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Rewieur Monthly FEDERAL RESERVE BANK OF AUGUST 1948 SAN F R A N C ISC O REVIEW OF BUSINESS CONDITIONS e a r ly August, Congress expanded moderately the credit controls available to the Federal Reserve Sys tem, and short-term money rates were raised. This action was taken as industrial employment and production con tinued at high levels into the second half of 1948, both in the nation and in the Twelfth District, with many prices moving into new high ground. Price increases have been especially marked in meats and metals. Grain and cotton prices, however, have retreated almost to support levels in the face of reports of bumper crops. Further increases in the cost of living were accompanied by a new high in June in the seasonally adjusted index of Twelfth District department store sales. Preliminary reports indicate some decline in July sales, however, from the June peak. Dis trict bank loans continued to increase, with commercial, industrial, and agricultural loans rising sharply in the first half of August. The gain in real estate loans, how ever, appeared to be losing momentum. I n Banking and Credit Developments In recent weeks, several measures directed toward credit restriction have been taken by Congress, the Re serve System, and the Treasury. The Board of Gov ernors of the Federal Reserve System has been empow ered to raise reserve requirements above previous legal maximums, and again has been given control over con sumer instalment credit. The Treasury has announced that it will raise interest rates on its short-term obliga tions, and the Reserve Banks have increased their dis count rates. Short-term rates for business funds have risen accordingly. These are modest steps. They do not insure the end of bank credit and deposit expansion. The initiative for the creation of reserves remains outside the Reserve System; if the sale of Governments by banks or other holders outside the Reserve System requires System purchase in support of the Government securities market, additional bank reserves will be created. Nevertheless, there is less incentive to shift out of short-term Governments, as their return is made more attractive. The cost to business of short-term funds will, in turn, be a little higher. The pos sibility of higher reserve requirements may dampen some what the willingness of banks to obtain additional re serves for loan expansion by selling Governments. The re-establishment of minimum down payments and maxi mum maturities on loans for the purchase of consumer durable goods should have some restrictive effect upon this type of credit expansion. Most important, these steps may induce a more cautious attitude on the part of both lenders and borrowers in general, whether or not they are significantly and directly affected. Increases in maximum reserve requirements The Board of Governors has been authorized by Con gress to establish additional member bank reserve require ments up to 4 percent against demand deposits and up to I 1 / * percent against time deposits. This authority will expire June 30, 1949. Legal maximum reserves against demand deposits are now raised to 14 percent for country banks, 24 percent for reserve city banks, and 30 percent for central reserve city banks. For time deposits, the per missible maximum is 7^4 percent. No reserve require ments have been raised as yet by the Board of Gover nors. They are at their former maximums for all classes of deposits except for demand deposits of central reserve city banks. Reserves against these deposits were raised to 24 percent on June 11, but are still 2 percentage points below the previous maximum. As of the second half of June, member banks held $77.4 billion in demand deposits subject to reserve, and $28.7 billion in time deposits. Each percentage point increase in reserves would mean, therefore, an increase of $774 million in reserves against demand deposits and $287 million against time deposits, or $1,061 million in total. If required reserves were raised to their new limits, they would total $20.7 billion, an increase of $4 billion over second half of June levels. Should the banking sys tem obtain this additional $4 billion in reserves by the sale of Governments to the Reserve System, member bank holdings of Governments would be reduced from $54 to $50 billion. Reduction in multiple credit expansion ratio Higher reserve requirements also reduce the amount of deposits that $1 in reserves will support and conse quently the amount of additional credit that can be ex tended. Currently, there are about $6.35 in deposits for each $1 of member bank reserves. With member bank reserve requirements at the new maximums, an additional dollar of reserves would allow a deposit— and credit— expansion of $5.13, assuming the same distribution of deposits between demand and time accounts, and among city and country banks. 66 FEDERAL RESERVE B A N K OF SA N FRANCISCO Other factors affecting reserves The proposed increase in reserve requirements also should be considered in the light of other factors affect ing reserves. Over the year ending June 30, 1948, the gold stock increased by $2.2 billion, adding a correspond ing amount to member bank and to Reserve System re serves. A decline in currency in circulation increased member bank reserves by $500 million. Reserves may continue to be supplied from these sources, although probably in lesser amounts over the next year. Most important, however, is the changed fiscal posi tion of the Government. In the year ending June 30,1948, the debt retirement program absorbed $5 billion in mem ber bank reserves: a $9 billion cash surplus allowed the Treasury to retire $8.3 billion of marketable debt, $5 billion of which was held by the Reserve System. For this fiscal year, tentative estimates indicate a much smaller excess of cash receipts over payments, of perhaps only $3 billion. This means considerably weaker power to restrain the creation of bank reserves, and consequently bank lending, through the retirement of Government securities held by the Reserve System. Interest rates on short-term Government securities raised On August 9, Secretary of the Treasury Snyder an nounced that interest rates on short-term Government se curities would be raised as a further anti-inflationary move, but that no change would be made in the Govern ment's policy with regard to long-term bonds. Treasury certificates of indebtedness and notes maturing on Oc tober 1, 1948 will be refunded into one-year certificates of indebtedness bearing a 1%. percent interest rate, which is % percent above the rate on the most recent issue. Treasury notes maturing on September 15, 1948 will be refunded into 1 percent Treasury notes maturing April 1, 1950. The 2^4 percent partially tax-exempt Treasury bonds maturing in the amount of $451 