store stocks (value) f Furniture store sales (v a lu e)* $ .. Furniture store stocks (value) t$ Autom obile sales (num ber)* Total .............................................. Passenger ................................. Commercial ............................ Carloadings (num ber)* Total .................................................. Merchandise and m isc................. O t h e r .............................................. Intercoastal Traffic (volum e) Total .................................................. E a stb o u n d ..................................... W estbound ................................... *Daily average. fA t end of month. 1937 June M ay June 90 96 86 104 102 111 69 78 76 64 74 68 90 96 88 101 99 108 69 75 84 64 80 70 97 103 97 108 105 118 76 85 79 72 93 80 •— — — -— ■— •— 76 90 59 52 43 76 80 84 75 91 90 97 63 72 67 61 71 69 87 91 81 97 94 108 68 74 91 65 72 72 86 90 84 95 92 102 70 78 71 69 89 82 — ■— 84 78 152 77 71 139 174 164 282 75 89 60 95 108 80 81 93 66 76 83 67 101 111 90 49 42 71 81 58 149 49 40 79 48 39 77 77 54 155 ■— $1929 averages 100. 35 trial operations, which is accompanied by reduction in credit requirements of business. Smaller amounts of funds are needed because of the smaller volume of ma terials in process of manufacture, because of reduced payrolls, and because purchases of fuel and miscellaneous other items are lower. An important factor in the season ally reduced demand for credit by business during the spring lies in the fact that stocks of several important district products, produced seasonally but consumed throughout the year, are progressively reduced during the first half. This is particularly true of canned fruits, vegetables, and salmon, and of dried fruits and grains. The decrease in commercial loans in the first part of this year was influenced by more than the customary factors which make for some contraction in the spring months. With the decrease in general business in the latter part of 1937 and the first part of 1938, manufacturers, processors, and distributors required less credit for carry ing on their operations, and consequently reduced their indebtedness at banks. A survey of the principal district banks reveals that, in the aggregate, a considerable por tion of the reduction this spring reflects liquidation of inventories of goods held by manufacturers and distribu tors. Almost all the banks report that this liquidation has been a factor, and some state that it has accounted for the bulk of the reduction in their loans, while only a few state that it has been of negligible importance. Some of the inventories that have been liquidated this spring were accumulated during the period of widespread advance buying in late 1936 and the first half of 1937. In that period many business firms borrowed from banks to finance unusually heavy purchases of supplies. These advance purchases were made in the expectation of a sustained or increasing volume of business, of course; and the unusually large volume reflected anticipation of price advances as well as possible delays in delivery be cause of strikes and other factors. In contrast with that period of advance ordering, most businesses have been following restricted buying policies in recent months, and as stocks have been worked off loans have been repaid. Among producers, an outstanding exception to the liquidation of borrowings has occurred in the canning and preserving industry. The packs of fruits, vegetables, and fish were large in 1937 and sales have been slow, with the result that the carryover has been materially larger than in other recent years. Another feature of considerable importance in the de cline in loans at some banks has been the reduction in credit extended to finance companies and direct to con sumers. Much of the current borrowing of finance com panies is by means of open market paper, but an appre ciable volume of funds is loaned directly by banks on terms similar to those pertaining to open market paper. The substantial curtailment in sales of automobiles and other goods sold on the installment plan has reduced the demand of these companies for credit from banks. Banks making personal or installment loans directly to consum ers for financing purchases have experienced a reduction in demand for new loans which has also tended to reduce the volume of bank credit outstanding. Erratum Monthly Review dated July 1, 1938, page 31, eighth and ninth lines from bottom column 2, figure “$10,000” should be changed to “$25,000.” FEDERAL RESERVE B A N K OF SAN FRANCISCO 36 August 1, 1938 S u m m a r y o f N a tio n a l 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 ndustrial activity showed little change in June and increased in the first three weeks of July, although there is usually a considerable decline at this season. Prices of most staple commodities advanced sharply in the latter part of June and early July. There were substantial increases in prices of stocks and lower grade k°nck* P roduction Volume of industrial production, as measured by the Board’s seasonally ad justed index, was at 77 percent of the 1923-1925 average in June, as compared