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MONTHLY REVIEW B U SIN E SS 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 h e pattern of business developments in the Twelfth Federal Reserve District during June and July fol T lowed closely that of other recent months. This pattern was one of continued expansion, with the underlying force of national defense demands losing none of its urgency. As industrial operations continued to expand uninter ruptedly, further additions were made to factory employ ment in June. Aggregate payrolls of factory workers con tinued to increase, and in the three Pacific Coast states were 58 percent higher than a year earlier when the de fense effort had barely entered its initial stages. In the construction field, the value of privately-financed residential building begun in the district was as large in June as in May, when it attained record proportions for any month in recent years. In addition, large awards were made by the Federal Government for the construction of MILLIONS OF DOLLA RS August 1,1941 June, the largest reported year-period sales gain was in fur departments. Affected by the same broad influences as those contributing to the sharp recent increases in sales of household appliances, sales of new passenger automo biles in May were the largest for any month on record. Available data indicate that new car registrations in June were maintained at about the level of the preceding month. Wholesale commodity prices continued the persistent increase of earlier months this year during June and the first half of July. The most marked advance again oc curred in prices of farm products as a group. Costs of living increased further in June, largely reflecting higher retail prices of foods. In the four large Pacific Coast cities for which figures of retail costs of food are collected and published by the United States Bureau of Labor Statis tics, increases from mid-May to mid-June ranged from 1.6 to 3.2 percent. Gains over a year earlier amounted to 10 percent or more in all four cities. District member banks continued to experience in creased demands for credit for commercial, industrial, and agricultural purposes. Loans of city banks for these purposes increased $21,000,000 to a total of $445,000,000 in the four weeks ending July 23 and were $109,000,000 or 32 percent higher than a year earlier. Investments in Government securities also increased during the fourweek period. The gain in earning assets was accompanied by a further rise in adjusted demand deposits. Time de posits declined, a usual occurrence at this season of the year. T h e P roblem N E W B U IL D IN G C O N S T R U C T I O N — Twelfth District Monthly value of new construction, January 1939 to June 1941. permanent defense housing and, with a sharp revival in contracts for construction of facilities to be occupied by the Army, value of all building initiated in June rose to $88,300,000. This compares with $42,469,000 in June 1940, and has been exceeded only once (in October 1940) in the past decade or more. Large and rising payrolls in industry and in building, together with the substantial gains of recent months in cash farm income, have been factors in stimulating retail trade. Value of department store sales in June declined less than seasonally and was 17 percent higher than in June 1940. As noted in previous issues of this Review, the most marked increases in sales have occurred in de partments handling house furnishings and particularly the major household appliances and radios. Sales of sil verware and jewelry departments have likewise shown sharp advances over a year earlier in recent months. In of L abor S u pply The rapid business expansion during the past year has brought with it some difficulty in securing enough skilled and semi-skilled workers to meet the demands placed upon industry by national defense, and the problem is be coming more acute. Under conditions which have existed during the past year or more, Pacific Coast states, and California more particularly, have been fortunate in hav ing been able to attract labor from other parts of the country. Despite this migration of labor to the Pacific Coast, however, the supply of skilled and semi-skilled workers does not appear to be growing fast enough to meet demands. Partly in response to this developing situ ation and partly in anticipation of it, some industries, most notably the aircraft industry, have for some time engaged extensively in training-within-industry pro grams and have fostered the establishing of craft training schools. Both Federal and local governments have also been active in providing training facilities and instruc tion in the crafts in which workers are in most demand. The necessity of utilizing such programs and other de- A u g u s t 1,1941 FEDERAL RESERVE B A N K OF SAN FRANCISCO 38 vices for developing industrial skills in all industrial areas of the Pacific Coast will become more evident with any increase in the pressure for producing more defense mate riel. The penalties placed upon industry and the com munity as a whole by past failure to maintain and develop such skills become more evident with the increasing ur gency of