million on Sep tember 15, 1948 will be paid off in cash. Treasury tax and savings notes with a higher rate of interest will be available starting on September 1, 1948. Increase in Federal Reserve discount rate Following the announcement of higher rates on short term Governments, discount rates of the Federal Reserve Banks were raised to l /l 2 from 1*4 percent. Thus the cost of member bank borrowing from the Reserve Banks is maintained above the rate on Treasury certificates of indebtedness. The rate had been last raised in January 1948, to 1%. from 1 percent. Rates on bankers' acceptances, commercial paper, and other short-term bank loans to business borrowers are reported as having increased Y& to Y percent in most parts of the country, after the Treasury and Reserve Sys tem action. Restoration of consumer instalment credit controls A t the recent special session, Congress also restored to the Board of Governors authority over consumer in stalment credit until June 30, 1949. The Reserve System August 1948 had exercised controls over consumer credit, under Reg ulation W of the Board of Governors, from September 1, 1941 until November 1, 1947 when control was termi nated by Congressional action. After December 1, 1946, only consumer instalment credit had been under control. The new Regulation W will become effective Septem ber 20, 1948. It covers both instalment sales of and in stalment loans obtained for the purchase of automobiles, furniture, and major household appliances, but with an exemption for any article costing less than $50.00. In stalment loans for most other consumer purposes are also subject to the regulation. Control will be exercised on instalment credits up to $5,000. The required down payment is one-fifth on all specified goods except automobiles, in which case it is one-third. The maximum maturity on instalment credits not ex ceeding $1,000 is 15 months. Larger credits may have a maximum maturity of 18 months, except that monthly payments on amounts over $1,000 must not be less than $70.00. While the terms of the new regulation are considerably tighter than those now generally in effect, they are less restrictive than those of the previous regulation. Under that regulation down payments were 33 Y percent on all controlled articles except furniture and soft-surfaced floor coverings, for which the requirement was 20 percent. The maximum maturity for all consumer instalment credits was 15 months, and only instalment credits of $2,000 or less were subject to control. The text of the press release issued by the Board of Governors of the Federal Reserve System on August 20, 1948 announcing the new regulation appears on page 72. Bank loans continue to rise The aforementioned restrictive measures come at a time when bank loans are still expanding, though not as rapidly as a year ago. The rate of increase in commercial, industrial, and agricultural loans of weekly reporting member banks has risen significantly since the middle of the year in both the Twelfth District and the country as a whole. The increase in the District was exceptionally large in the early part of August. District loans of that type increased as much in the first two weeks of August as they had from the middle of January to the end of July. The growth in real estate loans, on the other hand, has slackened considerably since the middle of the year in both the District and the United States, but especially in the District. This contrasts with the developments in the first half of this year, when commercial, industrial, and agricultural loans declined in the country as a whole and lagged well behind real estate and consumer loans in the District. Total loans of Twelfth District member banks increased 5 percent in the first seven months of this year compared with 17 percent in the corresponding period a year ago. The rates of increase varied considerably among the dif ferent states in the District. Loans in Idaho, Nevada, and Oregon member banks rose about 13 percent in the first seven months of this year, followed by Utah with an August 1948 increase of 9 percent. Washington and Arizona, with increases of 4 and 2 percent respectively, stood at the bottom of the list, while the relative growth in California was slightly below that for the District. A comparison by states of the relative growth in loans in the first s^ven months of this year with the correspond ing period a year ago reveals some interesting differences. The relative increases were substantially larger this year than last in Oregon, substantially lower in Arizona, Cali fornia, Nevada, and Utah, and about the same in Idaho and Washington. Housing credit liberalized Supplementing the article, “ Trends in Housing Fi nance and Residential Construction,” which appeared in the June issue of the M o n t h l y R e v i e w , it should be noted that in the special session just ended Congress more than doubled the latitude of lenders to sell mortages guar anteed by the Veterans’ Administration and the Federal Housing Administration on the secondary market main tained by the Federal National Mortgage Association. By terms of a law passed in June of this year, lending institutions were permitted to sell 25 percent of their FH A and V A mortgages made after April 30, 1948 to the FN M A. This has now been increased to 50 percent. In addition, insured mortgages on apartment projects have, for the first time, been made eligible both for sale to the F N M A and for computation of the base on which the 50 percent is figured. The new law also liberalizes the terms for insuring mortgages under Titles I and II of the National Housing Act. Under Title I, the F H A may now insure construc tion loans not exceeding $4,500 each, compared with the previous limit of $3,000. The funds available for insuring such loans have been increased by $35 million. Each lender is guaranteed against loss up to 10 percent of his portfolio of such loans. Under Title II, the F H A is now authorized to insure loans on individual homes up to 90 percent of the first $7,000 of the appraised value, and up to 80 percent of the amount between $7,000 and $11,000. The previous limits had been $6,000 and $10,000. A new section added to Title II provides more liberal terms for insured mortgages not in excess of $6,000. It establishes for such mortgages longer maturities, lower interest rates, and higher ratios between the amount of the mortgage and the appraised value of the property. The new law also provides for more liberal F H A insurance under Title II to builders of large apartment projects. The regular session of Congress which adjourned in June of this year allowed Title V I of the National Hous ing Act to expire as of April 30, 1948. This title had con tained the most liberal FH A insurance provisions for both single-family dwellings and large-scale rental