with 76 in May and an average of 79 in the first quarter of the year. Available data indicate that in July the index will show a considerable rise. In June activity in the textile industry increased, reflecting chiefly a further rise at woolen mills. Output at cotton and silk mills, which usually declines at this season, showed little change. Shoe production declined, following a consider able increase earlier in the year. Automobile output decreased further in June. Sales of new cars continued in excess of production, however, and stocks were further reduced. Steel production declined seasonally in June, and lumber production showed little change, although some increase is usual. Output of plate glass rose sharply from an exceptionally low level. Coal production remained in small volume in June, while output of crude petroleum, which had been sharply reduced in May, declined somewhat further. In the first three weeks of July activity at steel mills increased, although there is usually a decline in the period, and in the third week of the month ingot produc tion was estimated at 36 percent of capacity, as compared with an average rate of 28 percent in June. Crude petroleum output also rose sharply, reflecting chiefly a return to production on a six-day week basis in Texas. Automobile production declined seasonally. Value of construction contracts awarded, as reported by the F. W . Dodge Cor poration, showed a decline in June, following a considerable increase in May. Changes in both months reflected chiefly fluctuations in awards for publiclyfinanced construction. Awards for private residential building were maintained in June at about the same daily rate as in May, although there is usually some decline at this season, and were in slightly larger volume than a year ago. Other private construction work remained at recent low levels. E mployment Factory employment and payrolls decreased further from the middle of May to the middle of June. Employment in the automobile, steel, machinery, and cloth ing industries continued to decline, while at woolen mills there was an increase and in most other manufacturing lines changes were small. In trade, employment was reduced, while in other non-manufacturing industries changes in the number employed were largely seasonal. A griculture A total wheat crop of 967,000,000 bushels was indicated by July 1 conditions, according to the Department of Agriculture. A crop of this size would be con siderably larger than average and a Government program was announced for loans at close to current market prices. Cotton acreage on July 1 was estimated at 26,900,000 acres, as compared with 34,500,000 acres last year when, with excep tionally high yield per acre, a record crop was harvested. Production estimates for most other major crops were slightly under the large harvests of last season. D istribution Distribution of commodities to consumers was maintained in June at about the May level, although a decline is usual at this season. Sales at department and variety stores showed little change and mail order sales increased. In the first half of July, department store sales decreased less than seasonally. Freight-car loadings showed little change from May to June, and were slightly above the low level of April. ^ ^ Commodity P rices Prices of industrial materials, particularly rubber, hides, nonferrous metals, and steel scrap, showed advances from the middle of June to the third week of July, and there were also increases in prices of livestock and products. Wheat prices declined, following a rise early in June. Prices of iron and steel were reduced and there were also declines in some other industrial products. I 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 June 1938. D E P A R T M E N T STOR E SALES Indexes of value of sales, 1923-1925 average=100. By months, January 1934 to June 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 July 16, 1938. Bank Credit Excess reserves of member banks increased substantially in June and the first half of July, rising to above $3,000,000,000, as compared with $1,730,000,000 just prior to the reduction in reserve requirements the middle of April. The largest gain in excess reserves occurred at city banks through the retirement of Treasury bills and the continued growth of bankers’ balances. Total loans and investments of reporting member banks in 101 leading cities, which had increased sharply in the first week of June, declined during the re mainder of June, reflecting largely redemption of Treasury bills held by New York City banks and a decrease in loans to security brokers and dealers. During the first three weeks of July, total loans and investments at reporting banks showed E X C E S S RESERVES O F M E M B E R BAN KS Wednesday figures of estimated excess reserves for all member banks and for selected N ew York City banks, January 3, 1934, to July 20, 1938. lit t le n e t c h a n g e . M o n eY R a tes Rates on Treasury bills and notes were slightly firmer in July, but continued at exceedingly low levels. Yields on Treasury bonds showed little change.
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