military demand for the products of industry. A g r ic u l t u r e Rising demand for farm products in recent months has contributed to substantial gains in district farm cash in come. Cash receipts from marketings, together with Gov ernment benefit payments, totaled $103,143,000 in May, an increase of 24 percent compared with a year earlier. For the first five months of the year, the increase over the like period of 1940 has been 13 percent. With prices of farm products rising further in June and July, substan tial year-period gains in income are indicated for those months. Favorable growing and harvesting conditions prevailed generally in the district during June and early July, and reports from most growers indicate that the output of a number of crops will be larger than was anticipated earlier in the season. The present condition of soil mois ture in most important dry land farming areas is good to excellent, and supplies of water in the principal irrigated sections of the district generally appear adequate for or dinary requirements. While the total grain and field crop acreage which will be harvested this year is expected to be about the same as in 1940, large changes have occurred in acreages devoted to several crops. Compared with last year, acreages of barley, late potatoes, and sugar beets are considerably P rod u ction and E m ploym ent— Index numbers, 1923-1925 average=100 Industrial Production1 W ith Seasonal /—Adjustment—\ r - 1941 —v 1940 June M ay June Without Seasonal t —Adjustment—> , — 1941— 1940 June M ay June Manufactures (physical volume) 161 96 — 155 152 89 — 124 117 — — — 120 161 117 143 79 85 69 53 74 105 60 65 50 48 62 72 98 Refined o ils ..................................... Cement ............................................ W heat flou r..................................... Minerals (physical volum e) Petroleum ....................................... Lead (U . S .)2................................. Copper (U . S .)2............................. Construction (value) Residential building permits3 Twelfth D istrict........................ Southern C alifornia............. , Northern California............. Oregon ................................... W ashington .......................... Intermountain states........... Public works con tracts............... Miscellaneous Electric power p rod uction ......... — 113 111 112 110 101 184 176 163 134 155 141 103 96 94 117 159 94 116 140 117 91 95 80 65 100 147 317 63 65 51 53 68 113 213 247 243 142 111 — — — 143 65 94 145 407 241 243 227 258 140 59 87 92 166 199 141 113 158 191 125 109 123 142 105 94 168 199 147 117 195 232 173 130 182 219 145 125 123 142 102 93 201 236 182 137 160 192 130 113 125 143 110 98 187 126 145 107 98 222 155 131 1Daily average. 2Prepared by Board of Governors of the Federal Reserve System. (1935-1939 = 100). 3Includes figures from 197 cities and L os Angeles County, unincorporated. 4Excludes fish, fruit, and vegetable canning. Distribution and Trade— Index numbers, 1923-1925 average=100 Factory Employment and Payrolls4 Employment Pacific C oast.................................... California ................................... Oregon ....................................... W ashington ............................... Payrolls Pacific C oast................................... California ................................... Oregon ....................................... W ashington .............................. smaller. Offsetting these decreases are large gains in acreages planted to corn, beans, flaxseed, hops, early po tatoes, and rice. The acreage planted to barley in the Pa cific Northwest has been increasing in recent years, and although the district acreage for harvest this year is lower than in 1940, it exceeds by 15 percent the long-term aver age for the 1930-1939 decade. Other crops to which larger acreages have been planted in recent years include flax seed, grown this season on an acreage 380 percent larger than the 10-year average. The acreage devoted to potatoes this year is 95 percent larger than that average, cotton 24 percent, beans 18 percent, and both rice and hops 17 per cent. Influenced by favorable weather conditions during the past winter and spring in the Pacific Northwest, yields per acre of most grains and several field crops are of record or near-record proportions in that area. Elsewhere in the district, yields per acre are generally expected to be only average, as long periods of excessive rainfall during the past winter and spring months retarded growth. Prospects for citrus and deciduous fruit and nut crops improved during recent weeks. While it is still too early to determine definitely the output of apples, current re ports from growers indicate a somewhat smaller crop than was harvested last year. Total bearing acreage has declined from 1940, reflecting in particular the removal of trees in unproductive orchards in Washington, and a continuation of the downward trend in bearing acreage elsewhere in the district. The July 1 condition of pears indicates a crop of over 19,220,000 bushels, slightly under last year's large crop of 20,164,000 bushels, but about 1,000,000 bushels larger than the average produced