projects. Insurance on loans to manufacturers of prefabricated houses could also be obtained under this title. In the recent special session of Congress, those sections of Title V I relating to mortgage insurance on rental hous ing and for manufacturers of prefabricated houses were revived, with modifications. The new terms relating to 67 M O N T H L Y REVIEW large-scale rental housing will remain in effect until March 31, 1949. They provide for mortgages on such projects up to 90 percent of the Administrator’s estimate of construction cost as of December 31, 1947, but not to exceed $8,100 per family unit. The former limits were 90 percent of “ necessary current cost” and $1,800 per room. A new section added to Title V I provides for mort gage insurance on properties upon which 25 or more single-family houses are to be built. Such mortgages shall not exceed 80 percent of the appraised value of the com pleted project, and shall not exceed a sum computed on the individual houses comprising the project as follows: “$6,000 or 80 percent of the valuation, whichever is less, with respect to each single-family dwelling.” The new law increased the amount available for Title VI insurance by $800 million. In the hopes of providing an additional stimulus to the construction of large-scale rental housing, Congress incorporated into the new law a “ yield insurance” plan. This plan establishes certain conditions under which in surance companies and other large investors would be entitled to certain supplemental payments from the Fed eral Housing Administrator in case the net income on the project represents a return of less than 2% percent on the outstanding investment after allowing for a minimum annual amortization charge of 2 percent of the original investment. Recent Price Developments Concern over the course of rising prices, and discus sions of causes and cures, have been given added em phasis by new highs reached in recent months by both retail and wholesale prices, according to the Bureau of Labor Statistics’ indexes. The most spectacular rise at retail was found in meat prices, which rose 5.5 percent from May to June, and were 20 percent higher than in March. At the same time, primary market prices of some major crops were weakening, and they continued to fall through the early part of August in response to estimates of bumper yields. The possibility of further price declines is limited, however, by the narrow margin that now exists between market and support prices of food and feed grains, except corn, and cotton. Late in July and in the first week of August, prices of important metals rose sharply, promising further increases in wholesale and retail prices of some finished products. Mosf consumers' prices at all-time peaks During the last few months consumers have been spend ing more money on ordinary living than ever before. The consumers’ price index rose 3 percent from March 15 to June 15, and reached an all-time high of 171.7 percent of the 1935-39 average.1 Although it may be small comfort to them, Los Angeles and San Francisco residents have been confronted with smaller price increases since March than occurred in most other major cities, according to the Bureau’s indexes. They are the only District cities for which June figures were compiled. The San Francisco JThe July index, released too late for inclusion in the text, rose further to 173.7. 68 FEDERAL RESERVE B A N K OF SA N FRAN CISCO index, which stood at 174.2 on June 15, rose only 1.6 percent from March. The Los Angeles index, which was 168.8 in June, rose less than 1 percent between March and June, and actually fell slightly from the May level. Food the major factor in cost-of-living rise The retail price of food increased \ y 2 percent from May to June, and was more than 2 percent above the peak before the February break. The greatest increase within this group was in the meats. Beef and veal and lamb prices jumped 7 percent from May to June; beef and veal prices are 20 percent and lamb prices 25 per cent higher than in March. Pork prices rose 2 percent from May to June, and have risen 9 percent since March. In view of the reduced livestock population, no immediate relief is expected from these high meat prices. In fact, the normal winter increase in pork supplies will probably be delayed because the large corn harvest will induce farmers to fatten up their pigs before putting them on the market. Next spring’s pig crop will probably be increased, how ever, because of the plentiful corn. Cheaper feed will also tend to increase the supply of beef, but significant in creases cannot be expected before 1950. On August 13 the spot price of steers in primary markets was $36.00 per cwt., compared with the peak of $32.25 on January 7 before the February decline and a low for the year of $26.50 on March 12. By mid-August, the price of hogs reached a peak of more than $31.00, compared with a 1948 low of $21.12 on May 14. Retail prices of fruits and vegetables declined slightly from May to June, mainly because of the seasonal in crease in supplies of fresh products. Canned fruits and vegetables rose fractionally in price between May and June, but were still slightly below the March figure, and more than 7 percent below June 1947. Trade reports indicate, however, that retail prices on the 1948 pack will be higher, except for tomatoes and apricots. Tomato and apricot growers are reported to be receiving lower prices this year, but canneries are paying substantially more for peaches and pears. August 1948 Primary agricultural commodity prices continue to fall As consumers were having to pay more and more for food, anticipations of bumper crops of basic agricultural commodities were bringing about reductions in the pri mary market prices of these commodities. The price of wheat, for example, has fallen off considerably since its peak on January 16, when it was $3.06 a bushel in Kan sas City. It dropped sharply in February, picked up a little in March and April, and has been falling almost steadily ever since. After a low of $2.11 on August 4, it rallied by August 13 to reach $2.19, which is still below the Febru ary low-point, and virtually at support levels. Storage space is clogged up throughout the wheat country, and increased wheat and coarse grain exports are scheduled for September because of the storage problem, it is re ported. The price of barley, too, has been falling. Its peak was reached on January 19 at $2.75 a bushel; then it fell to $2.27 in February, rallied a bit in March, and then fell, to reach $1.41 on August 6, but rose 7 cents in the next week. Corn prices have weakened since their January peak of $2.78, and reached $2.08 on August 13, but were still slightly above their February low-point. The price of wool tops has dropped somewhat from its peak of June 14-18, when it was $2.01 a pound. On August 13 they were selling at $1.79, equaling the lowest point in February, 10 cents below the previous peak in January. As for cotton, its price has never regained the peak of 39 cents a pound reached July 16,1947. On Feb ruary 13 it had fallen to 31 cents, but by May 17 it had recovered most of the loss, reaching 38 cents. It has fallen since then to reach 31 cents on August 13. Metal prices rise sharply While prices of some major agricultural commodities have sagged, prices of basic metals have moved upward rapidly in recent weeks under the pressure of continuing heavy demand and rising costs. The prices of lead and zinc reached new peaks on July 29, with a 2-cent increase for lead and a 3-cent increase for zinc. During the war the price of lead had been held at 6 cents a pound; it rose to 10j4 cents after price controls were abandoned; and on March 3, 1947, it advanced to 15 cents where it held until April of this year. The price of zinc had re mained at \2 y2 cents since January 21. Copper rose 1 cent a pound at the end of July, and another cent on August 10 to reach 2?>y2 cents after having remained at 21 y2 cents for more than a year. And on August 16 new price increases of $30 a ton confronted western users of steel from Fontana, California, following an industry wide increase late in July of about $10 a ton. Department Store Sales CONSUMERS’ PRICES 1935-39=100. Bureau of Labor Statistics* indexes. “ All items” includes housefurnishings, fuel, and miscellaneous groups not shown separately. Midmonth figures, latest shown for June. Continuing the strong upward surge which started in March, the dollar volume of June department store sales in the Twelfth District (adjusted for seasonal varia tion), surpassed the all-time high recorded in May. A c cording to this bank’s department store sales indexes, August 1948 M O N T H L Y REVIEW almost all major cities gained over May after allowing for differences in seasonal variation between the two months. Only Phoenix, Long Beach, Oakland-Berkeley, and Salt Lake City department store sales declined from their May peak. The preliminary District index for July is only slightly below the June peak. Sales by departments Month-to-month comparisons of departmental sales are not available, but comparison of June figures for sales by department with those of June last year presents a different picture of consumer expenditures than was evi dent from comparisons of year-period percent changes for earlier months this year. For the first time this year, all of the major soft goods and small wares categories increased over a year ago even though a few departments within these groups declined. Considerable strength was evident in women’s and misses’ accessories and apparel and men’s and boys’ clothing. In most earlier months this year these groups, particularly women’s accessories and men’s and boys’ clothing, had been weak in compari son with corresponding months in 1947. Though the house furnishings group as a whole was quite strong, major household appliance sales in June increased only slightly over a year ago after a year-period decline in May. From late in 1945 through April of this year, major appliances led the expansion in sales of house furnishings and frequently reported year-period gains far above the 69 average for the entire store. On the other hand the radio and phonograph department which has been a consistent and heavy loser compared with a year ago in all months this year except April experienced a sharp increase in sales over June last year. Basement store sales still con tinued to lead the other departments in the size of gains reported. Orders outstanding and inventories Department store orders outstanding increased sharp ly in June over May levels. Between January and May orders fell 45 per cent to the lowest level since Decem ber 1942, but the June increase wiped out one-third of the decline. This movement parallels closely the behavior of orders last year ; then, too, there was a sharp decline from January to May and a sharp rise in June which car ried on into November. It appears that stores anticipate a continued high level of demand through the year and are seeking to have a good stock of fall goods on hand even at the higher prices now being quoted. Because of the sharp reduction in orders and the strong demand on the part of consumers, department store inventories, even after allowing for seasonal differences, declined 14 per cent between March and June. Despite the sharp increase in orders outstanding in June the spring decline in inven tories will probably not be wiped out before fall. Mean while, however, they will probably not go much below the June level. COTTON IN THE FAR WEST h e extraordinary rise in California cotton growing in recent years is continuing this year. A new high of 810,000 acres planted in cotton is reported by the Depart ment of Agriculture for 1948, the fifth successive year in which California farmers have increased their cotton acreage. This year’s acreage is 51 percent over last year’s and represents a doubling of cotton acreage in only two years. Production is expected to increase by 23 percent to a new record of 950,000 bales, compared with the pre vious high of 766,000 bales in 1947 and with 458,000 bales in 1946. The 1948 increase in acreage is not expect ed to result in a comparable increase in the cotton crop, as somewhat lower yields per acre are anticipated this year. Harvest prospects are still uncertain. Considerable replanting was necessary in the spring, and this may extend the maturing season into later months when the weather may not be favorable. T Cotton acreage in Arizona, too, is up substantially over a year ago, with an increase of 22 percent. A correspond ing increase is expected in production, which is estimated at 285,000 bales. In both states, cotton exceeded all other crops in value of production in 1947. Cotton has been the leading crop of Arizona for a number of years, but 1947 marked the first year of cotton leadership in Cali fornia where citrus or other fruits are usually the largest in value. Favorable growing conditions are expected to result in a substantial increase in United States production again this year. A 10 percent increase in acreage is ex pected to yield a 28 percent larger crop. The expansion in world cotton production since 1946 is due largely to the expansion in United States output. All important cotton-producing areas but India showed increases in production in 1947, but the amounts were small in com parison with the increase in the United States, producer of close to half the world’s cotton. Competition from food stuffs, which are so greatly needed in many areas and which command high prices, has been a more important factor in the determination of cotton acreage in the rest of the world than it has been in the