dur ing the ten years from 1930 through 1939. A large part of the decline in indicated pear production from 1940 has been due to damage from disease and insect infestation. Although spring frost caused minor damage to grapes in a few scattered localities in California, the excellent set of fruit and good early growth made in most vine yards has resulted in indications of a 1941 production in that State of 2,296,000 tons, compared with 2,246,000 tons in 1940 and an annual average of 1,990,800 tons in the period 1930-1939. The increase over 1940 is due en tirely to a larger crop of raisin varieties, as output of other types of grapes is expected to be smaller than a year ago. O f the other important deciduous fruit and nut crops produced in the Twelfth District, only the almond, fig, olive, and peach crops appear to be smaller than in 1940. Estimates of production of apricots, cherries, plums, prunes, and walnuts are all larger than a year ago, and promise above-average crops. District production of milk and dairy products has Retail Trade1 W ith Seasonal Adjustment-^ r - 1941— > 1940 June M ay June Autom obile sales (nu m ber)2 — Total ................................................ Passenger ................................... — C om m ercia l................................. — Carloadings (num ber)2 Total ................................................ 104 Merchandise and m i s c . ......... 118 O t h e r ............................................ 86 Without Seasonal , —Adjustment—v ,— 1941— N 1940 June M ay June — — — — — — 239 233 302 237 233 287 158 154 199 101 117 80 89 102 73 112 125 96 101 110 90 96 109 81 d e p a rtm e n t and furniture store indexes, customarily shown in this table, are in process of revision. 2Daily average. 39 M O N T H L Y REVIEW OF BUSINESS CONDITIONS A u g u st 1,1941 been at record or near-record levels in recent weeks. De mand, reflecting increased consumer purchasing power growing out of the expanding defense effort and the Fed eral food-for-defense program, has been active, and prices are well above those of a year ago. Prices paid farmers for dairy products in mid-July averaged almost 30 percent higher than a year earlier, and were about the same as the peak level of the 1930’s reached in 1937. W ool prices likewise have shown a large gain over a year earlier and have been higher than at any time since 1930. A large proportion of the District’s 1941 wool clip has already been marketed. account for 92 percent of total required reserves and 93 percent of the excess reserves of all member banks in the district. It will be seen from the table that, although ten reserve city banks having 48 percent of the required reserves of the 30 city banks have excess reserves ranging up to 20 percent, in the aggregate the reserves of these ten banks are only 10 percent in excess of requirements. Including the ten just mentioned, 17 banks accounting for 58 per cent of the required reserves of all district reserve city banks, have excess reserves ranging up to 40 percent. On D is t r ib u t io n of T w e l f t h D is t r ic t M e m b e r B a n k s C r e d it a n d B a n k in g Loans of all member banks in the Twelfth District in creased approximately $150,000,000 during the first half of 1941 to a preliminary total of $2,279,000,000 on June 30. A year earlier loans of these banks amounted to $1,978,000,000, a year-period increase of 15 percent. Banks both in the larger district cities and in outlying areas have actively expanded their loans in recent months. The in crease reported by the former has been accounted for largely by loans for commercial and industrial purposes, while real estate loans have been an important factor in the increase reported by banks in outlying areas. Member banks in the Twelfth District also added to their investments during the first half of 1941, increas ing their holdings of obligations of the United States by $72,000,000. Investments in other securities were re duced somewhat. During the first three weeks of July, loans of district city banks for commercial and industrial purposes con tinued to expand, increasing $12,000,000 to $445,000,000 on July 23, a year period gain of $109,000,000. Open market paper held by local city banks, which had in creased appreciably in June, showed little net change in early July. Sales of defense savings bonds in the Twelfth District from the time they were introduced on May 1 up to and including July 25 have amounted to $67,120,229 on a par or maturity value basis. Series E securities sold during the period had a maturity value of $25,126,325, series F of $8,556,304, and series G of $33,437,600. For the United States as a whole, sales of defense savings bonds to July 1 amounted to $707,195,000. O f this total, series E bonds accounted for $213,562,000, series F $68,486,000, and series G $425,147,000. D is t r ib u t io n of E xcess D is t r ic t R eserves M em ber of T w elfth B a n k s Aggregate reserve balances of member banks with the Federal Reserve Bank of San Francisco, after continu ing until mid-May the persistent expansion of 1940, have tended downward slightly during recent weeks. In the last half of June they averaged $808,900,000 daily. O f this total, $549,400,000 were required reserves and $259,500,000 were excess reserves. The latter were about 48 percent of average required reserves. While district member banks as a group held reserve balances of 48 percent above requirements, reserve posi tions of individual banks showed wide variations. The distribution of member banks in district reserve cities ac cording to the ratio of excess to required reserves is shown in the table. These 30 district reserve city banks B y R a t io of E x c e s s to R e q u ir e d R e se r v e s (based on daily average figures June 15-30, 1941) Reserve City Banks Ratio of Excess to Number Required Reserves of Banks 0 to 9 .9 .............................................. 