United States. The growth in recent years of the cotton industry in the western states, and especially in California, has been a significant part of the expansion of United States pro duction. With Arizona and New Mexico also expanding their acreage and production, there has been a shift of pro ducing states toward the West in the past few years. Currently there is a great deal of interest in the special role of California in this development. Cotton growing in California California has been producing cotton on a commercial scale since 1917. At present practically all of it is grown 70 FEDERAL RESERVE B A N K OF SA N FRANCISCO in the San Joaquin Valley, largely in Kern, Fresno, and Tulare counties. Formerly a considerable part of the state’s cotton was grown in southern California in River side and Imperial counties, but that section now accounts for less than 0.5 percent of the total California acreage and production. Only Acala, a superior variety of Upland cotton, is grown in the San Joaquin Valley district. In 1925 the state legislature passed a single variety law pro hibiting the production in the Valley of any variety of cotton other than Acala in order to insure more uniform fiber lengths and quality. Acala 4-42, a variety of recent development, shows important improvements in many of the desirable qualities of good cotton: long fibre length, white color, good elasticity, high tensile strength, and good spinning performance with low waste. Though acreage and production in California fluctu ated rather widely during the period 1917-48, there has been a general upward trend in both. Through 1937, cotton acreage and production in California increased rapidly, despite sharp declines in 1921 and 1932. For some years after the 1937 peak, the movement was gen erally downward. This decline was reversed in the mid1940’s, however, and production and acreage have risen at an accelerating rate in the last few years. The July 1 indications of acreage under cultivation for the 1948 crop show a 51 percent increase over 1947 planting for a record of 810,000 acres. Crop conditions on August 1 indicate that 950,000 bales will be produced this year, a 23 percent increase over 1947 and the largest amount ever harvested in the state. Lint yields have shown a general upward trend during the 30 years of production of cotton in California and some further increases may be expected with the devel opment of improved varieties. For the past 25 years, California has had consistently the largest yields per acre A ugust 1948 of cotton harvested in the United States. These high yields have been the result of the near-perfect weather conditions and modern irrigation techniques in the San Joaquin Valley, the particular variety of cotton produced, and the strict measures taken for insect control. The 1946-47 average lint yield was 656 pounds per acre, as compared with estimated yield for the 1948 crop of 566 pounds per acre. The 1948 average yield in the United States is estimated at 314 pounds per acre for 1948, and was 253 pounds in 1946-47. Arizona cotfon In Arizona two varieties of cotton are raised: Upland (Acala) and American Egyptian (Pima and S x P ). A new strain of Upland is being developed which will be distinct from the kind raised in California and is expected to give greater yields and better fiber than that presently grown. Pinal County leads in acreage with Maricopa second, followed by Graham and Pima counties. Produc tion of extra-long staple American Egyptian cotton, once the most important variety, has decreased to such an ex tent that its total now is a negligible part of Arizona cot ton. In 1947 only 300 acres were harvested, producing 150 bales. Its acreage is expected to increase in 1948 to 1,600 acres, which would still be only 0.6 percent of total harvested acreage. An upward trend in acreage harvested and number of bales produced has characterized the 30-odd years of cotton growing in Arizona, although it has not been so pronounced as that of California. In 1937 a record crop of 313,000 bales was produced on 299,000 acres. By 1945, production had declined substantially, but in 1946 and 1947 there were large increases, with 220,000 bales produced in the latter year. Acreage under cultivation on July 1, 1948, estimated at 275,000 acres, and indicated HARVESTED ACREAGE AND PRODUCTION OF COTTON United States Department of Agriculture figures. Figures for 1948 are estimates. Production is in 500-lb bales. Acreage and production are plotted on a logarithmic scale on which equal vertical amounts represent equal percent changes rather than equal absolute amounts. August 1948 M O N T H L Y REVIEW C A L IF O R N IA A R IZ O N A UN ITED STATES C O T T O N Y I E L D PER A C R E 1946-47 average (in pounds) production of 285,000 bales, both show an increase of 22 percent over 1947. Yields moved upward, as the Arizona industry grew, to a peak of 514 pounds per acre in 1939. Yields were lower the next few years, but rose to a new record of 521 pounds per acre in 1946. Cotton in the United States Upward trends in acreage and production similar to those found in California and Arizona are not present in the leading cotton-producing states nor in the United States as a whole. As in the far western states, there was a rapid recovery in cotton production in the United States as a whole in the early thirties that culminated in a record crop in 1937. The total 1937 crop, however, was little above those of 1926 and 1931. After 1937, United 71 States cotton production declined and in 1946 reached the lowest level since 1921. Both acreage and production in creased again last year, and further increases in acreage and output are indicated this year. Despite these recent gains, however, national cotton acreage and production are still below previous high years. Several reasons have been advanced for the recent ex pansion of cotton production in the Far West. Yields have increased with improvements in insect control and favorable weather. Increases in acreage have resulted from shifts from crops requiring more water and from use of new lands being developed for farming purposes. Increasing use of mechanical pickers, especially on the larger cotton farms characteristic of the West, has re duced labor requirements. Although there are almost no markets for raw cotton in the West, the re-establishment of the textile industry in Japan, the largest market for western cotton before the war, has further increased the demand for the cotton varieties grown in this section of the country. These factors, together with the current high prices for cotton and support level at 9 2 ^ percent of parity, have encouraged western farmers to enlarge their share in the industry. In 1938-42 only 2.4 percent of the United States cotton acreage was in the W est; and this year there is nearly 5 percent. Western farmers produced 5.3 percent of the United States crop in the earlier period, compared with an expected 8 percent in 1948. The effi cient production of its high quality varieties may well point to further important expansion of this industry in the West. EARNINGS AND EXPENSES OF THE FIFTEEN LARGEST TWELFTH DISTRICT BANKS, JANUARY-JUNE, 1947 AN D 1948 first half of 1948, net profits after taxes of the year earlier. Although salary and wage payments in the largest Twelfth District banks combined were 9first half of this year were 11 percent higher than in the percent above the first half of 1947, with all but three of the big banks reporting higher returns. In terms of net E a r n in g s a n d E x p e n s e s of t h e F if t e e n L arg est current earnings, their experience was even more favor T w e l f t h D is t r ic t B a n k s January-June, 1947 and 1948 able. All but two banks showed an increase over a year Amount ago, and combined net current earnings increased 25 t-------first half------ ^ Percent (in millions) change percent. or t h e F 15 Item Earnings increase more than expenses A much higher loan volume, achieved mostly during the second half of 1947, carried 1948 loan earnings to a new half-year high. A substantially larger amount in service charges was collected from depositors in the first half of this year. These increases more than offset the continued decline in interest and dividends on securities. Government security holdings were considerably reduced during the first half of last year, and again declined, al though to a lesser extent, in the first six months of 1948. Expenses also increased, but not as much as earnings. Total salary and wage payments were higher, as both employment and average salary payments rose. As of June 30, employment was about 6 percent higher than a 1948 Earnings on loans................................................ $101.3 Interest and dividends on G ov’t securities 41.0 Interest and dividends on other securities 7.4 Service charges on deposit accounts.......... 10.6 Other e a r n in g s ........................................................ 15.9 1947 $76.8 43.7 7.8 8.6 14.7 1947-48 + — — + + 32.0 6.0 5.3 23.2 8.4 Total earnings ................................................... 176.2 151.5 + 16.3 Salaries and wages .............................................. Interest on time d e p o s its .................................. Other ex p e n se s....................................................... Total e x p e n s e s ................................................... 53.4 25.0 33.2 + + + 11.0 15.5 11.3 111.7 48.1 21.7 29.9 99.7 + 12.1 Net current earnings ......................................... 64.6 51.8 + 24.6 Net recoveries on l o a n s .................................... — Net recoveries and profits on securities. . . + Other recoveries and profits— net................. — N et recoveries and profits............................. — 3.4 0.9 0.2 — -f + 2.7 + 0.8 5.8 0.5 5.5 Profits before income t a x e s ............................. Taxes on net in c o m e ......................................... Net profits after income t a x e s ........................ 61.9 16.6 45.3 57.3 15.8 41.5 -f + + 8.0 4.8 9.2 Cash d iv id e n d s....................................................... Undistributed profits ......................................... 17.4 27.9 14.8 26.7 + + 17.8 4.4 N o te : Because of rounding, figures will not necessarily add to totals. 72 FEDERAL RESERVE B A N K OF SA N FRANCISCO same period in 1947, the increase was considerably less than the 20 percent rise in the first half of 1947 over 1946. Interest paid on time deposits increased as the result both of larger deposits in most banks and higher rates paid by at least one major bank. Although total interest paid by the fifteen banks combined increased 15 percent, the increase exceeded six percent in only three banks. Net profits rise less than net current earnings The growth in net profits was substantially smaller than in net current earnings, because of net losses and charge-offs in the first half of this year, in contrast to REGULATION W EFFECTIVE SEPTEMBER 20, 1948 (Statement for the press released August 20, 1948 by the Board of Governors of the Federal Reserve System) The Board of Governors of the Federal Reserve System today issued Regulation W on “ Consumer Instalment Credit” under Public Law 905 which the President signed on August 16, 1948. The regulation, which becomes effective September 20, 1948, is being published in the Federal Register, and copies will be dis tributed by the Federal Reserve Banks as promptly as possible. The regulation is in much the same form as that which termin ated on November 1, 1947. It covers instalment sales of and loans for 12 kinds of consumers’ durable goods, providing the cost is more than $50. It also covers instalment loans for most other consumer purposes. Instalment credits up to $5,000 are subject to the regulation. The goods for which down payments are prescribed are as f o l lo w s : Article l. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. Automobiles ................... ........................................... D o w n Paytt 33y3 % .. .. Dishwashers ............................................................... . . 20% 20% .. .. 20% 20% .. .. .. .. .. .. 20% 20% 20% 20% 20% 20% Refrigerators ............................................................ W ashing machines ................. ............................... Combination units incorporating any item in 2-6 .................................................. Air conditioners, room unit ............................. Radio and television sets, phonographs. . . . Sewing m a c h in e s..................................................... Suction cle a n e rs....................................................... Furniture and soft-surface floor coverings. Maturities on all instalment credits subject to the regulation, whether to finance the purchase of these articles or not, must come within the following requirements: Credit M a x i m u m Maturity N o t exceeding $1,000 ................................................................. Above $1,000, except that monthly payment on amounts over $1,000 must not be less than $ 7 0 .0 0 .. 