5 10 to 1 9 .9 .............................................. 5 20 to 3 9 .9 .............................................. 7 40 to 5 9 .9 .............................................. 3 60 to 7 9 .9 .............................................. 3 80 to 9 9 .9 .............................................. 2 100 and over........................................... 5 T o ta ls.................................... 0 10 20 40 60 80 100 30 Required Reserves $ 21,012,000 219,940,000 51,189,000 25,841,000 37,974,000 94,204,000 52,626,000 Excess Reserves $ 1,730,000 23,439,000 14,739,000 13,452,000 26,839,000 86,880,000 73,826,000 $502,786,000 $240,905,000 Country Banks 55 $ 13,411,000 to 9.91 ........................................... to 1 9 .9 .............................................. 54 7,811,000 to 3 9 .9 .............................................. 58 11,981,000 to 5 9 .9 .............................................. 22 3,956,000 to 7 9 .9 .............................................. 18 3,246,000 to 9 9 .9 .............................................. 10 1,693,000 29 4,532,000 and over........................................... T o ta ls.................................. 246 $ 46,630,000 $ 629,000 1,128,000 3,172,000 1,967,000 2,239,000 1,494,000 7,919,000 $18,548,000 in c lu d e s a few banks with slight temporary reserve deficiencies. the other hand, seven banks having less than 30 percent of the reserve requirements of the district city banks hold excess reserves above 80 percent of requirements. Reserve balances of five of these latter banks are double or more than double requirements. Similar wide variation is evident in the individual re serve positions of this district’s so-called country mem ber banks. The reserve position of these 246 banks ranges from slight temporary deficiencies in the case of a few banks to an excess of more than 100 percent of require ments. In this same group of banks, 103 have excess re serves ranging downward from 20 percent of require ments. The reserve position of an individual bank is not, how ever, an adequate indication of its possession of idle or surplus funds. A complex of interbank deposit relation ships exists. Many banks elect to carry with correspond ents a portion of their surplus funds. District country banks have some balances with other local country banks and with banks in reserve and central reserve cities, but the major part of these balances is carried with local re serve city banks. In turn, district reserve city banks main tain balances with member banks in other reserve cities of this district, but the bulk of these interbank deposits is carried with member banks in cities outside the dis trict, particularly with banks in New York. Deposits car ried by banks with correspondents may be withdrawn at will, and may thus be used by banks to adjust their re serve positions. Consequently, in considering the reserves of an individual bank or of district member banks as a group, allowance must be made for idle or surplus funds held in the form of balances with correspondent insti tutions. FEDERAL RESERVE B A N K OF SAN FRANCISCO 40 POINTS A u g u s t 1,1941 160 S u m m a ry o f N a tio n a l B u s in e s s C o n d it io n s 140 Released July 20— Board of Governors of the Federal Reserve System 120 I 100 production increased further in June, continuing the rapid advance that began about a year ago. Commodity prices, both in retail and in wholesale markets, rose considerably between the early part of June and the third week of n d u str ia l 80 P r o d u c t io n 60 40 20 0 I N D U S T R I A L P R O D U C T IO N Federal Reserve index of physical volume of production, adjusted for seasonal variation, 1935-39 average=100. Sub groups shown are expressed in terms of points in the total index. By months, January 1935 to June 1941. PERC 110 100 90 80 70 60 50 W H O L E S A L E P R IC E S Bureau of Labor Statistics' indexes, 1926=100. “ Other” includes commodities other than farm products and foods. By weeks, January 5, 1935 to week ending July 12, 1941. BILLIONSO FDOLLARS FACTOR!5 USINGRESERVE B1LL10NSOFDOLLARS FACTORS :SUPPLYINGRESERVE FUNDS 24 D is t r ib u t io n 22 MEMBER BANK j \ S ’ RESERVEBALANCES*» GOL.0 STOCK / 20 V Sales of general merchandise showed little change from May to June. Depart ment store sales decreased more than seasonally, while rural retail and variety store sales remained at the May level, although a decline is usual at this time of the year. In the early part of July sales at department stores rose somewhat and were 24 percent higher than a year ago. Loadings of revenue freight increased further in June, reflecting continued expansion in shipments of coal and miscellaneous merchandise, and by the end of the month were in larger volume than at any time during the seasonal peak last autumn. 18 fyr 16 MONEY IN CIRCULATIONf,r' ______ 14 r .......... .-I.. .. .!L. _....... TREASURY CURRENCY 4 2 0 Reflecting the continued advance in industrial activity at a time when output ordinarily declines, the Board’s adjusted index advanced from 150 percent of the 1935-1939 average in May to 156 in June and preliminary estimates indicate a further rise in July. The current level compares with 104 before the start of the European war and 111 in the spring of 1940, when the current advance in indus trial activity began. Further increases in output were reported in June for a considerable number of industries, particularly those associated closely with the defense program, and there were no important declines. As in other recent months, activity in the air craft, shipbuilding, machinery, and railroad equipment industries rose sharply. Automobile production was maintained at the high level of May, owing mostly to unusually large retail sales. Output of iron and steel and nonferrous metals, al ready close to capacity, did not show an increase to correspond with the rise in output of finished metal products and official statements indicated growing con cern over shortages of numerous materials. Steel ingot production remained close to 99 percent of capacity during June, but the rate in the middle of July was slightly lower. For the year to date output of steel has averaged 98 percent of the rated capacity as of December 1940. Output of textiles and most other nondurable manufactures in June continued at recent advanced levels, which in some instances represent capacity production. Output of chemicals continued to increase rapidly. Also, there was a sharp rise in rubber consumption, reflecting continued heavy demand for rubber products and the fact that June was the last month before curtailment of rubber consumption by industry was to go into effect and was the month to be used in apportioning July consumption among various manufacturers. Mineral production increased in June, with a marked rise in output of anthra cite, some further increase in output of bituminous coal, and a continued advance in crude petroleum production to a new high level. Value of construction contract awards in June continued at the high level reached in May and was nearly two-thirds above a year ago, according to figures of the F. W. Dodge Corporation. Awards for public construction again increased sharply, reflecting continued expansion in the volume of defense construction projects. Private residential building contracts declined somewhat more than sea sonally, following an increase in May. TREASURY CASH ANDDEPOSITS - rese"rve=bank CREDIT^ 1939 J940 NONMEMBER DEPOSITS 1939 1941 J 1940 ---- 1941 M E M B E R B A N K R ESER VES A N D R E L A T E D IT E M S Wednesday figures, January 4, 1939 to July 9, 1941. IUNS O FDOLLARS BILLIONSOFDOLLARS 16 C o m m o d i t y P r ic e s Wholesale prices of most groups of commodities continued to advance from the early part of June to the middle of July. Prices of foodstuffs showed large in creases and there were substantial advances in prices of a number of industrial raw materials and finished products. Following earlier marked advances, prices of hides and cotton gray goods were reduced by governmental action. Retail prices for foods and many other commodities have been rising and in June the cost of living was about 4 percent higher than four months earlier. Preliminary figures indicate further advances in July. B a n k C r e d it 14 Holdings of United States Government securities by member banks in 101 leading cities increased further during June and early July, reflecting in part new offerings by the Treasury. Commercial loans continued to rise sharply. Notwithstanding the greater volume of bank loans and investments, deposits of city banks declined somewhat over the period, reflecting mainly a growing de mand for currency and a building up of Treasury deposits at the Reserve Banks. These developments also resulted in a decrease in the volume of excess reserves, which amounted to about $5,300,000,000 on July 16, compared with $6,900,000,000 a year earlier. 12 10 8 6 4 2 U n it e d S t a t e s G o v e r n m e n t S e c u r i t y P r ic e s 0 1935 1936 1937 1938 1939 1940 M E M B E R B A N K RESER VES Wednesday figures, January 2, 1935 to July 9, 1941. R e quired and excess reserves, but not the total, are partly estimated. United States Government securities advanced further during the latter part of June. Partially tax-exempt 1960-65 bonds on June 26 were at an all-time peak, on a 2.02 yield basis. Since that time they have declined slightly. Taxable bonds generally continued to advance to successive new high levels. Yields on Treasury notes showed little change during the latter part of June and the first half of July.
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