15 months 18 months Since November 1, 1947, when the old regulation ended, terms offered by merchants and lenders extending credit have been re laxed considerably. The requirements of the new regulation are somewhat less restrictive than those of last November but con siderably tighter than terms now generally in effect. The down payment requirements on appliances are lowered from one-third to one-fifth. Also, to take care of late-model automobiles and cer tain other items where the expenditure must necessarily be large, the maximum maturity for credits above $1,000 is set at more than August 1948 net recoveries in the same period last year. Net profits on securities were much lower in 1948 and net losses and charge-offs on loans much larger.1 Although combined net profits after taxes increased 9 percent over a year ago, the range among individual banks was fairly wide. Net profits declined in three banks, but increased 25 percent or more in five others. The 17 per cent increase in cash dividends declared by the 15 banks combined reflects dividend increases by only five banks. The other ten did not change their dividend disburse ments from a year ago. 1 Higher losses and charge-offs on loans may reflect, in part, a shift by some banks in methods of setting up reserves for bad debts. 15 months, running up to 18 months. A t the same time, the scope of the regulation is broadened to include all credits up to $5,000 whereas $2,000 had been the limit under the previous regulation. Instalment credit for home improvements was eliminated from Regulation W after the close of the war, and it is at present not covered in the regulation. Because of the current inflationary situation, however, the Board is considering the advisability of an amendment to bring such credit under the regulation. Before deciding whether to do this, the Board wishes to give all who are interested an opportunity to express their views. Accordingly, the Board will publish in the Federal Register an invitation to in terested persons to submit comments on the question whether such an amendment would be desirable. The Board is also giving consideration to an amendment which would have the effect of making unenforceable any contract which does not conform to the provisions of the regulation on down payments or maturities. A similar procedure for receiving com ment will be followed. Regulation W will be administered in the field by the 12 Fed eral Reserve Banks and their 24 branches located conveniently throughout the country. Inquiries should be addressed to the near est Federal Reserve Bank or branch. NEW ISSUE OF TREASURY TAX A N D S A V IN G S NOTES, SERIES D, AVAILABLE SEPTEMBER 1, 1948 A new series, Series D, of Treasury tax and savings notes will be placed on sale September 1, 1948, supplanting the sale of Series C notes. The Series D notes will be dated as of the first day of the month in which purchased, will mature three years thereafter, and will be issued at par. Interest on the notes will accrue on a graduated scale, the yield if held to maturity being approximately 1.40 percent per year. This compares with the yield of 1.07 per cent per year on the Series C issue if held to maturity. Series D notes may be submitted for cash redemption after four months from month of issue compared with the six-month waiting period on Series C notes. Like Series C notes, the new notes of Series D will be available for use in payment of income, estate, and gift taxes imposed by the Internal Revenue Code and assessed against the owner of the notes or his estate. Except to meet future taxes, these notes are not intended as an investment for banks that accept demand deposits. Notes inscribed in the name of such banks will be accepted at par and accrued interest in payment of Federal taxes, but will be redeemed for cash at or before maturity only at par. August 1948 M O N T H L Y REVIEW BUSINESS INDEXES—TWELFTH DISTRICT (1935-39 average— 100 *) I n d u s tr ia l p r o d u c tio n (p h y sic a l v o lu m e )2 Y ear and m o n th P e tr o le u m 3 L um ber Ad ju ste d 192 9 193 0 193 1 193 2 1933. 193-1____ 193 5 193 6 193 7 193 8 193 9 194 0 194 1 194 2 194 3 194 4 194 5 194 6 194 7 U nad ju ste d C rude R e fin e d U nad ju ste d U nad ju ste d 148 121 112 95 78 74 72 73 142 141 137 136 109 130 141 99 104 93 93 96 103 118 129 135 131 138 193 168 140 134 127 123 140 154 163 159 160 158 172 175 194 226 243 219 239 77 46 62 67 83 106 113 88 110 120 W h eat flo u r C em ent Ad ju ste d U nad ju s te d 110 106 96 74 48 54 70 100 68 117 112 92 114 124 164 194 160 128 131 165 193 1947 June_______ J u ly _______ A u g u s t ___ September . October___ N ovem ber. December _. 134 140 142 143 148 154 162 153 140 159 154 152 151 133 139 139 139 139 140 141 140 240 236 254 254 247 246 241 186 184 185 193 187 205 215 1948 January. _ February. M arch ___ April_____ M a y _____ June_____ 144 152 148r 124r 122r 128 120 141 141 142 143 143 144 248 251 243 252 257 248 218 207 216 216 202 204 137 140r 127r 136r 148 202 M e r c h a n d is e and m is c e lla n e o u s T o ta l Ad ju ste d 1929______________ 1930______________ 1931______________ 1932______________ 1933______________ 1934______________ 1935______________ 1936______________ 1937______________ 1938______________ 1939____________ __ 1940______________ 1941______________ 1942______________ 1943______________ 1944______________ 1945____________ 1946____________ __ 1947______________ U nad ju ste d Ad ju s te d 135 116 91 70 70 81 88 103 109 96 104 110 127 137 133 140 134 135 142 U nad ju ste d E le c t r ic p o w e r Adju ste d U nad ju ste d C a lifo r n ia Adju s te d 83 84 82 73 73 79 85 96 105 101 89 88 95 94 96 99 96 107 103 103 104 115 119 132 128 133 Ad ju ste d 120 112 95 78 75 86 91 103 108 96 102 105 123 128 126 138 140 140 140 U nad ju ste d Ad ju ste d U nad ju ste d 111 93 73 54 53 64 78 96 115 88 100 112 102 112 122 101 110 96 104 118 155 230 306 295 229 175 184 136 167 214 231 219 219 256 134 224 460 705 694 497 344 401 251 252 252 259 260 263 275 257 262 263 259 253 258 271 182 181 183 184 187 188 188 181r 181 183 185 187 188 188 394 397 407 413 419 421 423 396 392 410 412 423 420 423 188 188 199 114 104 220 116 108 115 278 283 274 274 266 275 278 271 272 2C8 187 187 187 184 180p 185p 186 186 186 184 180p 186p 418 417 406 396 406 424 413 415 408 398 408 426 207 203 199 200 101 D e p t, sto r e s to c k s (v a lu e )7 D e p a r tm e n t sto r e s a le s (v a lu e )2 F a r m , fo r e st, a n d m in e r a l p r o d u c ts6 U nad ju ste d 138 126 125 123 133 133 116 195 201 C a r lo a d in g s (n u m b e r ) Y ear and m o n th U nad ju ste d F a cto ry p a y r o lls 4 T o ta l m a n u fa c t u r in g e m p lo y m e n t4 D is tr ic t6 Ad ju ste d 162 124 85 55 63 71 84 105 111 96 107 118 136 153 145 146 124 129 147 U nad ju ste d C a li fo r n ia 6 P a c if ic N o r th w e st6 U ta h So. Id ah o Ad ju ste d Ad ju ste d Ad ju ste d R e ta il fo o d p r ic e s 8 & 112 104 92 69 66 74 86 99 106 101 109 119 139 171 204 224 248 311 336 104 99 91 70 67 73 86 98 105 101 110 120 139 164 197 222 247 310 337 140 123 101 72 68 77 86 100 105 100 109 118 147 187 220 233 253 319 344 97 89 83 61 64 77 89 100 106 99 106 115 135 177 232 250 280 348 351 D is tr ic t Ad ju ste d U nad ju ste d U nad ju ste d 134 127 110 86 78 83 88 96 108 101 107 114 137 190 174 178 182 235 295 132.0 1 24.8 1 04.0 8 9 .8 86 8 9 3 .2 99 6 1 0 0 .3 1 0 4 .5 9 9 .0 9 6 .9 9 7 .6 107 9 13 0 .9 14 3 .4 142.1 14 6 .3 167 4 2 0 0 .3 1947 June_________________ J u ly_________________ A u g u s t _____________ S ep tem b er_________ October_____________ Novem ber. _________ Decem ber___________ 141 141 141 139 141 143 144 150 151 151 151 155 139 129 142 139 142 138 138 137 137 150 150 153 151 156 137 126 141 145 140 142 148 153 156 151 153 150 152 155 143 134 334 331 352 345 340 348 361 303 282 311 345 350 421 571 335 331 357 349 339 348 365 342 339 353 348 356 357 368 343 350 361 341 343 360 358 282 270 248 257 287 319 342 287 286 273 290 318 338 280 1 9 4 .8 19 6 .5 1 97.9 2 0 6 .6 2 0 4 .8 209 4 2 1 3 .0 1948 January_____________ February____________ M a rch ______________ April________________ M a y _________________ June_________________ 141 130 131 130 123 134 130 124 121 125 121 144 142 137 130 132 130 132 132 128 117 124 122 141 141 127 134 126 112 139 126 119 128 128 121 149 348 327 339 362 364 372 281 295 326 333 339 338 345 338 342 366 373 381 362 312 344 359 355 372 380 321 331 387r 365 357 352 366 380 377 337 327 310 321 353 372 350 332 2 1 5 .4 2 1 3 .0 2 1 1 .6 2 1 6 .0 2 1 7 .6 2 1 6 .6 1 The terms “ adjusted” and “ unadjusted” refer to adjustment of monthly figures for seasonal variation, Excepting department store statistics, all indexes are based upon data from outside sources, as follows: Lumber, various lumber trade associations; Petroleum and Cement, U .S. Bureau of Mines; W heat flour, U.S. Bureau of the Census; Electric power, Federal Power Commission; Manufacturing employment, U .S. Bureau of Labor Statistics and cooperating state agen cies; Factory payrolls, California State Division of Labor Statistics and Research; Retail food prices, U .S. Bureau of Labor Statistics; and Carloadings, various railroads and railroad associations. 2 Daily average. 8 1923-25 daily average = 1 0 0 . 4 Excludes fish, fruit and vegetable canning. Factory payrolls index covers wage earners only. 8 Grain and grain products, livestock, forest products, coal and coke, and ore. 6 Data for 1941 and subsequent years revised. M onthly data available on request. 1 A t retail, end of month or end of year. 1 Los Angeles, San Francisco, and Seattle indexes combined. p — preliminary. r— revised. A ugust 1948 FEDERAL RESERVE B A N K OF SA N FRAN CISCO BANKING AND CREDIT STATISTICS—TWELFTH DISTRICT (amounts in millions of dollars) C o n d it io n it e m s o f a ll m e m b e r b a n k s 1 Year and m onth L o a n s a n d d is c o u n ts C o m l., in d . F o r p u r c h ., & a g r ic . c a r r y ’g s e c s . T o ta l 1929 1930 1931 1932 1933 1934 1935 1936 1937 1938 1939 1940 1941 1942 1943 1944 1945 1946 1947 4,755 4,879 4,997 5,158 5,240 5,363 1948 January February March April M ay June July 5,413 5,467 5,510 5,509 5,569 5,598 5,640 A ll o t h e r R eal esta te 228 309 560 750 36 49 99 148 233 228 167 96 90 127 118 68 144 307 842 1,442 2,050 303 127r 750 7,375 7,353 7,364 7.361 7.361 7,243 874 871 889 896 884 872 8,366 8,462 8,600 8,722 8,797 8,928 5,889r 5,888 r 5,909 5,949 5,907 5,989r 148 208 216 192 205 127 974 899 885 908 1,431 2,153 121 121 2,338 7,264 7,021 6,945 6,943 6,883 6,859 6,816 848 833 846 854 863 871 907 8,854 8,495 8,452 8,461 8,445 8,464 8,556 6,004r 6,046r 6,027r 6,002r 5,991r 6,040r 6,993 139 190 246 250 240 224 204 327 362 399 460 275 1,000 211 2,153 M e m b e r b a n k r e se r v e s a n d r e la te d it e m s 4 Y ear and m o n th R eserv e b a n k c r e d it* C o m m e r c ia l o p e r a t io n s 6 T reasu ry o p e r a t io n s 5 C o in a n d c u r r e n c y in c ir c u la t io n 1947 July August September October November December 1948 January February March April M ay June July _ — + — — + + — + + + + + + + — — — + + + + + + 34 16 21 42 2 7 2 6 1 3 2 2 4 107 214 98 76 9 302 234 48 87 23 4 25 14 20 49 9 30 14 15 0 53 — 154 — 175 — 110 — 198 — 163 — 227 — 90 — 240 — 192 — 148 — 596 - 1 ,9 8 0 - 3 ,7 5 1 - 3 ,5 3 4 - 3 ,7 4 3 - 1 ,6 0 7 443 + + + + + 213 78 85 — 39 0 5 — + + + + + + 381 124 172 35 33 49 — 253 244 19 29 45 28 43 — + — + + + — — __ 48 153 29 75 14 50r 38 23 89 154 234 150 + 257 + 219 + 454 + 157 + 276 + 245 420 + + 1 ,0 0 0 + 2 ,8 2 6 + 4 ,4 8 6 + 4 ,4 8 3 + 4 ,6 8 2 + 1 ,3 2 9 + 630 — — + + + + + + + + + + + + + + + + + + — — — — + — — — — + B a n k d e b it s in d e x 31 c i t i e s 7 R eserves* F .R . n o t e s o f F .R .B . o f S .F . T o ta l 6 16 48 30 18 4 14 38 3 20 31 96 227 643 708 789 545 326 206 189 186 231 227 213 211 280 335 343 361 388 493 700 1,279 1,937 2,699 3,219 2,871 2,639 175 183 147 142 185 242 287 479 549 565 584 754 930 1,232 1,462 1,706 2,033 2,094 2,202 171 180 154 135 142 172 201 351 470 418 459 515 720 1,025 1,343 1,598 1,878 2,051 2,085 4 5 4 8 37 84 100 119 70 142 138 257 245 262 103 104 136 59 70 146 126 97 68 63 72 87 102 111 98 102 110 134 165 211 237 260 298 326 23 23 10 16 3 18 2,669 2,685 2,675 2,656 2,653 2,639 1,963 2,078 2,095 2,137 2,130 2,202 1,956 1,985 2,028 2,046 2,059 2,085 60 62 80 77 65 70 305 322 325 346 344 365 113 2 37 17 26 13 11 2,541 2,532 2,497 2,477 2,489 2,475 2,466 2,113 2,045 2,066 2,048 2,068 2,061 2,075 2,086 2,037 2,001 1,998 2,008 2,021 2,013 83 57 64 61 48 61 52 352 354 347 353 342 348 354 T o ta l« 1929 1930 1931 1932 1933 1934 1935 1936 1937 1938 1939 1940 1941 1942 1943 1944 1945 1946 1947 U . S . G o v ’ t* d e p o s it s 1,776 1,915 1,667 1,515 1,453 1,759 2,006 2,078 2,164 2,212 2,263 2,351 2,417 2,603 3,197 4,127 5,194 5,781 5,989r 686 730 798 864 931 T im e d e p o s it s (e x c e p t U .S . G o v ’ t)* 1,234 1,158 984 840 951 1,201 1,389 1,791 1,740 1,781 1,983 2,390 2,893 4,356 5,998 6,950 8,203 8,821 8,928 670 662 82 76 65 59 51 62 184 343 195 D em and d e p o s it s a d j u s t e d 2' * 458 561 560 528 510 575 587 614 498 486 524 590 541 538 557 698 795 908 872 668 663 664 735 933 870 934 956 1,103 1,882 2,338 A ll o t h e r s e c u r it ie s 495 467 547 601 720 1,064 1,275 1,334 1,270 1,323 1,450 1,482 1,738 3,630 6,235 8,263 10,450 8,426 7,243 647 721 711 635 2,239 2,218 1,898 1,570 1,486 1,469 1,537 1,682 1,871 1,869 1,967 2,130 2,451 2,170 2,106 2,254 2,663 4,068 5,363 1947 July August September October November December In v e stm e n ts U .S . G o v 't s e c u r it ie s R e q u ir e d E x cess U n a d ju sted 1 Annual figures are as of end of year; monthly figures are as of last Wednesday in month or, where applicable, as of call report date. * Demand deposits, excluding interbank and U.S. G ov’t deposits, less cash items in process of collection. * M onthly data partly estimated. 4 End of year and end of month figures. 6 Changes only. 8 Total reserves are as of end of year or month. Required and excess: monthly figures are daily averages, annual figures are December daily averages. 7 Debits to total deposit accounts, excluding interbank deposits. 1935-39 daily average = 1 0 0 . p— preliminary. r— revised.
@FedFRASER